SENATE RESOURCES COMMITTEE May 7, 1998 4:10 P.M. MEMBERS PRESENT Senator Rick Halford, Chairman Senator Lyda Green, Vice Chairman Senator Loren Leman Senator Robin Taylor Senator John Torgerson Senator Georgianna Lincoln MEMBERS ABSENT Senator Bert Sharp COMMITTEE CALENDAR CS FOR HOUSE BILL NO. 284(FIN) "An Act relating to infestations and diseases of timber." - PASSED CSHB 284(FIN) FROM COMMITTEE Fiber Optic Overview Briefing: Mr. John Burns World Net Communications 1029 West 3rd Ave. Anchorage, AK 99501 Mr. Mark Foster, President ATU Long Distance 301 W. Northern Lights Blvd. Anchorage, AK 99503 Mr. Jim Rowe, Executive Director Alaska Telephone Association 201 E 56th Ave. Anchorage, AK 99518 Ms. Laurie Herman, Director External Affairs AT&T Alascom 210 E Bluff Dr. Anchorage, AK 99501 Mr. Duane Parlow, Manager Administration Homer Electric Association 3977 Lake St. Homer, AK 99603 PREVIOUS SENATE COMMITTEE ACTION HB 284 - No previous action to consider. WITNESS REGISTER Commissioner John Shively Department of Natural Resources 400 Willoughby Ave. Juneau, Ak 99801-1724 POSITION STATEMENT: Commented on fiber optics rights-of-way. MS. MARTY WELBOURN, Chief Forest Resources Department of Natural Resources 400 Willoughby Juneau, AK 99801-1724 POSITION STATEMENT: Opposed HB 284. Ms. Pam LaBolle, President State Chamber of Commerce 217 Second Street #201 Juneau, AK 99801 POSITION STATEMENT: Supported HB 284. WITNESS REGISTER ACTION NARRATIVE TAPE 98-40, SIDE A Number 001 CHAIRMAN HALFORD called the Senate Resources Committee meeting to order at 4:10 p.m. and announced a briefing on fiber optics. MR. JOHN BURNS, World Net Communications, said that he wanted to set aside some misrepresentations. He heard that Mr. Duncan is concerned that WCI World Net Communications is trying to promote a 50 cent per foot rate and that is not true. All of their interest has been in an appraisal process or similar process that would be fair to all parties. Another misconception is that the State has no choice, but to move ahead because uncertainty is delaying projects, but projects have been and are being built, for example, the Alaska Fiber Project, the project to Whittier, and the project between Whittier and Valdez is done, and they are in progress on the project to the lower 48 - and there is no urgency to make a hasty decision about how to do this right. The 1996 Telecommunications Act makes it incumbent upon the states to make sure there is a fair competitively neutral playing field. All of those projects accepted the appraisal notion and in the original Kanas permit, they agreed to an appraisal approach. If they change the approach now, they are creating a problem they don't need to and one they will have to go back and correct. MR. BURNS agreed with Mr. Duncan that this is phone war. GCI has always carried the competitive banner, but something has happened in the last year. Unfortunately, additional communications have come to the State in the form of World Net Communications which they welcome as long as they maintain the competitively neutral playing field. In 1996, they committed to the Alaska Fiber Star project and were fully aware of the Kanas project along the pipeline and recognized it as a competitive project. They also found that DNR was intending to use an appraisal process which is satisfactory with them. Their concern is that, effective in early March of this year, there is a change and a desire to scrap the appraisal and institute a single unit cost. They don't feel that works for either the State or the consumer. They feel the appraisal is a fairer system and support the idea of having a Task Force to come up with a uniform process, but see no logic that current pending permits be issued for five years. It will not take five years to arrive at a decision of what is appropriate. If legislation is required, a period of one year to eighteen months would be sufficient to have a conclusion. MR. MARK FOSTER, President, ATU Long Distance, said they are a reseller; buying capacity from facility-based carriers and resell that capacity to the retail market residential, and business customers. In that light, they view AT&T, Alaska Fiber Star, GCI, and Kanas as potential suppliers of capacity. ATU hopes their potential suppliers compete with one another on price, quality of service, and reliability, and not on their ability to preserve for themselves outdated rights-of-way valuations while their competitors pay a market-based rate. The State basically has three options to charge them. They can give it away for free or some token amount, charge an amount representative of the value of the right-of-way for utility service in a general manner, or charge an amount representative of the market-based value of the right-of-way to the fiber optic facilities. He is basically indifferent to any of those options, so long as they are applied equally to all the providers of capacity. The real problem appears to be that some major fiber optic investments are being charged for rights-of-way based on a market valuation that in some parts may be relying on value of use while others appear to be being charged a lower right-of-way rate not necessarily linked to a market valuation. This is the dilemma they are facing in this instance. In order to achieve competitive neutrality, do they let the courts sort it out by doing nothing? Do they move forward using a historic practice of the $100 per acre or do they use market valuations as a presumptive market approach? The problem with moving forward using the $100 per acre historic practice is that it appears to place the Alaska Fiber Star project at a competitive disadvantage during the interim period. It appears that using a market-based valuation appraisal process during the interim would allow them to buy from their competitors without them having undue advantage. Yesterday there was a characterization made that several interests wanted someone to pay 50 cents a lineal foot and GCI might be getting a better deal, if you look at the capacity that's being carried over the right-of-way. The nondiscrimination provision concerning rights-of-way in the Telecommunications Act might be applied to all utilities which may be somewhat misleading in the following sense. Nondiscrimination provisions are clearly designed to apply to telecommunication providers. It does not distinguish between what a company might have historically provided and instead focuses on the fact that telecommunications services are being provided. Thus he thinks one could read the provision to basically apply to an electric utility that is providing fiber optic capacity as its telecommunication service. CHAIRMAN HALFORD asked if the State of Alaska is made up of six or seven entities, and does the federal act require equality across the entities for competing uses. MR. MARK FOSTER said he hadn't asked counsel to address that specific question, but he would get back to him with his response. CHAIRMAN HALFORD asked him for a distinction between the appraisal of the value of the use versus the appraisal of the value of land. MR. FOSTER answered that they have a number of options to pursue. It's not clear to him that the value of land versus value of use is the superior one. His concern at this point, is that the policy that's out there now that's been applied to one of the major suppliers does not appear to be being applied to all of them. The goal should be a uniform application of a reasonable process which he thought should be based on market value. Number 228 MR. JIM ROWE, Executive Director, Alaska Telephone Association, said they are deeply concerned with the disparate pricing policies the State appears to be adopting. Alaska Fiber is paying the State 50 cents a foot annually for its right based upon an appraisal. However, the Department of Natural Resources has recently proposed to price an NFS Kanas permit at the rate of six cents a linear foot. Since Kanas had agreed to pay the State for the right-of-way based on an appraisal, and since they built their network based on that understanding, they see no reason for the DNR to now change the rules. This is not competitively neutral and undoubtedly violates the Telecom Act of 1996. It will have the effect of discouraging investment in Alaska. Setting a price of six cents per linear foot may be too high to encourage development of a telecommunications infrastructure. They strongly support appointment of a task force to develop a comprehensive, predictable and uniformly applied policy for fiber optic development which should be finalized before the beginning of the next legislative session and the legislature could act on the recommendations at that time. The process could be completed in 18 months and he offered their assistance. CHAIRMAN HALFORD asked how he felt about an appraisal of the value of the use versus an appraisal of the value of the land. MR. ROWE said that neither one is really pertinent as long as it's comparable for all the parties. They are not asking for 50 cents per linear foot everywhere in the State. It's probably the appropriate amount in the Anchorage bowl, but not in the remote areas of Alaska. He would like to see an infrastructure installed and encourage other entities to come to our State and invest money. MS.LAURIE HERMAN, Director, External Affairs, AT&T Alascom, said that they believe rights-of-way across State lands where fiber optic cable projects should be granted under existing State standards. In the event that there are two conflicting State standards, the standard that would encourage infrastructure development and competition should prevail. Number 349 MR. DUANE PARLOW, Manager of Administration, Homer Electric Assoc., said he had a prepared statement to read on behalf of Mr. Norman Story, their General Manager. He said they are currently in their final stages of building a fiber optic infrastructure between Homer and the cities of Soldotna and Kenai and have considered the issues of rights-of-way for fiber optic projects. They allow the State to continue to use the existing standards and historically used pricing methods for granting rights-of-way because any change in policy will create conflicts where none exist today. Fiber services are intended to directly serve the people of Alaska as are all other utilities. The increased cost of using State rights-of- way for one particular type of utility has the effect of placing a hidden tax on the people of Alaska. A change in policy that would use a fair market appraisal based on use in determining rights-of- way would set a precedent for increasing costs of other types of utilities which would be born by the consumers. A conflict would be created between a utility utilizing fiber optics for its internal operations versus use for commercial business. Singling out fiber optics for special treatment would create conflicts between the use of fiber optics versus copper lines. The pricing would suggest the State encourages the use of copper over fiber optics. By State statute and PUC ruling, within the municipal boundaries a municipality is limited to charging only a reasonable administrative fee for the use of public rights-of-way which at least sets a precedent for the State to follow. The State should not be able to levy unreasonable and unnecessary charges. Modern infrastructure development within our State should be encouraged. Changing to the method using fair market appraisal based on use will only add cost to Alaskan consumers which are now marginally justified. COMMISSIONER JOHN SHIVELY said he didn't know what the law was for different state entities to charge different prices. That law has not been tested, but he suspects it will be. They have taken the position that each entity has to be consistent, itself. They have also taken the position that if there are six different entities within the State and each one has a different approach, that still meets the telecommunications law. He said consistency within the industry is a very worthy goal and they should have thought about it earlier, because they can't get there right now. Part of the MFS right-of-way is along the Department of Highway right-of-way and they can't appraise it. There is a one-time administrative fee. The railroad has their own, DNR has their own. He indicated he didn't have the ability to charge above the six-cent rate. DNR does not have the flexibility to value by use. They chose not to do that. No one in the State, including the railroad, has value based on use. They did a land appraisal and gave a corridor value because there is extra value to that corridor. As a result of that figure, they negotiated a deal and have not done that on general public lands in Alaska. There was also a comment made yesterday that people didn't have an idea what DNR was up to and he thought that was true in the Park, but they are not used to doing rights-of-way in the Park. During the testimony for going through the Park, the only people who testified in favor of going through the Park were people from GCI. They could have easily said no, but they decided to do it, but to treat it differently than general purpose lands. SENATOR LEMAN asked if there were ever cases in Alaska of overlapping jurisdictions within agencies of the State that may further complicate whatever the answer might be. COMMISSIONER SHIVELY answered along the highway part of it's our land, part of it's BLM land, part of it's DOT land. It's adjacent and that causes a problem with the corridor concept, because you're not dealing with one land owner. SENATOR TORGERSON asked if the scope of the reevaluation would be looking at a separate charge because they are running fiber optics on the same pole as they have electric. COMMISSIONER SHIVELY said he has suggested looking at fiber optics itself, not all utilities. Fiber optics in other parts of the country has changed quite a bit from what people charge for using rights-of-way because it is a lucrative business. The Railroad has an attractive situation, but DNR isn't in the same situation. It's worth trying to look at whether some State agencies should have a consistent policy for fiber optics. The Administration has not said to look at other lines like, sewer, water, and electric. SENATOR TORGERSON said he just wanted to know if he owned a right- of-way for a power line, would he be reconsidered if he wants to hang fiber optic on that right-of-way. COMMISSIONER SHIVELY answered that he thought it would depend on how they wrote his permit; and if they felt fiber optics was not permitted as part of that, they would be a different charge. CHAIRMAN HALFORD asked what his perception was of where the legislature was at this point. The reason he wanted to hear this is that the letter he got said the Legislature was doing nothing, and therefore, going along with this. There have been numerous meetings and communications, the most formal being the House Resolution. His concern was to not be characterized as creating a legislative position by inaction. He asked the Commissioner what he was going to do. COMMISSIONER SHIVELY said it would be his last political act to predict what the legislature thinks. He intends to issue the permits as soon as they adjourn to North Star and GCI to do their underwater cable with a fee of $100 per acre or for what amounts to about six cents per foot. They had also agreed to put together a task force of State land-owning entities to look at this to make recommendations to the legislature next year. They have said the rates they charge as a result of the leases they will issue will be for five years. In addition, MFS has agreed they will take the six cents rather than appraise. There is probably debate about whether that's a good or bad deal for them. If the whole pipeline is appraised, he didn't know if it would be at $100 per acre. It could well be less; and his experience with appraisals along that whole corridor is that it is less. CHAIRMAN HALFORD asked if it was six cents under water? COMMISSIONER SHIVELY said they are all on land. They have agreed that it's probably not time to do the major kind of change you would have to make. They have agreed the study is a good idea, and for the legislature to look at the recommendations next year, but the issue that has been most debated is whether five years is appropriate or something less. That is his opinion right now of where the debate sits. CHAIRMAN HALFORD said it seems to him that people wouldn't mind if the time were shorter if they thought it was going to be a full blown review. COMMISSIONER SHIVELY said some people believe that and some do not. HB 284 - TIMBER THREATENED BY PESTS OR DISEASE CHAIRMAN HALFORD thanked everyone for their testimony and set the issue aside and announced HB 284 to be up for consideration. REPRESENTATIVE MARK HODGINS, sponsor, said that HB 284 relates to diseases of timber and amends AS 41.17.082(d). He said basically when trees die from the spruce bark beetle it takes about three or four years and they turn a bright red color. On the Kenai Peninsula there are several million board feet that have been impacted and the problem he sees is that there have been too many task forces that all decide that something should be done. This bill will give them an incentive to do some things. He showed the Committee a chart of the infestation that has occurred on the Kenai Peninsula. CHAIRMAN HALFORD asked how small the trees were that are being impacted now. REPRESENTATIVE HODGINS said it's beginning to impact below six inch trees and most of them are fairly vigorous still. The larger trees are not as vigorous and are more severely impacted. SENATOR LEMAN asked if the Commissioner could require selective cutting since they have been told that there's a greater chance of the new growth taking hold with scarification. He supported the reforestation clause in the bill and hoped the legislature could fund that. REPRESENTATIVE HODGINS responded that there is quite a bit of latitude in this for the Commissioner allowing him to determine an area to not have any harvest. His first thought was to make this a selective harvest bill and open it up as much as possible to the small timber operator, because that's where you get your highest value from. He said they don't expect to control or stop the beetle with this legislation. They would like the ability to remove some of the fire fuel in places like the Miller Reach fire where there was $45 million spent for suppression and damage done. He said they face the same thing on the Kenai Peninsula. SENATOR TORGERSON asked him how it would impact private lands. REPRESENTATIVE HODGINS explained this bill would encourage some selective harvest that will be up to the private land owner. Under the Forest Practices Act, the Commissioner could determine if the infestation was so severe that he could waive any portion of that act if he could, except for the portion around salmon streams. SENATOR TORGERSON said he didn't read it as leaving out private land owners and municipal land and it says the Commissioner shall implement salvage measures. REPRESENTATIVE HODGINS responded that on private land, the State could not go in and mandate that something happen. They can work out an agreement with the land owner to make something happen. There could be the possibility of helping land owners with reforestation. The same thing with municipalities; they can not allow the State on their property in which case nothing would occur. SENATOR TORGERSON said his concern is that it says if the forest land owner does not comply with the final order of the Commissioner, the Commissioner may enter onto the land and undertake the actions ordered by the land owner and the land owner is liable for the cost of those actions. Now it's amended to say that he has to implement the proper salvage measures. SENATOR LINCOLN asked him to respond to the letter from the Director of Forestry and one of the fiscal notes for $615,000. TAPE 98-40, SIDE B Their concerns were that DNR already has the authority to do emergency sales and this legislation doesn't help them in that regard. She was also concerned that the authority to waive the Forest Practices Act risks water quality and fish habitat protection, but has little effect on the beetle population. Another area mentioned was the Spruce Bark Beetle Task Force which will issue a finalized report on May 8 which will make recommendations. She said the mayor of the Borough has put together a task force on the infestation which hasn't been completed. She thought they were getting ahead of themselves in making these recommendations. REPRESENTATIVE HODGINS responded that this Administration does not want to cut trees and he said this is an infestation on the Kenai Peninsula and with their salvage timber operations there has not been an emphasis to cut trees. They will not control the beetle with this bill. He would like to have the ability to go into areas that the Commissioner deems important enough to do some salvage and go forward with that. SENATOR LINCOLN asked if the reason he put this bill together was to control the beetle infestation. REPRESENTATIVE HODGINS answered yes it is, but the reason it will not control the infestation is because there is so much acreage that is now impacted, the cost of controlling it would be approximately $8 million and even that would not completely solve the problem. There is a tremendous health and safety problem with dry fuel standing that could become very explosive. This standing dry fuel, in a wind storm, could knock out a lot of the utilities that range between Kenai and Homer along the highway. There is a tremendous need for reforestation, because without it, these forests are going to become grasslands in several years. The fact that we have habitat that depends on the forest ecosystem that is being destroyed is pretty evident. The Spruce Bark Beetle Task Force hasn't led them to any resolution of the problem. Number 536 MS. MARTY WELBOURN, Chief, Forest Resources, clarified that the Department of Natural Resources is continuing to salvage and reforest infested areas on State lands. For example, on the Kenai Peninsula alone, they have held 23 salvage sales since 1994. They have done this despite a lawsuit that opposes salvage operations. By contrast, the US Forest Service which has a much larger staff and budget has held only two sales during the same period. She reaffirmed their opposition to HB 284. The Department of Natural Resources continues to oppose this bill because it would not reduce the impacts of major infestations, and will be expensive to implement. The bill does not provide effective new tools to address infestation. DNR already has the authority to develop agreements with land owners to waive reforestation requirements under the Forest Practices Act and to offer emergency sales and below cost sales. DNR is already offering salvage sales that don't fully offset the costs of salvage and reforestation. The proposed authority to waive other Forest Practices Act requirements risks water quality and fish habitat protection while having little effect on beetle population. The Forest Practices Act do not significantly hamper salvage operations. Finally, the Kenai Spruce Bark Beetle Task Force, led by Mayor Navarre, has completed its recommendations for near-term action. The recommendations for long term action have been drafted and will be finalized tomorrow. The Task Force has recommended that timber harvest focuses on reducing risks from wild fires near populated areas, but it does not recommend other salvage operations. However, little of the land in the high fire risk areas is State owned. DNR is working to implement the Task Force recommendations wherever possible. They feel the current bill does not reflect the Task Force recommendations. HB 284 would have little or no effect on large infestations, because it does not address the main factors that cause insect outbreaks and limits their control. Climatic conditions play a key role in determining the size of outbreaks and can not be controled by agency action. Pests such as bark beetles occur naturally throughout Alaskan forests and their populations can explode whenever weather conditions are favorable. Wherever you have white spruce, you have spruce bark beetles in Alaska. Feasible salvage harvesting is limited by weak markets for low value timber, by limited funding for timber sales and reforestation and by multiple use concerns about the impacts of timber harvest and roads on other resources and activities. HB 284 increases State costs by requiring the State to develop agreements with private land owners regardless of their interests. Further, it is unclear whether Section 1 (d) would require the State or private land owners to pay for the "necessary salvage measures" on private lands. MS. WELBOURN said implementing this bill would be costly since it applies statewide. In 1997, for example, aerial surveys recorded 17 different types of insects or diseases, each damaged more than 100 acres of forest land in Alaska affecting a total of 2.5 million acres. The fiscal note submitted by DNR is very conservative. In 1996, the Society of American Foresters invited forest health experts from British Columbia to view the bark beetle infestations in Southcentral Alaska. Those experts recommended that the State spend at least $50 million per year to respond to the infestation. She asked the Committee not to pass HB 284 and offered to work with them on ways to implement the Task Force recommendations. Number 514 MS. PAM LABOLLE, President, State Chamber of Commerce, said this is one of their priority pieces of legislation. They have passed a resolution saying they would like an emergency declared by the State on the spruce bark beetle. In the almost 50 years that the Tongass has been harvesting trees, they have harvested about 400,000 acres and in nine years, the spruce bark beetle has taken out 3 million acres (according to her figures). SENATOR TORGERSON asked Representative Hodgins what his intent was for already dead stands. REPRESENTATIVE HODGINS answered that he wanted to remove the fuel source, and he thought an owner would initiate an action like that with the Department. He thought the language in the bill would allow for a better agreement between the private property owner and the Commissioner. He didn't foresee the Commissioner ever coming in and condemning someone's trees for a specific reason if they are on private property. SENATOR GREEN moved to pass CSHB 284 (FIN) from Committee with individual recommendations and the accompanying fiscal note. There were no objections and it was so ordered. SENATOR HALFORD adjourned the meeting at 5:15 p.m.