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Bay Conservation Society v. State, Dept. of Natural Resources (8/11/00)
sp-5303
Kachemak Bay Conservation Society v. State, Dept. of Natural Resources
(8/11/00) sp-5303
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone (907)
264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
KACHEMAK BAY CONSERVATION ) Supreme Court No. S-8554
SOCIETY, COOK INLET KEEPER, )
TRUSTEES FOR ALASKA, ) Superior Court No.
STACEY MARZ, MICHAEL O'MEARA, ) 3AN-96-7909 CI
)
Appellants, ) O P I N I O N
)
v. ) [No. 5303 - August 11, 2000]
)
STATE OF ALASKA, DEPARTMENT )
OF NATURAL RESOURCES; JOHN )
SHIVELY, Commissioner, )
Department of Natural )
Resources; KENNETH BOYD, )
Director, Division of Oil )
and Gas, )
)
Appellees. )
)
MARATHON OIL COMPANY; UNION )
OIL COMPANY OF CALIFORNIA; )
COOK INLET REGIONAL )
CORPORATION, INC.; FORCENERGY,)
INC.; ANADARKO PETROLEUM )
CORPORATION; ALASKA MENTAL )
HEALTH TRUST, )
)
Intervenors. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Sigurd E. Murphy, Judge pro tem.
Appearances: Patrick Lavin and Valerie L.
Brown, Trustees for Alaska, Anchorage, for appellants. Lawrence Z.
Ostrovsky and Jeffrey D. Landry, Assistant Attorneys General,
Anchorage, and Bruce M. Botelho, Attorney General, Juneau, for
appellees. Susan E. Reeves and Thomas P. Amodio, Foster Pepper
Rubini & Reeves, LLC, Anchorage, for intervenors Marathon Oil
Company, Union Oil Company of California, Forcenergy, Inc., Cook
Inlet Regional Corporation, Inc., and Anadarko Petroleum
Corporation. T. Henry Wilson, Assistant Attorney General,
Anchorage, and Bruce M. Botelho, Attorney General, Juneau, for
intervenor Alaska Mental Health Trust.
Before: Matthews, Chief Justice, and Eastaugh,
Fabe, Bryner, and Carpeneti, Justices.
CARPENETI, Justice.
I. INTRODUCTION
This case involves a challenge by citizens and
environmental groups (collectively, Kachemak Bay) to the Department
of Natural Resources' (DNR) decision that an oil and gas lease sale
concerning state lands in Cook Inlet was (1) in the best interests
of the state and (2) consistent with the state's coastal management
program.
The challenge has two major aspects. First, Kachemak Bay
contends that DNR impermissibly "phased" its review of the proposed
sale. [Fn. 1] Second, Kachemak Bay challenges the substantive
basis for DNR's decisions.
Because we find that Kachemak Bay's challenge fails in
all respects, we affirm the decision of the superior court.
II. FACTS AND PROCEEDINGS
In early 1996 the state offered over one million acres of
state-owned on-shore and off-shore land for lease for potential
petroleum exploration and development. This land is almost
entirely within the Kenai Peninsula Borough, and is predominantly
either under the waters or on the coastline of Cook Inlet.
DNR evaluated the proposed sale. It determined that (1)
the sale was in the best interests of the state, and (2) the sale
was consistent with the Alaska Coastal Management Plan. DNR issued
two documents -- a best interests finding and conclusive
consistency determination, respectively -- to that effect in
September 1996.
Kachemak Bay challenged these determinations. It first
requested reconsideration of both decisions, which DNR denied in
October 1996. Kachemak Bay then appealed to the superior court.
In November, Kachemak Bay unsuccessfully moved for an
injunction against the lease sale; the sale took place as scheduled
in December. Extraction rights to over 173,000 acres were leased,
generating over $3 million in state revenue. The superior court
still had before it Kachemak Bay's underlying appeal of DNR's
findings regarding the lease sale.
After our decision in Ninilchik Traditional Council v.
Noah [Fn. 2] was issued on December 26, 1996, DNR asked the
superior court to remand the appeal to allow DNR to reconsider its
conclusive consistency determination. DNR issued the revised
conclusive consistency determination in November 1997.
The superior court upheld DNR's best interests finding
and conclusive consistency determination in all respects in January
1998. This appeal followed.
III. STANDARDS OF REVIEW
A. Superior Court's Decision
Here the superior court sat as a court of appeal
reviewing DNR's decision. [Fn. 3] In such cases, we independently
review the merits of the administrative determination; we do not
defer to the superior court's decision. [Fn. 4]
B. DNR's Decision
We have held that "to what extent the . . . code allows
phasing . . . . is a question of statutory interpretation which
does not involve agency expertise. Thus, this court will use its
independent judgment." [Fn. 5]
Once we have determined whether and to what extent the
relevant law allows phasing, both DNR's best interests
determination and its determination that a project is consistent
with the Alaska Coastal Management Plan's habitat standard are
subject to a deferential reasonable basis review. [Fn. 6] This
standard properly reflects the fact that in these cases, DNR's
determination "is almost entirely a policy decision, involving
complex issues that are beyond this court's ability to decide. . .
. This court has neither the authority nor competence to decide
whether the public interest is 'best served' by a proposed
disposition of land for offshore oil and gas exploration and
development." [Fn. 7]
However, while deferential, this is not a toothless
standard of review. On the contrary, we have stated that our duty
is to ensure that DNR has taken a "hard look at the salient
problems and has genuinely engaged in reasoned decision making."
[Fn. 8] Further, we have held that such decisions "will be
regarded as arbitrary where an agency fails to consider an
important factor in making its decision." [Fn. 9]
IV. DISCUSSION
A. The Best Interests Finding
DNR's obligation to consider the "best interests of the
state" and to issue written findings when it proposes to alienate
state land or an interest in state land can be traced to the Alaska
Constitution. Article VIII, Section 1 proclaims that "[i]t is the
policy of the State to encourage the . . . development of its
resources by making them available for maximum use consistent with
the public interest." Section 2 further provides that "[t]he
legislature shall provide for the utilization, development, and
conservation of all natural resources belonging to the State,
including land and waters, for the maximum benefit of its people."
Finally, Section 8 endows the Legislature with the power to
"provide for the leasing of, and the issuance of permits for the
exploration of, any part of the public domain or interest therein,
subject to reasonable concurrent uses."
In Title 38, Chapter 5 of the Alaska Statutes, the
legislature delegated to DNR much of its authority to ensure that
such leasing of state land or interests in land is consistent with
the public interest. [Fn. 10] Alaska Statute 38.05.035(e)
provides, in part: "Upon a written finding that the interests of
the state will be best served, [DNR] may . . . approve contracts
for the sale, lease, or other disposal of available land,
resources, property, or interests in them." Kachemak Bay asserts
that DNR failed to fulfill this obligation.
1. "Phasing" is permitted when DNR undertakes best
interests findings.
Kachemak Bay argues that DNR "impermissibly 'phased' its
best interest finding." Thus, a threshold question is whether DNR
may phase its best interests finding, an issue addressed in AS
38.05.035(e).
DNR maintains that subsection (1)(C), enacted in 1994,
[Fn. 11] explicitly permits the type of phased review it undertook
here. The subsection allows phasing, subject to several
conditions:
[F]or a specific proposed disposal of
available land, resources, or property, or of an interest in them,
[DNR] in the written finding, . . . . may, if the project for which
the proposed disposal is sought is a multiphased development, limit
the scope of an administrative review and finding for the proposed
disposal to the applicable statutes and regulations, facts, and
issues identified in (B)(i)-(iii) of this paragraph[ [Fn. 12]] that
pertain solely to a discrete phase of the project when
(i) the only uses to be authorized
by the proposed disposal are part of that discrete phase;
(ii) [DNR]'s approval is required
before the next phase of the project may proceed; and
(iii) [DNR] describes its reasons
for a decision to phase and conditions its approval to ensure that
any additional uses or activities proposed for that or any later
phase of the project will serve the best interests of the state.
This subsection was enacted by the legislature in
reaction to a string of decisions by this court concerning what we
characterized as DNR's "phasing" of its review of various mining
and gas and oil projects. [Fn. 13] This line of cases was summed
up effectively and concisely in Thane Neighborhood Association v.
City and Borough of Juneau. In Thane, citizens' groups challenged
the Juneau Planning Commission's approval of a mining company's
application to reopen the AJ Mine, arguing that the Borough had
"impermissibly used a 'phased' approach in approving the permit."
[Fn. 14] We laid out the relevant case law in this way:
Three of our recent cases provide considerable
guidance as to what sorts of permit approval
"phasing" techniques are appropriate and what kinds are not:
Trustees for Alaska v. Gorsuch, 835 P.2d 1239 (Alaska 1992);
[Camden Bay II, and Kuitsarak].
. . . .
We can draw three general, guiding
principles concerning when and in what manner "phasing" or
"segmentation" is permissible from Gorsuch, Camden Bay II, and
Kuitsarak. First, unless a specific statute or regulation allows
phasing, phasing is disfavored. Where a statute is silent or
ambiguous, phasing should generally not be allowed.
Second, phasing is prohibited if it can
result in disregard of the cumulative potential environmental
impacts of a project. The more interlinked the components of a
project are and the greater the danger that phasing will lead to
insufficient consideration of cumulative impacts, the greater the
need to bar phasing.
Third, conditions and stipulations may be
used to address unforeseen occurrences or unforeseen situations
that may arise during exploration or development, but permit
conditions may not serve as a substitute for an initial
pre-permitting analysis that can be conducted with reasonably
obtainable information.
Thus, phasing through the use of
conditions is prohibited where it is feasible to obtain the
information necessary to determine whether environmental standards
will be satisfied before granting an initial permit, but allowed
where it is impractical or impossible to create detailed
development plans without conducting additional physical
exploration.[ [Fn. 15]]
Applying these principles, we held in Thane that "the
Commission should not have granted the AJ Mine permit while
excepting major portions of the project . . . [which are]
significantly interlinked to other parts of the project. . . .
Phasing the approval of those components could . . . cause the
cumulative impacts of the mining project to be inadequately
considered." [Fn. 16]
We have not yet had occasion to analyze the effect of the
1994 amendment discussed above on the line of cases culminating in
Thane. [Fn. 17] It is clear that by enacting the amendment the
legislature was seeking to allow DNR to phase its approval of
projects. However, the legislature did not explicitly overrule any
of the cases mentioned above. Thus, we must discern to what
extent, if at all, the principles we enunciated in Thane and its
predecessors survived the 1994 amendment.
First, the first principle enunciated in Thane, -- that
phasing is "disfavored" and not allowed unless specifically
authorized by statute [Fn. 18] -- did not survive the 1994
amendment. The amendment added AS 38.05.035(e)(1)(C), which speaks
in terms of "phases" of a project, and expressly allows DNR to
limit its review to the "applicable statutes and regulations, facts
and issues . . . that pertain solely to a discrete phase of [a]
project" under certain circumstances. [Fn. 19] Given this new
language, it cannot be said that phasing is "disfavored" under
Alaska law; on the contrary, the amendment affirmatively empowered
DNR to phase its best interests findings if it meets the criteria.
However, the second Thane principle appears to have
survived and, indeed, to have been reaffirmed by the 1994
amendment. In Thane, we held that "phasing is prohibited if it can
result in disregard of the cumulative potential environmental
impacts of a project." [Fn. 20] The "Legislative Findings" section
of the 1994 amendment provides that "consideration of a disposal[
[Fn. 21]] as a phase of a development project is not intended to
artificially divide or segment a proposed development project to
avoid thorough review of the project or to avoid consideration of
potential future environmental, sociological, or economic effects."
[Fn. 22] Further, subsection (g)(1)(B)(vi), which was
substantively unaffected by the 1994 amendment, [Fn. 23] provides
that "when the director prepares a written finding . . . for an oil
and gas lease . . . the director shall consider and discuss . . .
the reasonably foreseeable cumulative effects of oil and gas
exploration, development, production, and transportation on the
sale area."
However, the third principle we announced in Thane did
not survive the 1994 amendment, or at least did not survive
unscathed. Thane held that "phasing through the use of conditions
is prohibited where it is feasible to obtain the information
necessary to determine whether environmental standards will be
satisfied before granting an initial permit." [Fn. 24] We drew
that principle, in part, from Kuitsarak, where we noted that "DNR's
argument that it was difficult to obtain the information necessary
to perform a proper evaluation of the impacts of mining in the
region was undermined by evidence of federal studies similar to the
studies which DNR needed to do." [Fn. 25]
The 1994 amendment seems to have severely limited, if not
nullified, this principle. The legislature did so in two ways.
First, it added subsection (e)(1)(B)(ii), which provides that DNR
"may limit the scope of an administrative review and finding for a
proposed disposal to . . . the facts pertaining to the land . . .
that the director finds are material to the determination and that
are known to the director or knowledge of which is made available
to the director during the administrative review". [Fn. 26]
Second, it stated in its findings section that "analyses comparable
to those generally required by [the federal National Environmental
Policy Act] for the preparation of an environmental impact
statement . . . are not required by the state for support of best
interest findings." [Fn. 27]
Thus, under the revised statute, DNR may limit its review
to only those facts which (1) it knows at the time it conducts the
review and (2) others bring to DNR's attention during the review.
Its determinations may not be overturned, as we did in Kuitsarak,
for failure to affirmatively seek out additional evidence.
Further, a failure on DNR's part to gather the same level of
information as a federal agency would in an environmental impact
statement is an impermissible ground for finding DNR's
determination inadequate -- again, this is a repudiation of
Kuitsarak. [Fn. 28]
Finally, the 1994 amendment created an entirely new
subsection (h). [Fn. 29] That subsection provides that DNR may not
be required to "speculate about possible future effects subject to
future permitting that cannot reasonably be determined until the
project or proposed use for which a best interests finding is
required is more specifically defined." [Fn. 30] The subsection
goes on to list three specific types of "speculation" in which DNR
may not be required to engage. [Fn. 31]
In sum, the 1994 amendment, at least in a general sense,
empowers DNR to phase its best interests findings under AS
38.05.035(g). It is undisputed that DNR did, in fact, phase its
review of Sale 85A. The next step in the analysis, then, is to
examine whether it was proper, under the new AS 38.05.035(e)(1)(C),
for DNR to phase its analysis of this particular project.
2. It was proper for DNR to "phase" its best interests
finding regarding Sale 85A.
a. The only uses to be authorized by the lease
were part of the lease sale phase.
As this court has noted, "the mere decision to lease does
not in itself bring about great risks to the environment." [Fn. 32]
This is so because the lease is no more than an interest in land,
and does not in itself authorize any actual "use" of the land. As
DNR puts it, "[w]hile the lease gives the lessee the right to
conduct these activities, the lease sale itself does not authorize
any exploration or development activities by the lessee on leased
tracts." [Fn. 33] (Emphasis added.) Thus, the first part of the AS
38.05.035(e)(1)(C) test is satisfied.
b. DNR's approval was required before the next
phase of the project was allowed to proceed.
As DNR discusses in the introduction to its best
interests finding, "state approval is required before the next
phase (exploration) may proceed." The Sale 85A lease form
provides, under the heading PLAN OF OPERATIONS, that "before any
operations may be undertaken on the leased area, the lessee shall
comply with the applicable statutes and regulations. . . ."
The relevant regulation is the requirement, codified in
11 Alaska Administrative Code 83.158(a), that a lessee must file a
DNR-approved "plan of operations" before any operations may be
undertaken on the leased area. This plan is required to contain
"sufficient information, based on data reasonably available at the
time the plan is submitted for approval, for [DNR] to determine the
surface use requirements and impacts directly associated with the
proposed operations." [Fn. 34]
Because the lessees must submit these plans before
conducting exploration, construction, or production activities on
the land, the second part of the AS 38.05.035(e)(1)(C) test is
satisfied.
c. DNR described its reasons for its decision to
phase and conditioned its approval to ensure that any additional
uses or activities proposed for the lease phase or any other phase
will serve the best interests of the state.
(1) Reasons to phase
DNR stated in the introduction to the best interests
finding that "[i]n oil and gas leasing, it cannot be determined
with any specificity or definition at the leasing stage if, where,
when, how, or what kind of production might ultimately occur[] as
the result of leasing. . . . A discussion of the possible specific
effects of unknown future exploration, development and production
activities is not within the scope of this finding." Thus, DNR has
described its reasons for phasing its review.
(2) Conditioned approval to ensure that the
project continues to serve the state's best interests
DNR states that its best interests finding meets this
part of the AS 38.05.035(e)(1)(C) test because DNR "is conditioning
this best interests determination and any leases ultimately issued
with a number of mitigation measures designed to ensure that any
future activities in the exploration, . . . development and
production phases will serve the best interests of the state."
These measures are found in Chapter 7 of the best interests
finding. All Sale 85A lessees must comply with these measures as
a condition of the lease.
The measures deal with many subjects: oil and hazardous
substance pollution control, use of explosives, road building,
water removal, facilities and structures, local hiring, training,
public access to the leased land, stream preservation, waste
disposal, gravel mining, and wildlife preservation. This detailed
list of mitigation measures suffices to ensure that the development
of Sale 85A remains in the public interest, as determined by DNR.
d. DNR, by phasing its review, would not avoid
thorough review of the project or avoid consideration of potential
future environmental, sociological, or economic effects.
While DNR has met all of the factors enumerated in AS
38.05.035(e)(1)(C), our analysis is not finished. As discussed
above, in addition to these factors, the statute contains an
overarching factor that DNR must consider. That is, whether DNR,
by phasing its review, would "avoid thorough review of the project
or . . . avoid consideration of potential future environmental,
sociological, or economic effects"; [Fn. 35] or, as we stated in
Thane, whether phasing would "result in disregard of the cumulative
potential environmental impacts of a project." [Fn. 36]
Kachemak Bay vigorously asserts that it would, stating:
The threshold decision that the expansion of
oil industry infrastructure to the Southern Kenai Peninsula is
acceptable is made at the lease sale stage. It is at that stage,
therefore, that DNR must consider all relevant factors bearing on
that determination. Otherwise, the impacts associated with that
decision will be masked until later stages of the process, when it
is, as a practical matter, too late to prevent the development.
DNR's best interests finding contains a thirty-page
chapter entitled "reasonably foreseeable cumulative effects of Sale
85A." One section contains descriptions of each of the "three
phases of industrial activity: exploration, development, and
production." The next section "focuses on how these later phases
would impact communities and municipalities in the sale area, and
the expected distribution of fiscal benefits to the state and local
areas." The final section "focuses on physical and non-physical
effects on habitats, fish and wildlife, subsistence and historic
and cultural resources of the sale region." Given these detailed
and comprehensive findings, it does not appear that DNR's decision
to phase its review of Sale 85A has caused the impacts of
development to be masked.
e. Conclusion
Sale 85A meets the requirements for a phased development
under AS 38.05.035(e)(1)(C), and phasing review of Sale 85A does
not allow DNR to avoid thorough review of the project or avoid
consideration of potential future environmental, sociological, or
economic effects. Therefore, DNR's decision to phase was proper.
3. DNR fulfilled its obligation to consider and
discuss the relevant factors in its best interests finding.
Having determined that DNR was permitted to phase its
review of Sale 85A, the next step is to examine the challenged
aspects of DNR's best interests finding and determine whether they
meet the AS 38.05.035(g) standards.
a. Transportation methods and risks
Kachemak Bay's first contention is that "DNR failed to
discuss the likely oil and gas transportation methods and risks."
Analogizing to Demarcation Point and Camden Bay I, Kachemak Bay
asserts that "[i]n its [best interests finding] for Sale 85A, DNR
discussed only the methods currently used to transport oil and gas
in Alaska generally. . . . Thus, DNR again failed to address the
methods and risks of transporting oil from the sale area to
market." Kachemak Bay cites an environmental impact statement
prepared by the federal Minerals Management Service for a 1995
federal lease sale in Cook Inlet to support its claim that it is
"simply untrue that DNR lacks the ability to estimate the likely
oil transportation modes and impacts until the specific location
and nature of oil and gas deposits [are] determined."
As previously discussed, however, the 1994 amendment
explicitly rejected the federal environmental impact statement
standard as the standard for state best interests findings. [Fn.
37] Thus, Kachemak Bay's argument -- that DNR's failure to conduct
an analysis of the likely impacts of oil and gas transportation
similar to an environmental impact statement renders the best
interests finding insufficient -- is unavailing. In any event, the
environmental impact statement cited by Kachemak Bay is, in many
ways, less complete than the best interests finding submitted by
DNR. [Fn. 38]
Kachemak Bay's more general argument -- that DNR did not
adequately consider the methods and risks of transporting oil from
the sale area to market -- is not as easily resolved. Alaska
Statute 38.05.035(g)(1)(B)(viii) provides the relevant standard,
requiring DNR to "consider and discuss . . . the method or methods
most likely to be used to transport oil or gas from the lease sale
area, and the advantages, disadvantages, and relative risks of
each."
DNR devotes some three pages of its best interests
finding to a section entitled "transportation of crude oil and
natural gas." DNR first discusses the existing Cook Inlet oil and
gas transportation infrastructure generally, and lists the methods
used. These methods, according to DNR, include pipelines, both
onshore and offshore; marine terminals with offshore loading
platforms; and tank vessels. The best interests finding then
proceeds to discuss each of these methods in greater detail.
The "advantages and risks" portion of the finding is
reserved mainly for the next section of the best interests finding,
entitled "oil spill risk, prevention and response." This analysis
takes up some three pages of the best interests finding. [Fn. 39]
In that section, DNR discusses in general terms how spills might
occur, as well as the oil spill history of Cook Inlet. DNR then
discusses in more detail spills that occur as a result of
exploration and production, as well as spills that occur as a
result of each transportation method and measures to prevent such
spills.
Regarding exploration and production, DNR gives
statistics for platform spill history and discusses various types
of spills that might occur -- it also gives examples of several
individual Cook Inlet spills and discusses the "worst case
discharge" scenario. DNR then discusses pipelines -- it reviews
the current condition of those in Cook Inlet, as well as the
potential amount of oil that might be spilled from a pipeline, how
such a spill might occur, and the history of Cook Inlet pipeline
spills. Next, DNR discusses marine terminals, their safety records
generally, and the volume of oil they handle. In this discussion,
DNR briefly addresses three incidents where oil spills occurred at
marine terminals in Cook Inlet. Finally, DNR discusses tanker
vessels. It states that tankers "present the largest potential for
oil pollution" and explains why, as well as giving world-wide oil
spill statistics. Finally, DNR discusses a 1987 Cook Inlet spill
as well as the infamous 1989 EXXON VALDEZ disaster in Prince
William Sound.
Nevertheless, Kachemak Bay argues that "DNR failed to
estimate the risk and impacts of a substantial oil spill in the
sale area." Again, Kachemak Bay cites the federal Minerals
Management Service's environmental impact statement, which
contained a detailed analysis of the "likely impacts of a spill in
Cook Inlet, taking into account the weather patterns, likely oil
fate and transport, and the nature and location of the substantial
natural resources at risk in the Inlet." Kachemak Bay asserts that
because this analysis was available at the lease sale stage, DNR
"may not hide behind a professed lack of ability" to similarly
estimate the probability of an oil spill in the context of Sale
85A.
DNR counters that its analysis shows that it "considered
the available and known facts [and] used them in its own
consideration of the relative risks and foreseeable effects of the
likely transportation methods." While DNR concedes that it is
"required to consider the relative risks of the likely methods of
transporting oil or gas from the sale area," it argues that
"[n]either statute nor case law . . . requires DNR to quantify the
probability of oil spills in the sale area." DNR further claims
that Kachemak Bay "is completely incorrect when it characterizes
DNR's consideration of the issue as 'hiding behind a professed lack
of ability to estimate an oil spill.'" Rather, DNR states that it
was "skeptical of [the Minerals Management Service's] spill
assessment methodology and, purposefully, decided not to adopt it."
The record shows DNR's original decision-making process
regarding the Minerals Management Service's spill analysis in more
detail. In a response to a public comment, DNR characterized the
analysis as "speculative." DNR asserted that the Minerals
Management Service "generates its spill estimate using a computer
model which manipulates large numbers of variables, most of which
are estimates themselves. Resource estimates are one of the
variables in the spill model and are highly speculative."
Likewise, in an October 15, 1996 memorandum, a DNR Natural Resource
Manager stated that "[a]lthough [the Minerals Management Service]
includes an estimate of oil spill risk and impact in [its]
[environmental impact statement] for [outer continental shelf]
areas, I have serious reservations about the reliability of their
estimates." The manager went on to make four specific comments
about the speculative nature of the Minerals Management Service oil
spill "guess." [Fn. 40]
DNR's decision to question and ultimately discard as
"unhelpful" Minerals Management Service's methodology is entirely
proper. DNR is correct in its assertion that it need not "use the
MMS methodology to estimate oil spills." The 1994 amendments
explicitly exempted DNR from being required to conduct analyses
similar to environmental impact statements. [Fn. 41]
Kachemak Bay is correct, however, that DNR does not
discuss "how any oil or gas will likely be transported from the
remote areas of the sale area." In fact, DNR expressly declined to
discuss exactly what "transportation strategies" would be used in
the area:
A discussion of specific transportation
alternatives for oil from the Sale 85A area is not possible at this
time because strategies used to transport potential petroleum
reserves depend on many factors, most of which are unique to an
individual tract and discovery. The location and nature of oil and
gas deposits determine the type and extent of facilities necessary
to develop and transport the resource. No oil or gas may be
transported from Sale 85A leases until the operator has obtained
the necessary permits and authorizations. . . . [DNR] and other
state, federal, and local agencies will review the specific
transportation system when it is actually proposed.
Kachemak Bay argues that by failing to address "the key question of
how any oil or gas will likely be transported from the remote
portions of the sale area," DNR falls short of the subsection (g)
standard relating to transportation.
Again, Kachemak Bay analogizes to Camden Bay I and
Demarcation Point, where we remanded best interests findings that
failed to discuss and weigh the risks of the likely transportation
methods to be used. Kachemak Bay asserts that
[t]he forty to sixty mile distance between
some portions of Sale 85A and any existing oil and gas industry
infrastructure is reminiscent of the fifty to eighty mile distance
in the Demarcation Point and Camden Bay I cases. As in those
cases, the transportation of oil from remote areas devoid of
existing infrastructure -- e.g., via a long-distance pipeline on
the ocean bottom or across land -- entails potentially significant
risks and impacts which DNR must consider in its best interest
finding.
DNR correctly points out that both of these cases are
distinguishable from the instant case. Camden Bay I involved a
potential oil field off Alaska's northern coast, west of Kaktovik
and north of the Arctic National Wildlife Refuge (ANWR). [Fn. 42]
At the time DNR issued the best interests finding, Congress was
deciding whether to open ANWR to oil and gas leasing and associated
uses. [Fn. 43] We remanded the best interests finding for a
supplemental written finding regarding transportation issues
because DNR had failed to "consider the unique risks presented by
the oil transportation methods that would be necessary if the legal
status of ANWR remains unchanged." [Fn. 44]
Demarcation Point involved a nearly identical situation.
The potential oil field was in the same geographic region, abutting
ANWR, though further east than Camden Bay. [Fn. 45] Relying on
Camden Bay I, we held that the best interests finding was deficient
for failure to address the issue of transportation if ANWR did not
become available. [Fn. 46] We noted that the best interests
finding in that case was "remarkably similar to the . . . Finding
that was rejected by this court in Camden Bay [I]. . . . [It]
deal[t] with transportation issues in a similar cursory manner."
[Fn. 47] Thus, we remanded the best interests finding for a
supplemental finding on the issue. [Fn. 48]
Camden Bay I and Demarcation Point are distinguishable
from this case in that the best interests findings in those cases
did not even address how oil would be transported if ANWR's status
was not changed. [Fn. 49] DNR's transportation analysis here is
not similarly lacking. As discussed above, DNR analyzes the
various methods of transportation and their risks in some detail,
and no such major policy change, beyond DNR's control, is necessary
before oil and gas can be transported in Cook Inlet.
Kachemak Bay argues for a broader application of Camden
Bay I and Demarcation Point; it would have us hold that "[w]hile
DNR may flesh out the size, nature and location of the specific
facilities at a later stage, it must identify at the lease sale
stage the most likely methods of moving oil from the sale area to
market, and the associated impacts on the sale area and affected
communities." Specifically, Kachemak Bay urges us to remand the
best interests finding for an alleged failure to address
transportation of oil "from remote areas [of the sale area] devoid
of existing infrastructure."
However, statutory and case law do not support this
approach. As mentioned above, the 1994 amendment added AS
38.05.035(h)(1), which provides that in best interests findings DNR
"may not be required to speculate about . . . the exact location
and size of an ultimate use and related facilities." Further, as
we held in Camden Bay II, "[u]ntil exploration is proposed and, in
all likelihood, until and unless a commercially exploitable
discovery is made, there will be no occasion for siting, designing
or constructing transportation and utility routes." [Fn. 50] Thus,
DNR's relatively general approach to the issue of the methods and
risks of transporting oil and gas in Cook Inlet satisfies the now-
more-generous AS 38.05.035(g) standard. Kachemak Bay's assertion
that DNR needs to specify the means and risks of transporting oil
and gas from the most remote parts of the Sale 85A area is asking
DNR to engage in what the legislature has deemed improper
"speculation." [Fn. 51]
In short, DNR has met the subsection (g) standard.
Kachemak Bay's argument that DNR "failed to identify and discuss
the methods and risks of transporting oil and gas from the Sale 85A
area to market" is simply not supported by the record.
b. Sociological impacts on sale area and affected
communities
Kachemak Bay argues briefly that "the addition of
industry infrastructure requires a labor pool, necessary support
companies and services, and associated demands on public services,
which will impact nearby communities. . . . DNR failed to
meaningfully respond to public comments and to discuss the sale's
reasonably foreseeable impacts on the sale area and affected
communities."
Kachemak Bay is correct that DNR is obliged to "consider
and discuss . . . the reasonably foreseeable effects of oil and gas
exploration, development, production, and transportation on
municipalities and communities within or adjacent to the lease sale
area" [Fn. 52] in its best interests finding. DNR's discussion of
these issues is found in a three-page subsection of the best
interests finding entitled "effects on municipalities and
communities."
This subsection first lists the affected communities and
refers broadly to possible changes in "education level, household
or per capita income, occupancy or rental rates, population density
or expansion of a particular age bracket," but states that "due to
intervening factors, such as overall population growth in the sale
area, such changes are not measurable or predictable." DNR goes on
to state that "[l]ong[-]term effects of Sale 85A could mean a
change in employment opportunity, influx of cash, or increase in
demand for services, like sanitation, police protection, or road
maintenance."
In a similar fashion, DNR lists several possible
"[p]hysical effects of industry activities," including "vegetation
loss, siltation, sedimentation, water quality changes, noise,
increases in human congestion, or disturbances to wildlife."
Again, however, DNR does not make specific predictions as to the
exact location or degree of these effects:
Effects related to physical alterations of the
environment would be directly related to the number of exploration,
delineation, and production drill sites, and those numbers depend
on the size, extent, location, and recoverability of discovered
reserves. The siting of possible drill sites depends on factors
including ecology, costs, the presence of an existing road system,
and land ownership and management. The extent of effects would
also be related to the proximity of development sites to important
habitats . . . .
DNR then refers the reader to chapter six of the best
interests finding for a discussion of water quality. In that
discussion, DNR describes current instances of groundwater
contamination, methods of disposal of contaminated water, and the
potential for drawdown of local groundwater tables. DNR also
points the reader to chapter six for its discussion of oil spill
"risk, preparedness, response and clean-up." [Fn. 53]
DNR goes on to discuss the possibility that oil and gas
projects will require "new or expanded utilit[ies]," including
electricity and water. DNR also mentions the potential for
"increased use of transportation systems, such as air charter
services, air strips, docks or roads." Once again, however, DNR
disavows its ability to predict more precisely the probability or
extent of these needs and uses, as they would "depend on the
specific project proposed, its location, and the existing supply
and demand for the service."
DNR next addresses land use, beginning with a discussion
of the communities likely to be affected by development. DNR then
mentions the possibility that uses such as hunting, fishing, and
trapping might be adversely affected by development, and that
increased "human presence" on private property made more accessible
by development might have "negative impacts on traditional and
recreational use."
Finally, DNR addresses the issue of employment. It
discusses some of the extant gas fields and describes their impact
on employment as "minimal." DNR states that Sale 85A "may create
new employment opportunities," but adds that the "long-term
employment benefits of this sale on the [Kenai Peninsula Borough,
the Municipality of Anchorage,] and local communities will depend
on the subsequent production of commercial quantities of
petroleum." DNR claims that "[a]n influx of workers from outside
Alaska is unlikely," because "[a]s existing Cook Inlet fields
decline, more and more of the current resident labor pool and
service industry will be in need of employment." DNR states that
for those positions which the local labor pool is unable to fill,
contractors will be encouraged to employ Alaskans.
As part of the best interests finding, DNR also
catalogues and responds to the voluminous public comment that its
announcement of the proposed lease sale generated.
As this summary shows, DNR is essentially correct when it
says that Kachemak Bay "may not agree with DNR's conclusions, but
it has simply not established that DNR failed to consider and
discuss material information or that DNR failed to take a hard look
at the reasonably foreseeable effects of post-lease sale activities
on communities." DNR did consider these impacts in a manner that
meets the relatively forgiving standard of AS
38.05.035(g)(1)(B)(x). Moreover, pursuant to AS 38.05.035(h),
added by the 1994 amendment, DNR need not engage in "speculation"
regarding "possible future effects subject to future permitting
that cannot be reasonably determined until the project . . . is
more specifically defined." Kachemak Bay has not borne its burden
of showing that DNR's decision was arbitrary, unreasonable, or an
abuse of discretion. [Fn. 54]
c. Conclusion
The best interests finding is affirmed in all respects.
B. The Consistency Determination
Besides being obliged under Title 38 to determine whether
lease sales are in the state's best interests, DNR is also
required, under Title 46, Chapter 40 (the Alaska Coastal
Mamanagement Plan), as implemented by Title 6, Chapter 80 of the
Alaska Administrative Code, to determine that the lease sale is
consistent with (1) the Alaska Coastal Management Plan and (2)
district coastal management plans. [Fn. 55] Kachemak Bay asserts
that DNR's consistency determination regarding Sale 85A was
erroneous in both respects, and that DNR improperly phased its
consistency determination regarding the latter. As discussed
below, however, these arguments fail.
1. Consistency with the habitats standard
a. DNR's determination that Sale 85A was
consistent with the Alaska Coastal Management Plan habitats
standard was not erroneous.
We discussed the Alaska Coastal Management Plan's
habitats standard in Camden Bay II, notings its stringent
requirements:
The ACMP has, among its objectives, protecting
numerous environmental and cultural values in Alaska's coastal
zone. As we have elsewhere had occasion to note, the ACMP's
standards are extremely protective of the environment. Offshore
areas are among the habitats subject to the Alaska coastal
management program. Such habitats "must be managed so as to
maintain or enhance the biological, physical, and chemical
characteristics of the habitat which contribute to its capacity to
support living resources." 6 AAC 80.130(b) (emphasis added). Uses
or activities that fail to maintain or enhance the habitat's
capacity to support living resources may be authorized only if
several stringent additional conditions are met.[ [Fn. 56]]
Kachemak Bay asserts that DNR's consistency determination violates
6 AAC 80.130, commonly known as the "habitats standard," because
Sale 85A neither (1) maintains or enhances the relevant habitat nor
(2) meets the three "stringent additional conditions" [Fn. 57] that
the habitats standard specifies.
(1) Sale 85A does not "maintain or enhance"
the habitat.
It is undisputed that the activities that will and may
occur on the leased tracts -- i.e., exploration for and production
of oil or gas -- "do not maintain or enhance the coastal habitat."
Therefore, DNR was required to show that the proposal met the three
subsection (d) conditions.
(2) DNR showed that Sale 85A meets the
subsection (d) requirements.
(a) DNR showed a "significant public
need" for Sale 85A.
In its consistency determination, DNR found that there
was a significant public need for Sale 85A. DNR listed several
aspects of the need, including: (1) "increased revenues from[:] oil
and gas lease bonus bids, rentals, and royalties; production taxes;
and corporate income taxes"; (2) the "need for a continuous supply
of energy"; (3) "the public need for continuing economic
stability," based on the state's dependence on revenue and
employment derived from oil and gas exploration and development;
and (4) the "national need to replace domestic [petroleum] reserves
to maintain future production levels and prevent a further
deterioration of the country's position in the world market."
Despite this litany, Kachemak Bay argues that DNR "has
not demonstrated any significant public need to offer Sale 85A."
Kachemak Bay contends that the amount of money that the state will
receive from the lease sale itself will "not materially affect
total state revenues." Further, Kachemak Bay argues, "DNR did not
even estimate potential revenues to be derived from subsequent
exploration, development, and production, and its reliance on this
phantom figure as a 'significant need' is arbitrary and
capricious." Kachemak Bay argues that DNR was required to estimate
the "Sale 85A-related income," and points to the Minerals
Management Service's estimate for Sale 149 as proving that such
estimates are feasible. In any event, Kachemak Bay contends, "any
revenues derived from Sale 85A are highly unlikely to be
'significant' in terms of their impact on existing revenues."
Finally, Kachemak Bay makes the broad argument that
[i]f a "need" for any revenue which may flow
from an oil and gas lease sale, standing alone, constitutes a
"significant public need," then there would be in effect an
unwritten exception to the Habitats Standard for oil and gas lease
sales, since such sales always [would] be expected to generate
revenue. . . . While the estimated revenue from a given lease sale
might potentially constitute a significant public need, that is not
the case here, where DNR has refused to estimate revenues, and
[has] identified no reasonable possibility that the Sale 85A
revenues will significantly impact total state oil and gas
revenues.
These arguments are unavailing; we considered and
rejected similar arguments in Ninilchik. In that case, DNR
adverted to benefits that closely resemble those advanced here:
namely, revenue for the state, revenue for local governmental
bodies, employment opportunities, and the "long-range goal of the
State of utilizing the oil and gas lease program to provide the
basis for a stable and prosperous economy." [Fn. 58] Citing our
holding in Camden Bay I, we held that DNR's analysis sufficed to
show that DNR's determination that there was a significant public
need for the sale was not arbitrary or capricious. [Fn. 59]
The determination that a significant public need for a
lease sale exists is exactly the type of "policy decision,
involving complex issues that are beyond this court's ability to
decide," [Fn. 60] to which we give considerable deference. Without
evidence that this decision was arbitrary or capricious, we cannot
negate this policy decision by DNR. We accordingly decline to
reverse the consistency determination on these grounds. [Fn. 61]
(b) DNR showed that there is no feasible
and prudent alternative to meet the public need for the proposed
use or activity which would maintain or enhance the habitat.
Kachemak Bay argues that "[t]here were many potentially
feasible and prudent alternatives to offering Sale 85A as it was
offered." The alternatives proposed by Kachemak Bay include
deferring or deleting some portions of the sale area, and
evaluating the use of alternative energy resources and conservation
measures to reduce the United States' national demand for oil.
In its consistency determination, DNR found that there
was "no feasible and prudent alternative to offering lands in the
coastal zone that would meet the public need for Sale 85A." DNR
found that because "[i]ndustry interest lies in the coastal zone,"
it would not be prudent to offer lands outside the coastal zone.
If the state offered lands where there was a lack of industry
interest, DNR found, "this state would receive no economic benefit
from holding this sale."
Examination of the record reveals that DNR's decision
that there were no prudent and feasible alternatives to Sale 85A
was not arbitrary nor capricious. In fact, as DNR points out, the
sale area was pared down by 40,000 acres in direct response to
concerns of residents of Homer. This indicates that DNR took the
requisite "hard look" at the sale area before issuing its
consistency determination.
Further, deleting part of the sale area would potentially
reduce or eliminate all of the benefits listed above. In
Ninilchik, we rejected such deletion as a feasible and prudent
alternative for just that reason: "The State maintains that while
it might be feasible to offer less promising areas for lease, it
would not be prudent because potential lessees have expressed an
interest in the Sale 78 area." [Fn. 62] Obviously, forgoing
offering the lease sale altogether (as Kachemak Bay apparently
proposes in favor of development of alternative energy sources)
would result in complete loss of the benefits cited by DNR;
Kachemak Bay has not shown that its proposals regarding alternative
energy sources would provide those benefits.
b. Conclusion
We affirm DNR's determination that Sale 85A was
consistent with the habitats standard. [Fn. 63]
2. Consistency with the Kenai Peninsula Borough
Coastal Management Plan
Kachemak Bay further alleges that DNR failed to fulfill
its duty, pursuant to AS 46.40.100(a), to "administer land and
water use regulations or controls in conformity with district
coastal management programs." [Fn. 64] The relevant district
program here is the Kenai Peninsula Borough Coastal Management Plan
[Fn. 65] -- specifically, Policy 2.7.
Policy 2.7 is succinct. It provides: "The cumulative
effects of proposed new and existing development on ambient air and
water quality and coastal habitats shall be considered in the
review or renewal of coastal projects."
a. It was proper for DNR to "phase" its
determination that Sale 85A was consistent with the Kenai Peninsula
Borough Coastal Management Plan.
DNR's revised consistency determination begins with a
caveat:
State leases alone do not authorize any
activities that would impact air and water quality. Focused
consideration of this requirement is reserved until a specific
activity is proposed. Until a development, use or activity which
might actually impact air and water quality is proposed, DNR will
have no specific information about its impact on future air and
water quality.
In short, DNR is indicating that it will phase its determination
that Sale 85A conforms with Policy 2.7.
The same line of case law discussed above in the best
interests finding context is relevant to the question of whether
DNR may phase its consistency determinations; those cases apply to
phased permitting generally. [Fn. 66] The 1994 amendment discussed
above is also relevant; in that amendment, the legislature added AS
46.40.094, entitled "Consistency Determinations for Phased Uses and
Activities." [Fn. 67] That section permits DNR to phase its
consistency determinations if:
(1) at the time the proposed use or
activity is initiated, there is insufficient information to
evaluate and render a consistency determination for the entirety of
the proposed use or activity;
(2) the proposed use or activity is
capable of proceeding in discrete phases based upon developing
information obtained in the course of a phase; and
(3) each subsequent phase of the proposed
use or activity is subject to discretion to implement alternative
decisions based upon the developing information.[ [Fn. 68]]
In essence, these conditions determine whether a given project is
eligible for a phased consistency review. The statute further
provides that if these conditions are met, DNR may
limit the consistency review to [a] particular
phase if, but only if,
(A) the agency or another state agency
must carry out a subsequent consistency review and make a
consistency determination before a later phase may proceed; and
(B) the agency responsible conditions its
consistency determination for that phase on a requirement that a
use or activity authorized in a subsequent phase be consistent with
the [Alaska Coastal Management Plan].[ [Fn. 69]]
As is the case with best interests findings, then, it can
no longer be said that phasing is disfavored under Alaska law when
DNR makes a conclusive consistency determination. Neither can a
consistency determination be found wanting for DNR's failure to
conduct additional studies; the material DNR must consider is
limited to that already at hand and that presented to DNR.
Further, the "findings" section of the amendment applies
to consistency determinations as well as best interests findings.
Therefore, DNR is not required to undertake analyses comparable to
federal environmental impact statements in its consistency
determinations. [Fn. 70] As discussed above, another finding
provides that DNR may not avoid thorough review of the project or
its potential effects by artificially dividing the project. [Fn.
71]
Just as with the best interests finding, then, the
threshold question here is whether, under the Alaska Coastal
Management Plan as amended, DNR may phase its conclusive
consistency determination.
(1) Sale 85A is eligible for phasing.
Kachemak Bay asserts that DNR "ignored virtually all of
the most relevant and readily available information pertaining to
the impacts of existing development in the sale area. Further, as
to future impacts, DNR did not provide any meaningful discussion or
estimates, and instead asserted its inability to forecast such
impacts until a later stage." Kachemak Bay states that DNR may not
phase its consideration of the effects of existing development at
all, because those impacts are "quantified and accessible."
Further, Kachemak Bay asserts, "impacts from new development,
including those from activities associated with Sale 85A, are
foreseeable and capable of estimation."
Kachemak Bay's characterization of the scope of the
review required by Policy 2.7 is somewhat misleading. The policy
does not call for piecemeal review of (1) the impacts of existing
development, (2) the impacts of proposed new development, and (3)
the cumulative effects of (1) and (2). Rather, it calls for DNR to
consider the "cumulative effects of proposed new and existing
development" -- what might be called a holistic approach. This
approach comports more closely with the Kenai Peninsula Borough
Coastal Management Plan's "goals and objectives" -- i.e., "[t]o
protect important fish and wildlife habitat areas and
environmentally sensitive areas from incompatible development" [Fn.
72] -- than a piecemeal analysis would.
DNR asserts that it "carefully considered, to the extent
reasonable and practical at the time of the consistency
determination, the cumulative effects of existing and proposed new
development on ambient air and water quality." However, DNR stated
that it was unable to predict the effects of development on air and
water quality. "Focused consideration of this requirement is
reserved until a specific activity is proposed. Until a
development, use or activity which might actually impact air and
water quality is proposed, DNR will have no specific information
about its impact on future air and water quality."
Again, the 1994 amendments endorse DNR's approach to this
issue. As DNR states, "leases alone do not authorize any
activities that would impact ambient air and water." The future
activities that would have such impacts -- exploration and
development -- are "subject to independent permitting
requirements," [Fn. 73] as previously discussed. [Fn. 74] Pursuant
to the 1994 amendments, DNR may not be required to "speculate"
concerning the effects of these activities. [Fn. 75] For these
reasons, DNR's finding that there was insufficient information to
render a determination regarding the entire project was proper.
(2) The proposed petroleum development
project was capable of proceeding in discrete phases based upon
developing information obtained in the course of a phase.
DNR states that "[e]ach phase of oil and gas activities
builds on the previous phase. That is, exploration cannot take
place before the lease sale. Depending on the information gathered
at the exploration phase, development may or may not take place."
This analysis seems correct -- in any event, Kachemak Bay does not
contest this characterization of oil and gas activities.
Accordingly, this element of the AS 46.40.094(a) test is met.
(3) Each subsequent phase of the proposed
petroleum development project is subject to discretion to implement
alternative decisions based upon the developing information.
DNR states:
At each phase, proposed site-specific and
project-specific activities will be analyzed for consistency based
on information developed at the previous stages. Further, each of
these subsequent phases [--] exploration and development/production
[--] is subject to discretion to implement alternative decisions
based upon this developing information. During the exploration and
development phases, lessees submit proposed plans of operation for
permit approval. At that time, agency staff reviews information
developed from the previous phases along with new technological
developments and site-specific data, and implements any needed
alternative mitigation measures when determining whether the permit
request complies with the [Alaska Coastal Management Plan].
Assuming that this characterization of DNR's internal policies is
accurate -- and Kachemak Bay does not dispute it -- the third part
of the AS 46.40.094(a) test is met as well.
Therefore, Sale 85A is eligible for a phased review under
AS 46.40.094.
b. DNR may limit its consistency review to the
lease sale stage.
As mentioned above, once a project is found eligible for
a phased review, AS 46.40.094(b)(1) contains two more conditions
that must be met before DNR is allowed to limit its consistency
review to a given phase.
(1) DNR must carry out a subsequent
consistency review and make a consistency determination before the
next phase may proceed. [Fn. 76]
DNR states:
Each lessee who proposes to conduct activities
related to exploration and development of the proposed Sale 85A
area will be required to submit a plan of operations to [DNR] for
review and approval . . . [which] must contain sufficient
information based on data reasonably available at the time to
determine the surface use requirements and impacts directly
associated with the proposed operations.
This analysis is supported by 11 AAC 83.158(d), and Kachemak Bay
does not suggest otherwise. Accordingly, this element of the AS
46.40.094(b)(1) test is met.
(2) DNR conditioned its consistency
determination on a requirement that future uses or activities be
consistent with the Alaska Coastal Management Plan. [Fn. 77]
DNR states that "[a]s a condition for consistency
approval of the lease operations, [DNR] will require such
modifications as may be necessary to ensure consistency with the
Alaska Coastal Management Plan. Measures in addition to . . . the
lease sale mitigation measures may be added to address site[-
]specific resource values and activities directly associated with
the proposed project." Again, Kachemak Bay does not dispute that
this is so. Therefore, this element of the AS 46.40.094(b)(1) test
is met as well.
c. Conclusion
Under AS 46.40.094, it was proper for DNR to phase its
consistency review. [Fn. 78]
3. DNR's decision that Sale 85A was consistent with
the Kenai Peninsula Borough Coastal Management Plan was not
erroneous.
That DNR may phase its consistency determination does
not, however, relieve it of its duty to make its determination for
the lease sale phase that Sale 85A is consistent with Policy 2.7.
Alaska Statute 46.40.094(b)(2) provides that DNR is to conduct the
review based on (1) applicable statutes and regulations; (2)
material facts that are known to DNR or are made known during the
consistency review; and (3) the "reasonably foreseeable,
significant effects of the use or activity for which the
consistency determination is sought."
Kachemak Bay challenges DNR's analysis of the second and
third of these elements, both as to air and water quality. It
argues that DNR's revised conclusive consistency determination
fails "to even mention the existing impacts due to current
development in the sale area, in blatant contravention of [Kenai
Peninsula Borough Coastal Management Plan] Policy 2.7. Further,
the revised [conclusive consistency determination] . . . fails to
employ available data to estimate future impacts."
a. Air quality
In its conclusive consistency determination, DNR
discusses, in general terms, the likely sources of air pollution
that would result from exploration, development, and production in
the sale area. DNR lists "routine" activities, which it states
would have only a temporary effect which would diminish after
construction was complete. It then discusses the possibility of
gas and oil leaks and spills, but concludes that either would have
minimal impact. DNR concludes that the impact of possible
emissions during tanker loading operations would be "minimal" as
well.
Regarding present development, DNR briefly states that
"overall air quality in Cook Inlet is good. . . . There may be
specific locations that exceed air quality standards, but the
impacted areas are restricted in size due to meteorological air
patterns. The Municipality of Anchorage and Tesoro's oil refinery
are two examples."
Kachemak Bay argues that DNR should have considered other
sources of information in its air quality analysis. For instance,
Kachemak Bay argues that DNR should have examined information about
air pollution that is "readily available" pursuant to the Clean Air
Act and from the federal Environmental Protection Agency's Toxics
Release Inventory.
b. Water quality
DNR's findings regarding water quality are more detailed
than its findings regarding air quality. In the revised conclusive
consistency determination, DNR lists the ways that Sale 85A may
affect water quality; namely, discharges of drilling muds and
cuttings. It also discusses how discharges from platforms might
affect Cook Inlet. DNR mentions a 1997 report that characterizes
Cook Inlet as a whole as "healthy," despite some areas that had
been disproportionately affected by human pollution.
As mentioned above, DNR also discusses Sale 85A's
potential effects on water quality in its best interests finding,
which DNR incorporated by reference in the revised conclusive
consistency determination. [Fn. 79] DNR devotes some five pages to
the issue and provides a schematic of a Cook Inlet wellbore.
Kachemak Bay makes similar arguments regarding the
insufficiency of DNR's water quality findings as it does regarding
DNR's air quality findings; these arguments boil down to Kachemak
Bay's dissatisfaction with the information that DNR considered.
For example, Kachemak Bay discusses a subdivision in Soldotna which
was apparently subject to oil field pollution in its drinking
water. Kachemak Bay also refers to publicly available information
that DNR could have obtained pursuant to the Clean Water Act.
c. Conclusion
DNR's analyses are not exhaustive, nor do they take into
account all of the information that Kachemak Bay discusses.
However, the analyses do show that DNR "considered" the cumulative
effect of the lease sales on the air and water quality in the
district. These findings, combined with the fact that the Borough
itself concurred with DNR's determination, [Fn. 80] suffice to show
that DNR's determination was not arbitrary or capricious.
Further, as discussed above, the 1994 amendment
discharged DNR from a duty to consider information other than that
"known to [DNR] or made a part of the record during the consistency
review." [Fn. 81] There is no basis in the record to conclude that
the information Kachemak Bay would have DNR consider fits either of
these categories. Therefore, DNR's conclusive consistency
determination cannot be overturned for failure to consider such
information.
C. Additional Issues
1. Intervenors' arguments
At the superior court, several petroleum companies who
had successfully bid on tracts offered in Sale 85A moved to
intervene in this action; the court granted these motions. Cook
Inlet Regional Corporation, Inc. (CIRI), a Native corporation with
lands in the vicinity of the Sale 85A area, also successfully moved
to intervene. The Alaska Mental Health Trust did likewise; title
to some of the land in the Sale 85A area is held by the Trust.
The brief jointly submitted by the oil companies and CIRI
mounts a defense of the substance of DNR's best interests finding
and conclusive consistency determination -- a defense ably mounted
by DNR itself. Because it does not raise separate issues, we have
considered its arguments when we considered DNR's arguments.
The Trust argues separately that Sale 85A was in the best
interests of the Trust. That claim is not challenged by Kachemak
Bay. In fact, this issue was not even raised by Kachemak Bay in
its points on appeal. Therefore, we need not consider the issue.
2. The "juggernaut" argument
At several points in its brief and with slight
variations, Kachemak Bay argues that "the lease sale stage marks
the best, and, as a practical matter, the only time to plan for the
impacts of the subsequent development." This is so, Kachemak Bay
contends, because if the state cancels a lease after it has been
sold, it must compensate the lessee. Because of this requirement,
Kachemak Bay asserts, "[a] lease cancellation would undoubtably be
a painful, disruptive, and expensive proposition, and is patently
not a transaction in which any state would care to engage. The
lease sale is thus a pivotal threshold event, after which point
there is substantial momentum toward developing the leased tracts."
In short, Kachemak Bay argues that DNR's failure to evaluate, at
the lease-sale stage, all of the potential impacts of the
development creates an unstoppable juggernaut of a project. The
implication is that the state will be unwilling to cancel the
leases, no matter how dire the environmental consequences, because
of the financial burden of doing so.
The "sample lease" that DNR generated for Sale 85A does
indeed contain a provision requiring the state to reimburse lessees
if the state cancels a lease. And Kachemak Bay's argument holds
much intuitive appeal. It does seem possible that the state may
unwisely decide to continue to allow a project which is causing
untoward environmental damage if the state stands to lose a
significant amount of revenue by canceling a lease. In fact, we
have discussed this problem in several of our "phasing" cases. [Fn.
82]
However, Kachemak Bay's argument really goes to the
question of whether phasing should be allowed at all -- a question
which was definitively answered by the legislature in the 1994 act
amending Title 38 and the Alaska Coastal Management Plan. Within
the strictures specified by the legislature, phasing is now
expressly allowed. It is not for us to overturn that policy
choice.
We note, however, that the legislature's policy choice
does not, by any means, relieve DNR of its duty to take a
continuing "hard look" at future development on the lease sale
lands. To the contrary, DNR is obliged, at each phase of
development, to issue a best interests finding and a conclusive
consistency determination relating to that phase before the
proposed development may proceed. [Fn. 83]
V. CONCLUSION
Because DNR has not impermissibly phased its review of
the proposed lease sale, and because there is a reasonable basis
for both DNR's best interests finding and conclusive consistency
determination, the agency's actions are AFFIRMED.
FOOTNOTES
Footnote 1:
"Phasing" consists of DNR's dividing a proposal into discrete
parts -- e.g., exploration, construction of facilities, and
production -- and examining each of these parts individually for
compliance rather than examining the project as a whole.
Footnote 2:
928 P.2d 1206 (Alaska 1996). Ninilchik is discussed in detail
below.
Footnote 3:
See AS 38.05.035(l) (providing for judicial review of DNR's
final written findings); Alaska R. App. P. 601(b) (providing for
appeals of final decisions of administrative agencies to the
superior court).
Footnote 4:
See Bruner v. Petersen, 944 P.2d 43, 47 n.5 (Alaska 1997)
(citing Handley v. State, Dep't of Revenue, 838 P.2d 1231, 1233
(Alaska 1992)).
Footnote 5:
Thane Neighborhood Ass'n v. City and Borough of Juneau, 922
P.2d 901, 905-06 (Alaska 1996).
Footnote 6:
See Trustees for Alaska v. State, Dep't of Natural Resources
(Demarcation Point), 865 P.2d 745, 747 (Alaska 1993) ("DNR's best-
interest determination is subject to deferential review by this
court. Since the determination involves complex subject matter or
fundamental policy formulations, this court reviews the decision
only to the extent necessary to ascertain whether the decision has
a reasonable basis.") (quoting Trustees for Alaska v. State, Dep't
of Natural Resources (Camden Bay I), 795 P.2d 805, 809 (Alaska
1990) (footnote, internal quotation marks and brackets omitted));
Ninilchik, 928 P.2d at 1213 ("This court's review [of DNR's
consistency analysis] is limited to ensuring that DNR's decision
was not arbitrary, capricious, or unreasonable." (internal
quotation marks omitted)) (quoting Trustees for Alaska v. State,
Dep't of Natural Resources (Camden Bay II), 851 P.2d 1340, 1347
(Alaska 1993)).
Footnote 7:
Hammond v. N. Slope Borough, 645 P.2d 750, 758-59 (Alaska
1982) (internal brackets omitted) (quoting Moore v. State, 553 P.2d
8, 36 n.20 (Alaska 1976)). See also Ch. 38, sec. 1(2), SLA 1994
("each determination under AS 38.05 that the interests of the state
will be best served is a policy decision involving facts unique to
each proposed disposal, and complex issues the analysis and
resolution of which are most appropriately left to the expertise of
the agency making the determination").
Footnote 8:
Demarcation Point, 865 P.2d at 747 (internal quotation marks
omitted) (quoting Alaska Survival v. State, 723 P.2d 1281, 1287
(Alaska 1986)).
Footnote 9:
Id. (internal quotation marks omitted) (quoting Camden Bay I,
795 P.2d at 809).
Footnote 10:
See Hammond, 645 P.2d at 758.
Footnote 11:
See Ch. 38, sec. 2, SLA 1994.
Footnote 12:
Subsection (B) provides the director with authority to limit
the scope of best interests findings:
[T]he director, in the written finding, . . .
may limit the scope of an administrative review and finding for a
proposed disposal to
(i) applicable statutes and
regulations;
(ii) the facts pertaining to the
land, resources, or property, or interest in them, that the
director finds are material to the determination and that are known
to the director or knowledge of which is made available to the
director during the administrative review; and
(iii) issues that, based on the
statutes and regulations referred to in (i) of this subparagraph,
on the facts as described in (ii) of this subparagraph, and on the
nature of the uses sought to be authorized, the director finds are
material to the determination of whether the proposed disposal will
best serve the interests of the state[.]
Footnote 13:
See Alaska House of Representatives Judiciary Committee
Minutes, April 27, 1994, No. 31, testimony of Assistant Attorney
General Mary Ann Lundquist (citing five supreme court cases
regarding lease sales as reason for bill); No. 332, testimony of
Jim Eason, Director of Division of Oil and Gas (DO&G), DNR (citing
Kuitsarak Corp. v. Swope, 870 P.2d 387 (Alaska 1994) as reason for
amendment). See also Alaska Senate Finance Committee Minutes,
March 22, 1994, testimony of Kyle Parker, Office of the Governor
(citing Kuitsarak as evidence of Alaska courts "driving the state
toward a federal environmental impact process"); testimony of
Barbara Fullmer, Legal Counsel, DO&G (citing Ninilchik as reason
for amendment); February 24, 1994, testimony of Jim Eason (citing
"string of court cases," including Ninilchik, as reason for
amendment); testimony of Barbara Fullmer (citing Ninilchik). See
also Alaska Senate Resources Committee Minutes, February 22, 1994,
No. 363, testimony of Jim Eason (legislation is "a reaction to a
series of litigation results that began in 1987 that have clearly
established a pattern of the court in picking up the jurisdiction
and authority to make leasing policy"). Available at Alaska State
Legislature, Committee Minutes -- 18th Legislature (last modified
November 1994) .
Footnote 14:
Thane, 922 P.2d at 903 (internal quotation marks omitted).
Footnote 15:
Thane, 922 P.2d at 906-08 (internal citations, brackets, and
quotation marks omitted).
Footnote 16:
Id. at 908.
Footnote 17:
Although Thane was decided in 1996, the approval at issue was
issued in 1993. See id. at 903. The 1994 amendments were not
effective until August 7, 1994, see Ch. 38, SLA 1994 (cover page),
and therefore were not applied in Thane.
Footnote 18:
See Thane, 922 P.2d at 908.
Footnote 19:
Ch. 38, sec. 2, SLA 1994.
Footnote 20:
Thane, 922 P.2d at 908 (citing Kuitsarak, 870 P.2d at 396
n.30; Camden Bay II, 851 P.2d at 1344, 1346; Gorsuch, 835 P.2d at
1246).
Footnote 21:
"Disposal" in this chapter of Title 38 is apparently a catch-
all term for all alienations of state land and interests in state
land.
Footnote 22:
Ch. 38, sec. 1(11), SLA 1994.
Footnote 23:
See Ch. 38, sec. 3, SLA 1994 (renumbering section).
Footnote 24:
Thane, 922 P.2d at 908.
Footnote 25:
Id. (citing Kuitsarak, 870 P.2d at 396).
Footnote 26:
Ch. 38, sec. 2, SLA 1994 (emphasis added).
Footnote 27:
Ch. 38, sec. 1(7), SLA 1994.
Footnote 28:
See Kuitsarak, 870 P.2d at 396 ("The record indicates that the
federal government has conducted environmental impact studies for
off-shore mining based on various mining scenarios. DNR can
emulate these studies.").
Footnote 29:
See Ch. 38, sec. 4, SLA 1994.
Footnote 30:
Id.
Footnote 31:
See id. The types of "speculation" are:
(1) the exact location and size of an ultimate
use and related facilities;
(2) . . . the economic feasibility of ultimate
development; and
(3) future environmental or other laws that
may apply at the time of any future development.
Footnote 32:
Hammond, 645 P.2d at 759; see also Camden Bay II, 851 P.2d at
1344 n.6 (same).
Footnote 33:
The risk, of course, is that as a practical matter the act of
leasing will make it more difficult to deny later permits
authorizing environmentally damaging activities related to the
lease. See Thane, 922 P.2d at 907; Camden Bay II, 851 P.2d at
1344.
Footnote 34:
11 AAC 83.158(d). The plan must contain detailed information
about the proposed operations:
(1) the sequence and schedule of the
operations to be conducted on or in the leased or licensed area,
including the date operations are proposed to begin and their
proposed duration;
(2) projected use requirements directly
associated with the proposed operations, including the location and
design of well sites, material sites, water supplies, solid waste
sites, buildings, roads, utilities, airstrips, and all other
facilities and equipment necessary to conduct the proposed
operations;
(3) plans for rehabilitation of the affected
leased or licensed area after completion of operations or phases of
those operations; and
(4) a description of operating procedures
designed to prevent or minimize adverse effects on other natural
resources and other uses of the leased or licensed area and
adjacent areas, including fish and wildlife habitats, historic and
archeological sites, and public use areas.
Footnote 35:
Ch. 38, sec. 1(11), SLA 1994.
Footnote 36:
Thane, 922 P.2d at 908 (citing Kuitsarak, 870 P.2d at 396
n.30; Camden Bay II, 851 P.2d at 1344, 1346; Gorsuch, 835 P.2d at
1246).
Footnote 37:
See Ch. 38, sec. 1(7), SLA 1994.
Footnote 38:
For example, DNR discusses in detail three types of pipelines
that may be used to transport oil and gas, while Mineral Management
Service's environmental impact statement contains only a cursory
two-sentence reference to pipelines.
Footnote 39:
As DNR acknowledges, while there is no specific statutory
requirement that oil spills be considered in a best interests
finding, they are an obvious risk of transportation and thus must
be considered in the best interests finding pursuant to AS
38.05.035(g)(1)(B)(viii).
Footnote 40:
The manager stated:
1. MMS's oil spill risk guess is based on a
guess of oil reserves that may (or may not) be handled during the
life of the sale area. Basing an estimate on an estimate compounds
any error in the original estimate.
2. The historical data on spills that MMS uses
in [its] analysis . . . is only current to 1992. Much of the new
spill prevention measures have been implemented since that time.
3. MMS's spill estimate is based on [outer
continental shelf] experience and resource estimates and can only
be applied to the [outer continental shelf] area. Extreme caution
must be used extrapolating that guess to state lands and waters.
4. MMS's method of basing spill risk on the
volume of oil handled is an extremely simple approach to an
extraordinarily complex issue. This simplicity increases the range
of error for the estimate.
Footnote 41:
See Ch. 38, sec. 1(7), SLA 1994.
Footnote 42:
See Camden Bay I, 795 P.2d at 806.
Footnote 43:
See id. at 807.
Footnote 44:
Id. at 811.
Footnote 45:
See 865 P.2d at 752 (map).
Footnote 46:
See id. at 749-50.
Footnote 47:
Id.
Footnote 48:
See id. at 750.
Footnote 49:
See Camden Bay I, 795 P.2d at 811; Demarcation Point, 865 P.2d
at 749.
Footnote 50:
Trustees for Alaska v. State, Dep't of Natural Resources
(Camden Bay II), 851 P.2d 1340, 1346 (Alaska 1993).
Footnote 51:
For the same reason, Kachemak Bay's argument that "DNR may not
defer its review of oil and gas transportation methods and impacts
because sufficient information is readily available at the lease
sale stage" fails. Kachemak Bay essentially argues that this court
should forbid any phasing of oil and gas development project
approvals -- a result explicitly rejected by the legislature in its
1994 amendment. See supra Part IV.A.1.; infra Part IV.C.2.
Footnote 52:
AS 38.05.035(g)(1)(B)(x).
Footnote 53:
We discuss these findings in the context of "transportation
methods and risks." See supra Part IV.A.3.a. However, oil spills
obviously fall within the scope of the section (g) discussion of
"effects on the community" as well.
Footnote 54:
See AS 38.05.035(m) ("For purposes of appeal [of a best
interests finding], the burden is upon the party seeking review to
establish the invalidity of the finding.").
Footnote 55:
See AS 46.40.100(a); 6 AAC 80.130. Sale 85A must comply with
the Alaska Coastal Management Plan because it is located within
Alaska's coastal zone. See 6 AAC 80.010(b); Ninilchik, 928 P.2d at
1209.
Footnote 56:
Camden Bay II, 851 P.2d at 1344 (internal footnote, citations
and some quotation marks omitted).
Footnote 57:
The 6 AAC 80.130(d) conditions are:
(1) there is a significant public need for
the proposed use or activity;
(2) there is no feasible prudent alternative
to meet the public need for the proposed
use or activity which would [maintain or enhance the habitat]; and
(3) all feasible and prudent steps to
maximize [maintenance or enhancement of the habitat] will be taken.
Footnote 58:
Ninilchik, 928 P.2d at 1213 (citing Camden Bay I, 795 P.2d at
810).
Footnote 59:
See id. It appears that in neither Ninilchik nor Camden Bay
I had DNR presented specific revenue predictions of the sort sought
by Kachemak Bay here. See id.; see also Camden Bay I, 795 P.2d at
810.
Footnote 60:
Hammond, 645 P.2d at 758-59 (citation omitted).
Footnote 61:
See Ninilchik, 928 P.2d at 1213 (citing Camden Bay I, 795 P.2d
at 809-10). Kachemak Bay argues that the Ninilchik court erred in
basing its holding on Camden Bay I, because the former dealt with
the "extremely stringent" habitats standard, and the latter with
the more lenient best interests requirement. Kachemak Bay notes
that "[t]he Ninilchik court did not recognize, or at least did not
discuss, the difference between a 'significant need' sufficient to
satisfy the Habitats Standard and a 'need' sufficient for a [best
interests finding]."
The state has indeed, in an official publication,
characterized the habitats standard as applying "a strict
limitation on impacts to the point of prohibition." Office of
Coastal Management, State of Alaska & Office of Coastal Zone
Management, U.S. Dep't of Commerce, State of Alaska Coastal
Management Program and Final Environmental Impact Statement 72
(1979). Cf. Ninilchik, 928 P.2d at 1211 n.8 (citing same
publication as evincing purpose of Alaska Coastal Management Plan).
When activities diverge from the habitats standard, the state
noted, they must meet "a series of stringent tests" in order to be
allowed.
Given this, Kachemak Bay's argument that projects which
are reviewed under the habitats standard should be given more
scrutiny than those merely reviewed under the best interests
standard is well taken. Nevertheless, we are to give these policy
decisions by DNR the deference they are due. It is incumbent on
DNR to rigorously enforce the habitats standard; we apply the same
standard of review to both best interests findings and consistency
determinations. That is, we reverse DNR's consistency
determinations only if those decisions are arbitrary or capricious.
Of course, this standard does not mean that we rubber-stamp all of
DNR's decisions; we are forced by Alaska's statutory scheme to rely
on the state's good faith, see Hammond, 645 P.2d at 759 n.5, but we
continue to "expect state agencies to give faithful and scrupulous
attention to the clear requirements of their regulations." Camden
Bay II, 851 P.2d at 1344 n.6.
Footnote 62:
Ninilchik, 928 P.2d at 1213.
Footnote 63:
The third subsection (d) condition is that "all feasible and
prudent steps to maximize conformance with the standards contained
in [6 AAC 80.130(b) and (c)] will be taken." Kachemak Bay raised
no issue with respect to this third condition.
Footnote 64:
See also 6 AAC 80.010(b) ("Uses and activities conducted by
state agencies in the coastal area must be consistent with the
applicable district program.").
Footnote 65:
The Kenai Peninsula Borough Coastal Management Plan applies
because almost all of the relevant lease sale land is located in
the Kenai Peninsula Borough. A small portion of the land lies
within the Municipality of Anchorage; Kachemak Bay does not
challenge DNR's determination that Sale 85A is consistent with
Municipality of Anchorage's Coastal Management Program.
Footnote 66:
See supra Part IV.A.1.
Footnote 67:
See Ch. 38, sec. 8, SLA 1994.
Footnote 68:
AS 46.40.094(a).
Footnote 69:
AS 46.40.094(b)(1).
Footnote 70:
See Ch. 38, sec. 1(7), SLA 1994.
Footnote 71:
See Ch. 38, sec. 1(11), SLA 1994.
Footnote 72:
Kenai Peninsula Borough Coastal Management Program, Chapter
3.0, Page 3-9, Objective 1.3.
Footnote 73:
Ch. 38, sec. 1(8), SLA 1994.
Footnote 74:
See supra Part IV.A.2.b.
Footnote 75:
See Ch. 38, sec. 1(8), SLA 1994.
Footnote 76:
See AS 46.40.094(b)(1)(A).
Footnote 77:
See AS 46.40.094(b)(1)(B).
Footnote 78:
The same additional, overarching factor that applies to the
best interests finding -- namely, that phasing may not be used so
as to avoid thorough review of the effects of the project --
applies to the conclusive consistency determination. See supra
Part IV.A.2.d. For the same reasons discussed in that section,
DNR's phased conclusive consistency determination review does not
violate this requirement.
Footnote 79:
See supra Part IV.A.3.b.
Footnote 80:
In Ninilchik, we held that DNR was required to "determine
independently that the Sale is consistent with the Kenai [Draft
Coastal Management Plan]." Ninilchik, 928 P.2d at 1215. In fact,
this holding was the reason that DNR requested that it be allowed
to revise its conclusive consistency determination in this case.
However, we also held that "[b]ecause the regulations mandate . . .
deference to the districts themselves, DNR can rely on the
concurrence of coastal districts as one basis for its conclusion
that a sale is consistent with the [Draft Coastal Management
Plans]." Id. (footnote omitted).
Footnote 81:
AS 46.40.094(b)(2)(B)(i).
Footnote 82:
See, e.g., Gorsuch, 835 P.2d at 1246 n.6 ("'concept approval'
is necessary in order to avoid a situation where, because of
industry investment and reliance upon a past . . . permit approval,
DNR might feel compelled to approve a subsequent permit for a
related but environmentally unsound support facility"); Camden Bay
II, 851 P.2d at 1344 (same).
Footnote 83:
See AS 38.05.035(e)(1)(C); AS 46.40.094(b)(1)(A).
