JOINT MEETING HOUSE RESOURCES STANDING COMMITTEE SENATE RESOURCES STANDING COMMITTEE February 18, 1997 2:07 p.m. HOUSE MEMBERS PRESENT Representative Bill Hudson, Co-Chair Representative Scott, Co-Chair Representative Beverly Masek, Vice Chair Representative Fred Dyson Representative Reggie Joule Representative Joe Green Representative Bill Williams Representative Ramona Barnes HOUSE MEMBERS ABSENT Representative Irene Nicholia SENATE MEMBERS PRESENT Senator Lyda Green, Vice Chair Senator Loren Leman SENATE MEMBERS ABSENT Senator Rick Halford, Chair Senator Bert Sharp Senator Robin Taylor Senator John Torgerson Senator Georgianna Lincoln COMMITTEE CALENDAR TIMBER INDUSTRY BRIEFING PREVIOUS ACTION No previous action to record WITNESS REGISTER JACK PHELPS, Executive Director Alaska Forest Association 111 Stedman, Suite 200 Ketchikan, Alaska 99901 Telephone: (907) 225-6114 POSITION STATEMENT: Presented an overview of the Alaska Forest Association and addressed Interior issues. KEATON GILDERSLEEVE, President Alaska Forest Association; President, Gildersleeve Logging Pouch B Ketchikan, Alaska 99901 Telephone: (907) 225-1224 POSITION STATEMENT: Discussed the timber industry in Southeast. ERROL CHAMPION, General Manager Aviation Division Silver Bay Logging Cube Cove, Number 2 Juneau, Alaska 99850 Telephone: (907) 586-4133 POSITION STATEMENT: Presented an overview of the Governor's Southeast Regional Timber Task Force and the independent sales program. JOHN STURGEON, President Koncor Forest Products; Member, Board of Forestry; and Member, Executive Committee of Resource Development Council 3501 Denali, Suite 202 Anchorage, Alaska 99503 Telephone: (907) 562-3335 POSITION STATEMENT: Gave an overview of the State Forest Practices Act. TERRY NININGER, Vice President Circle DE Pacific Corporation; Member, Board of Directors, Alaska Forest Association 6239 B Street, Suite 201 Anchorage, Alaska 99518 Telephone: (907) 235-1545 POSITION STATEMENT: Presented an overview of Circle DE Pacific Corporation operations. RICHARD LEARY, Controller Ketchikan Pulp Company Box 6600 Ketchikan, Alaska 99901 Telephone: (907) 225-2151 POSITION STATEMENT: Gave an overview of the Ketchikan Sawmill and Annette Sawmill. DAN BENSON, Production Manager Ketchikan Sawmill Box 6600 Ketchikan, Alaska 99901 Telephone: (907) 225-2151 POSITION STATEMENT: Gave an overview of the Ketchikan Sawmill and Annette Sawmill. ACTION NARRATIVE TAPE 97-14, SIDE A Number 0001 CO-CHAIR BILL HUDSON called the joint meeting between the House Resources Standing Committee and the Senate Resources Standing Committee to order at 2:07 p.m. Present at the call to order from the House Resources Standing Committee were Representatives Hudson, Ogan, Dyson, Joule, Green, and Williams. Representatives Masek and Barnes joined the meeting at 2:08 p.m. and 2:18 p.m., respectively. Present at the call to order from the Senate Resources Committee were Senators Green and Leman. CO-CHAIR HUDSON announced the first order of business was a timber industry briefing. He expressed his appreciation to the industry representatives for taking the time to bring committee members up to date on what's happening in the timber industry. He asked Jack Phelps to come forward to begin his testimony. Number 0090 JACK PHELPS, Executive Director, Alaska Forest Association (AFA), said the Alaska Forest Association is the statewide Alaska timber industry trade group, representing about 300 member companies doing business in the timber industry in Alaska. The three divisions within the association are: Government affairs and public relationships; Tongass Timber Trust; and Alaska Loggers Association Retirement Trust. MR. PHELPS said the association has identified a couple key priorities with respect to state timber issues. First, the association's mission statement says, "The Alaska Forest Association works to maintain a viable forest products industry as an important part of Alaska's economy." With respect to that, there are two issues on the state level that are of immediate importance to the association. The first is to maintain the state's timber sale program. He said a number of the association's members depend directly on the purchase of state timber from the state forested lands. Timber harvest, particularly because of its ability to provide money to the state for reforestation, is a key element in addressing the beetle epidemic in Southcentral Alaska. Number 0289 MR. PHELPS commented the association's second key priority on state issues is to maintain the integrity of the Forest Practices Act implementation with the Department of Natural Resources (DNR) as the lead agency. He informed committee members of the need to keep the Alaska Department of Fish & Game (ADF&G) in that process to ensure their statutory and regulatory responsibilities are upheld and to provide adequate field presence in Forest Practices Act issues. With respect to the discussion about lack of funds, the association believes there may be an allocation problem that should be looked at. Number 0354 MR. PHELPS maintains that AFA is doing its part with respect to forest practices. The association and its member companies have invested an average of $120,000 into scientific stream monitoring studies over the last four to five years and anticipate an increased level to that commitment this year. The AFA believes that a full participation of the agencies in the fisheries/forestry working group on cooperative forestry research is essential to make the Forest Practices Act issues work. The industry is not afraid of the scientific facts with respect to their timber harvest activities and its effect on other uses of the forest. On the other hand, the association believes that it is crucial for the agencies to show a greater commitment of cooperation on these issues. Number 0440 MR. PHELPS said he would direct his next comments to the Interior issues. Currently, there are no large manufacturers operating in Alaska's Interior; in other words, no operations processing more than 10 million board feet (mmbf) a year. There is, however, capacity for growth and capacity for expanded harvest and utilization of the timber resources in the Interior. He continued that Northland Wood Products, the largest mill operating in the Interior, recently joined with a major West Coast grading bureau and is now providing structural graded lumber into the Interior market. He discussed the harvesting of white spruce in the Interior, and said it currently averages about 10 - 15 mmbf, of which two-thirds is on state land and one-third on private lands, primarily Native Corporation land. MR. PHELPS added that with respect to the hardwood resources, the state has an allowable cut of 60 million feet in the Interior; however, less than 1 million is currently being harvested. The association is actively exploring options for companies to utilize that. Number 0569 MR. PHELPS concluded by requesting that Megan Smith from the National Biofuels Institute be given an opportunity to address the committee on Thursday. The institute has what may be a very viable proposal for Alaska. CO-CHAIR HUDSON verified the committee would do that. It was his understanding that the institute was looking at making fuel from pulp. MR. PHELPS advised the institute was working on converting wood waste to ethanol. Alaska has an 8 1/2-cent-a-gallon tax incentive to use ethanol as an additive to reduce air emissions, but currently ethanol used in Alaska is produced in Ohio, trucked, and then barged to Alaska. Therefore, it's a major advantage to produce it in Alaska. CO-CHAIR HUDSON thanked Mr. Phelps for his statement and asked Mr. Keaton Gildersleeve to come forward to present his remarks. Number 0790 KEATON GILDERSLEEVE, President, Alaska Forest Association; and President, Gildersleeve Logging, stated his family had logged in Alaska continuously since 1953. He and his wife purchased the operations in 1980 and they've never had a violation of the Alaska Forest Practices Act. The company normally logs 30 - 50 mmbf per year, and builds the attendant 10 - 20 miles of road. Their operation involves the complete job from the stump to the completed raft. His wife is the owner of a tugboat and barge company that does ship tending, log towing, as well as charter and support work for remote sites and other loggers. In addition, their operation includes subcontracting for specialty jobs such as helicopter logging, and occasional drilling and blasting of a technical nature. He noted the company generally hires approximately 125 people including subcontractors, and normally operates eight to ten months during the year. Many of the employees are second and third generation. Number 1049 MR. GILDERSLEEVE described the family-oriented lifestyle of the camps, the quality and level of the education available, and the social activities such as salmon derbies. Number 1098 MR. GILDERSLEEVE continued that the company has used all the technologies from A-frame logging to balloon logging and helicopter logging. They have operated in approximately 24 different sites, which now have extensive merchantable, second growth timber and the salmon streams are among the most productive on Prince of Wales Island. From a silvacultural point of view, Mr. Gildersleeve believes these stands are superior to the original harvest. Number 1149 MR. GILDERSLEEVE next commented on the Alaska Timber Insurance Exchange, a spin-off of the Alaska Forest Association, which provides workers' compensation for qualifying members. He said the retirement, health benefit and insurance programs will all need to be examined for long-term viability in light of the impending loss of up to one-third of their beneficiary. The health insurance program is anticipated to be the first program to experience problems because of the implications of the COBRA Act. Number 1279 CO-CHAIR HUDSON asked if the groups that were involved in crafting the Forest Practices Act had recently gotten together. MR. GILDERSLEEVE responded they have not formally met. CO-CHAIR HUDSON thought it would be a good idea to bring the groups together to ensure that everyone concerned understood what was currently going on. MR. GILDERSLEEVE said the Alaska Forest Association considers the Forest Practices Act to be a good Act, and would welcome the opportunity inasmuch as the facts, when viewed objectively, bear scrutiny. Number 1361 REPRESENTATIVE BILL WILLIAMS asked how much timber Mr. Gildersleeve's company had been cutting prior to the closure of the Sitka pulp mill and the Wrangell mill? MR. GILDERSLEEVE responded the highest volumes were in the neighborhood of 55 mmbf per year from either long-term sales or from a variety of private landowners. He projects the company will be logging about 25 - 30 mmbf this year. Number 1480 REPRESENTATIVE JOE GREEN reflected that was almost a 50 percent drop and questioned if all nine camps were still working or had some of them been cut out. MR. GILDERSLEEVE responded, "No, we will be working at that percentage of our capacity." The number of people will be cut from approximately 125 last year to about 85 this year. Number 1517 REPRESENTATIVE BEVERLY MASEK asked if the company had to go through a permit process each time a new area was opened up to logging, or do the permits carry over for every site? MR. GILDERSLEEVE responded that each place has site specific permitting, but the floating camp has generic permits that go with it. He noted the company has one full-time person that takes care of permits and the landowners have staff that take care of the required notifications for the logging operations. REPRESENTATIVE MASEK asked what kind of problems were encountered in the permit process? MR. GILDERSLEEVE said the biggest problem was the timing. The full coastal management review process can take up to one year. The permits are very onerous and cumbersome. Number 1618 REPRESENTATIVE MASEK asked if the permit process was fairly costly and if a company was able to break even? MR. GILDERSLEEVE responded, "That's a dead loss." He estimates that it cost $100,000 per year to meet their permitting requirements. REPRESENTATIVE MASEK asked what area Mr. Gildersleeve thought the state should look at in terms of easing the permit requirements. MR. GILDERSLEEVE said that was a good question. He explained that his company deals with tidelands, so the Army Corps of Engineers is involved, mean low tide to mean high tide is under state jurisdiction, in addition to the restrictions for private lands. The coastal management review process basically "puts you through the same hoops" with each agency. In his opinion, there could be some streamlining in that area. He explained that remote sites have permitting requirements with fuel transfers, spill prevention measures, et cetera, which come under Coast Guard jurisdiction. While recognizing there isn't a lot that can be done at the federal level, he observed there were a number of things that could be done at the state level to make the process more workable. CO-CHAIR HUDSON noted there would be a hearing the following Saturday on legislation that proposed to opt out of the Coastal Zone Management Program altogether. He welcomed input from Mr. Gildersleeve as to what the responsibility and requirements of working through the process, and any recommendations he had. He thanked Mr. Gildersleeve for his remarks and asked Mr. Champion to come forward. Number 1849 ERROL CHAMPION, General Manager, Aviation Division, Silver Bay Logging, stated that he had been involved in the timber industry, mining and other natural resource type industries most of his life. He pointed out that last fall Governor Knowles appointed 16 Alaskans to the Alaska Timber Task Force and his comments would be directed to the activities of that task force. The mission statement of the task force was to look at restructuring the industry for competitiveness in the twenty-first century. He said the industry is changing; shortly after appointing the task force, the announcement of Ketchikan Pulp Company's closure came and no one could anticipate the significance of the forthcoming changes. MR. CHAMPION said the second mission statement was to develop solutions to the timber supply problem. He noted that throughout his presentation his would be referring to the "empty wood basket." In other words, there simply isn't a timber supply. One of the real challenges is that up to 50 percent of the harvest in the Tongass National Forest is pulp wood, or what is known as utility grade sort, and with the closure of the mill there is no place to go with that wood. The choices are to either to leave it in the woods or stockpile it and hope for a future opportunity. Number 1989 MR. CHAMPION continued that the third mission statement was to stabilize the remaining players in the industry. Twenty years ago when he moved into Southeast Alaska, there were 45 operating logging camps; today there are 12 and that number will decline if the proposals being discussed in Washington, D.C. come about. Number 2011 MR. CHAMPION further stated the fourth mission statement was to provide assistance to individuals and businesses in the Southeast region. That's a very admirable mission and the task force is trying to determine what type of assistance could happen. It still boils down to needing a timber supply. Without a fiber supply, no one is going to invest in Southeast. Number 2026 MR. CHAMPION said the final mission statement was to provide counsel to the Governor regarding wood products processing proposals. Last year there was a lot of talk about value-added, but the fiber supply has to be taken care of first before value- added can be addressed. The Governor asked the task force to prepare a business plan and submit it by mid-March. MR. CHAMPION said the task force is comprised of seven mayors, six industry members, and two from other interest groups. The first two areas reviewed by the task force were the current status of timber supply from the United States Forest Service (USFS) and the timber inventory from three state agencies. The next meeting consisted of receiving a report from the Alaska Forest Association on the "four visions" of the new Tongass. He said the industry reviewed what the Tongass would really look like with four harvest levels; a harvest level of 300 mmbf, 420 mmbf, 100 mmbf, and 200 mmbf. A consensus was reached that if the harvest level fell below 300 million annual sales quantity, the Tongass, as it is now known and the current infrastructure, won't survive. The infrastructure would not be there. The Southeast Alaska Conservation Council's (SEACC) views of the Tongass were 50 mmbf, 100 mmbf and 150 mmbf. Number 2120 MR. CHAMPION pointed out the outcome was a resolution brought forth by some of the mayors in December in support of the Tongass Land Management Plan (TLMP) decision, which had been postponed and continues to be postponed, "but the resolution was on record saying that the Tongass and the members of the Governor's task force are in support of the 300 million." Number 2132 MR. CHAMPION commented that the last presentation was from the Forest Product Science Group from Wisconsin. This group is proposing to conduct five workshops in Southeastern communities trying to derive ideas as to alternate uses and other suggestions that community members may have for the low-end utility grade wood. They are also proposing to take 2,000 pieces of wood back to their laboratory to determine other uses for this wood no longer being consumed through the pulp mill. That science lab work will take some time and should not be considered to be a "fix all" for what's going to be needed in the Tongass for 1997, or even 1998. The business plan currently being written should be completed by the end of March. Number 2191 MR. CHAMPION referred to four handouts which reviewed the status of timber resources. According to the Department of Natural Resources (DNR), between the years 1996 and 2000, there will be a harvest of 34.6 mmbf out of the Haines State Forest, 8.2 mmbf out of the Ketchikan area, and 17.3 mmbf out of the Juneau area, for a total of 60 mmbf over the 5-year period. The next major landholder in the state is the University of Alaska, who according to their presentation before the task force are anticipating sales in Southeast of 18.2 mmbf, 50 mmbf in the Gulf Coast (Yakataga), 4 mmbf off the Kenai Peninsula and 0 mmbf out of the Fairbanks/Delta, for a total of 72.2 mmbf for that same 5-year period. Number 2239 MR. CHAMPION remarked that the last major landholder in the state with timber resources is the mental health lands, with approximately 130,000 acres of commercial forest land. Based on their presentation in December, they have no plans to go forward with timber harvesting. He noted that with both university and mental health lands, there is no requirement for in-state manufacturing, so both these landholders simply advertise to the highest bid. In fact, currently the university has a sale going on in Cape Yakataga with an operator from the Lower Columbia River area. Logs are leaving the state with little, if any, handling by Alaskans. The last handout, the "U.S. Forest Service Independent Timber Sales" is the U.S. Forest Service's independent sales program which was presented to the task force. There are three areas in which they will be selling: The Stikine area, where some of the sales are held up in court, so 18.6 mmbf will be offered in 1997 instead of 55.6 mmbf; the Chatham area will have 21.4 mmbf instead of 51.4 mmbf because of litigation; and in the Ketchikan area, 56.3 mmbf will be offered. Instead of 163.3 mmbf being offered, there will be 96.3 mmbf offered for the independent program. MR. CHAMPION concluded that the issue for the timber industry and for all operators is the "wood basket is empty." Number 2364 REPRESENTATIVE WILLIAMS asked if those numbers were for FY 97? MR. CHAMPION responded affirmatively. He noted this is the fourth consecutive year where the commitment in October was for a much higher number and for a variety reasons, it is reduced and reduced. He added that the federal administration's unfavorable attitude toward logging is evidenced by the continual delays in the release of the TLMP. He believes the recommendation of 297 mmbf will be reduced to about 200 mmbf when it is released. The Tongass Land Management Plan will not bode well for the timber industry in Southeast. REPRESENTATIVE GREEN said for the last few years there have been comments about the declining fish prices, reductions in the chip and round log markets, and until last year, declining oil prices. He wondered if with all the bouncing around, there may become a stigma attached to Alaska that could discourage individuals from going into the logging industry. He inquired if the federal government were to allow more harvesting at some time in the future, would the work force be available and would prices worldwide ever allow Alaska to get back into a competitive mode? TAPE 97-14, SIDE B Number 0001 MR. CHAMPION: .... "attitude and (indisc.) environment where the investor community could come forward and you had this wood supply where you weren't -- you could go forward -- that I think the marketing would take of itself. We will have some up years and some down years and we're prepared to deal with that issue. But when you simply don't know whether you've got enough wood to operate the balance of the season, so what is left is simply a fractured, fragmented effort here that causes the infrastructure to gradually erode away and that's what's happening. You give us a wood supply and the infrastructure will take care of itself. There's no doubt that the quality of the wood out of the Tongass would make a viable product." Number 0039 SENATOR LYDA GREEN asked Mr. Champion to translate million board feet into numbers of trees or acres. MR. CHAMPION responded that the average harvest is about 35,000 board feet per acre. However, there are areas where the harvest and yield is much higher. He was hesitant to translate it into trees, inasmuch as it depends on the size and grade of the tree. SENATOR GREEN questioned if Mr. Champion had calculated the available harvest on private and Native lands. MR. CHAMPION said he did not have that data with him, but he recalled that the harvest from private lands had been averaging in the vicinity of 150 mmbf to 200 mmbf in the Gulf of Alaska Prince William Sound, and throughout Southeast Alaska areas on private lands. Number 0129 REPRESENTATIVE WILLIAMS asked Mr. Champion to comment on the views of the task force concerning the amount of pulp wood that will be left in the woods with the closure of the pulp mill. MR. CHAMPION said it is of significant concern because of the cost of harvesting the wood and secondly, for every million board feet, there's going to be about 350,000 board feet of utility grade, utility sort that will need to be stacked or decked. The bottom line is, it will lay in the woods or decked, and we'll hope that an operation will come in that can comply with the federal laws and get around the primary manufacturing requirement. CO-CHAIR HUDSON thanked Mr. Champion for his comments and asked John Sturgeon to come forward to present his statement. Number 0263 JOHN STURGEON, President, Koncor Forest Products; Member, Board of Forestry; and Member, Executive Committee of Resource Development Council, stated that Koncor Forest Products is owned by four small Native Corporations; one in Southeast Alaska, one in Prince William Sound, and two in the Kodiak area. Koncor generates about $75 million per year in revenue and has about 2,000 shareholders. The money generated by Koncor Forest Products over the last 20 years has helped the economy of those villages. One is the major owner of a new bank in Anchorage, two have built fish processing plants in their villages, there's scholarship programs, senior programs, et cetera. The timber industry, at least on private land, goes far beyond just the impact of 500 - 600 people in their company - it goes to the shareholders who use the money and it all stays in Alaska. Number 0331 MR. STURGEON said the Alaska Forest Practices Act originated in 1989, passed in 1990, and applies to private land, state land, borough land, mental health lands, and university lands. It doesn't affect state lands at all. As for private landowners, that is the major law insofar as harvesting trees. The forest practices committee, set up in 1989, consisted of fishermen, environmentalists, loggers, saw millers, private landowners and others. The group came up with the original Forest Practices Act which was based on four main principles: 1) that it be fair to all parties involved; 2) there be no big hit for any one entity i.e., the various resources would share the risk; 3) that it was enforceable; and 4) it would have professional management. The originators of this Act set up a Board of Forestry which was supposed to be a continuation of the group. The Board of Forestry works on a consensus in that it must be unanimous, minus one, in order to approve anything. Any changes to the Forest Practices Act must be brought before the Board of Forestry. MR. STURGEON reminded committee members that the Forest Practices Act was supposed to focus on three things: 1) to protect fish habitat from any harm from timber harvesting; 2) to protect water quality; and 3) to ensure reforestation. Number 0487 MR. STURGEON said the question is, "How well is the Act working?" To quote the Board of Forestry, "The Act is working generally very well in protecting fish habitat and water quality." Most people working with the Act would agree with that statement. He remarked that the industry has done a good job of funding monitoring programs. They have paid private scientists to set up studies that monitor water quality and the effects on fish habitat which has been done with the cooperation of the Departments of Natural Resources and Environmental Conservation. He considers this to be important because it is an indicator of whether the Forest Practices Act is doing what it is supposed to do; i.e., protecting water quality and fish habitat. After four years of study, they have found no detectable impacts from timber harvesting. He remarked the Alaska Department of Fish & Game has not participated in the monitoring studies, as the board would like. Number 0574 MR. STURGEON referenced a study completed by the National Oceanic and Atmospheric Administration (NOAA) Coastal Ocean Program, which looks at the various Forest Practices Acts in the western United States. He believes that fish biologists, without question, agree that one of the most important factors in protecting fish habitat is the contribution of large, woody debris. In other words, they want logs to go into the streams and stay there. Page 97 of the study indicates that Alaska does very well in terms of large, woody debris contributions. The study also speaks highly of Alaska's Forest Practices Act. Number 0664 MR. STURGEON concluded that from a private industry standpoint, Alaska has a model Act. In terms of what the government and legislature can do to help the timber industry, one thing would be the assurance that enforcement or administration of the Forest Practices Act remains consistent. Secondly, ensuring that current statutes and regulations are consistently enforced is important, as well as streamlining and encouraging agencies to work together. Third, to ensure that all agencies, especially the Department of Fish & Game, participate in monitoring studies and participate in the effects of timber harvesting on resources in order to bring credibility to the costly studies conducted by the timber industry. He noted the Division of Forestry and the Department of Environmental Conservation (DEC) have been very helpful in this area. Lastly, to have some type of cost-benefit analysis for regulations, statutes or policies made by government. MR. STURGEON thanked committee members for their time and attention. He reiterated the timber industry in Alaska is at a very critical time and if things remain status quo, there will be no industry. Number 0855 CO-CHAIR SCOTT OGAN referred to previous testimony about having to stockpile fiber because there's timber that is not saw grade timber in the sales and asked how long logs will last when stockpiled and would they last longer if they were chipped. MR. STURGEON responded that logs can last up to three or four years without getting too much sap rot. There are several problems with chipping such as the high cost of getting equipment in, there is a waste problem on private land, and transporting the chips to a ship is very expensive. It has been his experience that it is better to leave it in log form until the market improves. Number 0959 CO-CHAIR OGAN asked if there was any way to determine if a log was going to be pulp or saw grade in advance of cutting down a tree. MR. STURGEON said that people who cruise timber can get within 10 - 15 percent. To leave it stand is, in many cases, not very practical in Alaska because of the high lead systems used. He noted they have not figured out a way to be able to leave those trees standing and still operate. CO-CHAIR HUDSON thanked Mr. Sturgeon for his presentation and asked Terry Nininger to come forward. Number 1024 TERRY NININGER, Vice President, Circle DE Pacific Corporation; and Member, Board of Directors, Alaska Forest Association, said the Circle DE Pacific, which started operations in 1992, is involved in the harvest of beetle infested timber and beetle dead timber. That product is manufactured primarily into wood chips for export to Japan. Circle DE Pacific runs about 65 percent pulp and 35 percent exportable logs; frequently 100 percent pulp. The company operates on the Kenai Peninsula, harvesting on lands from Clam Gulch to Homer. They built a chip storage and reload facility in Homer that was funded by a $4 million loan from the Alaska Industrial Development and Export Authority (AIDEA). The facility includes a 4-acre tract, a chip loading system with a 1700-foot conveyor system and other modifications to the existing deep water dock in Homer. This is a state-of-the-art facility with the ability to load a full chip vessel - 14,000 to 15,000 bone dry units - in about three and one-half days. The company employs approximately 65 full-time employees and another 65 employees employed by subcontractors. Their product is harvested with feller-bunchers and then skidded with rubber-tired skidders. The product is then either chipped in the woods with the chips being hauled to the pad in Homer or the logs are hauled to one of three concentration yards, where the product is ultimately chipped or segregated out for export. Number 1148 MR. NININGER stated in 1996, the company produced about 135,000 bone dry units which translates into 325,000 tons of logs or about 11,500 log truckloads. He remarked that represents about 8,500 acres of logging and added their timber lands on the Kenai Peninsula average between 5,000 and 7,000 feet per acre as opposed to the 35,000 to 40,000 per acre in Southeast. Their timber resources come primarily from regional and village corporations. They have a contract with Cook Inlet Region, Incorporated for about 17,000 acres; with Ninilchik Native Association for about 10,000 acres; and a 50 million foot contract - about 10,000 acres - with the Crescent River Timber Venture, which is a joint venture between the Ninilchik and Seldovia Native Corporations. They have a number of smaller, state sales which total about 7,000 acres, as well as a substantial sale of about 2,800 acres with the University of Alaska. Number 1211 MR. NININGER said the company is actively involved in reforestation on state and university lands; replanting about 480,000 seedlings last year. Their product is used for both high-grade bond letterhead and newsprint. It's very light in color, taking a nominal amount of bleaching in the pulp process which makes it environmentally friendly. Number 1251 MR. NININGER commented the company is excited about their operation on the Kenai Peninsula. They generate revenues to timberland owners that have a product that's rapidly decreasing in value, they've reduced the fire threat, created local jobs and generate about $250,000 per year for the city of Homer for their deep water dock. Number 1274 MR. NININGER noted that Circle DE Pacific encourages the state to continue its timber sale program on beetle infested and beetle dead timber. There is a 5-year program in place for the Kenai Peninsula and Circle DE Pacific would like to see some of that timber consolidated into one single large sale of about 80 million feet or 16,000 acres. It is their contention that by consolidating into one large sale what has already been laid out in the Forest Practices Act sales, it would enable some of the larger players in the Kenai area to develop a long-term market and possibly increase their production. The facility at Homer does 135,000 to 140,000 bone dry units a year, but there's no reason that couldn't be increased to 300,000 bone dry units. He explained that Circle DE Pacific's plan would not interfere with the small timber owner sale program. Number 1347 MR. NININGER said the second issue he'd like to address is on behalf of R-Key(ph) Resource Base, which is Cook Inlet Region, Inc. and Ninilchik Native Corporations. The Native corporations are having trouble continuing to provide timber because of the requirements of the Forest Practices Act regeneration stipulations. The issue will be addressed with the Board of Forestry, as well as a number of resource people in the Administration and the legislature. The problems are with the restocking requirements, which are about 450 spruce seedlings per acre, and the 7-year window allowed for the restocking requirements. Cook Inlet Region, Inc. and Ninilchik are actively involved in coming up with a program of land utilization that best suits the needs of their shareholders. Specifically, they're looking at a combination of regeneration with other land uses, they are escrowing funds for regeneration, et cetera. However, at this time they are in a difficult situation in terms of meeting the regeneration requirements and still generate any kind of profit from their timber holdings. He noted this ties in directly with Mr. Sturgeon's previously remarks about the "no big hit" theory; this is a big hit. If Cook Inlet Region, Inc. and Ninilchik decide not to provide any more timber because of the statutes and mandates, it will create a problem downstream for everyone in the timber industry. Number 1445 MR. NININGER, as a principal of Circle DE Pacific and a member of the board of directors for the Alaska Forest Association, spoke in support of the Forest Practices Act regulation enforcement provisions. He echoed Mr. Sturgeon's remarks concerning the need for field presence of the DEC, ADF&G, and AFA staff to see what's going on, validate what the industry is doing, as well as ensure that operators are operating within the regulations. CO-CHAIR HUDSON thanked Mr. Nininger for his very informative testimony. Number 1545 RICHARD LEARY, Controller, Ketchikan Pulp Company, said "In brief summary, Ketchikan Pulp Company sell our quality logs which constitute about 55 percent of our forest down there -- spruce and hemlock type -- are converted to either one of our two sawmills. The large saw logs, 16 inches and up approximately, is converted to our hemlock mill. The small saw logs which range down to 5 inches up to 15 inches, are converted at our Ketchikan Sawmill located adjacent to the Ketchikan Pulp Company." Mr. Leary gave a brief history of the construction of the Ketchikan Sawmill facility which began in 1988. The total cost of the mill was approximately $15 million and was constructed on 11.2 acres of land owned by Ketchikan Pulp Company. With sufficient raw material, the mill can operate on a two-shift basis year-round, employing 89 people at direct sawmill jobs. He pointed out that does not include the logging jobs, tow boat operators, the stevedores, or the administrative or managerial staff. The Ketchikan Sawmill processes small diameter saw logs and the plain, green lumber products. Number 1648 MR. LEARY stated the Annette Sawmill, which is owned by the Metlakatla Indian community, was built in 1968 and has been leased by the Ketchikan Pulp Company since 1971. With sufficient raw material, this facility also can operate on a two-shift operation year-round, employing approximately 100 people with the same description of jobs. The mill is a cornerstone of the Metlakatla economy. Number 1686 DAN BENSON, Production Manager, Ketchikan Sawmill, directed committee members' attention to a handout, and narrated a picture tour of both sawmills. He explained that log rafts arrive in Ward Cove and the Ketchikan Sawmill lifts the individual bundles of logs to a breakdown deck. The bundles are broken apart and each log is sent through the debarker. At this point, two things transpire. First, the flow of material diverges as the bark is collected in trucks and taken to the power boilers, with the log continuing down the line for further processing. The bark reduces the need for diesel and power generation. Second, from the point that the log hits the debarker, every processing center in the complex becomes computer assisted. Programmable logic controllers are used to handle machine sequencing, timing, and conditions monitoring tasks, which allows each employee to focus more on the subjective decision making portion of the lumber production. The debarked logs are trimmed according to the defect contents, such as knots and rot, into primarily 10- and 13-foot segments. These are accumulated in the yard for processing in the sawmills. He noted these lengths work well for both the domestic and export markets. The log merchandising line allows Ketchikan Sawmill to run a broad spectrum of logs; from pulp utility logs to the high grade, while still realizing the highest possible fiber recovery. When fed to the sawmill, each segment is swung through a two-axis infrared scanning system and is measured for length, shape and diameter. A real time solution generator uses this data to position the segment for maximum yield. A solution generator combines the product line with machine capability and makes up the sawing pattern. The segment passes through a high strained quad band saw, where the boards and cants continue to one of two edgers. The three breakdown centers utilize state-of-the-art technologies to produce the least possible waste. They use linear positioning set works, which are accurate to one-thousandths of an inch, thin curved saws and cobalt alloy tipping on the saws to assure a product that is of consistently high quality. He explained the edger saws actually float on a bubble of air between the saw plate and guide surface to reduce heat build up. Mill run lumber is stacked, after being sorted, precision end trimmed, and packaged to be run in the planer department. These packages are broken down and fed through a high- speed planer that maintains product sized tolerances to within two-thousandths to defect content, such as knots or decay, and then packaged, tallied and stored for shipment. Number 1898 MR. BENSON explained that a close relationship is maintained with their customers. For example, as a result of the relationship with one of their customers, a mini-packaged product was created that allows the Japanese carpenter to take the product from the distribution yard to the job site and go to work with it with a minimum amount of handling. He explained further improvements that are being explored at the Ketchikan Sawmill, such as variable-pitched band saw MR. BENSON noted the product flow at the Annette Hemlock Sawmill is similar; however, it processes the larger log from the forest. Both of the mills aggressively seek improvements in the processes to ensure the highest possible fiber recovery from each log. Operations are continuously reviewed to add the highest value to every log that is run. They have an international reputation of quality as well as the people, technology and facilities, to thrive in both the domestic and export markets. The question is, "Do we have the resource supply necessary to continue our operations?" Number 2075 MR. LEARY discussed the product lines of the company and further commented that both sawmills target their primary production toward the traditional housing market in Japan. Ketchikan Sawmill delivers finished products that are used for structural components in the housing market. HM products are remanufactured into specialty doors and window frames. The high grade spruce is used in precision musical instruments, the lower grade saw logs are merchandised and the higher segments are turned into export quality lumber. The lower grade cants and cut stock grade from each mill enter the domestic market in the Pacific Northwest. MR. LEARY discussed the options available for the future. The infrastructure currently at the Ward Cove site can be used for many further value-added production, as well as other industrial opportunities. A real estate development expert has been hired to assist in the area of conversion. He directed committee members' attention to a handout which depicted their vision of how the facilities will look after cleanup. With the impending closure of the pulp mill, Ketchikan Pulp Company is entering a new phase with many new challenges. Number 2292 CO-CHAIR HUDSON thanked Mr. Leary and Mr. Benson for their informative remarks. Based on the information presented, he concluded that supply appears to be one of the major issues. Number 2337 CO-CHAIR OGAN asked if finger joined materials were made at either one of the sawmills. MR. BENSON advised that the raw material was made at the facility, but the finger joining was not done at either one of the locations. Number 2383 REPRESENTATIVE WILLIAMS observed there were two shifts running at the sawmill, but he questioned how much wood it could take for the two shifts. Also, he wondered what would happen to the pulp when the mill closed down. MR. LEARY said it takes roughly 100 mbf for a single shift, which translates into 400 mbf for two shifts at each mill. The company would like to operate 50 weeks per year which provides continuous employment and they can make and deliver a product that is wanted. TAPE 97-15, SIDE A Number 0001 MR. LEARY said the pulp would be a challenge. One of the alternatives is to export the logs, if that's allowed. He noted the facilities have the capability to chip it, with the nearest users being in Canada and the Pacific Northwest. If enough volume could be created, perhaps the export market in Japan would be an option. It would, however, take more infrastructure for the large ocean-going ships to come into port. CO-CHAIR HUDSON asked about the possibility of cutting prefab, for example, to Japanese specifications. MR. LEARY said that could be done because of the flexibility in the products they market. Number 0130 CO-CHAIR OGAN asked if there were any reasons why the company wouldn't consider getting into a more higher value-added market. He commented that a few of the logs in the yard at the mill could provide literally years of work for him by creating a more finished product. He reflected that Alaska may be missing the boat somewhere. MR. LEARY noted that kind of finished process requires the kiln drying. They do not have kiln drying at either one of their operations because they have focused on recovering the maximum amount of fiber from the resource. In order to look at kiln drying or other value-added, they would need a resource to justify the capital investment. CO-CHAIR HUDSON thanked everyone for their participation and informative presentations. ADJOURNMENT Number 0462 CO-CHAIR HUDSON adjourned the joint meeting of the House/Senate Resources Committees at 3:46 p.m.