HOUSE RESOURCES STANDING COMMITTEE January 27, 1995 8:02 a.m. MEMBERS PRESENT Representative Joe Green, Co-Chairman Representative Bill Williams, Co-Chairman Representative Scott Ogan, Vice Chairman Representative Alan Austerman Representative Pete Kott Representative John Davies Representative Irene Nicholia MEMBERS ABSENT Representative Ramona Barnes Representative Eileen MacLean COMMITTEE CALENDAR Overview by the Department of Natural Resources (DNR) WITNESS REGISTER NICO BUS, Acting Director Division of Support Services Department of Natural Resources 400 Willoughby Ave. Juneau, AK 99801 Phone: 465-2406 POSITION STATEMENT: Provided an overview of the division and answered questions JERRY BROSSIA, Coordinator Joint Pipeline Coordinators Office Department of Natural Resources 411 W. 4th Ave., Ste. 2C Anchorage, AK 99510 Phone: 271-4135 POSITION STATEMENT: Provided an overview of the division and answered questions MARTY RUTHERFORD, Acting Commissioner Department of Natural Resources P.O. Box 107005 Anchorage, AK 99510 Phone: 762-2483 POSITION STATEMENT: Answered questions KEN BOYD, Deputy Director Division of Oil and Gas Department of Natural Resources P.O. Box 107304 Anchorage, AK 99510 Phone: 762-2547 POSITION STATEMENT: Provided an overview of the division and answered questions RON SWANSON, Director Division of Land Department of Natural Resources P.O. Box 107005 Anchorage, AK 99510 Phone: 762-2692 POSITION STATEMENT: Provided an overview of the division and answered questions TOM BOUTIN, Director Division of Forestry Department of Natural Resources 400 Willoughby Ave. Juneau, AK 99801 Phone: 465-2491 POSITION STATEMENT: Provided an overview of the division and answered questions BILL GARRY, Southeast Area Superintendent Division of Parks and Outdoor Recreation Department of Natural Resources 400 Willoughby Ave. Juneau, AK 99801 Phone: 465-4563 POSITION STATEMENT: Provided an overview of the division and answered questions TOM SMITH, Director Division of Geological & Geophysical Surveys Department of Natural Resources 794 University Ave., Ste. 200 Fairbanks, AK 99707 POSITION STATEMENT: Provided an overview of the division and answered questions JULES TILESTON, Director Division of Mining and Water Department of Natural Resources P.O. Box 107016 Anchorage, AK 99510 Phone: 762-2165 POSITION STATEMENT: Provided an overview of the division and answered questions JOHN CRAMER, Director Division of Agriculture Department of Natural Resources P.O. Box 949 Palmer, AK 99645 Phone: 745-7200 POSITION STATEMENT: Provided an overview of the division and answered questions ACTION NARRATIVE TAPE 95-3, SIDE A Number 000 The House Resources Committee was called to order by Co-Chairman Green at 8:02 a.m. No roll call was taken. CO-CHAIRMAN JOE GREEN announced the plane which was to bring in the majority of presenters could not make it into Juneau. He said the meeting will be on teleconference and the presenters would participate via teleconference. NICO BUS, ACTING DIRECTOR, DIVISION OF SUPPORT SERVICES, DNR, said the committee had been presented with an overview handout containing a flow chart of the department. He noted the commissioner designee, John Shively, will begin his duties February 13. He stated Marty Rutherford is serving as acting commissioner and manages the various divisions. There are several functions reporting to the commissioner's office including the Mental Health Trust Land Office. This office will reside within the department but will take direction from the trust authority under contract and work with the department to implement their policies as well as manage the land. MR. BUS explained the Soil and Water Conservation Board is under the direction of Bill Long, Executive Director, who directs the various functions and serves as a facilitator for the different soil and water districts. He said there is also an Exxon Valdez Restoration Team staff working with trustees to manage the land and determine a plan. MR. BUS noted there are eight divisions in the DNR: Division of Land, Division of Mining and Water, Division of Oil and Gas, Division of Forestry, Division of Agriculture, Division of Parks and Outdoor Recreation, Division of Geological and Geophysical Surveys, and Division of Support Services. He said DNR is charged with the mission of stimulating the resource based economy while conserving Alaska's wild, scenic, and cultural values. In accomplishing that mission, the department would like to simplify and accelerate regulatory processes and organizational structures to allow rapid and sustained economic growth. MR. BUS stated DNR would like to raise the public's awareness of Alaska's natural resource assets, its market potential within Alaska and the world, and the effects on daily lives. Number 088 JERRY BROSSIA, COORDINATOR, JOINT PIPELINE COORDINATORS OFFICE (JPCO), DNR, testified via teleconference and said the JPCO is a joint federal/state office and has eleven different agencies which issue various authorizations for pipelines, particularly the Trans- Alaska Pipeline System (TAPS). He stated the JPCO was also set up to handle permitting for a large gas pipeline and a number of smaller pipelines feeding into the TAPS at the Prudhoe Bay end. MR. BROSSIA noted the last few years have been hectic. Staffs have been combined into the joint office. There are 83 people in the office with only 15 in DNR. He said the Department of Environmental Conservation (DEC) has 28 staff members, the Alaska Department of Fish and Game (ADF&G) has two staff members, the Department of Labor (DOL) has two staff members, Governmental Coordination has one staff member, the Bureau of Land Management (BLM) has 30 staff members, the Environmental Protection Agency (EPA) has one staff member, the U.S. Corps of Engineers has one staff member and the U.S. Coast Guard has one staff member. He added the office also has access to Stone and Webster Consulting Services for engineering assistance. MR. BROSSIA stated the staff was combined in a way to avoid duplicate efforts. He said currently there are seven agencies requiring oil spill plans for Alyeska and the staff has been able to develop one oil spill plan, integrating the various interests of the different state and federal agencies, so Alyeska only has to do the plan once. Number 120 MR. BROSSIA told committee members that during the past year, the U.S. Congress severely criticized Alyeska for its maintenance operation. He noted because of that criticism, a number of congressional hearings and investigations were held by the Government Accounting Office (GAO), resulting in a number of audits. The audits looked at the status of the TAPS and whether or not it met regulatory standards. A number of deficiencies were found and the JPCO brought in Stone and Webster for assistance in looking at how to address a large audit project containing 5,000 deficiencies. MR. BROSSIA said the JPCO, over the past few years, has tried to move into a more pro-active approach and is monitoring safety and environmental and engineering aspects of the pipeline, thus helping to avoid repeat audit problems. He stated there are five major areas which are looked at in connection with the pipelines. The JPCO wants to ensure that if there is any kind of oil spill, they are ready. He noted that one of the risk areas is to prevent oil spills. Number 141 MR. BROSSIA explained a second area considered in the monitoring of the pipelines is the prevention of accidents. He felt Alyeska has shown a good safety record. The third area is overall environmental protection. The fourth area is general regulatory compliance which helps ensure there is not a failed audit. Finally, he said the JPCO is very concerned about concerned employees. Therefore, the office is sensitive to criticism and internal complaints from employees within the companies. MR. BROSSIA pointed out that heard often at Alyeska currently is the idea of quality programs. He said some of the concepts developed in the past year is what the JPCO is calling a configuration management approach to quality. Simply stated, that approach involves the design of something using various specs, codes and laws. He stressed that the necessary documentation needs to be present to show that what was designed is what was received. He noted that in itself was an issue that covered approximately one-half of the various audit criticisms which have evolved over the last year. Alyeska was not able to show that what they designed is what they got and proper record keeping was not in place. Number 167 MR. BROSSIA explained the main goal of the JPCO is to remove, in the next year, all continuous issues which have appeared in the audits on the TAPS, enabling Alyeska to get a clean bill of health so the issues will not be an issue in the Arctic National Wildlife Refuge (ANWR) debate. He said a number of Congressmen have made it clear there will not be any more future oil field development in ANWR unless the TAPS maintenance problems are corrected. He noted currently one-half of the audit issues have been resolved. MR. BROSSIA summarized that the JPCO is trying to serve as a single point of contact for the government when addressing pipeline concerns such as regulatory authorizations, safety issues, etc., and ensuring the proper fixes are done during maintenance and operations on the pipelines. He noted the JPCO is an industry funded office. Therefore, the monies to the office come directly from the companies. He added that the JPCO did work for Yukon Pacific in the last year and will do maintenance work for them to keep their right of way. There is also a proposed small pipeline project 40 miles east of Prudhoe Bay under consideration. He reiterated the JPCO will continue to do as much pro-active work as possible. CO-CHAIRMAN GREEN asked for a roll call. Members present at the call to order were Representatives Green, Williams, Ogan, Austerman, Davies, Kott and Nicholia. Members absent were Representatives Barnes and MacLean. He noted there was a quorum present. Number 217 REPRESENTATIVE JOHN DAVIES asked Mr. Brossia to give the committee background on the development of the GAO audits. He wondered how a situation could develop where there are 4,000 - 5,000 problems. He wondered if the JPCO is too underfunded to accomplish the required monitoring. MR. BROSSIA responded GAO began their investigation as a result of several concerned employees who raised issues. He said those concerned employees felt they had no platform because in 1990 the state government had not operated the JPCO office for about 12 years. The JPCO was defunct between 1977 and 1990. Therefore, the employees had no place to bring their concerns. He stated the BLM office was down to three to five people. After the Exxon Valdez spill, the employees were concerned about corrosion, oil spills, electrical safety, etc. and they did not have a platform. Thus, the employees took that platform to the U.S. Congress, resulting in Congressmen Miller and Dingell specifically asking the GAO to investigate the TAPS in general, and the hearings then took place. REPRESENTATIVE DAVIES clarified the main problem was the employees had no platform. He wondered if that kind of situation can now be addressed on a more timely basis. MR. BROSSIA replied yes. He said the JPCO has gone through an intensive learning process and now realizes who their customers and clients are. The JPCO has learned that the TAPS needs to be dealt with as a system, from Prudhoe Bay to the tankers. He noted that looking at all of the components as a system has helped the JPCO understand some of the concerns of the original whistle blowers. He explained the JPCO has developed a comprehensive monitoring program that has an underlying platform of safety and has also developed a good quality program with procedures and processes in place to do the various kinds of work at Alyeska. He felt the JPCO is much better prepared to address future concerns and problems in the oil pipeline industry in general. Number 276 CO-CHAIRMAN GREEN stated the federal government has the authority to take over operations or the scrutiny of the pipeline unless the state shows it can do it adequately. He questioned if there is any indication that could happen or will the oversight stay with the state. MR. BROSSIA responded there is always a possibility that something could happen but added that under current laws, the authority to monitor the TAPS specifically is very splintered and fractionated. The federal government clearly has the authority to monitor 400 miles of the pipeline for the right-of-way agreement. The DNR monitors 400 miles of that agreement. There are several pump stations which are on private land and the authority of DNR and BLM is limited. He stated DEC has authority on oil spill types of issues and DOL has authority in electrical, pressure vessels, and Occupational Safety and Health Administration (OSHA) issues. He said if all of that is pieced together, there is a cohesive unit which is under the authority of the state. He felt it would be doubtful that Congressmen Dingell or Miller could take over without major legislative changes. CO-CHAIRMAN GREEN said he is aware of drills conducted in the shipping lanes and repairs to the lines. He wondered if the JPCO oversees drills for possible spills where the lines cross rivers, etc. MR. BROSSIA replied yes. He said the JPCO has a specific unit in the office involving an integrated approach where DEC is the lead agency for conducting those drills and EPA is the co-leader. The JPCO supplies necessary assistance to ensure the various functions within the drill are met. He stated everyone works together to plan the drills. Number 337 REPRESENTATIVE SCOTT OGAN questioned what the ratio is on what the state pays and what the federal government pays for the operation. MR. BROSSIA responded he did not have specific information to answer the question. However, he said there are 83 people in the office. Most of the people who work on the pipeline are funded from the industry. BLM has a direct reimbursement from Alyeska, so the 30 BLM people are completely federally funded. In regard to the 15 DNR staff members, the department is on a negotiated agreement with Alyeska and monies also come in from the sale of gravel, rentals, etc. The two ADF&G people are funded through the state mechanism. The two DOL staff members are funded by BLM. Three of DEC's staff of 28 are funded by BLM and one is funded by DNR through the rental sales and agreement with Alyeska. One Governmental Coordination person is also funded through the state process. EPA pays for their one person, the Corps of Engineers pays for their one person and the U.S. Coast Guard pays for their person. He stated Alyeska reimburses the federal government for the effort. MARTY RUTHERFORD, ACTING COMMISSIONER, DNR, testified via teleconference and stated she will withhold her comments until all of the divisions have testified. Number 390 KEN BOYD, DEPUTY DIRECTOR, DIVISION OF OIL AND GAS, DNR, testified via teleconference and discussed a pie chart entitled "Where Our Money Comes From" which committee members did not have. He said the pie chart showed income of 85 percent from petroleum income and 15 percent from non-petroleum income. He stated the major sources of income for fiscal year 1994 included bonus: $1.2 million; rentals: $7.8 million; royalties: $696 million; and taxes $727 million. He stressed those numbers are getting smaller. MR. BOYD explained the Division of Oil and Gas employs 53 people who are divided into three major groups. The first group is the director's office. The two other groups are Leasing/Evaluations and Lease Administration/Royalty Accounting or essentially covering things happening before a lease sale and things happening after a lease sale. He said before the lease sale, there is an evaluation by the area geologist and geophysicist and an economic analysis, which provides the commissioner the means to determine what the lease sale parameters will be. A best interest finding is created which is presented to the public and shows the ins and outs of how a lease sale will work and provides the social and economic impact in the different areas. He noted there is also the title and sale preparation. Finally, there are support groups such as cartography and the computer group. He added that a five year schedule showing the oil and gas lease sale schedule for the next five years should be available next week. Number 463 MR. BOYD explained the other broad group of people in the division is in lease administration and royalty accounting. After the lease sale, the royalty accounting involves people who count the millions of dollars coming into the state. Then there is the permit and compliance group who ensures that certain terms and conditions are being met. These people issue the permit and check on compliance in conjunction with the Division of Land. MR. BOYD stated the director's office provides policy guidance, public outreach and information and in the past, royalty settlements completed over the past two years. He added there are still some small royalty issues to be settled (indiscernible) Native corporations. He said one of the provisions of the royalty settlements is that the (indiscernible) reopen for various and sundry reasons. He felt something which might come forward as a result is the lifting of the export ban. MR. BOYD explained the director's office also is responsible for marketing. The division has a booth at some of the international trade shows to promote Alaska, exploration licensing, incentive credits, etc. He said the director's office also does market analyses for oil price valuation to ensure the state is getting a fair amount of dollars for its oil. MR. BOYD stated the Leasing/Evaluation section issues the five year schedule. The best interest finding for sale 79, the sale in the Gulf of Alaska, is on the table currently. He added this section also does public hearings, title searches and sale preparations, geology/geophysics and economics. MR. BOYD said the Lease Administration/Royalty Accounting section is redoing the oil and gas royalty accounting system, which should give the division more flexibility in reporting and accounting. He stated this section is responsible for in-kind sales and explained the process. He noted unitization is under this section which involves grouping together leases with common interests. Permit compliance, lease enforcement and production forecasting is also in this section. MR. BOYD told committee members that recent initiatives include exploration licensing, exploration incentive credits, and coalbed methane. He noted the regulations for exploration licensing are very far along. He noted that some changes have been made to the regulations and the division is very close to getting them out for public comment. He said the expansion of the exploration incentive credit program is already in place and will apply to unleased state land and private land. Those regulations have been written and are currently with the Department of Law. Number 570 MR. BOYD said the legislature appropriated funds a couple of years ago for a capital project involving the drilling of a well near Wasilla. He stated a report is almost finished which shows that even though there is not coalbed methane everywhere, the project proves there is a coalbed methane resource in Alaska. He noted it is hoped that industry will take the results of that well into the broader spectrum of what extent that resource can be used in remote villages. CO-CHAIRMAN GREEN concurred with Mr. Boyd's optimism and his desire to do something with coalbed methane, especially in remote villages. Number 597 REPRESENTATIVE DAVIES noted the handout the committee received (may be found in the House Resources Committee Room, Capitol Building, Room 124, and after adjournment of the second session of the 19th Alaska State Legislature, in the Legislative Reference Library), which indicates there are three lease sales scheduled for 1995. He recalled that Mr. Boyd had mentioned sale number 79 in the Gulf of Alaska. He wondered what other sales would be taking place. MR. BOYD responded the two sales are the Shaviovik sale which is on the western border of ANWR and the Cook Inlet reoffering sale, which is a combination sale of old acreage previously leased or unleased. He added in regard to the reoffering sale, as long as the commissioner determines there are no new circumstances, the original best interest finding can be used and the land can get on the sale quickly. MS. RUTHERFORD added the department would be giving the legislature a copy of the five year oil and gas lease sale schedule soon. CO-CHAIRMAN GREEN wondered how the royalty accounting section works with the Department of Revenue. MR. BOYD stated they work closely, particularly in the audit function. He said it is a matter of shared information and responsibilities. He felt the two groups are working very well together as a result of a series of meetings as well as better communication. The two groups meet on a regular basis to discuss common problems and concerns. Number 668 CO-CHAIRMAN GREEN stated occasionally there are royalty sales in- kind and local refineries actually buy oil from the state out of their royalty share. He wondered if those are handled through Mr. Boyd's office or through the Oil and Gas Royalty Board. MR. BOYD responded both. The Division of Oil and Gas would initiate the potential sale through a letter or some sort of communication with a particular entity. He said there are several different ways the oil can be sold either through competitive or non-competitive bids. In most cases there is a non-competitive sale, either long term (more than a year) or short term (less than a year). In all cases, the Division of Oil and Gas is involved. In come cases the Oil and Gas Royalty Board is involved, where the division takes the terms of the sale to the board, the board reviews the terms and then makes a recommendation to the legislature. In all cases, the legislature has the opportunity to review the terms. MR. BOYD said for a competitive sale it is different because even though the Oil and Gas Royalty Board is involved, legislative approval is not required. Therefore, it depends on how the sale is structured. CO-CHAIRMAN GREEN clarified the state would get at least as much from the sale of royalty in-kind as it would get if the state sold it in value. MR. BOYD said there is a rule in law which says royalty in-kind equals royalty in value. REPRESENTATIVE OGAN noted the division advocates petroleum resource development throughout the state. He wondered how much money is devoted to that advocation. He also asked if Mr. Boyd could cite specific petroleum resource developments which the advocation has resulted in. TAPE 95-3, SIDE B Number 000 MR. BOYD stated for the last four years, the division has tried to attend one of the international meetings (held in the U.S.) of the American Association of Petroleum Geologists, which has an international scope, or the Society of Exploration Geophysicists. The attendance usually runs from 7,500 to 10,000 people. The division usually sends three to four knowledgeable people and has a booth which features posters on whatever is of interest at the time. He said in the past, the booth has focused on the Arctic National Wildlife Refuge (ANWR), the state's five year oil and gas leasing schedule, and in the last couple of years, on exploration licensing, exploration incentive credits and coalbed methane. He added the costs involved depend on where the meeting is located.He noted on the average, attendance at the meeting costs $8,000. MR. BOYD said specific successes are hard to name but he felt Alaska's name has been circulated amongst the smaller companies who attend the meetings. He added there has been a lot of interest in coalbed methane. He observed it is difficult to say the booth made all the difference in the world. However, the division does a lot of phone calling and many questions are answered. He said the division has a mailing list of 1,200 small companies and develops brochures to keep people current. He felt the costs are low compared to the benefits. He stated he could not count the number of dollars generated. Number 033 CO-CHAIRMAN GREEN said there has been a lot of press about incentives to increase interest in petroleum development within the state. The Governor has gone and toured three of the major oil companies. He wondered if incentives would be negotiated through the Division of Oil and Gas. MR. BOYD answered it would depend on what the incentive might be. For example, royalty issues would come through the Division of Oil and Gas and tax issues would go through (indiscernible). RON SWANSON, DIRECTOR, DIVISION OF LAND, DNR, testified via teleconference and said the Alaska Statehood Act land acquisitions, in which the Division of Land plays a key role, establishes the foundation for Alaska's economic and resource base. He explained that after clear title is secured for this land, these state-owned lands and resources are analyzed for their appropriate uses. He stated in a process which brings together a representation of Alaska's citizens and all major landowners, the Division of Land plans for use and development of its land and resources, guaranteeing through such planning activities access through issuance of rights-of-way, continued public use through designations such as recreation rivers system, and areas designated for mining and other development. MR. SWANSON told members that land use plans and their resulting land use classifications are required by law before the division can dispose of state land. The division has also found that land use plans greatly diffuse individual objections as land and resource uses are addressed on a more global scale rather than as an individual basis. He said that little more than one-third of state land still has no land use plan in place. By this spring, the division will have completed the Yakataga and Kenai area plans. He stressed important areas needing plans include most of Southeast, Kodiak, Nenana River Corridor, including the Wolf Townships, and the 40-Mile to include the Taylor Highway. Other plans are over ten years old and need to be reviewed and updated because of changed conditions, uses and the need to convey land to local municipalities. He noted that some of these include Bristol Bay, Susitna Basin, and the Copper River Basin. MR. SWANSON said the Division of Land serves the state as a real estate developer and property manager by providing land for Alaskans to own and use. The division currently maintains about 1,000 sale contracts for parcels of land purchased by Alaskans, and the division will have a land disposal late summer for an additional 500 parcels for about 3,000 acres. He stated the division also issues leases that range from set-net fishing sites or aquatic farms to shore-based fish or timber processing facilities, to North Slope oil support industry sites and commercial recreational lodge sites. Number 086 MR. SWANSON explained the Division of Land makes gravel and other materials available for residential, commercial, and industrial development and is the state's survey authority to establish property boundaries. He said the division protects the state's assets by establishing and enforcing reasonable conditions to protect the environment when authorizing land use, stopping unauthorized uses, and planning for land and resource use and conservation. MR. SWANSON commented the division is responsible for stewardship of land retained in state ownership for public access, energy development, legislatively designated public use and recreation areas, and a host of the public use purposes. He said the division is available to serve as project manager on major development projects such as the Fort Knox Gold Mine, coordinating state agencies with industry to form a working project team. He noted the division maintains offices in Juneau, Anchorage, and Fairbanks to provide these essential services to all Alaskans. MR. SWANSON said the division receives many requests for leasing state uplands and tidelands for long term commercial and non- commercial activities. Many of these requests are associated with oil and gas development, shore-based fisheries development/processing, and recreational and business development for lodge or guiding activities. He noted the division presently has 530 lease applications awaiting action. MR. SWANSON noted that many requests for use of state land do not require the user to obtain an interest in the land as the use or project is only for a short term and no permanent improvements are involved. In such situations, the division issues a permit, such as a land use permit, tidelands permit, military maneuver permit, trapping cabin permit, or guide permit. He said the division presently has 237 permits to process. MR. SWANSON stated material sales play an important role to industry as the state sells material from sources normally where private sources are not available. Within the next several months, the division will sell an estimated 2.8 million cubic yards of gravel in the Northern Region, 2.5 million of which is in support of oil and gas development activities on the North Slope. He said over 50 material sales remain to be processed. He noted at this time, there are 687 right-of-ways awaiting processing statewide. These range from the simplest small drive to complex utility lines. Number 114 MR. SWANSON advised the division has approximately 142 remote and homestead parcels awaiting appraisal at this time. He said just as the federal government conveys land to the state, municipalities are certified to select land from the state. The total acreage committed by the legislature to municipalities under AS 29.65 is over 1.2 million acres. He stated the Division of Land is responsible for certifying the acreage due municipalities and for processing municipal selections. This year, the division has certified three municipalities' entitlements including the Northwest Arctic (41,438 acres), Lake and Peninsula (125,000 acres), City of False Pass (0 acres) and will be certifying three more including Aleutians East, Yakutat, and Denali. Number 125 MR. SWANSON noted that so far this fiscal year, the division has conveyed 19 parcels, totalling approximately 4,000 acres. He said most of these parcels are needed for specific projects or public purpose. These include parcels in Whittier, Aleutians East Borough, Juneau, Chignik, Perryville, Wrangell, Fairbanks North Star Borough and Sitka. He stated during the remaining year, the division will be processing 38 additional parcels, totalling approximately 93,000 acres. This will include small high parcels in Anchorage (Girdwood), Cordova, and Valdez. The division will also process larger parcels for the North Slope Borough, Aleutians East, Anderson, and Skagway. MR. SWANSON said the current land obligation is approximately 648,000 acres to 21 municipalities. The division currently has applications pending for 315,000 acres, leaving approximately 333,000 acres not yet selected by municipalities. He stated the division has conveyed 430,000 acres to date and has another 250,000 acres pending survey by the affected municipalities. Number 142 REPRESENTATIVE DAVIES wondered how many staff members will be involved in the mental health land trust office. MR. SWANSON said currently that office has a staff of four people and will be contracting with the other divisions within the department to conduct the activities. MS. RUTHERFORD added that the Mental Health Trust Land Office is not yet up and running. Until that time, the department will not have a real sense of how many people the land trust unit will need. She felt the office could expand beyond the four and one-half people currently in the budget. REPRESENTATIVE DAVIES recalled as a part of the settlement agreement there was a portfolio of DNR lands which will be sold to raise cash. He wondered what the status of that transaction is. MR. BUS said that sale had been advertised and the portfolio was sold this past December. The First National Bank of Anchorage won the bid and the contracts have been transferred. REPRESENTATIVE DAVIES asked how successful the sale was. MR. BUS responded the portfolio was sold for $15 million which was less than what the legislation called for. He noted that the legislation asked for the sale in May and between May and December many of the contracts paid off. He added that at the time of session, the prime interest rate was five percent and by the time the portfolio was sold the interest rate was eight percent. Number 185 REPRESENTATIVE AUSTERMAN recalled that Mr. Swanson had mentioned the land use plans for the state. He requested Mr. Swanson to do another quick overview. MR. SWANSON said Title AS 38.04 requires that land use classifications be in place before any land is disposed and noted that disposed is defined as sold or leased. In order to complete a land use classification, a land use plan must be in place. He stated Alaska has been divided into geographical areas which involve area plans. Area plans involve seven major steps. He explained the first step is to identify the issues and the second step is to gather the necessary technical and scientific information to answer questions which the public and people who analyze the issues might have. MR. SWANSON stated next, alternatives are prepared and taken to the public. He noted this would involve a first draft. The public has three opportunities to comment. The first round of public comment includes an open house type format or in many cases, a full public hearing. After input from the public, the division then prepares a draft plan which goes out to the second round of public meetings and is much more focused with actual recommendations. Based on the comments received during the second round, the final plan is prepared and a legal notice is done for an additional 30 days. Finally, the plan is adopted. MR. SWANSON said the areas of the state which are covered by area plans are about two-thirds of the state-owned land in the state including the Northwest (indiscernible) Borough, additional lands on the Seward Peninsula, Tanana Basin, Kuskokwim, Bristol Bay, Copper River, Southwest Prince of Wales Island, and Juneau. He said there is also a plan in place for Haines and Skagway. He noted the majority of Central Southeast does not have a plan in place and a plan is needed. Kodiak also needs a plan in place mainly because of shore fishery activities. MR. SWANSON explained the major areas which do not have a plan in place include the North Slope, Brooks Range, and the upper Yukon (basically the 40-Mile area). He said in some areas there is not a pressing need for a plan but in others there is. He said once someone goes through a planning process and sees the give and takes, it can been seen that the process solves problems in the long run. He noted it is a three year process and usually a plan is put in place. Once a plan is done, authorizations can be issued quickly because everyone can see the give and take which happened. He stated without a plan, there is usually a "not in my backyard" attitude. Number 243 REPRESENTATIVE IRENE NICHOLIA wondered if there were any plans to get a plan for the upper Yukon, lower Yukon and Yukon-Koyukuk. MR. SWANSON said there are no plans at this time. The division will complete plans for Kenai and Yakataga this spring. The division will then start the Central Southeast and Kodiak areas which will take two to three years to complete. When those are complete, the division will then go to the upper Yukon and Yukon- Koyukuk. He stressed because it is a matter of staffing, it is not possible to go any faster. CO-CHAIRMAN GREEN stated there has been an outcry from people regarding privatization both from a taxing standpoint and ownership. He recalled that Mr. Swanson had given the number of acres going to municipalities and the reasons land use plans take so long. He wondered if there has been any thought, in budgeting, to contracting out some of the preparatory land use planning to expedite the process. MR. SWANSON agreed the land use planning process could be contracted out. However, the division does not have the money to do so. CO-CHAIRMAN GREEN wondered if in the division's budget presentation to be made this year, if there has been any thought of going to a contract rather than a state employee situation. MS. RUTHERFORD felt one of the items this Administration will be looking at is new approaches to do what needs to be accomplished. She added there have been discussions about contracting out for things such as best interest findings and consistency determinations for oil and gas leasing. At this point in time, however, those possibilities are just in the discussion mode but are worthy of consideration. REPRESENTATIVE DAVIES wondered if Representative Austerman's question about the percentage of state land having land use plans had been answered. MR. SWANSON replied about two-thirds of state-owned lands have a plan in place. He added that some of these plans are very stale and need to be redone. TOM BOUTIN, DIRECTOR, DIVISION OF FORESTRY, DNR, testified via teleconference and stated the division has ten area offices located throughout the state. The majority of the offices are located where staff can cost effectively manage wildland fires on the 134 million acres which the division is responsible for. From a cost accounting standpoint, the division is two-thirds fire suppression, one-sixth enforcement of the Forest Resources and Practices Act, and one-sixth other programs including timber sales. MR. BOUTIN updated the committee on current activities of the division. He mentioned the Kenai timber management program which was initiated as a result of the spruce bark beetle epidemic. He said the division has been able to offer eleven timber sales thus far and noted the division has been in court on nine of the sales. He stated the division does plan to continue with the timber sale program. MR. BOUTIN said in September, the legislative budget and audit committee approved up to $600,000 of fiscal year 1995 stumpage receipts. To date the division has received about $400,00 which will go toward reforestation. He added that more of the money will be spent in the Fairbanks area than originally intended because of a strong rise in wood chip prices there. MR. BOUTIN stated the department and the university reached an out of court settlement with plaintiffs in the 1987 lawsuit against the timber settlement with the university, allowing the university to proceed with logging 230 million board feet east of the (indiscernible) River. He added it is the largest amount of timber in a single state plan. He mentioned that Steve Kallick, an environmentalist, helped the division mediate the settlement, proving that environmentalists will allow logging if they are comfortable with the plan and are brought in early in the process. MR. BOUTIN told committee members that 1995 will be about the most active forest practices year yet. Southeast notifications are up already, much more logging is being seen on the Kenai Peninsula and much more logging is being done in the Interior. The division is looking at what can be done in areas where the area forester is the sole forester. He noted the Forest Practices Act requires the division to be out on the ground within a certain period of time from when notifications are received. From a budget standpoint, this requirement will require dipping into those programs which are not required by law, predominantly the timber sale program. He said this fiscal year, the division no longer has a timber sale forester in Tok and the timber sale program will probably bear the brunt of the increases in forest practices enforcement. MR. BOUTIN said recently the division made a sales pitch to the U.S. Forest Service region to take over all (indiscernible) and responsibilities on the Chugach National Forest to be funded by the federal government. He felt the Chugach National Forest is a very logical place where the division can displace some of its fixed costs over a greater number of fires since the Chugach averages only 21 fires a year and the division is already involved with over half of those fires. Number 415 REPRESENTATIVE DAVIES asked Mr. Boutin to update the committee on how the inventories are proceeding. MR. BOUTIN replied the (indiscernible) forest inventory has been completed and published. He said the soft wood inventory in the Interior, particularly in the Tanana Valley State Forest is in a draft stage. The hard wood inventory is much less further along. BILL GARRY, SOUTHEAST AREA SUPERINTENDENT, DIVISION OF PARKS AND RECREATION, said the division operates 133 different park units around the state. The division has a very diverse operation because the division takes care of small parks as well as very large parks. He noted the large parks have fewer staff and the small parks have more staff because the smaller parks are on the road system and get large numbers of people. MR. GARRY stated that back in the 1980s it was apparent that the division was not going to survive budget wise due to large increases in tourism throughout the state. To overcome the funding problem, the division pushed for the fee bill which was received in 1988. Since then, the fee bill has been the catalyst for many of the division's responsibilities and programs. He said it was obvious the way people used parks was influenced by whether or not they paid. If there was no payment required, people would tear the parks up. Once people were required to pay, there was a dramatic reduction with problems in the parks. MR. GARRY explained the fees do not directly relate to how much a park costs. He said the division gets about 30 percent of its budget from fees currently. He noted the general fund base is constantly decreasing and the fee revenue keeps going up. Therefore, the division has been able to stay level and keep services going. He said with the use of day fees, many problems have been stopped. He reiterated that the fee program has been very successful. MR. GARRY said the other successful program in the division is the volunteer program. He stated nowhere else in the system has there been that much support. He noted if the division did not have the volunteer program, there would be a problem because volunteers are now as much a part of the division's management team as staff. Number 540 REPRESENTATIVE OGAN stated there has been press about different parks being closed due to lack of funding. He asked Mr. Garry to update the committee on that situation. MR. GARRY replied parks have not been closed. He said through the fee programs and the use of volunteers, the division has been able to keep most parks open. He noted a few of the parks along the Alaska Highway have been transferred back to federal ownership and management. MS. RUTHERFORD noted there had been a lot of press on the possibility of some parks being closed due to lack of funding. As it turned out, the cut which was projected never happened. However, because of the press and ongoing discussions, there has been a lot of interest raised by surrounding communities and municipalities in partnerships, co-managing with the department or developing some type of program where those interested could participate in the management of facilities having high operating costs and low usage. She noted the division is now beginning to develop some of those opportunities. Number 597 REPRESENTATIVE DAVIES stated he had toured the House of Wickersham in Juneau and said it is in sad repair. He said some of the artifacts there are fascinating and easy to view. He wondered if there are any plans for the house. MR. GARRY replied the house is in better shape than how it appears inside. In the last several years, the division has put a lot of money into the foundation which was the major problem. He said the reason for the cracks inside and the demise of the walls is because the house was not on a good foundation. Once a good foundation was put in and the house was leveled, the number of cracks increased because the house was moved back to a level plane. He stated the problem is now cosmetic. MR. GARRY said the division is currently in the process of going out with request for proposals (RFP) to privatize the house. He noted the first time the division came out with the RFP no responses were received. He talked to industry people and found out what needed to be changed. He felt because there are now enough interested people, the house will probably go to a private commercial operator by this summer. He stated the division does have a request for money to improve the first and second floor. Last year's capital request was $250,000 but the request did not rank high because of the plans to get a private operator. Number 671 TOM SMITH, DIRECTOR, DIVISION OF GEOLOGICAL & GEOPHYSICAL SURVEYS, testified via teleconference and said the division is a strategic information agency. He stated the division's mission was clarified in statute to take a long strategic look at potential Alaska land for minerals, fuels, geological hazards, construction materials, water resources to some degree and other investigations which are concentrated on state lands. He noted the division also serves as a research agency. MR. SMITH told members the division is headquartered in Fairbanks, near the state's main research university and can often take advantage of the libraries, human resources, student interns, faculty specialists, etc., there. He said the division currently has a staff of 30. All staff except for one are at the Fairbanks headquarters and the other is in Eagle River. Additionally, the division has plus or minus about ten student interns. MR. SMITH stated the (indiscernible) houses most of the subsurface record of Alaska (indiscernible) from almost every oil and gas well ever drilled in the state, as well as many mineral properties. The division's estimate of the cost to acquire that data initially is in excess of $12 million. He noted most of the work the division does is heavily people oriented...acquiring new information and giving it out to all users. He added that the division tries to distribute about 10,000 publications a year and also tries to market Alaska's resources at eight to ten professional conferences held each year. TAPE 95-4, SIDE A Number 000 MR. SMITH said the division's organizational structure mirrors the statute which the division was created under. The division has sections addressing minerals, energy, engineering and geologic hazards, and publications. REPRESENTATIVE DAVIES asked what percentage of state land has been mapped geologically. MR. SMITH responded ten percent of state lands have been mapped. He added that the division's profile is heavily cooperative. The division works with many kinds of agencies, institutes, universities worldwide, Department of Energy, etc. REPRESENTATIVE AUSTERMAN wondered if the division looks at areas having potential for hydroelectric projects. MR. SMITH said the hydroelectric issue falls under the surface and water analysis function of the state. He noted that at one time, this issue was a part of the division's responsibilities but now it is in the Division of Mining and Water. He added that his division is heavily involved in looking at alternative energy sources for rural areas. REPRESENTATIVE OGAN asked if there are any plans, or have sources been identified to enable a switch to different forms of energy to generate electricity. MR. SMITH replied alternative energy sources for rural Alaska is another major area of emphasis for the future. The division is interested in coal which is scattered in various basins throughout the state. He said the division is currently working in the Bethel area on an alternative gas source. He noted there is also an enormous energy component in peat and added that the division completed peat inventories in the past. He also mentioned coalbed methane. He stressed that alternative energy sources is an issue of high priority for the division. CO-CHAIRMAN GREEN wondered if the division made a macro evaluation of an area and an individual built a cabin in the area and slumping or a fault movement occurred, is there any protection for the division since the division was not able to go out and detail the situations. He also questioned if the state would be subject to any liability. MR. SMITH responded the division performs pre-engineering tasks. The division does not get involved with actual on-site drilling or evaluating the therma (indiscernible). The division's efforts are geared more toward defining areas and tracks of high hazard probability. He stressed the division has never had a liability problem and he felt the division's work is not specific enough to constitute a land condemnation in a detailed sense. JULES TILESTON, DIRECTOR, DIVISION OF MINING AND WATER, testified via teleconference and stated the division is currently pursuing the integration of water and mining functions, including the determination of how the division can be more efficient for clients. The division is converting, in several cases, what were supervisory positions to tech staff and putting those people in the field where the work is. MR. TILESTON said the division just initiated the first meeting with the Department of Interior to determine if a system can be devised to reduce litigation costs in connection with water bodies and the question of who owns submerged lands. He noted the division has 188 jurisdictional dams which are periodically inspected and the division also approves new structures such as the one at Red Dog. The other area the division is working on is multi-year permits for mining plans. This would enable a miner to tell the division his plans in sufficient detail to enable monitoring for up to five years. He said the program will be cost saving for the division and will be a paper reduction for the miners. Number 136 MR. TILESTON said the division recently received from Cominco and Nana the reclamation plan and the division has $1 million in bonding to (indiscernible) that plan which they have already submitted. The plan will be going out for review to interested agencies and publics. (Indiscernible) creek a large gold deposit located on the Yukon near Galena. The division has been asked to start an interagency meeting so a detailed plan can be developed and permitting determined. MR. TILESTON stated several things can be done in the state to remove uncertainties and reduce costs. The division has set in motion a symposium which will start this spring to look at reclamation standards and requirements on a pre-geographic basis in connection with the major coal fields on the North Slope, the north side of the Alaska Range, and the Cook Inlet area to see if the division can develop an approach which makes sense on what needs to be done. MR. TILESTON said the division is in the process of determining whether or not it is in the state's best interest to go to a competitive lease for a small (indiscernible) coal field in the Delta. There have been three public hearings and there has been a request for an extension. That extension has been granted. The record to date suggests that the division may proceed. As a result, there have been some very significant concerns about coal truck traffic on the access road to the mine as well as recreation use. A mitigation workshop has been scheduled to look at those issues and determine what can be done if the division goes to a full lease. Number 177 MR. TILESTON told committee members the division is working closely with mental health because a major part of the division's long term revenue is associated with minerals. The division's mineral section is assisting in developing evaluations and ensuring the division does not inadvertently take an action on a state mine claim which belongs to the mental health side of the claim. MR. TILESTON mentioned the state mining claims in the Cooper Landing area. He said in that area, the division has state mining claims which have turned into primary places of residence of people who are mining two weeks out of the year. As a result, they are paying $20 or $40 for 40 acres. He stressed that is not the intent of the state mining law. REPRESENTATIVE AUSTERMAN asked if the division is in the process or is on an ongoing basis assessing or looking at coastal areas for hydro projects. MR. TILESTON stated the division does. He said normally the division only gets involved when there is an application being filed with the federal energy regulatory agencies. MS. RUTHERFORD said that something the department is beginning to do quite well is work with all aspects of (indiscernible) including the environmental community. She stated the department feels strongly about doing a good job with the public process. Number 230 JOHN CRAMER, DIRECTOR, DIVISION OF AGRICULTURE, testified via teleconference and said over the past several years the agriculture community has found itself under the critical scrutiny of the public's eye. The infusion of Alaska's capital in the agricultural business has provided a six-fold increase in total gross farm income and over the past six years has remained relatively stable. To maintain the stability and provide for continued growth, the state must continue to support the industry by providing access to reasonably priced lands, low interest operating loans, and local as well as foreign market development. MR. CRAMER pointed out that agriculture represents a $30 million renewable resource industry. In 1993, agriculture employed in excess of 1,200 Alaska residents at an average hourly salary of $7.50. He said the agricultural business also represents one of many opportunities to diversify the Alaskan economy by creating opportunities for in-state production and marketing of food and fiber. He stated the division supports the Alaska agricultural community through marketing and inspection services, agricultural land management and resource conservation services, competitive farm development and operating loans, and plant materials development and testing. MR. CRAMER stated the authority to provide the assistance is specifically outlined in Title 3 and 41. Land and resource management responsibilities on lands classified for agricultural purposes are carried out in close cooperation with the Division of Land under authorities outlined in Title 38. In addition, a number of federally funded programs are provided through specific agreements with the U.S. Department of Agriculture. MR. CRAMER explained that the division is divided into six basic programs. The first is the Agriculture Revolving Loan Fund (ARLF). He said conventional financing for agribusiness is not available in Alaska due to restricted ag land title, perceived risk, and lack of private sector experience in agricultural lending practices. He stated in fiscal year 1994, the ARLF filled the gap by providing $1.9 million of low interest farm development, chattel, operating, and product processing loans. He noted the ARLF, through the Director's office, has focused a great deal of its attention toward improving the delinquency rate of an inherited portfolio by restructuring loans to low risk borrowers with a productive history. MR. CRAMER stated the ARLF aggressively pursued delinquent loans through settlement action and/or litigation. As a result of this aggressive asset management program, the projected value of land, equipment, stocks, judgments, and cash revenue returned to the ARLF portfolio in 1993 was $7.7 million. MR. CRAMER said some of the highlights in 1994 include seeing the most successful year ever for the farmers markets in Fairbanks and Anchorage. The pork production went up 15 percent over 1993. The division is seeing new farmers coming into the market and has over 50 new listings in the Food and Farm Products directory this year. He stated the division sold over 126 pieces of repossessed equipment and disposed of 15,902 acres this past year. Number 294 REPRESENTATIVE OGAN noted there is a lot of state-owned farm land in the Palmer area. He wondered what steps are being taken to get farming back into private hands. MR. CRAMER reiterated the state has disposed of 15,902 acres this past year. He said much of the land having the greatest potential for private ownership and farming successes is located at Point Mackenzie and is mental health land. He hoped that the settlement will go through and disposal of that property can begin. He mentioned the division is working with the borough on future land sales. CO-CHAIRMAN GREEN thanked Mr. Cramer and told him everyone is impressed with the fungus free seeds the division has been working on. MR. BUS said the last division is the Division of Support Services. He explained there are three sections in the division: the Administrative Services, the Recorder's Office, and Information Resource Management. MS. RUTHERFORD clarified the mental health settlement has released the Point Mackenzie agricultural land from mental health ownership. However, a lawsuit is pending before the Supreme Court. The department will be carefully watching the original trust lands. She said the issue has been resolved pending appeal and the department feels it will succeed with the appeal. MS. RUTHERFORD reemphasized DNR plays a very vital role in the state's economic viability. CO-CHAIRMAN WILLIAMS announced the committee will meet in Ketchikan on February 18. At this meeting the committee will gather information from the U.S. Forest Service, Ketchikan, and environmental groups to try and get a resolution from the committee in support of the timber industry. ADJOURNMENT There being no further business to come before the House Resources Committee, Co-Chairman Green adjourned the meeting at 10:00 a.m.