SB 219-DISPOSALS OF STATE RESOURCES  4:32:32 PM CO-CHAIR WAGONER called the meeting back to order and announced consideration of SB 219, version A, recounting that he had objected for discussion purposes. Finding no one to testify, he closed public testimony. He asked if any committee members wanted a briefing as to the development of SB 219. SENATOR FRENCH asked what this statute does to temporary water use authorizations and if they were first put into statute in 2001. 4:34:25 PM WYN MENEFEE, Chief of Operations, Division of Mining, Land and Water, Department of Natural Resources (DNR), Anchorage, AK, said he but didn't know the date they were put in statute. SENATOR FRENCH said the idea then was instead of having permanent water rights assigned to someone, an individual would just get a temporary permit. His concern was that the temporary permits were getting to be permanent since they are extended for five years. He asked how many were out there. MR. MENEFEE replied 672 temporary water use permits were administered in 2011. He explained that the reason they aren't permanent is because a permanent water right is actually a property right that goes with the property regardless of ownership. A temporary water use authorization is not a right to water; it's the management of that water. So, it can be changed, revoked, additional conditions can be added like reduction in water quantities or use periods can be suspended to protect the public interest. None of that can be done with a water right without the consent of the water right appropriator or the abandonment of that water use. Therefore, a temporary water use permit is designed to allow the Division of Mining, Land and Water to manage the water use in Alaska, whereas the water right is more of a process where the company or an individual can protect their water source from others from adversely affecting their use. They have different purposes. 4:37:00 PM SENATOR FRENCH said maybe it was an issue of semantics, but it seemed funny to have something they called a "temporary water use authorization" that one can get for as long as five years and then get a reauthorization for another five years. Now it's been in existence for 10 or more years and its being called temporary. It doesn't seem temporary. MR. MENEFEE replied that each five-year renewal is a new authorization even if they call it a renewal, and the state can decide to issue it for only one year if there are other needs for the water. SENATOR FRENCH recalled that these authorizations were being issued without the same level of public notice as other permits. MR. MENEFEE answered that was correct and explained that because it is actually a property right, they go through a more formalized public notice procedure. The temporary water authorizations, although they don't do a "public notice" in the sense of going out and advertising in newspapers, are on a public website that shows all the temporary water use authorizations that have been issued. People can look at the site which allows querying anywhere in Alaska by meridian, township and range to find out if an authorization had been issued. SENATOR FRENCH asked if the website would convey when the authorization expires and when the opportunity to provide input into the renewal would ripen. 4:40:54 PM MR. MENEFEE replied that he would have to research that. SENATOR WIELECHOWSKI asked the standard of review on appeal in one of these cases. CAMERON LEONARD, Assistant Attorney General, Department of Law (DOL), Anchorage, AK, said he agreed that most of these cases would use an abusive discretion standard, but the standard of review the court uses depends upon how the appeal is framed. So, if for example, someone were claiming that the commissioner had misapplied either the regulations or the statutes, then a less deferential standard would apply. For a typical case of someone objecting to the renewal of a temporary water use authorization, he would argue on behalf of DNR that the standard of review should be abusive discretion. SENATOR WIELECHOWSKI asked if it's hard to overcome an abusive discretion standard. MR. LEONARD answered yes; it's probably the most deferential of the various standards the courts use. He explained that in general, the court will make sure the agency has taken a hard look at the relevant factors and no obvious mistake in judgment had occurred. SENATOR FRENCH asked how often that happens. MR. LEONARD replied that he found only one reported decision brought by Greenpeace against a temporary water use authorization for building an ice road on North Slope; it was a procedural challenge to the way DNR's appeal procedures worked. Because it was a question of law, the standard of review was substitution of judgment, which means the judge doesn't defer to DNR at all on how the law should be interpreted. CO-CHAIR PASKVAN asked if there is a concern as to any capacity for water volumes that will be needed on the North Slope at this time. MR. MENEFEE answered that his research revealed that Pioneer wanted to receive some water from the ConocoPhillips desalination facility. When ConocoPhillips' needs are low they could provide more water to Pioneer, but if they need the whole amount, then they are not required to supply that water to Pioneer as per an agreement between companies. The solution is either ConocoPhillips decides to expand their facility or Pioneer builds their own. Will there be water shortages? He said they don't know of any places where water shortage would prevent development. However, they recognized there are certain areas of the North Slope that have less water in the surface systems and until they drill, they aren't sure whether the subsurface systems have any. But development companies regularly incorporate water use into their planning for the North Slope, because it is in their best interest to seek and obtain a water right versus a temporary water use authorization. At this point, it isn't known if a situation would actually restrict development. 4:46:10 PM CO-CHAIR PASKVAN asked if there is a limitation at this time on any company's capacity to obtain water rights from the State of Alaska and if temporary water use permits can be used to force people into bad competitive circumstances. MR. LEONARD said that was a challenging question and what he could tell him was that there are instances where because of a lake's depth, the company could only pull so much from water from it and had to maybe go to a different lake or stream to pull that water. That influences development, but at this point it appears that at any time they have had a reduction in the amount of water that someone could take from an area, another way was found to address the issue although it might mean that it's more expensive. But at this point, he was not aware of anything that had prevented development or had adversely hurt an independent from coming in because of a water issue. CO-CHAIR PASKVAN asked if this is a priority for the division, why the legislation was not introduced until Feb 29, 2012. 4:48:50 PM JOE BALASH, Deputy Commissioner, Department of Natural Resources (DNR), Anchorage, AK, replied that the department has had a backlog from the transition in 2010. The work had largely been done with the assistance of the legislature in terms of appropriations to increase staffing in the Division of Mining, Land and Water. They have taken on the task of maintaining the workload and at the same time tackling the analysis and the reconstruction of the system. To manage the land and the water in the division they undertook an internal review and conducted a series of public hearings and meetings all across the state during the late summer and fall to gather input from interested parties. The information was put together and analyzed about how to make their processes more efficient. That was "the low hanging fruit and noncontroversial." That is what is in front of the committee now. There is also a sentiment that this will be a process of improvement that will take place over many years. They are attempting to resolve many things through regulatory packages that will be put out to public comment. CO-CHAIR PASKVAN asked if the holder of a temporary water use permit could sell a portion of it or all of it. MR. MENEFEE answered that the temporary water use authorization is not sellable. If, for instance, ConocoPhillips was using a well instead of a desalination plant and wanted to sell part of it, they could do that as part of their business plan. The department doesn't issue a temporary water use authorization or a water right for using salt water, because there is so much of it. They can, but they don't. CO-CHAIR PASKVAN asked if there is a way a company could improperly use a temporary water use permit and block someone from access to a water resource on the central North Slope. 4:54:05 PM MR. MENEFEE replied that is not an issue, because the renewal is not automatic. The staff reviews and decides. Other things having demand on the water will be considered before issuing another temporary water use authorization to the same company for that use. The authorizations are revocable and can be changed. 4:55:18 PM CO-CHAIR PASKVAN remarked that a book by James Michener, named "Centennial," told how an economic interest focused on all the areas that had water, because that was going to control tens of thousands of miles. He wanted to make sure this was not creating that type of situation where you allow an economic interest to essentially dominate an entire region by just owning a few little pinch points. MR. MENEFEE said temporary water use authorizations will not do that. But he wouldn't say that water rights couldn't be used toward that end. You can't diminish a water use right; it's first come first served. SENATOR WIELECHOWSKI said they probably will see this play out on the North Slope at some point, particularly with shale gas, and asked if the dominant right exist only during the time of the permit. Does it expire and they have to renew it? Or do they have a dominant right forever for that water? MR. MENEFEE clarified that a temporary water use authorization is not a water right. Water rights are where you get the right to the water and the first in line gets the dominant right. Temporary water use authorizations have nothing to do with that; it is the division deciding to give them water to use for their intended purpose. So, therefore, if a company chooses to apply for the water right, 5,000 gallons for instance, if historically they show they only used 1,000 and don't really need the 5,000, you could argue to reduce it. But as long as they use the amount they said they would, that stays with the land in perpetuity even if it gets sold. 4:59:06 PM SENATOR WIELECHOWSKI said his dominant concern was they see the issue of water rights playing out in western states. Alaska is fortunate because it has a lot of water, but he thought it would play out on the North Slope because shale oil needs huge amounts of water. He was very concerned about giving companies what appears to be de facto permanent right to water use and he wanted to make sure this bill wasn't doing that, because it takes away the notice and the opportunity to oppose, and the standard for appeal is abuse of discretion, which is virtually impossible to overturn. MR. MENEFEE explained in order to have a water right you have to have ownership control of the land. On the North Slope, an oil and gas lease is the right to the land. As long as that oil and gas lease stays in place, they have the water rights. If the oil and gas lease goes away and they don't have it any more, then the water right does not stay. It disintegrates on the point of the land ownership control. So, as long as someone has an ownership interest, then the water right stays perpetual, but there is a difference between a temporary water use authorization and a water right, because every five years or even three years into the permit and someone comes along and needs to share the water, the division has to make a management decision at that point in time and there is nothing stopping them from changing that person's water use. He said a situation might come up when a company might use all the existing water and someone else wants to come along and there is no more water left; a decision would be made somewhere along the line to share the water or make the other company haul water from farther away. MR. BALASH sought to assure him about the department's plans for managing water on the central North Slope saying they requested a geo-hydrologist position for the Division of Geologic Geophysical Surveys, because it is critically needed to understand the water resource there, particularly as the state is on the leading edge of shale development. He used an example of work the division had done from the MatSu area where a number of businesses, community wells and home owners rely on shallow water wells to provide their water supply. As that population has mushroomed over the last couple of decades, it's got to be a bigger and bigger deal. The division has its arms around it now and has a good understanding of where the demand and production are - and they want a similar understanding on the central North Slope. 5:04:15 PM CO-CHAIR PASKVAN repeated his concern with water rights issues and creating pinch points. CO-CHAIR WAGONER commented that he came from a state where water rights are treated like mineral rights; they have battles and wars and lawsuits. He then concluded saying amendments needed to be in his office by 9 am on Monday and that other amendments would conform this bill to HB 361. He thanked the presenters. [SB 219 was held in committee.]