ALASKA STATE LEGISLATURE SENATE RESOURCES COMMITTEE  May 2, 2001 4:25 p.m. MEMBERS PRESENT Senator John Torgerson, Chair Senator Pete Kelly Senator Robin Taylor Senator Kim Elton Senator Georgianna Lincoln MEMBERS ABSENT  Senator Drue Pearce, Vice Chair Senator Rick Halford   COMMITTEE CALENDAR  Confirmation Hearings: Mr. Russell Nelson, Board of Fisheries Dr. John White, Board of Fisheries Mr. Pat Pourchot, Commissioner, Department of Natural Resources ACTION NARRATIVE TAPE 01-36, SIDE A  Number 001   CHAIRMAN JOHN TORGERSON called the Senate Resources Committee meeting to order at 4:25 p.m. He announced the committee would start with the confirmation of Mr. Russell Nelson to the Board of Fisheries. MR. RUSSELL NELSON said, "The Board has adopted sustainable fisheries policies, which ensures that the Alaska Department of Fish and Game and the Board are proactive in conserving the fishery resources into the future." CHAIRMAN TORGERSON asked if he had any particular agenda for the next three years if he was confirmed. MR. NELSON replied that he did not, other than continuing to educate himself as much as possible on each issue that comes before the Board and to try to make a sound decision based upon the facts the Board receives. DR. JOHN WHITE told members that he would like to serve another term on the Board of Fisheries also. He said he would like to participate on the Board as Alaska's fishery policies reach maturity. Another goal of his, while also serving on the North Pacific Anadromous Fish Commission in an advisory capacity, is to bring together the coordinated applied research in a fiscally sound manner. His other goal for the next three years will be to listen to and interact with the public in the committee process. CHAIRMAN TORGERSON expressed concern that the Board of Fisheries takes up issues out of cycle, a prime example being Cook Inlet, which the Board takes up every year. He stated, "Before the ink is dry, you meet again to change the management plan. What do you intend to do about this in the future, if anything?" DR. WHITE responded that an exhausting review of the Cook Inlet fisheries has taken a place and resulted in a 20+ year plan that reflected best efforts of the Board since the 1970s, which it has updated. He remarked, "Board members should be looking at different ways of working with different users." He said that it would help the communities to stabilize the different fisheries, because they are not an endless renewable resource. CHAIRMAN TORGERSON said the Board of Fisheries was part of the problem because it can't even let the ink dry on the decision it made before it meets in an emergency session to change the plan. DR. WHITE said he tried to address the Chairman's concern by stating that he hoped this would be the time for them to look for stabilization of the fisheries. SENATOR LINCOLN asked Dr. White what role he believes the ADF&G should play in the board process and how much weight the Board gives to the information that is presented to it. DR. WHITE replied that the Board gives ADF&G's information an extreme amount of weight. ADF&G is the foremost purveyor of science to the Board. He receives scientific input from other users and sometimes it is conflicting. SENATOR LINCOLN asked how he measures the scientific biological data presented to him by ADF&G or the private sector on which he bases his decisions. DR. WHITE responded that to continue within the sustainable fisheries policy that was approved last month, a cautionary principle exists that essentially says, when the science is in doubt and there's a paucity of information, the Board should err in a conservative manner and try to protect the resource. SENATOR LINCOLN asked how he determined when science was in doubt. DR. WHITE responded that many times it's very obvious, because there are many different opinions about issues, like allocation issues. He made determinations from ADF&G's information based upon what he considered to be their recommendations. SENATOR LINCOLN asked Dr. White if he viewed the reclassification from personal use to subsistence use in the Chitina dipnet fishery as precedent setting and what involvement he had with that reclassification. DR. WHITE responded that the issue of a Chitina subsistence fishery was brought up at the Valdez meeting. The Board looked at the history of that fishery for over 30 years and determined that it qualified as a subsistence fishery. He did not think it was precedent setting. SENATOR LINCOLN asked how much weight he gave to public testimony. DR. WHITE answered, "A great deal." He explained the board received limited testimony from tribal parties along the river and had additional hearings for people who could not attend the main ones. SENATOR LINCOLN asked Dr. White how important he believes the multiple use approach is to achieve the maximum benefit for the people of the state, especially those with an economic stake of those uses. DR. WHITE replied, "It is the duty of the board to balance the development of all those fisheries for the maximum benefit to the people of the state of Alaska within the confines of sound sustainable management for future generations' use." SENATOR LINCOLN asked Dr. White to respond to the large number of letters in opposition to his nomination. DR. WHITE responded that he has been involved in allocative decisions that were very contentious. He wouldn't pretend to make very many people happy when he makes decisions that were not for their betterment. SENATOR LINCOLN asked if he thought he had been fair to all folks across the state. DR. WHITE said, "I endeavor to be as fair as possible and not only fair, but to try to balance in the best possible way, that I could within my conscience, the allocation decisions I've made." SENATOR LINCOLN asked Dr. White why, now that he has been on the board for six years and knows that it can be contentious and extremely time consuming, he would want to put himself before the public again and what his goals would be for his next term if he is confirmed. DR. WHITE responded that his primary goals will be to look at the management plan that he has already worked on in different parts of the state, hear about their effects and try to provide continuity in review of those management plans, adding amendments to them so that they reach full maturity. "My second is to hopefully bring the research institutions that need to get science before the Board of Fisheries better coordinated. That would be the North Pacific Anadromous Fish Commission, the North Pacific Research Board, North Pacific Council, the Board of Fisheries and, for once, have coordinated research plans that address the difficult decisions that the board makes. Finally, I would like to be involved with you in further maturation of the sustainable fisheries projects to see it to maturity…" CHAIRMAN TORGERSON said he would read him part of a statement that followed an emergency out-of-cycle meeting (in February) and asked Dr. White to comment on it. He [Dr. White], along with the other board members, wasted 20 million pinks in Cook Inlet. He also, with other board members, disallowed a sport fish harvest on the record run of coho. CHAIRMAN TORGERSON said, "Before anybody can implement them, you guys take credit for record runs and then you don't let anybody harvest them. Are we going to have the same situation again and again or what are we going to do about this?" DR. WHITE replied that he didn't agree with the facts in those comments. He thought the Board acted in the best possible manner with the information it had at the time. There was evidence presented and no one ever indicated there was any other evidence that the prevailing species available to be harvested was coho salmon. He maintained, "We've had several years of very difficult coho production in the Inlet. I don't think it was the board's intent in any way to let unforgone harvest. It certainly wasn't my intent." CHAIRMAN TORGERSON said that was the end result and now the board has a plan so that if this happens again next year, the same thing is in place. He asked why, when the board saw that is was probably off by a million percent, it didn't allow a sport fish harvest allowed or commercial harvest allowed for those pinks. He noted the board could have had another emergency meeting. Number 1500 DR. WHITE replied that the season was practically over and the board will hear the information again. It has requested that the department bring it management plans for pink and chum salmon that have a rational basis for that management. He looks forward to receiving that information, as there has been a paucity of information. CHAIRMAN TORGERSON retorted, "That's the prime reason that meeting every other month on Cook Inlet issues, or any place, is just not good policy." SENATOR LINCOLN asked, regarding personal use fisheries, if the board has a plan for the rest of the fisheries within the state. DR. WHITE replied, "No, mam. There is no plan. At the present time, I think that's a function of budgetary restraints. I think it's a function of how we arranged with our federal counterparts within those budget restraints. If I heard correctly that you think there should be, I would agree with that...." SENATOR LINCOLN said: Don't interpret my question to mean that I support expanding the personal use fisheries in the state to a subsistence use, because I think that there's certainly a conflict there when we have the federal interpretation of the preference to rural residents who are primarily Natives. There's been great concern about that. DR. WHITE said that wasn't his inference, but rather that there should be some sort of comprehensive planning between state and federal people in every cross jurisdictional situation. SENATOR LINCOLN said they know the state has not done anything on the subsistence issue and that it has continued to allow the federal government to handle our fisheries on federal areas. If the state does nothing, she asked, would the federal boards take more of an active role and how would his board interact with the federal board. DR. WHITE responded: As you may well know, at the present time there's special action requests going to the federal court for both the Yukon and the Kuskokwim drainages to reduce sport fishing or to eliminate sport fishing on federal lands. The simple momentum of federal government involvement is going to increase. As that momentum increases, their funding is going to increase. The loss of our human resources within the department to their system is probably going to increase as it has in the past several years as a coincidental nature of a lot of people coming up in the late 70s and early 80s to the Department of Fish and Game and their ability to retire and go over to the federal system. They are presently paying 125 percent of what state salaries are. We are experiencing a brain drain in our whole department. The sheer momentum and weight of influences is going to have an eroding effect on the State of Alaska's ability to manage its own fisheries resource. CHAIRMAN TORGERSON thanked Dr. White and Mr. Nelson for their comments. He said, "Whatever happens in the confirmation process, you've got tough jobs, both of you, and I want to thank you for serving." He announced that Commissioner designee to the Department of Natural Resources, Pat Pourchot, would come before the committee. COMMISSIONER-DESIGNEE PAT POURCHOT said it was a great honor to be appointed last September. He said the Department of Natural Resources (DNR) has enjoyed a good working relationship with the legislature this year in trying to address problems like the water permitting problem and some personnel issues in the Oil and Gas Division. With some of the resources the legislature has provided them this year, DNR hopes to come back with some results and measures by which to judge its performance. He hoped to assist in that process. SENATOR ELTON noted that one of his first political jobs was working for then Representative Pat Pourchot and anything good they had seen from him was because of Mr. Pourchot. He was impressed with him then and he remains impressed with him now. CHAIRMAN TORGERSON asked him to comment on the Kenai area plan in relation to putting 8,000 acres into parks, which he opposes, because he doesn't want to totally lock it up. He asked some of his folks to create a new classification of land that would put restrictions on it for habitat issues, but to not lock it up so that nothing can ever be done. This issue concerns area plans all over the state. He said they are going to be forced to return federal money that's strictly for the purpose of buying land. He asked Commissioner Pourchot if he thought it would work and if he supported it. COMMISSIONER-DESIGNEE POURCHOT replied that he hadn't had the discussion about the Charisma (ph) area with his people. He said that he is willing to work with Senator Torgerson and look at alternative land classifications that might afford the needed protections for that valuable watershed, but might allow some other compatible uses. CHAIRMAN TORGERSON said he didn't want to focus on the Kenai, but it was a great example. "It ties up two lakes, miles and miles, hundreds of miles of shoreline, six thousand acres worth of shoreline of Kenai Lakes, Trail Lakes and others." He said he understands protection and habitat, but locking it up completely is a vote of no confidence for future generations. COMMISSIONER-DESIGNEE POURCHOT responded that last year there was the expectation there was going to be money for land acquisition among other things. His department ended up with no more money to do anything than what they had been getting in the past through the Land and Water Conservation Fund. They got a little more preservation money. He is very cautious about promises of new money. However, most of DNR's priorities, if they do get some money, is typically split between localities. The localities get about half and the state gets about half. He explained: The half the state gets is really targeted to not the 8,000 acres or the big new park areas. It's very strategic to key inholdings that are in high recreation areas, like in the Chena Recreation area. It's a very key parcel for public recreation along the highway and along the river. They are fairly small discrete areas in terms of the land acquisition that they are looking at. This happens to be state land on Charisma, which makes it perhaps, larger than it would be. I can't envision the purchase of a large acreage like that through a carrot type program or a land and water conservation fund program. CHAIRMAN TORGERSON said he could. SENATOR TAYLOR mentioned EVOS bought 600,000 acres of private land. CHAIRMAN TORGERSON reiterated that people want protection for habitat, but people also believe that we should look at a different classification. SENATOR LINCOLN said she didn't' doubt that he would do an excellent job as commissioner and asked how he would do things a little bit differently in diversifying the economic benefits to Alaskans and maybe agriculture, mining and other areas for industry. COMMISSIONER-DESIGNEE POURCHOT replied: DNR cannot make things economic and they can't start the business, but they can provide the resource base or the land base, the mineral base, the oil and gas base, on which people then have an opportunity to do things. We have been in recent years and will continue to move fairly aggressively on several fronts. One is oil and gas leasing. We are holding four area wide lease sales per year, now. The Foothills one will be about adjournment day, May 7th or 8th. The North Slope one in November we sold about 713,000 acres of new leased land into oil and gas leasing. On the mining front we are enjoying - of course, we have a lot of land open for claims taking. Last year we had 12,000 mining claims staked, an all time record. So state land is open and available for staking. We don't offer that in the same way as oil and gas leasing. Some of those prospects, as you know in your district, Pogo and others, have very high potential. We work in a collaborative way with potential developers, bringing agencies together. We have a large mine permitting process that seems to work real well. We permitted the Fort Knox Gold Mine that way. That is an effort to achieve the objectives you are talking about in an efficient way, but bringing in all the parties in things like that. In agriculture, we are going to continue to have two parts. One, we have resold almost all the agriculture parcels we took back or defaulted over the years with the exception of odd lot parcels. So, we're trying to get agriculture lands back into production, back into private hands. You established a new land disposal category and retooled one and we are now into our first big cycle to reoffer state land for private use, both subdivision and remote parcel. We are going to have a twin component of a land disposal process that will be ongoing and you all set up a way of funding that in advance and we're pretty optimistic that will be an ongoing tool for getting land in private hands… COMMISSIONER-DESIGNEE POURCHOT said that sometimes we don't have the resources, but he is trying to have an ongoing offering in the case of timber, of 40 - 50 million board feet per year primarily for value added local processing so that people can count on it. He paralleled that to other resource areas. He wants predictability and stability in the things the state does. SENATOR LINCOLN said she hears the permitting process is very time consuming. Although she knew that some of it was budget driven, she thought it needed to be more streamlined. COMMISSIONER-DESIGNEE POURCHOT agreed with her and added that they have a statutory framework to a lot of their processes that are followed up by regulations that offer the opportunity for people to challenge decisions. He said there was a sizeable workload in the process and when they go to court, they take even longer. He said the small day-to-day transactions go quickly without a lot of controversy. The department knows it's going to court in some cases and then becomes even more deliberative and cautious in both the process and the findings. He pointed out, "The best interest findings become more comprehensive so that we don't get tripped up by not addressing something and there's more and more things the courts tell us we have to address all the time." CHAIRMAN TORGERSON asked if he was going to try to negotiate a better deal with the new President to open the NPRA. TAPE 01-36, SIDE B    COMMISSIONER-DESIGNEE POURCHOT said that Governor Knowles talked to the President about that on his last trip to D.C. He also talked with Secretary Gail Norton and the Secretary of Energy and reiterated those topics. He said, "It was appropriate that a couple of years go by and we have a first sale. Now, we're going to be in the second drilling season. We think it is appropriate for them to go back and look at leasing some more of the NPRA area." CHAIRMAN TORGERSON asked if he had produced any maps of additional leasing grounds. COMMISSIONER-DESIGNEE POURCHOT said he would have to check on that. CHAIRMAN TORGERSON said: The question is, are we going to go in there and start drilling where there's a high probability of oil or are we going to push these guys off into the desert somewhere that there isn't anything there? This is one of your major positions to try to get them to do that and I would be interested in knowing what that is. CHAIRMAN TORGERSON said that he talked to the Commissioner about the Netricity resolution on the sale of natural gas on the North Slope and made sure he agreed with what they were doing. He wanted to know how they were going to proceed on things like determining the price of gas. He said the oil companies were saying that the state couldn't take its share of royalty oil. "We're going to have to flex a little muscle here and assert our powers as an owner state, it seems to me. Tell me what's going to happen there." COMMISSIONER-DESIGNEE POURCHOT answered: Those are great questions and some of them we're looking at seriously for the first time. It's been theoretical in the past. We are going to obviously be looking at taking in advance of other production state royalty gas on the North Slope. One of the key questions is arriving at value or price. There's a number of problems with the proposal they have. We have a whole process as we do with royalty oil that we will be going through that are statutory - is it in the best interest to sell our gas, is there any reason it shouldn't be competitive sales. You then make a series of findings based on some studies based on other studies the legislature has funded for instate demand of gas. I think we want to dovetail some of those findings with this since this is one of maybe several instate uses of natural gas. Then, it would presumably go to the royalty board, under statute, for a review if we would arrive at some proposed sale which I'm not saying that, but that would conclude, obviously, on something coming before the legislature for approval. But those critical questions you alluded to - price, state's best interest, other uses of gas - we're going to have to study through those and take a lot of things into consideration and crunch the numbers. I will say, though, just on the surface, as you know, we sell gas now on the North Slope to the producers to burn for generating electricity on the North Slope and we charge about $1.10 mcf or so for that gas. That's a value that we have now and is far above the value that was initially proposed by Netricity. We would hate to get in a position where that value goes down to another established value. That's the grossest of concerns that you would look at. What happens to your other potential gas sales that you're interested in. Obviously, protecting the state's interest in the long term is foremost on our minds here. Number 2300 CHAIRMAN TORGERSON said the first step is to find out if the state can legally take the gas prior to a sale. He thought the rest of the steps weren't necessary once you get through the legal questions. He thought the Commissioner would have to be very assertive in getting the legal opinion on this issue. He also said they run up against the confidentiality requirements on a lot of data after a well has been drilled. State law requires that data be kept confidential for two years, but the Department of Natural Resources can extend that out. He wanted to know reasons why they would release the information as well as why not. COMMISSIONER-DESIGNEE POURCHOT replied that he didn't know all the reasons. He said the Kick well was the most notable of those wells and he has heard an explanation of why it was different, but he couldn't repeat it. He said there are other extenuating circumstances for proprietary information where there are related ongoing leasing considerations. He said he would go back and get an answer to Senator Torgerson's question of whether it's serving the public's interest. CHAIRMAN TORGERSON asked what is happening with Pt. Thompson, which has been under lease for 25 years and the data is frozen. The state just keeps extending it out. COMMISSIONER-DESIGNEE POURCHOT explained that the Pt. Thompson unit has unusual conditions that do not allow the state to force production from the unit. He explained, "It's part of the lease, it's a contractual obligation that we have to live with. It's not like some of the other leases where it's produced or you lose your leases. These leases at Pt. Thompson were different. We've tried to work with the owners for 19 years and there have been some wells drilled, but obviously there's no production. The owners have come in for inclusion of some other adjacent leases for an enlarged unit." CHAIRMAN TORGERSON interrupted to say that it doubles the size of their units. He stated, "Unless you're going to change it, it has the same underlying agreements where there's not production, there's no timeline to do anything, there's no dates to do anything. It's just here, I'm going to give you more land, if I understand it right." COMMISSIONER-DESIGNEE POURCHOT responded, "If we would agree to put the additional leases into the unit for sound geologic and economic reasons, we do have the ability to negotiate the terms of development and production. We can't dictate them, but there is a leverage point of if you want these leases in and, by the way, you don't want them released for new leasing, which we will have the opportunity if they don't become part of the unit in a year or two - they vary...." CHAIRMAN TORGERSON asked if those come to the legislature for approval. COMMISSIONER-DESIGNEE POURCHOT replied DNR makes that decision and that, "We are actively and aggressively involved in that negotiation." CHAIRMAN TORGERSON said he appreciated that and noted, "You call it a plan for development. Most of us call it a plan for non- development, because that is what it is." He said to let him know if they need legislative help on it. He didn't think letting them not develop Pt. Thompson was in the best interests of the state. SENATOR LINCOLN asked why we would want to expand the area and not have a time frame for production. She noted, "It just makes common sense." COMMISSIONER-DESIGNEE POURCHOT replied: We would on the expanded area. We can't legally reach the core area, but they link together in terms of ultimate production. So if you could reach an agreement on ultimate exploration and production of the adjacent area, presumably, they would be produced in conjunction with that old core area. SENATOR LINCOLN asked if they could include Pt. Thompson in the adjacent negotiation. COMMISSIONER-DESIGNEE POURCHOT replied that he has asked that question and the legal answer is that we won't be able to reach in and change the legal terms of the original leases. CHAIRMAN TORGERSON asked if the leases expire soon. COMMISSIONER-DESIGNEE POURCHOT replied that some of the outline leases have expired and are on an appeal status. All of them will expire within two years. CHAIRMAN TORGERSON asked if that included the entire unit. COMMISSIONER-DESIGNEE POURCHOT replied it was just the outlying areas. CHAIRMAN TORGERSON asked if the major unit had an expiration date. COMMISSIONER-DESIGNEE POURCHOT replied, "No, because they are in a unit so it stays there. We can't reach production or drilling requirements because of the nature of the agreement." CHAIRMAN TOGERSON said he thought DNR could figure out a way to do it and he encouraged him to do so. He stated, "If they're going to claim it's uneconomical, let's condemn it and sell it to Phillips." CHAIRMAN TORGERSON asked about "discovery royalty reduction" under leases approved by unit. COMMISSIONER-DESIGNEE POURCHOT said, "There is the Sambuca well - we made a decision on that to not grant a discovery royalty reduction. It was appealed. I heard the appeal several weeks ago. We're in the process of putting together a decision on that appeal. The Oil and Gas Division denied the discovery well credit." CHAIRMAN TORGERSON asked where the state got that authority. He thought it had been repealed. COMMISSIONER-DESIGNEE POURCHOT replied: Although the legislature, prior to the big Prudhoe Bay lease sale, repealed that law, leases predating '68, predominantly in the '65 - '66, contained in those leases provisions for the discovery credit. These old leases are scattered around Prudhoe Bay. CHAIRMAN TORGERSON asked how much money he was talking about. COMMISSIONER-DESIGNEE POURCHOT replied the discovery royalty reduces the typical 12.5 percent lease for 10 years from discovery down to five percent royalty. He noted: It depends on their production. It's millions. It applies to the one lease, not to the whole unit, but an interesting twist here is that it applies to every reservoir that's under the lease, regardless, as in the Sambuca case where there's oil on different levels. CHAIRMAN TORGERSON asked what their basis for denial was and if it was in the basic lease. COMMISSIONER-DESIGNEE POURCHOT replied: The Oil and Gas decision was based on the fact that they believed this represented just another component or another pool of the larger Kuparuk Reservoir and that every time somebody finds a different isolated pool, even if it's isolated by pressure and even looks different chemically, if it's still in the general structure of things, the Oil and Gas Division ruled that it did not constitute a discovery as we believe the original law intended. It has changed. The rationale for why we have granted some and not others is that, frankly, we know a whole lot more about North Slope geology and geophysical exploration. There's a thousand holes being drilled. We just know more so that the discovery well royalty was really geared to raw areas, frontier areas, where people were drilling wildcat wells. We wanted to encourage and reward discoveries. Just finding an isolated pocket of oil may or may not meet the original intent of what we think the royalty reduction was geared for. CHAIRMAN TORGERSON asked if the Governor was going to sign SB 164, the over-the-top route bill. COMMISSIONER-DESIGNEE POURCHOT answered that he didn't know what the Governor was going to do. CHAIRMAN TORGERSON said he wrote the Commissioner a letter on the Stampede Road Subdivision in Denali National Park. He heard rumors that the department was going to give the land to the University of Alaska, who would sell it to the Park Service for an extension to Denali National Park. He asked if his department was working on it. COMMISSIONER-DESIGNEE POURCHOT replied: We are no longer working on it. Several people in the department spent considerable time in July, August, part of September working with the University of Alaska, seeing if we could come up with a land package that would satisfy their needs, might satisfy the Administration's needs on a land settlement of some kind. We looked throughout the state to try to find lands to accommodate a number of concerns from a lot of quarters. Short of the Board of Regents, at the DNR level and Administration level, we came up with a draft package of lands that we were in general agreement with what might meet people's objectives. It included several townships, about 90,000 acres that are called Wolf Townships on state land on the north side of Denali Park and the University was quite interested in those lands. They don't have particular economic value to the state through DNR multiple use management. They have considerable interest, at least, from the Park Service. It's part of their park ecosystem drainage, there's a wolf pack that runs in and out of there and it probably has value from a land acquisition standpoint, as a component of the Park. We were concerned about several things from the DNR and state standpoint - access - and we wrote up a big caveat on the Stampede Trail right-of-way potential rail access, local uses. Anything that would happen to the land, we wanted to have a writing covenant to protect existing public uses of the area. So we had a bunch of that set up that we were concerned with, but the idea would be, as you stated, that could yield up to $90 million as part of an endowment for the University of Alaska. There was considerable interest. I would quickly add, this idea was floated by the Fairbanks delegation and we stopped work on this shortly thereafter. CHAIRMAN TORGERSON said: Back to my new classification of land - there are all kinds of sneaky deals out there and he wants to lock the land up, which is what the National Parks would have done with it. Then there would be no snow machining, no hunting, no fishing, no nothing in there. CHAIRMAN TORGERSON said they didn't have a quorum at present, but would make the motion to move the nominees' names on to the joint session at the next meeting. He adjourned the meeting at 5:30 p.m.