SENATE RESOURCES COMMITTEE February 3, 1997 3:30 P.M. MEMBERS PRESENT Senator Rick Halford, Chairman Senator Lyda Green, Vice Chairman Senator Loren Leman Senator Bert Sharp Senator Robin Taylor Senator Georgianna Lincoln MEMBERS ABSENT Senator John Torgerson COMMITTEE CALENDAR CS FOR HOUSE CONCURRENT RESOLUTION NO. 1(WTR) Relating to a new Alaska liquefied natural gas project. - MOVED CSHCR 1(WTR) FROM COMMITTEE SENATE BILL NO. 7 "An Act reducing certain resident sport fishing, hunting, and trapping license fees, increasing certain nonresident sport fishing license and tag fees, and relating to nonresident sport fishing, hunting, and trapping licenses; and providing for an effective date." - MOVED CSSB 7 FROM COMMITTEE SENATE BILL NO. 8 "An Act relating to the noise levels of airports and sport shooting facilities." - SCHEDULED, BUT NOT HEARD PREVIOUS SENATE COMMITTEE ACTION HCR 1 - No previous action to consider. SB 7 - See Resources minutes 1/29/97. SB 8 - See Senate Transportation Committee minutes dated 1/28/97. WITNESS REGISTER Representative Ramona Barnes State Capitol Bldg. Juneau, AK 99811-1182 POSITION STATEMENT: Sponsor of HCR 1. Mr. Jeff Lowenfels, President and CEO Yukon Pacific Corp 1049 W. 5th Ave. Anchorage, AK 99501 POSITION STATEMENT: Supported HCR 1. Commissioner John Shively Department of Natural Resources 400 Willoughby Juneau, AK 99811-1724 POSITION STATEMENT: Supported HCR 1. Mr. George Findling Government and Public Affairs Advisor ARCO Alaska, Inc. P.O. Box 100360 Anchorage, AK POSITION STATEMENT: Supported HCR 1. Mr. Mark Bendersky, Commercial Manager Gas Division British Petroleum Anchorage, AK POSITION STATEMENT: Supported HCR 1. Ms. Beverly Mentzer, Business Development Manager Exxon P.O. Box 2180 Houston, TX POSITION STATEMENT: Supported HCR 1. Senator Dave Donley State Capitol Bldg. Juneau, AK 99811-1182 POSITION STATEMENT: Sponsor of SB 7. Mr. Kevin Delaney, Director Division of Sport Fish Department of Fish and Game 333 Raspberry Rd. Anchorage, AK 99518-1579 POSITION STATEMENT: ACTION NARRATIVE TAPE 97-6, SIDE A Number 001 CS HCR 1 NORTH SLOPE NATURAL GAS PROJECT(WTR)  CHAIRMAN HALFORD called the Senate Resources Committee meeting to order at 3:30 p.m. and announced  CS  HCR 1 (WTR)  to be up for consideration. REPRESENTATIVE RAMONA BARNES, Sponsor, said CSHCR 1 urges the establishment of a stable fiscal and regulatory environment in order to provide the best opportunity for a new LNG project to be economically viable and attractive. She explained that to be viable, 14 million metric tons of gas must be sold per year and the proposed project would transport and market the North Slope gas resources in the Asian Far East Market. It is believed there is an opportunity in 2005 when demand in that market will rise enough to accept the volume of gas which this project will provide. Alaska's huge volume of gas could be displaced from the market if smaller more easily placed projects come on line first. SENATOR LEMAN thanked her for the work in this area and he asked if identification of the leaseholders of rights-of-way or holders of permits could be included. REPRESENTATIVE BARNES replied that this resolution is directed to the holders of the gas of which the State owns 12 1/2%. The leaseholders spoken to in this bill are those major producers and some minor one who hold the lease for the gas in the Prudhoe Bay fields. She thought it inappropriate to identify Yukon Pacific in this particular resolution, although they support the bill, because they don't own a lease at Prudhoe Bay. Number 123 SENATOR LEMAN asked her to clarify why the terms North Slope and Prudhoe Bay were used. REPRESENTATIVE BARNES explained that Prudhoe Bay referred to all the fields in that area and included the surrounding fields as well, like Pt. Thompson. SENATOR SHARP stated in some of the meetings on this issue there was focus on the advisability of State equity ownership in a pipeline and he thought that it was deliberately left as one of the options for the Governor to study. He thought that was covered in lines 28 - 29 on page 4. REPRESENTATIVE BARNES agreed with that and added that all of the State's participation needed to be evaluated. CHAIRMAN HALFORD asked if other benchmarks could be used before the year 2005. He questioned by what date the contracts between the parties were to be drawn up by the Governor and by what date were they to be submitted to the legislature. REPRESENTATIVE BARNES replied that she intentionally did not put a date there, because she didn't want to appear inflexible or unreasonable. She restated that she thought the year 2005 was important because of outside competition and the support they receive when certain parties try delaying tactics like wanting a new route opened up or technological requirements. SENATOR LINCOLN said that Senator Murkowski and others had used the date 2007 and she would like to see an earlier date because it would be better for all Alaskans. She asked how she defined 2005 as the magic date. REPRESENTATIVE BARNES replied that the only people who say 2010 are the oil producers. No one in the marketplace has said that. No one in foreign governments has said that to her. They have all said between 2005 and 2007. Number 279 JEFF LOWENFELS , President and CEO, Yukon Pacific Corporation, said they hold permits to transport North Slope natural gas to tide water at Valdez and hold an export license from the federal government to export 14 million metric tons of LNG over a 25 - 30 year period starting at a date the project begins. He said they support the resolution 100%. He said it was important to move quickly and that 2005 is a crucial date. To suggest that it should be later would be suicide as far as a gas project from Alaska is concerned. CHAIRMAN HALFORD asked when they would actually have to start construction in order to keep the 2005 date. MR. LOWENFELS replied that they had to start in about the next 18 months. He said it would be very difficult, but Yukon Pacific had done a tremendous amount of advance planning. COMMISSIONER JOHN SHIVELY, Department of Natural Resources, said the administration has its own working group with the producers and they have been working with Representative Barnes. They think it is an important step to reach an important goal. CHAIRMAN HALFORD asked if he felt it was important to be in the ground within 18 months in order to reach the 2005 goal. COMMISSIONER SHIVELY responded that he didn't think Mr. Lowenfels meant that we had to be in the ground in 18 months, but that we had to have letters of intent for purchase in 18 months. We should be in the ground between 2000 - 2002. Mr. Lowenfels nodded agreement. SENATOR LINCOLN asked if 2005 was a realistic date that this administration would also push for. COMMISSIONER SHIVELY answered that he didn't think they were as committed to the exact 2005 date as Representative Barnes, although there is no question that a market opportunity starts around then. There is no question, also, that the sooner we get to the market, the better off we are. Number 346 GEORGE FINDLING, ARCO, supported HCR 1. He said that expeditious passage of this resolution will help advance the project. CHAIRMAN HALFORD asked for the ownership breakdown on the gas reserves. REPRESENTATIVE BARNES replied 30, 30, 22. SENATOR LINCOLN asked if 2005 was a realistic date for having the gas line in place and into the market. MR. FINDLING replied if you project everything going well, he thought production wouldn't happen before 2007. But he thought that 2005 was a good target date. Number 376 MARK BENDERSKY , BP, said the interim work done by Representative Barnes was very thorough and comprehensive and they are in full support of the Resolution. SENATOR LINCOLN asked if he thought 2005 was a realistic date. He replied that 2005 is an excellent goal to work toward. He said there is a lot of competition for gas supply and it will be somewhat of a buyers market. Their job would be to make sure Alaska's gas will be as high in the queue of supply projects as possible. Number 395 BEVERLY MENTZER, Business Development Manager, Exxon, said she is responsible for commercialization of the Alaska gas reserves. She emphasized that Exxon is very committed to commercializing Alaska's gas reserves on the North Slope. They are very supportive of this resolution. It is exactly what the project needs for it to move forward at this point. SENATOR LINCOLN asked what she thought about the 2005 date. MS. MENTZER replied that they agree with the statement that there is an opportunity opening up in the marketplace beginning in 2005. They believe the opportunity continues to grow as there is economic development in the far east. In shooting for a date she thought there were two things to remember. One is that it's not currently economically viable and we need to make it economically viable. The work on fiscal terms and cost reductions will help that and continued growth in the market will help. So they are not in total control. Two, the market will ultimately decide which projects go forward and which are developed. They are moving forward and they accept that date as a target. SENATOR LINCOLN asked what she defined as a start-up date. MS. MENTZER replied first gas down the pipeline. SENATOR SHARP asked if she agreed that the critical movement here is to go forward and obtain the consumptive contracts for that period of time as the window opens up as early as possible. MS MENTZER replied that it is critical because the purchasers also have quite a bit of investment to make on their side of the ocean. They need the long lead time, too. SENATOR LEMAN asked her about using Pt. Thompson in the earliest stages as part of the ramp-up recognizing there is a cost to oil left behind. MS. MENTZER replied that they had not done a rigorous relook at Pt. Thompson since August. They have their estimates of impact on oil recovery that are in the financial model that the State currently uses and the economics of it are not significant to the timing of the gas project. They plan to reevaluate it in 1997 and will be getting a new estimate. The key issue to them is if Prudhoe Bay gas can't make the project economic now with all the existing field infrastructure, if you take that same thing and layer all the wells that need to be drilled at Pt. Thompson, you are going in the wrong direction as far as trying to reduce cost. She said they expect that the infrastructure they build would need to support future gas sales from Pt. Thompson and other fields and they are planning that into their design basis. SENATOR TAYLOR noted that the Governor was being requested to do a number of things, but was not getting a copy of the resolution. REPRESENTATIVE BARNES responded that it does address the Governor over and over again, and it is a House Concurrent Resolution which means it is a message to the executive. Number 512 SENATOR SHARP moved to pass the CSHCR 1(WTR) from Committee with individual recommendations. There were no objections and it was so ordered. CHAIRMAN HALFORD called an at-ease from 4:10 - 4:15 p.m. SB 7 HUNTING SPORT FISH TRAPPING FEES/LICENSES  CHAIRMAN HALFORD announced SB 7 to be up for consideration. SENATOR DONLEY, Sponsor, said SB 7 is an attempt to bring our sportfishing fees more in line with national averages, to create some additional options in non-resident sportfish fees, and to no longer offer a sportfish license for non-residents that's for an entire year. The primary reason behind that is because some people are abusing our annual non-resident sportfish licenses. It has become somewhat of a serious problem in that a person can camp out in Alaska throughout the fishing season and sport harvest fish and then sell those fish when they go home. This is not a wide-spread problem, but was the subject of a series of newspaper reports regarding abuses on the Kenai Peninsula. The longest license a non-resident could purchase under this legislation would be 14 days instead of the current annual license. Additionally, it gives a slight cut to residents who chose to buy combination hunting, fishing, and trapping licenses. Current fee structure offers no discount at all for a combination license. Section 5 is a technical section which adds back something that was deleted in another section. He said the bill before the committee has a provision that was requested by ADF&G that allows an intermediate license for people who had been here for six months, but the Enforcement Division said it would be difficult to enforce. So he has a CS that takes it out again. Number 565 SENATOR TAYLOR moved to adopt the CS to SB 7. There were no objections and it was so ordered. SENATOR LINCOLN asked regarding section 5 that if you buy a tag for a bear and change your mind, can you go for a bison or something else instead. SENATOR DONELY replied that was right and that is currently in law also. KEVIN DELANEY, Director, Division of Sport Fish, said the fee structure for licensing sport fishermen in Alaska has a history of stability with the last significant change in 1992. TAPE 97-6, SIDE B Number 590 Licenses, particularly sales to non-residents, over the past decade have increased steadily. Money received from the sale of sport fishing licenses is deposited into the State's Fish and Game account, a constitutionally dedicated fund, which can only be expended for projects that provide benefits primarily for sport fishermen. MR. DELANEY said that adopting of SB 7 would result in a substantially larger contribution to the State's Fish and Game fund on an annual basis due specifically to the increase in the non- resident sport fishing licenses and tags. He cautioned that their ability to model a market reaction to significant changes in sport fish license fees is very limited. Other states have increased these fees and it has resulted in, at least, a temporary decrease in total sales. Non-resident fees comprise about 75% of the total annual income from license sales across the State while non- resident sport fishing effort is only about 35% of the total angler days expended in the State. Our sport fish program is unique because participation in the sport fisheries in the State is paralleled with increased sales of licenses and also with increased federal aid funds that come into the program. There are excise taxes on fishing equipment that are generated at the manufacturer level and parcelled out to the states, he explained. That has allowed them to roughly keep pace with the increases in participation. Number 535 MR. DELANEY said the Board of Fisheries has agreed to put out a call for proposals to create seasonal limits for non-residents across the State through their next cycle. They have found that for both residents and non-residents about 3% harvest about 20 - 25% of the total harvest of salmon and halibut. A small segment of both the resident and non-resident population takes large numbers of fish. The challenge is to affect the behavior of that 3% and reduce their exploitation of fish and not create something that's onerous to the other 97%. Their recommendation (ADF&G and Fish and Wildlife Protection) is to adopt seasonal limits which would create a backdrop of regulation that would not affect the preponderance of non-residents who come to Alaska to fish. Another thing they have done on a regulatory level since they last saw this issue is to add intent to sell or barter sport fish to the prohibitive language. Fish that are in transit, then, in commercial quantities would be subject to this regulation. He said ADF&G has worked together with Fish and Wildlife Protection and in the FY 98 Governor's budget, under Division of Sport Fish, requests funding for an enforcement demonstration project. This will be the first time ever they have made Fish and Game funds available through a contract RSA with Fish and Wildlife Enforcement to work on specific sport fish issues that they jointly designate. He said the very first place the enforcement officers will be utilized is on the Kenai Peninsula to look into the illegal sale of sport caught sockeye salmon. MR. DELANEY said he could see little else that can be done in statute that can address this until they see the results of their efforts. They do think the addition of a seven-day license for non-residents would be beneficial, but for the non-resident annual license they suggest rather than eliminating it, to price it at approximately two and a half times the 14-day license. He said that most of our fishing seasons for salmon are less than a month long except for Southeast where it is a marine fishery. He agreed with Senator Donley that people who come up here and spend extended periods of time participating in our sport fisheries get one heck of a bargain. He did not think they would be affected at all by making an additional contribution. He said two and a half times works out to about $75. This would also address the issue of the new people who come to the State and intend to become residents and a number who come up seasonally. SENATOR LEMAN asked Senator Donley if he considered raising the one-day license fee which would still be a bargain for sport fishermen especially in light of the new information about Canada's bag limits. Number 478 CHAIRMAN HALFORD announced at 4:37 p.m. that he was going to another meeting and Vice Chairman Green would chair the meeting now. He added that he thought Senator Donley was going in the right direction. SENATOR DONELY said he thought if they were going to increase the one-day fee, it might be a good idea to just eliminate it because currently we charge only $15 for a three-day license and he proposes to raise that to $20 which is pretty insignificant to an individual. SENATOR LEMAN asked how we compare with other states for one-day licenses. KAR EN BRAND , staff to Senator Donley, replied that th found that every state has a different set-up and it was impossible to make a comparison. She said they had the same difficulty trying to compare with Canada. SENATOR SHARP said he thought it would be very difficult to enforce a seasonal limit. MR. BROOKS responded that nothing works without enforcement on the ground. However, he pointed out that 90% of the people do go along with well-reasoned regulations. Ones who aren't inclined to do that are only going to respond to enforcement activities in the field. He explained that they would furnish people who are going to fish in fisheries subject to a seasonal limit a harvest record card on which they are required to record time, place, date, and species in ink immediately upon landing and killing that fish. If they don't, they are subject to the fine. He said they have had relatively good luck with that regulation. He noted that it helps that most are short seasons of 10 days to three weeks. SENATOR TAYLOR remarked that if the Board is seriously talking about changing seasonal bag limits, he hoped they would call Deborah Lyons and Bob Penny and talk to them about it, because he saw Ms. Lyons thrown of the Board of Fish for even bringing that subject up on the Kenai River. He personally doubted that the Board would have the courage to do it, but hoped they would. He was concerned that they are attacking every non-resident coming into the State for the bad acts of what may be a few. He gave an example of a son and wife coming up to visit their resident parents and having to pay $240 for two weeks of fishing and maybe not being able to fish most of those days because of bad weather. He thought we might be reaching a point in the economics of these things where people say why are we wasting our time here where for $235 I can get an airplane fare out of Seattle, three nights lodging in British Columbia, and I can catch four king salmon a day in British Columbia, but only one in Southeast Alaska. VICE CHAIRMAN GREEN asked in the past did they get feedback from visitor groups who were worried the fees would be a detriment to visiting. SENATOR DONELY replied that there was a limited amount of that and there have been adjustments made in the non-resident hunting where there was most concern. SENATOR LINCOLN asked if the Alaska Sports Fishing Association is supporting this. MS. BRAND replied yes. SENATOR LINCOLN wanted clarification on how the military would be treated as a resident or non-resident. SENATOR DONLEY replied that this does not change treatment of the military which was an annual king salmon tag of $20 with their annual license being less than the non-resident. SENATOR LINCOLN asked what percentage of the fees we get now are from the military versus the non-resident/non-military. MR. BROOKS said it was a fairly small percentage and he wasn't sure if they were lumped in with the non-residents. SENATOR LINCOLN wanted clarification on the fiscal notes. The one from Public Safety is $0 impact and yet the analysis says the bill will impact the department's enforcement programs. She also wanted to know about the Division of Wildlife Conservation expecting $140,000 annual loss in revenues. Her third concern was the Division of Sport Fisheries anticipating an increased revenue of $1.5 million for the first year. MR. BROOKS replied that the legislation proposes to reduce the combo licenses. It's their estimate that the $5 decrease in the combo license would result in the loss from the Division of Wildlife. The increase for Division of Sport Fish is very difficult to quantify. SENATOR LINCOLN said she didn't think that the proposed increases were out of line. About Senator Taylor's concern with buying a two week license and not being able to use it because of bad weather she thought wasn't that serious because if there was bad weather, a person could buy a one day license for $10. MR. BROOKS said the original SB 7 makes a provision for a non- resident who's been here the preceding six consecutive months and maintained a permanent place of abode in the State to get a non- resident license that's good for the remainder of the year. The reason for that was that they would have to spend some time to research whether, in fact, people had been here six months. They don't anticipate any additional man power to do that, because they will leave something else undone. MR. BROOKS said other states that don't have the opportunities we have, have made significant changes in their license fees. The results have been everything from very favorable to very unfavorable. There is a lot at stake, but it is hard to project the effects in the marketplace. He is cautious because we have a very good program today. Number 178 SENATOR SHARP moved to pass CSSB 7 from committee with individual recommendations with the new fiscal notes. There were no objections and it was so ordered. Number 161 SB 8 AIRPORT/SHOOTING FACILITY NOISE LEVELS  VICE CHAIRMAN GREEN said they would hold SB 8 and adjourned the meeting at 5:00 p.m.