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The Environmental Protection Agency reviews environmental impact state. ments prepared by the Department of the Interior pursuant to Section 102(2)(C) of the National Environmental Policy Act in connection with the leasing or disposition of energy resources. Generally, EPA has delegated the responsibility for impact statement review to its Regional Offices. These offices can obtain any pecessary technical assistance for impact statement review from EPA headquarters. components.

The Office of Federal Activities has managerial responsibility for the impact statement review process within EPA. This office also has responsibility for coordinating the review and submitting comments to other Federal agencies on impact statements prepared for regulations, and for projects which include more than one Federal region or are highly controversial.

In its comments on energy resource impact statements, EPA addresses the adequacy of the consideration of the environmental factors within its a reas of jurisdiction or special expertise. For example, in our comments on the draft environmental statement for Exploratory Drilling Operation in the Santa Barbara Channel, EPA suggested that further consideration be given to the impact of the disposal of drilling muds and other drilling fluid constituents. We also suggested that oil pollution contingency plans be described in the final environmental impact statement for this action.

The impact statement review process and other consultations which have occurred in connection with Section 102 of NEPA have provided a forum for EPA to express its concern regarding the environmental effects of the leasing and disposition of energy resources and have provided the Department of the interior with technical information useful in carrying out these activities with maximum protection of environmental factors.

Attachment B, Question 27

If the terms and conditions of an existing lease are not modified except at 20-year periods, and Part 23 of 43 CFR does not apply to existing leases, (a) what environmental controll does the Denartment (or the agency with jurisdiction over the surface, if other than Interior)

presently have over the leased land? The enforcement authorities contained in section 10 of the Federal Water Pollution Control Act and sections 111 and 113 of the Clean Air Act would apply to violations caused by coal leasing and disposal activities.

As indicated in the response to Question A-6, above, section 10 of the Federal Water Pollution Control Act applies primarily to situations of interstate water pollution although, at the request of the Governor, it may be brought to hear in intrastate situations as well. Pollution is subject to abatement by either a 180day notice issued by the Administrator to the violator of the standards, or an enforcement conference convened by the Administrator at the request of a Gov. ernor or of a municipality.

Under the conference mechanism, if the situation is not ameliorated following a conference, the Administrator may serve the company or jurisdiction involved with a notice giving (a minimum of) 180 days to rectify the violation, following which a hearing may be held and legal action taken. Under the direct 180-day notice procedure, a hearing must be held, following which suit may be brought (by the Department of Justice for EPA).

A Federal license or permit with respect to which certification has been obtained under paragraph (1) of Section 21 may be revoked or suspended if 3 court judges under section 10(h) that there has been a violation of applicable water quality standards. Facilities whose construction commenced before April 3. 1970, may operate for three years without such certification ; their operation may be continued after that period if they have obtained it. For projects begun within one year of April 3, 1970, there is a similar provisions but operatinn with out certification is limited to one year. No certification is required in the absens of water quality standards.

Enforcement of regulations to meet ambient air quality standards, like water quality standards, is up to the States in the first instance. However, the Administor may enforce if the State fails to do so. In the area of coal mining leases, however, this Act is not as likely to be applicable as the Federal Water Pollution Control Act,



Washington, D.C., July 6, 1972. Hon. HENRY M. JACKSON, Chairman, Committee on Interior and Insular Affairs,, U.S. Senate, Wash

ington, D.C. DEAB MR. CHAIRMAN: With reference to your letter of June 1, 1972 to me regarding hearings before your Committee on "leasing and disposal policies for energy resources on the public lands”, I am enclosing ten copies of my responses to your Question 12 of Attachment A and Question 51 of Attachment B. Sincerely,

John N. NASSIKAS, Chairman. Enclosure.


(12) What are the advantages and disadvantages, in terms of the criteria set forth below, as applied to OCS oil and gas leasing of a (1) cash bonus bid-fixed royalty system ; (2) deferred bonus bid-fixed royalty system (payments of onethird of the bonus bid successively upon award of lease, discovery, and production); and (3) fixed bonus-royalty bid system? (a) Competition

(1) Cash bonus bid-fired royalty system.—The cash bonus bid-fixed royalty system would provide the highest entry barriers, and thereby, the bidding would be the least competitive. The cash bid element presents a barriers to initial entry both through the size of the bid and the geological and geophysical research required to construct a winning bid. Companies without access to funds for preparing potentially effective bids and from the actual bidding will be unable to compete.

(2) Deferred bonus-bid-fired royalty system.-The deferred bonus bid-fixed royalty system permits easier entry and more competition; it also produces large rents for drilling leases. By deferring two-thirds of the bonus, much of the risk of development is passed on to the government. If the property proves to be unproductive, the final two-thirds of the bid are never paid.

(3) Fired bonus-royalty bid system.--The fixed bonus-royalty bid system could elicit the most competition, provided that the initial bonus is sufficiently small. Obviously, the larger the bonus the greater the anticompetitive influences of this system. (b) Incentive to rapid exploration and development

(1) Cash bonus bid-fired royalty system.--This system depletes the internal financing of producers at a time when funds are needed for exploration and development.

(2) Deferred bonus bid-fired royalty system.--The deferred bonus eases the producer's funding requirements since it is paid over a period which may extend several years.

(3) Fired bonus-royalty bid system.--The royalty bid system minimizes demands on internal funds during the exploration and development period. (c) Conservation of energy resources for future use

(1) Cash bonus bid-fired royalty system.---This system has no impediments to exploration and development after leasing except the fixed royalty.

(2) Deferred bonus bid-fired royalty system.---This system requires payments at time of discovery and production which encourages producers not to tap the resources unless these will be fully exploited.

(3) Fired bonus-royalty bid system. A royalty bid raises the costs of production and hence encourages early abandonment of reserves. (d) Total amount of resources ultimately recovered under the lease

(1) Cash bonus bidl-fired royalty system.-This system has a small fixed rüyalty, so it does not encourage early abandonment.

(2) Deferred bonus bid-fixed royalty system. This system's bid is a constant cost and the royalty is small so it does not encourage early abandonment.

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(3) Fired bonu 8-royalty bid system.-The high royalty in this system reduces the amount of resources which may be recovered before production is no longer profitable. (e) Efficiency of allocation

(1) Cash bonus bid-fixed royalty system.—This system has a constant cost, the bid, and a minimal variable cost, the royalty, so it should not distort producer decisions.

(2) Deferred bonus bidl-fixed royalty system.-Once production occurs, this system's royalty payments are small, so producer designs concerning production would not be affected.

(3) Fixed bonus-royalty bid system. The high variable cost of a royalty bid is not a real cost to a society, so it distorts producer development investment decisions. The high royalty can make measures to increase production no longer profitable. (j) Possible bias toward any one class of leases (ease of entry etc.)

(1) Cash bonus bid-fired royalty system.-This system requires large initial funding which impedes bidding by independent producers.

(2) Deferred bonus bid-fixed royalty system.—This system eases the entry of independent producers by staggering payments and sharing the risk of a noncommercial lease. The deferred bonus is especially conducive to advance payments by interstate natural gas pipelines to producers, a measure the Federal Power Commission encourages for the purpose of acquisition, exploration and development of gas producing properties.

(3) Fired bonus-royalty bid system.-This system eases the entry of inde pendent producers due to its low initial capital requirement. (9) Timing and amount of revenue to the Government

(1) Cash bonus bid-fixed royalty system.—This system provides large payments to the Government, but the payments are restrained by the risk that the lease will not have commercial reserves.

(2) Deferred bonus bid-fired royalty system. This system provides large parments to the Government earlier than the royalty bid system and allows higher bids since, unlike cash bonus bids, the Government shares the risk of no discovery or production.

(3) Fired bonus-royalty bid system.—This system provides payments over the life of the lease which may be large due to the government sharing the producer's risk concerning the volume of production. (h) Problems of administration and levels of Government personnel required

to administer the Icasing system (1) Cash bonus bid-fixed royalty system: (2) Deferred bonus bid-fixed royalty system; (3) Fixed bonus-royalty bid system. No difference in administration and personnel are foreseen between the different systems. (i) Ability to implement within the authority of the act (i.e., would it require

amendment of the OCS Lands Act?) (1) It would appear that both the varying cash bonus fixed royalty and fixed cash bonus with varying royalty options could be utilized under the present law. Section 8(a) (1) (2) of the Outer Continental Shelf Lands Act states, “The bidding shall be (1) by sealed bids and (2) at the discretion of the Secretary, on the basis of a cash bonus with a royalty fixed by the Secretary at not less than 1212 per centum in amount or value of the production saved, removed or sold, or on the basis of royalty, but at not less than the per centum above mentioned, with a cash bonus fixed by the Secretary."

Implementation of Option #2, deferred bonus bid-fixed royalty system, might require an amendment to the Act, although Section 8(b)(4) of the Act prescribes that an oil and gas lease shall "contain ... such other terms and provisions as the Secretary [of the Interior] may prescribe at the time of offering the area for lease". This provision may give sufficient latitude to allow deferred payment

of such bonuses, but because of the greater possibility of default on full payment it may be necessary to spell out the conditions under which a deferred bonus system could be used.

(51) To what extent, and in what fashion, do estimates of the relative quantities of gas and compared to oil influence the choice of tracts for leasing?

This question can be better answered by the Department of the Interior. The Bureau of Natural Gas staff works closely with the Uniter! States Geological Survey staff in maintaining a continuous awareness of leasing programs.



Juneau, August 15, 1972.
Chairman, Committee on Interior and Insular Affairs,
[.8. Senate, Washington, D.C.

DEAR SENATOR JACKSON: Enclosed are the State of Alaska's responses to selected questions on leasing and disposal policies for energy resources on public lands, which in their totality were posed to the Department of the Interior in May and June of this year. As you indicated, we have interpreted the questions broadly.

Generally following your suggestion, we have addressed questions 14 and 15 of Attachment A; and questions 7, 15, 31, 34, and 52 to 56 cf Attachment B. We have also responded to questions 42 and 58. The State's responses have been grouped somewhat by subject matter so that answers may suffice for more than one question, and the order of responses differs somewhat from the order of the questions.

Thank you for providing Alaska with the opportunity to comment on considerations of great relevance to its future; please also accept my thanks and extend them to your staff for the courtesy of allowing us additional time to develop material. Alaska, as a young and growing state, has not had a sufficient opportunity for the degree of reflective analysis needed to do a thorough job, but we have tried to provide material that will be useful to you and your Committee.

If there are any points upon which you would like me to have more information developed, please let me know. Sincerely,


Governor. Enclosure.



Attachment A-Question 15

What funds have been paid to states under the revenue sharing provisions of the Mineral Leasing Act of 1920? What is the basis in policy for such sharing of revenues? With respect to public lands states other than Alaska is there any reason why such a revenue sharing policy should be perpetuated in any subsequant legislation related to mineral leasing?

Table No. 1, which follows, shows the funds that have been paid to Alaska under Section 28. (b) of the Alaska Statehood Act, which amends the Mineral Leasing Act as it applied to Alaska so that the state receives an additional 52.5 percent through revenue sharing. The table also shows income from federal coal leases as set by Section 28. (a) of the Alaska Statehood Act, which amends 48 U.S.C. (439) to provide Alaska with 90 percent revenue sharing.

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1 Estimated.
Note: Corrections, additions, and rounding of figures made to the years 1964-67.

The principal basis in public policy for the 52.5 percent sharing in revenues is an adjustment to account for the State of Alaska's not being covered by the Reclamation Act as amended. Alaska's future economic viability is highly de pendent upon the development of extractive resource industries, and the finances of the state government are similarly dependent upon the tax revenues derived therefrom. Even after the State has completed the selection of the acreage it is entitled to under the Statehood Act, and after Alaska's natives have completed their land selections under the Alaska Native Claims Settlement Act, a larger percentage of land will remain in federal ownership than in any other public land state. Other provisions of the Settlement Act call for the withdrawal of up to 80 million acres of federal land, in certain cases restricting or precludio: various types of development. This emerging land use pattern, and the continued high cost to the state of meeting the pressing needs for public services in its far-flung communities, combine to provide compelling reasons why such a revenue sharing policy, or some variation which at least does not reduce the amount of revenue provided, should be perpetuated in any subsequent legislation related to mineral leasing. Attachment B-Question 7

What discretionary authority, if any, has the agency with jurisdiction over the surface (if other than Interior) to open or close lands to development of each resource? Attachment B-Question 15

What, if any, procedures are prescribed by law or instituted by regulation or administrative practice, for considering state and local views and interests, and the relation to privately, state or municipally owned resources of the same type. in Interior Department decisions regarding leases, sales, permits, or the opening or closing of lands to development of each energy resource? Attachment B-Question 31

What, if any analysis or assumption regarding the demand from public lands influences the Department's decision regarding issuances of les ses or permits?

(a) To what extent does the Department's coal leasing strategy depend upon. and relate to, the Department's assessment of the national energy situation?

(6) To what extent do the Department's decision on specific applications for coal permits or leases reflect an assessment of regional coal demand, and the possibility of meeting that demand from existing federal coal leases or from state or privately owned resources in the same region?

All of these questions raise issues which pose the same basic problem for the state: the decision to develop the mineral resources from federal lands does not adequately consider state priorities, but is made in response to federally per ceived national objectives or regional economic needs.

In the case of OCS leasing there is strong reason to believe that the decision to lease in the past has in some instances been based predominantly on an im mediate federal need for bonus money receipts.

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