JOINT MEETING OF THE HOUSE RESOURCES STANDING COMMITTEE AND THE HOUSE SPECIAL COMMITTEE ON OIL AND GAS February 8, 1993 8:00 a.m. HOUSE RESOURCES COMMITTEE MEMBERS PRESENT Representative Bill Williams, Chairman Representative Bill Hudson, Vice Chairman Representative Con Bunde Representative Pat Carney Representative John Davies Representative Joe Green Representative Jeannette James Representative Eldon Mulder MEMBERS ABSENT Representative David Finkelstein HOUSE SPECIAL COMMITTEE ON OIL AND GAS MEMBERS PRESENT Representative Joe Green, Chairman Representative Pete Kott, Vice Chair Representative Harley Olberg Representative Gary Davis Representative Jerry Sanders MEMBERS ABSENT Representative Joe Sitton Representative Jerry Mackie COMMITTEE CALENDAR Confirmation: Glen Olds as Commissioner of the Department of Natural Resources ALL COMMITTEE MEMBERS PRESENT VOTED "DO RECOMMEND" WITNESS REGISTER Glen Olds Department of Natural Resources 400 Willoughby Ave. Juneau, Alaska 99801-1724 Phone: 465-2400 Position Statement: Provided information and answered questions related to his confirmation ACTION NARRATIVE TAPE 93-14, SIDE A Number 000 The joint meeting of the House Resources Committee and the House Special Committee on Oil & Gas was called to order by Chairman Bill Williams at 8:10 a.m. Resources Committee members present at the call to order were Representatives Williams, Hudson, Bunde, Green, James, and Mulder; members absent were Representatives Carney, Davies and Finkelstein. Oil & Gas Committee members present at the call to order were Representatives Green, Kott, Olberg, Davis, and Sanders; members absent were Representatives Sitton and Mackie. Number 035 REPRESENTATIVE BILL WILLIAMS, CHAIRMAN, HOUSE RESOURCES COMMITTEE, noted for the record that the purpose of the joint meeting was to consider confirmation of Glen Olds to the position of Commissioner of the Department of Natural Resources. He directed members' attention to Dr. Olds' resume in their files. It was agreed the two committees would vote separately on recommendation for confirmation and sign separate committee reports. Number 075 REPRESENTATIVE JOE GREEN, CHAIRMAN, HOUSE SPECIAL COMMITTEE ON OIL & GAS, noted the meeting would be run by Representative Williams, who would take questions from members of both committees in the order questions arose. Number 082 DR. GLEN OLDS, ACTING COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES (DNR), thanked the committee for the opportunity to appear before them. He acknowledged he had been in the post of commissioner for the past six months, and referred to the DNR as "the tide that lifts all boats in a harbor" in a state whose primary revenue was derived from the management of natural resources. He noted about 80 percent of the state's budget was derived from that management, and commented that Alaska was the only one of the 50 states that had a special provision for natural resources in its constitution. DR. OLDS referred to the second section of the Alaska Constitution, where provisions were made for utilization, development and conservation of all natural resources belonging to the state for the maximum benefit of the people. Section 1, he said, established a policy of encouraging the development of resources by making them available for maximum use consistent with the public's interest. DR. OLDS told the committee his first task as Commissioner was to develop a strategic plan to establish a means for meeting the mission set forth in the Constitution. That strategic plan, he said, was a public document that was available to the committee. He concluded his opening remarks by asking if any committee members had questions. Number 148 REPRESENTATIVE ELDON MULDER commented on Dr. Olds' completion of the land selection ahead of schedule. Number 152 REPRESENTATIVE BILL HUDSON mentioned the intention of President Clinton to develop a new Alaska region of the Environmental Protection Agency. He asked Dr. Olds his prospect for a good working relationship with the Clinton administration in light of its environmental policies in terms of development of Alaska's resources. REPRESENTATIVE HUDSON expressed concern that Alaska's resources might be locked up by the federal government under the Clinton administration, especially given Vice President Gore's strong environmentalist stance. Number 169 DR. OLDS told the committee he had known Vice President Gore for some time and has been critiquing Vice President Gore's book, "Earth in Balance." He referred to the third section in the book, which proposed striking a balance between environmental and development concerns. Dr. Olds suggested Alaska's experience showed the state had integrated development with environmental concerns. He also referred to the nation's economic needs as opening opportunities for Alaska to contribute to new economic growth. He said America's problems were Alaska's opportunities. DR. OLDS stated energy was the key to the world's economy. He pointed to a national need to reduce dependence on oil from the Middle East, and the potential for Alaska's resources to increase energy independence. Dr. Olds believed President Clinton understood the political vulnerability of dependence on foreign oil. DR. OLDS referred to Alaska's coal reserves, which he deemed equivalent to about 1,600-1,900 Prudhoe Bays. He mentioned the new technology of coal slurry that made coal development a viable option in the marketplace. Of 14 oil and gas basins in Alaska he said, only two had been explored. He also referred to the potential growth of hydroelectric power, with the capacity of generating 34 gigawatts of electricity. That would be enough energy to drive the whole economy of the Western United States, he said, and added that Alaska's potential role had not been fully recognized in Washington, D.C. DR. OLDS advocated Alaska's adoption of a non- confrontational mode in working with Washington. He also advocated the state take advantage of new science and technology in developing resources in ways that were compatible with environmental interests. Number 300 (Chairman Williams noted for the record that Representative Davies had joined the meeting at 8:25 a.m.) Number 303 REPRESENTATIVE HUDSON expressed concern that although the capacity of Alaska's reserves had been generally known for years, the new administration seemed to propose a general lock-up. He suggested Dr. Olds play a central role in how the state should go forward to make its case with Washington as well as global environmental interests. Number 325 REPRESENTATIVE PAT CARNEY joined the meeting at 8:26 a.m. Number 331 DR. OLDS noted his position as the only Democrat in the Governor's cabinet. He said he had to avoid the appearance of being partisan. He cautioned the committee that the state should avoid a self-fulfilling negative prophesy. Talk of a lock-up, he said, was driven by fear and bad information. Instead he suggested Alaska become politically sophisticated and keep talking to Washington about the importance of the state's resources. Number 381 DR. OLDS told the committee that for Alaska to make its case with Congress, it would have to win the majority view. Promoting fear of a lock-up and perpetuating a confrontational strategy, he said, would be detrimental to Alaska's interests. At the protocol level, he said, the Governor was the one to make the state's case with Washington. Number 418 REPRESENTATIVE JEANNETTE JAMES perceived Alaskans were being given the message to back off its lobbying efforts to open the Arctic National Wildlife Refuge (ANWR) for exploration. Number 428 DR. OLDS reiterated a confrontational strategy would be non- productive with Washington. Rather, he suggested Alaska promote its role in building energy self-sufficiency. He referred to the McKenzie Delta as a rich resource alternative, and recommended the state pick up on Vice President Gore's view that the application of science and technology could accelerate development while protecting the environment. He discussed reduction of a human "footprint" on the environment as a result of development. Number 478 DR. OLDS argued that the state should work to integrate the concepts of wilderness and natural resources. He did not see the need to necessarily look at wilderness as something that had to be locked up. Exploration and development could potentially take place without spoiling the environment, he said, and mentioned the possible development of a monorail to increase access to wilderness without corruption of the environment. Number 491 REPRESENTATIVE JAMES asked Dr. Olds whether there should be money set aside in the 1993 budget for that educational aspect. DR. OLDS responded there should be more money for interpretation and education of resource issues, but there was no money for that purpose in his budget. Number 499 REPRESENTATIVE CON BUNDE raised a question about balancing the diversity of opinion within Alaska regarding development versus preservation. In his view, the difference of opinion seemed more confrontational here than on a national level. Number 502 DR. OLDS responded that the concerns need not be seen as enemies, but instead there should be an orchestration of concerns in developing and implementing policy. He referred to timber management in the Tongass National Forest. In the Bradley Lake area, he mentioned the resolution of a problem where a costly road building project to avoid disturbing the habitat of five bald eagles was averted by building a new nest for the eagles, which the eagles had adopted. He also pointed out the enormous resistance initially to the Trans- Alaska pipeline by environmentalists who protested the disturbance of caribou habitat, while now the caribou herd in that region had tripled, in part due to the caribou taking advantage of the warmth of the pipeline during mating. Number 561 REPRESENTATIVE GREEN asked Dr. Olds his position on making Alaska more "user-friendly" for advocates of energy development. He mentioned alternatives to conventional leases on conventional resources. These included concession leasing, royalty, or severance relief in marginal areas, tidal, and coal development. Number 575 DR. OLDS cautioned Alaska would see potential out-migration of industry if demands on private developers were too great. As an example, he mentioned British Petroleum's sale of ten years of Alaskan oil still in the ground, to finance the capitalization of their exploration and development in the Russian far east. The international arena was a threat to Alaska's economy as American companies go for the competitive advantage, and Alaska should look for incentives rather than sit on the laurels of Prudhoe Bay, he said. DR. OLDS mentioned that 16 years ago he had recommended to then Governor Hammond that a percentage of Prudhoe Bay revenues go into a development fund for future development of Alaska's resources in the face of a finite oil supply. He pointed out the heavy capital investment and long-term commitment companies must make in developing a natural resource, which required companies to feel comfortable that the state could provide a stable situation. Coal technology was of enormous consequence to the whole world, he said, and Alaska should be on top of the situation. Number 631 REPRESENTATIVE GREEN asked Dr. Olds to comment on the potential for value-added resource development in Alaska. DR. OLDS mentioned, as an example, the area of fisheries, where 80 percent of the profitability had been harvested elsewhere, like Seattle or Tokyo. The CDQ (Community Development Quota) gave Alaska a chance for shore-based investment, he said, and referred to the recent interest of Tyson Foods in developing a market for Alaska's fish products with the value-added development taking place in Alaska. Regarding minerals and metals, Dr. Olds noted over 50 percent of the value was shipped out. He was looking at ways to increase value-added development in-state, such as smelting. The technology and energy resources were readily available, he believed. Number 650 DR. OLDS advocated the adoption of new technology for energy transmission, such as laser technology. He suggested Alaska could be a leader in developing practical uses for new technology. Number 668 REPRESENTATIVE JOHN DAVIES agreed with Dr. Olds's view on taking a non-confrontational stance with the Clinton administration. He expressed a hope that the state not place too much hope on ANWR and instead look at other assets. He urged complete geological mapping be a priority. He also mentioned other areas of the DNR's jurisdiction, including agriculture, and proposed that in streamlining regulations, the DNR not eliminate opportunities for public participation in the process. As an example of where regulations needed to be streamlined, Rep. Davies pointed to the 127 permits required for placer miners. TAPE 93-14, SIDE B Number 000 REPRESENTATIVE GARY DAVIS suggested the state might not be able to afford to pursue the technological agenda proposed by Dr. Olds. He said legislators were hearing the public advise more cuts in state spending. Number 035 DR. OLDS addressed the question of budget cuts and sympathized with the public's interest in cutting the budget. He was concerned, however, with where cuts were being made and where they were not. He noted the public perception that the state had a bloated bureaucracy. With regard to the state's regulatory responsibility, Dr. Olds referred to the recommended revisions of Title 38. Title 38 was originally a 14-page document, he said, but was now 187 pages with a 400-page supplement. The state, he added, was paying a high price for redundancy. He suggested departments take a cooperative look at ways to complement each others' efforts without that redundancy. Number 105 DR. OLDS again stressed the importance of the state investing in capitalizing its own assets. With regard to the Permanent Fund, he stated it was absurd to have money managers managing $12 billion of Alaska's money without even having an office in Alaska. In downsizing government, it was important, he said, not to cripple government's ability to fulfill its missions Number 148 CHAIRMAN WILLIAMS commented on the appearance that the DNR's responsibility for water quality under the Forest Practices Act was being transferred to the Department of Environmental Conservation (DEC). DR. OLDS responded that he had talked with Commissioner Sandor of the DEC about economizing at the field level where there appeared to be redundancy in water quality efforts. Dr. Olds advised that options like cross-training had been looked into, to make efforts more efficient. On the advice of the Department of Law, however, the change did not take place because there would be problems with each department's fulfillment of statutory functions. He said they would still look into ways to facilitate better use of people in the field without compromising statutory obligations. Number 190 CHAIRMAN WILLIAMS inquired into plans for opening up the forests of the Interior. DR. OLDS disclosed value-added development in the Interior was a priority, and that he had tried to bring in new technology for development of a value-added timber industry. Fairbanks could greatly benefit from Interior forestry development, he said. He cited no-waste technology as being permanently renewable and profitable for small sawmills. Number 220 CHAIRMAN WILLIAMS asked about the rising cost of fees and permits being charged as a way of increasing state revenues. DR. OLDS said the state was obligated to insure fees charged could not be greater than the cost of the service. One area of enormous loss was in tideland leasing, which had a relatively small fee compared to the high cost of maintaining services. The state was not trying to make a profit from its fee structures, he said, but rather to support its services. Number 265 CHAIRMAN WILLIAMS said a specific fee hike that came to his attention was the salvage logging fee which had recently doubled from $500 to $1000. Number 276 REPRESENTATIVE GREEN asked Dr. Olds about the state's use of beetle-killed trees. Number 290 DR. OLDS said the DNR had developed a task force on beetle- kill on the Kenai. He cited the fire risk in the area, and said the DNR was looking at that aspect, as well as the potential for value-added resource development. Number 311 REPRESENTATIVE GREEN asked for Dr. Olds' comments on the possibility of combining some boards and commissions as a cost-saving measure. Specifically, he asked about combining the Oil and Gas Conservation Commission (the Commission) with the Division of Oil and Gas (the Division). Number 290 DR. OLDS understood the importance of an independent commission having a degree of objectivity as opposed to advocacy or regulation. He described the statutory obligations of both the Division and the Commission, and said the DNR had looked into combining their functions. From a statutory point of view, however, the Department of Law advised they should be left as established. Number 355 REPRESENTATIVE GREEN commented that if the functions were to be kept separate, there should be an open exchange of information. Number 361 DR. OLDS told the committee that the DNR was moving in that direction. He added that in the time he had been in the position of Commissioner, he had virtually no money to explore some of the ideas suggested. Number 385 REPRESENTATIVE HUDSON referred to comments made during the Department of Commerce Commissioner Paul Fuhs' confirmation with regard to a common development methodology among various departments of the state. He asked Dr. Olds to comment on how the departments might work together toward consensus on the common goals of economic development. Number 419 DR. OLDS recommended a comprehensive strategic plan for the state, and said he had promoted that idea. He told Rep. Hudson that he had met with Commissioner Fuhs, and that each of the 11 divisions of the DNR had one person committed to the economic development of resources. He reported the Governor had aggregated the cabinet into sub-groups, and he was participating in a sub-group on revenue enhancement which involved members of several departments who hoped to develop a comprehensive plan. He referred to other states that had adopted such plans. DR. OLDS continued by telling the legislators they could help by reinforcing the need for a plan with incentive and an organizational design. He said Alaska was too small a state to afford the luxury of fragmented strategy. Number 466 REPRESENTATIVE HUDSON agreed, and questioned the level of independence of each department, which seemed to create redundancy. Drawing agencies together to reach a common philosophy should be a priority, he said, if the state wanted to best serve the people of Alaska. Number 487 DR. OLDS said the best effort was in the pipeline authority, which had brought together many functions. He said that in the DNR he was trying to find creative ways of enlisting various strategies. Number 501 REPRESENTATIVE GREEN raised concerns with the Mental Health Lands question, and said it could be detrimental to many parties if it was dragged on and on. He commented that the potential of Alaska's resource markets could be in critical balance, and asked Dr. Olds' for his view on the settlement. Number 515 DR. OLDS said his office was doing everything possible to fast-track a resolution. He said the DNR had in place all the elements that had to do with the task of restoring the lands that were restorable -- about 35,000 acres. He also said they were prepared to restore another 330,000 acres that had clear comparability. He was arguing to radically reduce the hypothecated lands pool which included about seven million acres that had been set aside pending the implementation of the land exchange. Virtually all of the developmental components of the state were locked up in that seven million acres, he explained. He believed it was unnecessary to tie up seven million acres when about 600,000 were needed. He suggested the hypothecated pool could be reduced to about a million acres without crippling the appropriate development of the other resources. DR. OLDS commented on the role of the courts in resolving issues like the Mental Health settlement. If the legislative or executive branch failed, he said, in the discharge of its responsibilities, the judiciary branch would take over. Courts end up administering the state's affairs and, he said, judges were not chosen for that purpose. He was trying to prevent that happening more, because the time schedules of the judicial system were so sluggish that administrative decisions and legislative intent were delayed for too long. His recommendation was to write an agreement with the plaintiffs and the mental health people that did not require a commitment of six percent of revenues in perpetuity, but where the state pledged its full resource to guarantee the agreement. This would avoid tying up resources, he said. DR. OLDS remarked that the state was acting as if its only resource was the revenue from Prudhoe Bay royalties. If BP could capitalize our oil for ten years and use the capital to generate more income, the state ought to be able to do something comparable, he said. Number 571 REPRESENTATIVE GREEN referred back to Dr. Olds' comments on 11 people in the DNR's divisions that were committed to economic potential. He asked if those people had gotten together to exchange ideas, and suggested those people could meet with Representative James' committee on International Trade. Number 590 DR. OLDS said the DNR's Assistant Commissioner, Larry Galloway, had met with Max Hodel of the Governor's Office and Commissioner Fuhs. He said he would be happy to arrange a meeting with Representative James' group, and mentioned a sub-group called "Alaska, Inc." that looked at Alaska as if it were truly an owner state. He said the group had brought out fresh, creative ideas for a more comprehensive economic plan. DR. OLDS said his assistant, Raga Elim, would be able to provide more information on or access to the Alaska, Inc. group if legislators were interested. Number 612 REPRESENTATIVE DAVIES returned to the question of the Mental Health Lands settlement, expressing a concern that a solution be found to minimize future court action. He referred to possibilities for reconciling the interests of the parties concerned with a revenue stream with those concerned with tying up the land. He discussed the possibility of putting more revenue-generating lands into the mix, which might generate a clearer revenue stream and might also require less total acreage and, therefore, fewer land exchange issues to contend with. He asked for Dr. Olds' comments on those possibilities. Number 636 DR. OLDS agreed the reasoning was sound for such an idea and might be pursued. He said the problem was that the Department of Law had to guard against the possibility under the mandate to maximize the value for the public's interest with respect to a special class -- the mentally ill. If the highest value land was set aside for a special interest, the state would be more vulnerable at the point of law, he said. He has argued that it was in everyone's interest to try to move the best value-added development capability of the land into the settlement, he advised. Number 650 DR. OLDS, in respect to the most recent lease sale in Cook Inlet, said he had argued that if it could be shown the Mental Health Trust would be more zealous in the development of the lease than the state generically, it would be in everyone's best interest. He said the plaintiffs and the Department of Law would have to be persuaded that was the case. He said the preoccupation of self interest was what they were trying to guard against. He suggested the state try to find fresh, creative solutions because "time was not on our side." CHAIRMAN WILLIAMS asked if there were any public testimony. There being none, he then asked the House Resources Committee if they were ready to consider recommendation of Glen Olds for confirmation as Commissioner of Natural Resources. Number 680 REPRESENTATIVE HUDSON made a MOTION to recommend nomination of Glen Olds for confirmation as Commissioner of Natural Resources. CHAIRMAN WILLIAMS asked if there were any discussion from the Resources Committee members. Hearing none, he asked if there were any objections to the motion. The MOTION CARRIED with all members in favor. The committee report form was circulated and signed with "Do recommend" from all Resources committee members present. Number 680 CHAIRMAN GREEN of the Oil and Gas Committee asked his committee members how they would like to proceed. REPRESENTATIVE DAVIS MOVED to recommend confirmation of Glen Olds. CHAIRMAN GREEN asked if there were any objections. Hearing none, the MOTION PASSED and the House Oil and Gas Committee members signed the committee report form. Number 698 REPRESENTATIVE PAT CARNEY suggested the members of Alaska, Inc., might appear before the committee and report on their ideas and activities. ANNOUNCEMENTS TAPE 93-15, SIDE A Number 000 CHAIRMAN WILLIAMS announced the House Resources Committee would meet at 8 a.m. on Wednesday, February 10, 1993, to hear a briefing on the spruce bark beetle problems on the Kenai. Following that briefing, he said the committee would discuss the Mental Health Lands Trust settlement. He asked that committee members come to that meeting with suggestions on how to proceed. Options to be considered included staying out of the issue and allowing the courts to proceed, or introducing legislation on the issue, he said. Number 047 REPRESENTATIVE HUDSON asked the Resources Committee staff to have potential draft legislation identical to SB 67 prepared for discussion. Number 065 REPRESENTATIVE GREEN announced to the Oil and Gas Committee members that because of a scheduling conflict, they would meet at 5:00 p.m. on alternate weeks. Number 095 ADJOURNMENT CHAIRMAN GREEN adjourned the House Special Committee on Oil and Gas at 9:44 a.m. There being no further business to come before the committee, Chairman Williams adjourned the meeting of the House Resources Committee at 9:44 a.m.