Legislature(2003 - 2004)

05/16/2003 03:35 PM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
4:00 p.m.                                                                                                                     
                 HB 283-ACREAGE FOR COAL LEASES                                                                             
REPRESENTATIVE  HUGH  FATE,  sponsor  of  HB  283,  explained  to                                                               
members that  HB 283 will  more than  double the amount  of state                                                               
acreage that can be leased to  allow the coal industry to compete                                                               
outside of the  State of Alaska. The U.S.  Department of Interior                                                               
has  recently  opened   up  a  lot  of  western   lands  to  coal                                                               
exploration.  Those  areas  are  much  closer  to  transportation                                                               
infrastructure, where  it is much  easier to get coal  to market.                                                               
HB 283 increases  the acreage available to coal  mining in Alaska                                                               
from  46,000  acres  to  92,000   acres  and  from  two  to  four                                                               
townsites. In  addition, the state's income  should increase with                                                               
more  land  leased.  The  leased  acreage does  not  have  to  be                                                               
contiguous.  He  said it  is  a  simple  bill and  he  encouraged                                                               
members to support it.                                                                                                          
CHAIR OGAN  noted the  presence of Senator  Elton. He  then asked                                                               
what the language on lines 11-12  refers to that reads, "the coal                                                               
deposits  in  the  land  covered  by  the  application  shall  be                                                               
temporarily  set aside  and  withdrawn from  all  other forms  of                                                               
disposal provided under AS 38.05.135-181."                                                                                      
MR. JIM  POUND, staff to  Representative Fate, told  members that                                                               
language is  in existing  statute. It  sets aside  the subsurface                                                               
rights of the land used for  coal exploration and, in some cases,                                                               
it also  affects the surface  rights, probably  with restrictions                                                               
similar to any other privately owned land.                                                                                      
CHAIR OGAN  said he believes  it does not  allow for oil  and gas                                                               
leases,  shallow natural  gas leases,  or  leases for  potassium,                                                               
sulphur, oil  shale, sodium, or  phosphate. He said  it basically                                                               
prevents the land from being leased  for any other purpose but it                                                               
does not  touch the surface rights.  He asked if a  person wanted                                                               
to enter into a shallow gas  lease, whether he or she could lease                                                               
it from the coal lessee.                                                                                                        
REPRESENTATIVE  FATE  said  it   is  his  understanding  this  is                                                               
strictly limited  to coal  but other permits  may be  obtained to                                                               
search for other substances.                                                                                                    
CHAIR OGAN stated, "You're right,  it's existing law, but we need                                                               
to understand when we expand  these leases that we're also saying                                                               
no to  these other subsurface  uses that  I listed, just  for the                                                               
committee's  edification   because  I  know   currently,  current                                                               
existing coal  leases aren't  subject to  lease for  shallow gas,                                                               
for example."                                                                                                                   
REPRESENTATIVE FATE  said it is  his understanding this  does not                                                               
alter any statute relative to  the exploration and development of                                                               
shallow well gas.                                                                                                               
CHAIR OGAN  clarified that  it withdraws  the acreage  from being                                                               
available for a shallow gas lease.                                                                                              
REPRESENTATIVE FATE agreed.                                                                                                     
SENATOR  SEEKINS asked  what the  time period  would be  for land                                                               
temporarily set aside.                                                                                                          
REPRESENTATIVE  FATE said  he could  not answer  but guessed  the                                                               
commissioner probably sets the time period.                                                                                     
MR. STAN FOO,  Division of Mining, Land and  Water, Department of                                                               
Natural  Resources  (DNR), told  members  that  his read  of  the                                                               
language on  line 12 is  that the  land would be  temporarily set                                                               
aside for the duration of the coal lease.                                                                                       
CHAIR OGAN asked Mr. Myers about the time period.                                                                               
MR. MARK  MYERS, Director of  the Division  of Oil and  Gas, DNR,                                                               
said  he  believes that  "temporarily  set  aside and  withdrawn"                                                               
would mean for  the period of the existing coal  lease. He said a                                                               
lessee  has  not  been  given  the right  to  produce  the  other                                                               
substances but that means those  substances cannot be disposed of                                                               
to another party.                                                                                                               
CHAIR OGAN asked  if it would make sense to  allow a company with                                                               
a coal  lease to  develop shallow  gas on the  property if  it is                                                               
incidental, perhaps because the company  wants to extract the gas                                                               
for safety reasons.                                                                                                             
MR.  MYERS   said  DNR   has  broached   this  subject   and  its                                                               
recommendation is  that if the  coal lessee  is going to  use the                                                               
gas,  the  lessee should  apply  for  a  shallow gas  lease.  One                                                               
advantage  is that  the lessee  can get  the overlying  lease. He                                                               
said the  issue of safety brings  up an untested part  of current                                                               
CHAIR OGAN said some of the coal  shoals on the west side of Cook                                                               
Inlet in the  Tyonek Basin are fairly close to  tidewater and lie                                                               
within the areawide  leasing area. He asked Mr.  Myers to comment                                                               
on that overlap.                                                                                                                
MR. MYERS said a lot of work has  been done on the coal beds near                                                               
[indisc.]  Glacier on  the west  side of  Cook Inlet.  Core holes                                                               
have been  drilled. He  is not  sure whether  the coal  leases in                                                               
that area are still active but  there is a potential conflict for                                                               
gas  directly associated  with the  coal. However,  other states,                                                               
such  as Pennsylvania,  have resolved  that common  legal problem                                                               
and federal law contains opinions on that issue.                                                                                
CHAIR OGAN  commented that  in general, shallow  gas will  not be                                                               
exploited where there's  surface mining of coal  or where shallow                                                               
subsurface  mining occurs  because that  gas is  probably already                                                               
vented out.  He asked  if there  is any  overlap on  the areawide                                                               
leasing for conventional [oil and  gas development], for example,                                                               
in the Tyonek Basin.                                                                                                            
MR. MYERS said there is.                                                                                                        
CHAIR OGAN said therein lies  his concern, figuring out who filed                                                               
first.   He said if this  bill doubles the acreage  available for                                                               
coal leasing, and  a company comes in wanting  a conventional oil                                                               
and  gas lease  for deep  hold high  pressure oil  and gas,  that                                                               
could cause a problem.                                                                                                          
MR. MYERS said Chair Ogan has  pointed out a concern, however, AS                                                               
38.05.150(f) addresses that issue.                                                                                              
CHAIR  OGAN  said   that  assures  the  safety   of  coal  mining                                                               
operations but it  does not cover commercial sale.  He asked, "It                                                               
says 'notwithstanding AS  38.05.177' so that's not  a shallow gas                                                               
lease for gas production for commercial sale though, right?"                                                                    
MR. MYERS  said that  is correct.  He said,  regarding commercial                                                               
sales,  he believes  Alaska  law  would give  the  credit to  the                                                               
shallow gas lease but it would have to be for safe operations.                                                                  
MR.  CHARLIE BODDY,  Vice President  of Government  Relations for                                                               
Usibelli Mine, told  members that Usibelli brought  this issue to                                                               
Representative  Fate. Usibelli  finished  some  major leasing  of                                                               
coal  in   November  of  2000.  That   brought  Usibelli's  total                                                               
leaseable holdings  to 37,592 acres.  The majority  of Usibelli's                                                               
holdings are  in the Interior  of Alaska  where, in the  past, it                                                               
has supplied military power plants,  the University of Alaska and                                                               
the City of  Fairbanks. In addition, half of  its production went                                                               
overseas to  South Korea. Usibelli  has not been able  to compete                                                               
in the  export coal  market so  it is no  longer in  that market.                                                               
Usibelli must start looking elsewhere  for coal. This legislation                                                               
will  give Usibelli  the ability  to take  on additional  acreage                                                               
that may  be competitive. Last  year, the legislature saw  fit to                                                               
increase  shallow  gas  leasing  acreage  from  46,080  acres  to                                                               
136,000 acres. With the national  acreage moving up on BLM lands,                                                               
Usibelli's primary  competition in the Western  United States, he                                                               
feels Usibelli  needs the  ability to lease  more land,  which is                                                               
the reason it is seeking this legislation.                                                                                      
SENATOR  SEEKINS asked  if Usibelli  is the  only operating  coal                                                               
mine in Alaska.                                                                                                                 
MR. BODDY said it is.                                                                                                           
SENATOR  SEEKINS said  Usibelli's  request  seems reasonable  and                                                               
that he supports it.                                                                                                            
SENATOR  DYSON asked  when the  Alaska Coal  Industry report  was                                                               
MR. BODDY said about two years ago.                                                                                             
SENATOR DYSON asked  if the Healy clean coal power  plant was not                                                               
operating at that time.                                                                                                         
MR. BODDY said that is correct.                                                                                                 
SENATOR  DYSON asked  Mr.  Boddy if  he is  free  to discuss  the                                                               
possibility of selling more coal to [South] Korea.                                                                              
MR.  BODDY said  two  things occurred  when  the Korean  contract                                                               
stopped. Usibelli was very generous  with severance packages when                                                               
it  reduced  its  workforce.  It had  to  completely  retool  its                                                               
business to go back to an  800,000 ton per year reduction in coal                                                               
sales. The Alaska Railroad Corporation  (ARRC) had to undergo not                                                               
only staff reductions, but it also got  rid of a lot of its older                                                               
coal cars that were harder  to maintain. Usibelli always competed                                                               
for rail  cars in the  early spring  through late fall  that with                                                               
the gravel  haul that comes  into Anchorage. Trying  to resurrect                                                               
shipments to Korea entails logistical  problems. ARRC and Hyundai                                                               
are  working on  the  logistics of  getting  the port  rectified,                                                               
while Usibelli is  negotiating with the Koreans  to resurrect the                                                               
contract for  at least two years  with a tonnage that  is reduced                                                               
to half of  what it once was. Production will  be between 350,000                                                               
and 400,000  tons per year. He  said he does not  know the status                                                               
of the negotiations between ARRC and the port agency.                                                                           
SENATOR DYSON  asked if a  closer port and shorter  railroad link                                                               
would make  Usibelli coal more  competitive in  the international                                                               
MR. BODDY  said Usibelli is  very removed from  the international                                                               
marketplace. Usibelli  would have  to be  at tidewater  and other                                                               
things would  have to shake  out internationally before  it could                                                               
be competitive again.                                                                                                           
SENATOR DYSON asked if there  is competition from the Russian Far                                                               
MR. BODDY  said yes,  but more  so from  Indonesia. Alaska  has a                                                               
very low sulphur, highly compliant  coal, but Indonesia's coal is                                                               
better. He  said part  of Usibelli's challenge  is the  market in                                                               
Mexico, where  companies no longer  sign contracts, they  ask for                                                               
tenders. They  will bid  for a three-month  time period.  That is                                                               
frustrating  for Usibelli  because  it cannot  get the  logistics                                                               
together for that time period for that amount of tonnage.                                                                       
SENATOR SEEKINS asked how much coal Usibelli sold to Korea.                                                                     
MR. BODDY said 800,000 tons per year.                                                                                           
SENATOR SEEKINS asked how many rail cars were required.                                                                         
MR. BODDY said there are 70,000 and 100,000 pound rail cars.                                                                    
SENATOR BEN STEVENS asked the FPO price.                                                                                        
TAPE 03-47, SIDE B                                                                                                            
MR. BODDY did  not have that number. He said  the average per ton                                                               
price in the  United States varies because some  power plants are                                                               
located at the mine mouth, such  as the plant tied to Usibelli at                                                               
Healy, while  others ship coal  over long distances,  for example                                                               
from Colorado to Washington State.                                                                                              
CHAIR OGAN asked Mr. Foo to testify.                                                                                            
MR. STAN  FOO, Mining Section  Chief for DNR, stated  support for                                                               
HB  283. DNR  sees  this  change as  consistent  with the  recent                                                               
change  in federal  law that  increased  the allowable  aggregate                                                               
acreage of federal coal leases held by one company.                                                                             
CHAIR  OGAN  said  he  intended to  pass  this  legislation  from                                                               
committee  today  until  he  discovered  the  conflict  with  the                                                               
overlay of  other leases. He said  he is familiar with  the basin                                                               
in Cook  Inlet and sees a  potential conflict with deep  hole oil                                                               
and  gas development.  He said  he is  willing to  try to  find a                                                               
solution and get this legislation passed this session.                                                                          
SENATOR DYSON asked that Mr.  Myers elaborate on how other states                                                               
deal with those competing developers.                                                                                           
CHAIR OGAN  asked Mr.  Boddy if Usibelli  has leased  the maximum                                                               
amount of acreage.                                                                                                              
MR. BODDY nodded affirmatively.                                                                                                 
CHAIR  OGAN said  he  is  concerned that  the  Tyonek coal  basin                                                               
overlays some potential acreage for  areawide oil and gas leases.                                                               
He asked Mr. Myers to address that concern.                                                                                     
[MR. MYERS was not available.]                                                                                                  
SENATOR BEN  STEVENS asked  if Usibelli is  at capacity  with its                                                               
current acreage.                                                                                                                
MR. BODDY said  Usibelli currently has 37,592 acres  leased so it                                                               
has  about 8,400  acres, or  13 sections  of land,  available for                                                               
SENATOR BEN STEVENS asked if  Usibelli anticipates leasing the 13                                                               
sections immediately if it found coal.                                                                                          
MR. BODDY  said based  upon Usibelli's  last increments  of lease                                                               
that would  be an  insufficient amount to  start anywhere.  If HB
283 does  not pass, Usibelli  will have  to look at  its existing                                                               
leases, hope  that all of  its geological  data is sound,  try to                                                               
start carving off  acreage and give it back to  the state so that                                                               
its leaseable acreage will increase.                                                                                            
SENATOR BEN  STEVENS asked  if Usibelli would  swap land  back to                                                               
continue operations.                                                                                                            
MR. BODDY  said it  would. He  said an  example is  that Usibelli                                                               
just  secured an  additional 12,400  acres in  November of  2000.                                                               
That  acreage was  specifically tied  to a  project that  it just                                                               
released two weeks  ago for a 200-megawatt  coal fired generation                                                               
system northeast of where Usibelli  currently mines. Those leases                                                               
were selected for their proximity  to the power project. The real                                                               
advantage is there is no unknown  coal in the state. The coal map                                                               
is as good as gold because  there will be no more non-competitive                                                               
coal leasing in the state. Companies will have to bid.                                                                          
SENATOR BEN  STEVENS asked why Usibelli  is competitively bidding                                                               
for a lease if it is the only coal producer in the state.                                                                       
MR. BODDY  said the lease  only gives  Usibelli the right  to the                                                               
resource. Beyond that, Usibelli has  to do a Surface Mine Control                                                               
and Reclamation Act lease for  a permit, which allows Usibelli to                                                               
mine the  coal. Besides  Usibelli, there  is one  other permitted                                                               
coal mine  in the  Tyonek area,  owned by  Bob Stiles.  He added,                                                               
"Anytime someone puts up a piece  of coal that they would like to                                                               
lease, the  state then has  to go  into a competitive  lease sale                                                               
because the resource is known."                                                                                                 
SENATOR  SEEKINS commented  that this  legislation only  allows a                                                               
company with existing  coal leases to expand the  number of acres                                                               
it  can lease.  However,  because  anyone could  get  a lease  to                                                               
develop coal right now unless  that person has the maximum amount                                                               
allowed, he  does not see  any conflict  between the uses  of the                                                               
land, regarding shallow  gas or other substances. He  sees that a                                                               
successful coal  mining company is  being constrained  from being                                                               
able to competitively lease other coal mining land in the state.                                                                
CHAIR OGAN  said Senator  Seekins is  correct but  explained that                                                               
his concern is  if Usibelli leases land for  coal, other resource                                                               
development cannot occur.                                                                                                       
SENATOR  SEEKINS said  anyone else  could do  the same  thing. He                                                               
said,  "What we're  saying is  if  you're not  a successful  coal                                                               
miner you can  do it but, if  you are, you can't, if  we don't do                                                               
CHAIR OGAN  said he is saying  if the amount of  acreage for coal                                                               
leases  is  expanded, it  could  have  the unintended  effect  of                                                               
taking land  available for deep hole  oil and gas leasing  off of                                                               
the table. It  would also take land off of  the table for shallow                                                               
gas  development. He  said he  would  like to  work on  a way  to                                                               
accommodate those concerns.                                                                                                     
SENATOR SEEKINS said  he understands that concern  and thinks the                                                               
legislature should  develop multiple  use on  any piece  of state                                                               
land  that  might  contain  more than  one  type  of  harvestable                                                               
CHAIR OGAN said he  does not want to set land  aside for one type                                                               
of  lease  at  the  expense  of using  it  for  a  more  valuable                                                               
SENATOR BEN STEVENS  asked Mr. Boddy if  Usibelli has encountered                                                               
any conflict  with the development  of any other  resource within                                                               
its holdings.                                                                                                                   
MR. BODDY said it has not.                                                                                                      
SENATOR BEN STEVENS asked Mr. Stiles the same question.                                                                         
MR. BOB  STILES, President of  the Alaska Coal  Association, said                                                               
his company  controls 20,000  acres of state  coal leases  in the                                                               
Beluga  region. He  corrected a  previous speaker  and said  that                                                               
there  are  portions  of  his  company's  leases,  south  of  the                                                               
Chulitna  River, that  are  included as  tracks  in the  areawide                                                               
lease sale  in the Cook Inlet.  There have been no  conflicts. He                                                               
sees no conflict  if another company wanted to lease  oil and gas                                                               
within his lease  area. His company has a  preferential right use                                                               
and the  company can work  out severable property  interests with                                                               
the state. He  said the important thing is  that Placer Dome/CIRI                                                               
has  20,000  acres  immediately adjacent  to  his  20,000  acres.                                                               
[Without]  the current  limitation, his  company would  entertain                                                               
the idea of combining those properties into a single property.                                                                  
SENATOR BEN STEVENS  said these companies have  been in operation                                                               
for 60 years  and there has never been a  conflict with multi-use                                                               
resource  development. He  questioned  the need  to  hold up  the                                                               
legislation when there has never been a conflict.                                                                               
CHAIR  OGAN   said  they  are   not  currently  operating   in  a                                                               
prospective  area  for  oil  and   gas  development,  other  than                                                               
possibly shallow  gas. If the  lease area is expanded,  they very                                                               
well could be.                                                                                                                  
CHAIR OGAN  noted that  Mr. Stiles  said he  has had  no conflict                                                               
with his lease  but asked Mr. Myers if, by  virtue of holding the                                                               
lease,  that  land  is  not   available  for  other  oil  or  gas                                                               
MR. MYERS  said one  has to differentiate  between a  shallow gas                                                               
lease and a conventional oil and  gas lease. The mineral right of                                                               
the coal does not preclude  a conventional lease. Additionally, a                                                               
conventional lease trumps  a shallow gas lease.  A conflict would                                                               
only occur if  the coal miner was actually producing  coal in the                                                               
same zones  that might be  prospective for oil and  gas. However,                                                               
that means  the coal mine  is fairly deep  or the shallow  gas is                                                               
very, very  shallow. He  noted one  is able  to produce  coal bed                                                               
methane  off  a  conventional  lease as  well,  as  Evergreen  is                                                               
attempting in the Mat-Su Valley.  He concluded there are areas of                                                               
potential conflict  but they will  not preclude DNR  from leasing                                                               
oil and gas rights underneath areas with current coal leases.                                                                   
CHAIR  OGAN referred  to the  language on  page 1,  line 11,  and                                                               
read, "the coal  deposits in the land...shall  be temporarily set                                                               
aside and  withdrawn from  all other  forms of  disposal provided                                                               
under AS 38.05.135-.181," which includes oil and gas leases.                                                                    
MR. MYERS asked Mr. Banks to walk members through the process.                                                                  
CHAIR OGAN  asked Mr. Banks  if once a  coal lease is  signed, no                                                               
one can lease for oil and gas under it.                                                                                         
MR. KEVIN BANKS, DNR, agreed with Chair Ogan's interpretation.                                                                  
SENATOR ELTON asked if, on an  existing coal lease, the holder of                                                               
the preferential lease can charge rent for additional use.                                                                      
MR. MYERS  said his understanding  is that the  leaseholder would                                                               
not be able to under current  statute. He said it sounds like the                                                               
coal  lease deposits  themselves  are in  question.  He said  the                                                               
conflict would  enter if,  throughout some  of the  formations in                                                               
the Cook  Inlet, the coal is  at a significant depth.  He said he                                                               
has  never seen  a case  in conflict  so the  division has  never                                                               
addressed the  issue. He  repeated that  problem has  occurred in                                                               
other states.                                                                                                                   
SENATOR  ELTON asked  Mr.  Boddy  how much  of  the 37,000  acres                                                               
leased by Usibelli  is under production and how long  it has held                                                               
the leases for the acreage not in production.                                                                                   
MR. BODDY  said at any  one time  Usibelli has had  anywhere from                                                               
700 to  1200 acres in some  phase of mining reclamation  or other                                                               
use. For  every one acre of  land mined, about 25  acres are used                                                               
for support. On the additional  acreage, there is exploration and                                                               
other pre-permitting  activities that occur continuously.  On the                                                               
12,000  acres  that Usibelli  recently  leased,  where the  power                                                               
plant  will be  located,  Usibelli will  have  to do  exploratory                                                               
drilling,  water   work,  and  other  activities.   He  said  the                                                               
environmental laws  are endless,  regarding the  information that                                                               
will have  to be gathered  pre-mining. He said Usibelli  has just                                                               
made a major  move from Poker Flats to Tubo  (ph) Ridge. This new                                                               
mine will be active for about 25 years.                                                                                         
SENATOR ELTON  asked if Usibelli  has about 20,000 of  its 37,000                                                               
acres tied up.                                                                                                                  
MR. BODDY  said the amount is  less than that but  close. He said                                                               
for  the majority  of  the  acreage held  in  Healey, the  market                                                               
directs how much  acreage will be under exploration  in one given                                                               
SENATOR ELTON  said he  hopes the committee  gets an  answer from                                                               
DNR very quickly on the lease question.                                                                                         
CHAIR OGAN agreed. He then recessed  the meeting to a call of the                                                               
Chair at 4:55 p.m.                                                                                                              

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