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 United States Geological Survey staff in maintaining a continuous awareness of leasing programs. SUBMISSION OF THE STATE OF ALASKA Hon. HENRY M. JACKSON, STATE OF ALASKA, Chairman, Committee on Interior and Insular Affairs, 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 of 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, Enclosure. WILLIAM A. EGAN, RESPONSES TO QUESTIONS POSED BY THE SENATE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS ON LEASING AND DISPOSAL POLICIES FOR ENERGY RESOURCES ON THE PUBLIC LANDS 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 subsequent 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. 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 dependent 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 precluding 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 leases 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? (b) 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 perceived 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 immediate federal need for bonus money receipts. In the case of other federal agencies with jurisdiction to control surface use, management can result in a virtual veto over mineral development. In most instances the surface management agency has significant control over the economics of a proposed operation through its control of access, surface use permits, etc. The legitimate need to protect surface uses is recognized, but there must be a procedure for balancing that interest against the need for a particular development. When this balance is determined solely within the surface management agency, the protection of surface uses is frequently given preferential consideration. Such surface uses are usually perceived and valued exclusively in terms of nation-wide priorities to the detriment of both State needs and the particular subsurface development. Even though mineral development decisions in federal public lands will always remain essentially federal decisions, some systematic mechanism must be found to measure and consider their effects on state as well as national objectives. Relegating the presentation and consideration of the state point of view solely to public hearings where it frequently becomes lost among the multiplicity of public points of view is inadequate. Public hearings are vitally important sounding boards for judging the range and intensity of public concern, but state policy represents a distillation and refinement of state views and priorities which should be thoroughly considered by federal decision-makers at an earlier point in the administrative process. Congress has created complex procedures of administrative review under the National Environmental Policy Act in order to apply the yardstick of environmental protection to every federal development decision. Hundreds of millions of dollars are spent each year producing and reviewing environmental impact statements, and huge losses from delay are countenanced all to protect the nation's environmental integrity. Congress might wish to consider legislation that would require every federal project or decision affecting development to be scrutinized for any adverse effects on state goals, including an exhaustive evaluation of alternatives designed to minimize harm to state objectives or to maximize state economic health. This would create a very impressive federal commitment toward considering federal mineral development decisions in terms of their impact on state goals, both developmental and environmental. Attachment B-Question 34 STATE OF ALASKA How many applications for prospecting permits and coal leases are currently pending and what acreage is involved, by state? (a) What are the proved coal reserves, and probable and potential coal rescurces, on the lands under application for lease? (b) In each state where permit or lease applications are pending, what are the proved coal reserves, and probable and potential coal resources currently on private lands, and under federal lease, and under state, local or private lease? What was coal production in the most recent year of record? Subdivide these items, to the extent possible, into coal mined or mineable by underground, and by surface methods. (c) Which, if any, of these applications are under active consideration by the Department for issuance of permits or leases? (d) Upon what specific analyses regarding the supply and demand for coal in each region would any permits or leases be granted? Where data requested in the foregoing are not available, present the best available information and indicate what action would be necessary to make the requested data available. The best available information for the State of Alaska is as follows: Coal production in the most recent year of record in Alaska was 748,000 tons in 1971. Because of the amount of research and investigation involved, it would require several man years to make available the remainder of the information requested, including field exploration, a variety of data gathering, and the initiation of coal supply and demand analyses. Attachment B-Question 42 What options are being considered with respect to Outer Continental Shelf leasing system changes, and what are the Department's preliminary views regarding the comparative advantages and disadvantages of each in the context of achieving Departmental OCS leasing objectives? What would be the impact of each such option on: (a) Competition; (b) Incentive to rapid exploration and development; (c) Conservation of energy resources for future use; (d) Proportion of oil and gas ultimately recovered; (e) Efficiency of resource allocation; (f) Possible bias toward any one class of lessees (Ease of entry, etc.) ; (g) Timing and amount of revenue to Government; (h) Costs and difficulties of administration; (i) Ability to implement within the authority of the Act (i.e., Would it require amendment of the OCS Lands Act)? Specifically deal with the advantages and disadvantages, compared to the present system and to each other. What, under the foregoing criteria, are the Department's current views, with regard to: lump sum (bonus only) bidding; deferred bonus bidding (with fixed royalty); royalty bidding (with fixed bonus); profit share bidding; and, work-program bidding (as used, for example, in the U.K.)? Bonus bidding tends to limit competition to the larger companies, while royalty bidding-as long as a minimum demonstrated ability to produce is required-will let in smaller operators and increase competition. From the point of view of the lessor, if there is a high degree of knowledge about a prospect, bonus bidding is best since the bids are likely to be high; in an unknown area, royalty bidding is more attractive since it encourages exploration and development and enables the lessor to share in the result. The State's current view is that a flexible policy should be employed that can be varied depending on the geologic knowledge of the area. In the broad middle ground between high and low levels of geologic knowledge, a system of combined bonus and royalty bidding would appear to be desirable, although leaving both bonuses and royalties as variables would create a system virtually impossible to administer responsibly. The state is currently inclined to favor a system using a fixed cash bonus bid that the lessor would set according to the circumstances of each sale, plus variable point bidding on the royalty. The royalty would also be on a sliding scale, offsetting the "anticonservation" tendency of royalty bidding, since a sliding scale would make continued operation economical over a longer period of time as the rate of production dropped. This system would allow a broader range of entrants into the bidding, increasing competition and thus the returns to the lessor, while at the same time insuring that a higher proportion of oil and gas are ultimately recovered. The remaining questions have been re-ordered and grouped together for ease of discussion. Attachment B-Question 54 What, if any, formal studies or analyses exist of the net social and economic benefits or costs to coastal states of OCS mineral exploration and production adjacent their coasts? Summarize the major findings of these studies or analyses. As for Alaska, there are no formal studies or analyses of the net social and economic benefits or costs of OCS mineral exploration and production adjacent to the coast. In view of the effects of Cook Inlet exploration and development on the City of Kenai, which will be discussed shortly, it appears essential that money be appropriated and studies conducted before any OCS Leasing actions are undertaken. The results would allow the state and the local areas affected by the consequences of OCS leasing to respond better to the needs and pressures that are likely to occur. Attachment B-Question 55 What are the historical and expected impacts upon the economies of coastal states and communities from OCS exploration, development and production activities: (a) Increases in local employment and payrolls; profits of local enterprise; local and state business and personal taxes, etc. (b) Increased outlays of state and local governments for public safety, education and welfare; public works and environmental protection. (c) Desirable or undesirable secondary effects from location of refineries and other industries; population growth, etc. While there has been no OCS activity off Alaska, the effects of Cook Inlet exploration, development and production activities upon the City of Kenai are likely to be a fairly accurate indication of the impact OCS activity will have on other Alaskan coastal communities. No detailed, comprehensive studies have been done on what happened to Kenai, but extracts from two published reports give some indication. An April 1971 report entitled "Community Impacts of the Trans-Alaska Pipeline," by the Alaska State Housing Authority Planning and Technical Department and the Local Affairs Agency in the Office of the Governor, says the following: Over the 1960-1970 decade, Kenai-Cook Inlet District was the fastest growing region in the State. Petrochemical exploration and development and associated construction activity fueled rapid population and economic growth. (See table I. That is the rosy side of the picture. Contemporaneously, in that district gross unemployment grew rapidly, if less noticeably, nearly doubling over the decade. Apparently, many of the new jobs went to workers newly attracted to the boom area, and more workers came than could find jobs. Furthermore, now that the boom has passed, unemployment is rising to new highs and population, workforce and payrolls are declining to a lower level. Employment levels in two industrial sectors were bellwethers for the "boom and bust" cycle of economic activity. Construction employment reached extraordinary heights then declined precipitously as the industrial, commercial and residential demands triggered by petrochemical development tapered off. To a lesser degree, mining employment shot up and then dropped off as development matured. Some measure of the steepness of the decline is indicated by table II. comparing employment figures for the first quarters of 1967 and 1970. Construction employment is returning to a sustainable level, far below previous peaks, and mining employment is settling toward the level of permanent new jobs created in petrochemical industry. In sum, the short term impact of the development phase was to boost employment and payrolls. Obscured by this flashy growth was the fact that general unemployment also rose rapidly, mainly due to a heavy influx of outside workers. As the boom broke, the region was vulnerable to a severe employment decline. The major long-term benefit was the solid core of permanent employment in new industrial jobs. Fortunately, in the Kenai area, the establishment of a number of petrochemical plants tempered the decline in mining employment. To a degree, permanent plant jobs have replaced construction and development jobs. |