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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Sullivan v. Resisting Environmental Destruction on Indigenous Lands (3/29/2013) sp-6769

Sullivan v. Resisting Environmental Destruction on Indigenous Lands (3/29/2013) sp-6769

        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, email 

        corrections@appellate.courts.state.ak.us. 



                THE SUPREME COURT OF THE STATE OF ALASKA 



DANIEL S. SULLIVAN,                           ) 

COMMISSIONER, STATE OF                        )      Supreme Court No. S-14216 

ALASKA, DEPARTMENT OF                         ) 

NATURAL RESOURCES,                            )      Superior Court No. 3AN-10-04217 CI 

                                              ) 

               Petitioner,                    )      O P I N I O N 

                                              ) 

        v.                                    )      No. 6769 – March 29, 2013 

                                              ) 

RESISTING ENVIRONMENTAL                       )
 

DESTRUCTION ON INDIGENOUS                     )
 

LANDS (REDOIL), GWICH’IN                      )
 

STEERING COMMITTEE, ALASKA )
 

WILDERNESS LEAGUE, CENTER                     )
 

FOR BIOLOGICAL DIVERSITY, and)
 

NORTHERN ALASKA                               )
 

ENVIRONMENTAL CENTER,                         )
 

                                              )
 

               Respondents.                   )
 

                                              )
 



               Appeal from the Superior Court of the State of Alaska, Third 

               Judicial   District,   Anchorage,   Peter   G.   Ashman,   Judge   pro 

               tem. 



               Appearances:        Joanne    M.    Grace   and   Rebecca     Kruse, 

               Assistant Attorneys General, Anchorage, and John J. Burns, 

               Attorney General, Juneau, for Petitioner.  Brook Brisson and 

               Victoria     Clark,   Trustees    for   Alaska,    Anchorage,     for 

               Respondents. 


----------------------- Page 2-----------------------

                Before:     Carpeneti,     Chief   Justice,   Fabe,   Winfree,    and 

                Stowers, Justices. 



                STOWERS, Justice. 



I.      INTRODUCTION 



                The State of Alaska Department of Natural Resources, Oil and Gas Division 



(DNR), petitioned for review of the superior court’s decision that under AS 38.05.035, 



the lack of continuing best interest findings (BIF) at each phase of an oil and gas project 



violated article VIII of the Alaska Constitution and that DNR must issue a written best 



interest finding at each step of a phased project to satisfy the constitution.  Because best 



interest findings after the lease sale phase are not required under the Alaska Constitution 



or AS 38.05.035, we reverse the superior court’s ruling.           We also hold that the State is 



constitutionally required to consider the cumulative impacts of an oil and gas project at 



its later phases. 



II.     FACTS & PROCEEDINGS 



        A.      Background 



                The Beaufort Sea Lease Sale Area comprises two million acres of state- 



owned tidal and submerged lands which extend three   miles   seaward from the coast 



between Point Barrow and Canada.            The Beaufort Sea Lease Sale Area is believed to 



contain   significant   oil   and   gas  resources.   This   area   also   contains   many   habitats, 



including tundra, freshwater lakes, streams and wetlands, estuaries, lagoons, and marine 



habitats, all of which support a variety of fish and wildlife species.   Communities on the 



Arctic Coast Plain, including Barrow, Nuiqsut, and Kaktovik, practice a subsistence- 



based lifestyle, which includes whaling and marine mammal harvests from the Beaufort 



Sea lease area.  DNR decided to offer the Beaufort Sea area for lease sales for oil and gas 



exploration, development, and production. 



                                                 -2-                                           6769
 


----------------------- Page 3-----------------------

        B.      Administrative Proceedings For The Beaufort Sea Lease Sale Area 



                Before selling leases in the Beaufort Sea Lease Sale Area, DNR issued a 



Preliminary Best Interest Finding (Preliminary BIF) on April 2, 2009, determining that 



annual Beaufort Sea area-wide oil and gas lease sales from 2009-2018 were in the best 



interest of the state.    After the Preliminary BIF was issued, DNR opened a notice and 



comment period of 30 days during which interested parties could comment about the 



finding.   Resisting Environmental Destruction on Indigenous Lands, Gwich’in Steering 



Committee, Alaska Wilderness League, Center for Biological Diversity, and Northern 



Alaska Environmental Center (collectively REDOIL) submitted comments to DNR on 



June 1, 2009, stating that the “analytical approach DNR has taken” to examine only in 



general terms the potential effects that may occur during later phases was inconsistent 



with the Alaska Constitution. 



                DNR issued the Final Finding of the Director (Final BIF) for the lease sale 



on November 9, 2009, which stated: 



                After weighing the facts and issues known to him at this time, 

                considering applicable laws and regulations, and balancing 

                the    potential    positive    and   negative     effects   given    the 

                mitigation   measures   and   other   regulatory   protections,   the 

                director   has   concluded   that   the   potential   benefits   of   lease 

                sales    outweigh     the   possible    negative    effects,   and    that 

                Beaufort Sea Areawide oil and gas lease sales will be in the 

                best interests of the state of Alaska. 



DNR used a phased review approach, which “recognizes that some disposals of oil and 



gas, or of gas only, may result in future development that cannot be predicted or planned 



with   any   certainty   or   specificity   at   the   initial   lease   sale   phase,   and   that   any   future 



development will be subject to detailed review before it takes place.” Accordingly, DNR 



made clear that the analysis in the Final BIF “focus[es] only on the issues pertaining to 



the   lease   sale   phase,”   while   discussing   future   phases   of   exploration,   development, 



                                                   -3-                                             6769
 


----------------------- Page 4-----------------------

production, and transportation “in general terms.”               In response to concerns about the 



sufficiency of review under the phased approach, DNR stated, “[T]he statutory criteria 



for   phasing     have   been    met   for  the   Beaufort     Sea   oil  and   gas  lease   sales.    The 



constitutionality of phasing is beyond the scope of a best interest finding.   A best interest 



process for post-lease phases is not required by statute.” 



                 REDOIL filed a request for reconsideration of the best interest finding to 



then-DNR Commissioner Thomas Irwin on November 30, 2009.  REDOIL argued that 



DNR had “violated Article VIII of the Alaska Constitution by failing to fully analyze the 



direct,    indirect   and   cumulative     impacts    of  oil  and   gas   exploration,    development, 



production and transportation activities.” 



                 The    Commissioner        denied   REDOIL’s        request   for  reconsideration      on 



December       9,  2009.    The     Commissioner       explained     that  DNR     had    complied     with 



AS 38.05.035 and that the “constitutionality of a statute is beyond the scope of a best 



interest finding.”     He also described the unknowns associated with later phases: 



                 At this lease sale phase (the disposal phase), it is unknown 

                 whether any leases will be sold, let alone which tracts.             Nor 

                 is it known whether exploration, development, production, or 

                 transportation   will   be   proposed,   and     if   it   is,   the   specific 

                 location, type, size, extent, and duration of any proposal.  In 

                 addition,    methods     to  explore    for,  develop,    produce,    and 

                 transport   petroleum   resources   will   vary   depending   on   the 

                 area,   lessee,   operator,   and   discovery.     Speculation   about 

                possible future effects subject to future permitting that cannot 

                be reasonably determined until the project or proposed use is 

                 more       specifically         defined        is    n o t   req u ired. 

                 AS 38.05.035(h). . . . Speculation about future phases and 

                permitting,      and    whether     or   not   they   will   violate    the 

                 constitution, is beyond the scope of a best interest finding and 

                 DNR’s statutory obligations. 



                                                    -4-                                              6769
 


----------------------- Page 5-----------------------

        C.       Superior Court Proceedings 



                REDOIL   appealed   the   Commissioner’s   decision   to   the   superior   court. 



Superior Court Judge pro tem Peter G. Ashman heard oral argument.                         The issue on 



appeal     was   “whether,    as  applied    to  the  facts  of  this  case,   a  2001   amendment       to 



AS 38.05.035(e) authorizing the director to prepare a single written BIF violates the 



provisions of Article VIII of the Alaska Constitution.” 



                To provide context to the superior court’s decision, in 2000, in Kachemak 



Bay Conservation Society v. State, Department of Natural Resources, we stated: 



                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.[1] 



                In   2001,   in   response   to   our   decision   in Kachemak   Bay ,   the   legislature 



amended AS 38.05.035(e) by inserting the sentence:  “In approving a contract under this 

subsection,   the   director   need   only   prepare   a   single   written   finding.”2 Based   on   the 



language in Kachemak Bay , REDOIL argued before the superior court that DNR had a 



constitutional duty to ensure that leases are in the public’s best interest, and therefore 



DNR was constitutionally required to make a best interest finding at each phase of the 



process.      DNR      argued     that  our   discussion     regarding     best   interest  findings    in 



Kachemak   Bay   was   either   incorrect   dicta   or   an   interpretation   of   a   statute,   not   the 



        1       6 P.3d 270, 294 (Alaska 2000) (emphasis in original). 



        2       Ch. 101, § 2, SLA 2001. 



                                                   -5­                                                6769 


----------------------- Page 6-----------------------

Alaska   Constitution,   and   the   legislature   sought   to   clarify   this   misunderstanding   by 



amending AS 38.05.035(e).  DNR argued that it complied with the requirements of the 



amended statute and that the amended procedure for approving the lease sales was a 



statutory   action   within   the   discretion   of   the   legislature;   DNR   denied   that   Alaska’s 



constitution required best interest findings at each phase of a lease sale. 



                On February 22, 2011, the superior court issued an order concluding: 



                The Alaska Constitution and the Supreme Court’s decisions 

                reflect a strong policy of protecting the public interest where 

                public   land   grants   are   concerned.    The   statute   requires   a 

                written BIF.      The courts infer from Article VIII a duty of 

                continuing evaluation. The conclusion of Kachemak Bay that 

                BIFs     are   required    at  every    phase    is  grounded     in  the 

                constitutional   principle   of   that   continuing   duty.   As   such, 

                application of statutory permission to issue only a single BIF 

                at the initial phase of a development where it is impossible to 

                assess   the   cumulative   effects   of   the   development   as   they 

                relate to DNR’s continuing obligation to consider the public’s 

                best interest violates Article VIII of the Alaska Constitution. 



(Internal    citations   omitted.)    The    superior    court  reasoned     that  the  language    from 



Kachemak Bay 



                distinguishes      between    the   phasing    procedure,    which    the 

                Court     describes    as  a  policy   choice,   and   what   the  Court 

                characterizes as DNR’s “obligation” to scrutinize each phase 

                for the best interest of the public.       This distinction suggests 

                that while phasing may be a function of legislative policy, the 

                duty to scrutinize each phase, which itself arises from the 

                duty to consider cumulative effects, springs from a higher 

                principle   which   supersedes   agency   policy.       Implicit   in   its 

                finding     that   phasing     is  constitutional     is  the   Court’s 

                confidence that the statutory duty to issue findings at each 

                phase insured that DNR would fulfill its constitutional duties. 



(Emphasis added.) 



                The   superior   court   concluded   that   DNR’s   interpretation   of   the   law   as 



                                                   -6-                                             6769
 


----------------------- Page 7-----------------------

requiring   only   a   single   best   interest   finding   “plainly   conflicts   with   DNR’s   ongoing 



constitutional obligations. . . .  The application of the statute can only be reconciled with 



DNR’s constitutional duties by requiring a written BIF at each phase of a project.” 



                The    superior    court  reversed    and   remanded     the   Commissioner’s       final 



decision denying reconsideration of DNR’s Final BIF with instructions to “revise the 



decision   .   .   .   to   require   a   written   best   interests   finding   at   each   phase   of   the   subject 



proposal.”  Commissioner Daniel S. Sullivan, who had succeeded Commissioner Irwin, 



filed a petition for review on March 18, 2011, which we granted.   On August 31, 2011, 



in response to the superior court’s order, the Commissioner issued a Reconsideration 



Decision on Remand which stated, “I hereby affirm the Beaufort Final Finding.  For 



leases sold under the Beaufort Final Finding, DNR will issue a written best interest 



finding     at  each   phase   of  the   subject   project.”   We     took   judicial   notice   of  this 



Reconsideration Decision on Remand on October 17, 2011. 



III.    STANDARD OF REVIEW 



                “When   a   superior   court   acts   as   an   intermediate   court   of   appeal   in   an 

administrative matter, we independently review the merits of the agency’s decision.”3 



We     review    questions    of  constitutional    law   de   novo,   applying    our   “independent 

judgment.” 4    “In construing a constitutional provision, we must give it a ‘reasonable and 



practical interpretation in accordance with common sense’ and consonant with ‘the plain 

meaning and purpose of the provision and the intent of the framers.’ ”5                We also apply 



        3       Kuzmin v. State, Commercial Fisheries Entry Comm’n , 223 P.3d 86, 88 



(Alaska 2009). 



        4       Brooks v. Wright , 971 P.2d 1025, 1027 (Alaska 1999). 



        5       Legislative Council v. Knowles , 988 P.2d 604, 607 n.11 (Alaska 1999) 



(quoting ARCO Alaska, Inc. v. State , 824 P.2d 708, 710 (Alaska 1992)). 



                                                   -7-                                            6769
 


----------------------- Page 8-----------------------

our independent judgment when interpreting statutes.6  This is not a case where agency 



interpretation is implicated. 



IV.	    DISCUSSION 



        A.	     Article VIII Of The Alaska Constitution Does Not Require Written 

                Best Interest Findings. 



                Article    VIII   of  the   Alaska    Constitution    addresses    Alaska’s     natural 



resources.  Section 1 provides:  “It is the policy of the State to encourage the settlement 



of its land and the development of its resources by making them available for maximum 

use   consistent   with   the   public   interest.”7 In   1959   the   Alaska   legislature   passed   the 



Alaska Land Act.       The preamble of this statute reiterates almost verbatim article VIII, 

section 1 of the Alaska Constitution.8        Alaska Statute 38.05.035, the statute at issue in 



this case, is part of the Alaska Land Act.9        The statute outlines DNR’s duty to provide 



a written finding that the best interest of the State will be served by lease sales.10             We 



have stated that “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.”11 



        6	      Cook Inlet Keeper v. State, 46 P.3d 957, 961 (Alaska 2002). 



        7	      Alaska Const. art. VIII, § 1. 



        8       “It is the policy of Alaska to encourage the settlement of its land and the 



development of its resources by making them available for maximum use consistent with 

the public interest.” Preamble of Alaska Land Act, ch. 169, SLA 1959. 



        9       AS 38.05.005-.990. 



        10      AS 38.05.035(e). 



        11      Kachemak Bay Conservation Soc. v. State, Dep’t of Natural Res. , 6 P.3d 



270, 276 (Alaska 2000); see also ALASKA  DEP ’T   OF  NATURAL  RES ., BEAUFORT  SEA 

                                                                                       (continued...) 



                                                  -8-	                                           6769
 


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                 As currently written, AS 38.05.035(e) states in part: 



                Upon a written finding that the interests of the state will be 

                best    served,    the  director    may,    with   the  consent     of  the 

                 commissioner, approve contracts for the sale, lease, or other 

                 disposal of available land, resources, property, or interests in 

                 them.  In   approving   a   contract   under   this   subsection,   the 

                 director need only prepare a single written finding. 



(Emphasis added.) The preparation and issuance of the director’s written finding are 



subject to certain conditions including, under AS 38.05.035(e)(1)(B), that the director 



                 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   by   the   disposal,   the 

                         director finds are material to the determination 



        11(...continued) 



AREAWIDE       OIL    AND   GAS    LEASE    SALE :  FINAL     FINDING      OF  THE  DIRECTOR ,      at  2-1 

(Nov. 9, 2009) (“The Alaska Constitution provides that the state’s policy is ‘to encourage 

.   .   .   the   development   of   its   resources   by   making   them   available   for   maximum   use 

consistent     with   the  public    interest’  and   that   the  ‘legislature   shall   provide   for  the 

utilization, development, and conservation of all natural resources belonging to the State 

. . . for the maximum benefit of its people.’ . . . To comply with this provision, the 

legislature enacted Title 38 of the Alaska Statutes and directed ADNR to implement the 

statutes.”). 



                                                    -9-                                              6769
 


----------------------- Page 10-----------------------

                         of whether the proposed disposal will best serve 

                         the interests of the state . . . . 



Under AS 38.05.035(e)(1)(C), if the proposed project is for a multiphased development, 



the director, in the written finding 



                 may   .   .   .   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 that pertain solely to the disposal phase of the 

                 project when 



                         (i)   the  only    uses   to  be   authorized     by   the 

                         proposed disposal are part of that phase; 



                         (ii) the disposal is a disposal of oil and gas, or 

                         of gas only, and, before the next phase of the 

                         project    may    proceed,    public    notice   and   the 

                         opportunity      to  comment   are     provided     under 

                         regulations adopted by the department; 



                         (iii)   the  department’s       approval     is  required 

                         before     the   next   phase    of  the   project    may 

                         proceed; and 



                         (iv) the department describes its reasons for a 

                         decision to phase . . . . 



A written finding for an oil and gas lease sale is subject to AS 38.05.035(g) and includes 



consideration       of   “the   reasonably     foreseeable      cumulative     effects    of  exploration, 



development, production, and transportation for oil and gas or for gas only on the sale 



area, including effects on subsistence uses, fish and wildlife habitat and populations and 



their uses, and historic and cultural resources.” 



                 We have a long history of interpreting AS 38.05.035 since its enactment, 



and the legislature has responded to some of our holdings by amending the statute.  In 



1976, in Moore v. State, we held that a formal written best interest finding was not 



                                                    -10-                                              6769
 


----------------------- Page 11-----------------------

required under the statute.12      That same year the legislature amended the statute to require 



a written finding.13     Ten years later, in Alaska Survival v. State, Department of Natural 



Resources , we held that despite new information, an amended best interest finding was 

not required under the statute.14      The following year the legislature added a supplemental 



best interest finding provision to the statute.15 



                 In 1994, in response to a series of decisions by this court regarding DNR’s 



phasing     of   review    for  mining    and   oil  and   gas   projects,   the  legislature    amended 

AS 38.05.035 to allow for phasing in the approval of projects.16               “ ‘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 



        12       553 P.2d 8, 35-36 (Alaska 1976) (“The legislative procedural directive of 



AS 38.05.035(a)(14) requires of the Director an independent, reasoned evaluation of a 

proposed sale.  Although he is not expressly obligated to make a formal written finding, 

he must at a minimum establish a record which reflects the basis for his decision.”). 



        13       Ch. 257, § 3, SLA 1976. 



        14       723    P.2d   1281,   1287    (Alaska    1986)    (“There    is  no  explicit   statutory 



requirement for an amended [best interest] finding and/or additional public comment 

upon the discovery of new information.”). 



        15       Ch. 75, § 10, SLA 1987. 



        16       Ch.   38,   §   2,   SLA   1994. In Kuitsarak   Corp.   v.   Swope , 870   P.2d   387, 



395-96, 398 (Alaska 1994), we held that DNR improperly failed to consider the effects 

of mining, including cumulative effects, prior to granting offshore prospecting permits, 

and in Trustees for Alaska v. State, Dep’t of Natural Res., 795 P.2d 805, 812 (Alaska 

1990),   we   held   that   “DNR’s   Final   Finding   is   deficient   in   that   it   did   not   review   the 

environmental problems associated with oil transportation from the sale area, assuming 

no change in the status of ANWR.”            We explained in Kachemak Bay , 6 P.3d at 276-77 

& n.13 (Alaska 2000), that the legislature’s 1994 amendment responded to these two 

earlier decisions. 



                                                   -11-                                              6769
 


----------------------- Page 12-----------------------

compliance rather than examining the project as a whole.”17             Legislative Finding 11 of 



the 1994 amendment states: 



                The legislature finds that . . . consideration of a disposal 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, but rather is intended to allow for consideration of 

                those issues when sufficient data are available upon which to 

                make reasoned decisions.[18] 



                We did not have occasion to address the 1994 amendments to AS 38.05.035 

until 2000 in Kachemak Bay.19         In that case, we examined how the 1994 amendments 



affected    our  line  of   cases  on  phasing,   which    culminated     in Thane    Neighborhood 

Association v. City and Borough of Juneau in 1996.20             In Thane, we summarized three 



“general, guiding principles” about the permissibility of phasing projects: 



                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 



        17      Kachemak Bay , 6 P.3d at 274 n.1. 



        18      Ch. 38, § 1, SLA 1994. 



        19      6 P.3d at 277. 



        20      Id.   at   277-78   (citing  Thane   Neighborhood   Ass’n   v.   City   &  Borough   of 



Juneau , 922 P.2d 901 (Alaska 1996)) (“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.”). 



                                                 -12-                                           6769
 


----------------------- Page 13-----------------------

                 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.[21] 



                 We determined in Kachemak Bay that the first and third Thane principles 

“did not survive the 1994 amendment.”22             Addressing the first principle, we stated that, 



because the amended statute expressly allowed DNR to review projects in phases, “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.”23   We also noted, “The 1994 amendment seems to have severely limited, if 



not   nullified,   [the   third]   principle.”24 We   concluded,   however,   that  Thane’s   second 



principle regarding cumulative impacts “appears to have survived and, indeed, to have 

been reaffirmed by the 1994 amendment.”25              We then addressed the appellant’s concern 



that phasing should not be allowed because once the State has conducted a lease sale, it 



might     be  “unwilling     to  cancel    the  leases,   no   matter   how    dire   the  environmental 



        21       Thane, 922 P.2d at 908 (internal citations omitted). 



        22       Kachemak Bay , 6 P.3d at 278. 



        23       Id. 



        24       Id. 



        25       Id. 



                                                    -13-                                              6769
 


----------------------- Page 14-----------------------

consequences, because of the financial burden of doing so.”26               We stated: 



                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 . . . relating to 

                that phase before the proposed development may proceed.[27] 



(Emphasis added.) 



                In 2001 the legislature responded directly to our ruling in Kachemak Bay 



by amending AS 38.05.035(e) to explicitly provide that best interest findings at each 

phase of development were not required.28   The amended statute requires only a single 



best interest finding in the lease sale phase (also known as the disposal phase).  The 



legislature explained its purpose for amending the statute in detail: 



                (b) 	   The [1994] amendment to AS 38.05.035(e) provided 

                        that,    in  preparing     its  best   interest   finding,    the 

                        Department of Natural Resources may limit the scope 

                        of its review and finding to   the disposal phase of a 

                        multiphase project if certain conditions were met. 



                (c)	    Although the legislature did intend that there would be 

                        a detailed review of the project at any later phase, the 

                        legislature     did  not   intend   that  the  Department      of 

                        Natural Resources would have to issue another best 

                        interest finding as part of that review. 



                (d) 	   When passing the 1994 amendments, the legislature 



        26      Id . at 293. 



        27      Id. at 294. 



        28      Ch. 101, § 2, SLA 2001. 



                                                  -14­                                             6769 


----------------------- Page 15-----------------------

                         was   aware   that   the   post-disposal   phases,   which   are 

                         exploration, development, and transportation, would 

                         be subjected to numerous federal, state, and local laws, 

                         regulations,      policies,   and   ordinances;     reviewed     by 

                         numerous   agencies;   and   subjected   to   public   review 

                         and comment. . . . 



                 (e)	    In    Kachemak       Bay    Conservation      Society    v.  State, 

                         Department   of   Natural   Resources,   .   .   .   the   Alaska 

                         Supreme Court considered the 1994 amendment . . . 

                         but declared that the department “is obliged, at each 

                         phase of development, to issue a best interests finding 

                         .   .  .  relating   to  that   phase    before    the   proposed 

                         development may proceed.” 



                 (f)	    This Act is intended to make clear that 



                         (1)	     no other best interest finding is required after 

                                  the disposal phase; 



                         (2)	     the   best   interest   finding   shall   be   based upon 

                                  known information or information that is made 

                                  available   to   the   director   even   if   all   potential 

                                  cumulative       impacts    of   the   project   are   not 

                                  known; and 



                         (3)	     public notice and the opportunity to comment 

                                  shall be provided at each phase of the project.[29] 



The legislature amended AS 38.05.035(e) by inserting the sentence:                       “In approving a 

contract under this subsection, the director need only prepare a single written finding.”30 



The legislature also amended a provision that had previously stated that if the proposed 



project was for a multiphased development, the director, in the written finding, 



                 may   .   .   .   limit   the   scope   of   an   administrative   review   and 

                 finding     for  the   proposed     disposal    .  .  .  when    .  .  .  the 



        29       Ch. 101, § 1, SLA 2001. 



        30       Ch. 101, § 2, SLA 2001 (emphasis added). 



                                                    -15­                                               6769 


----------------------- Page 16-----------------------

                 department 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.[31] 



The   legislature   removed   the   phrase   “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.”32 



                 In this case, DNR complied with the best interest finding requirement in 



AS 38.05.035(e) as amended in 2001.              DNR asserts that the superior court erred when 



it concluded that the “application of statutory permission to issue only a single [best 



interest finding] at the initial phase of a development . . . violates Article VIII of the 



Alaska Constitution.”   DNR argues that article VIII of the Alaska Constitution does not 



require a best interest finding.       We agree with DNR. 



                 Article VIII, section 2 of the Alaska Constitution gives the legislature the 



responsibility and discretion to create procedures to meet the policy outlined in article 



VIII, section 1 to develop Alaska’s resources “for the maximum benefit of [the State’s] 

people.”33    The legislature created the best interest finding outlined in AS 38.05.035 to 



provide DNR with a procedure the agency must follow to ensure that Alaska’s resources 



are developed for the maximum benefit of the people. 



        31       Ch. 38, § 2, SLA 1994 (emphasis added). 



        32       Ch. 101, § 2, SLA 2001. 



        33       Article VIII, section 2 of the Alaska Constitution states:            “The 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.”  Section 1 provides:   “It is the policy of the State to encourage the settlement of 

its land and the development of its resources by making them available for maximum use 

consistent with the public interest.” 



                                                   -16-                                              6769
 


----------------------- Page 17-----------------------

                 It   is   clear   from   our   case   law   that   the   best   interest   finding   requirement 



created in AS 38.05.035 is purely a creature of the legislature.  What has been required 



in a best interest finding has changed over the years based on our interpretations of the 



statute and the legislature’s responses to those interpretations.  It is within the discretion 



of the legislature to modify AS 38.05.035 so long as the principles contained in article 



VIII of the Alaska Constitution are being met.               Requiring only a single best interest 



finding, a procedure that was created by the legislature and not the constitution, does not 



contravene article VIII.       Our holding in Kachemak Bay that “DNR is obliged, at each 



phase  of development, to issue a best interests finding . . . relating to that phase before 

the    proposed     development      may    proceed”34     did   not  survive    the  2001    legislative 



amendment to AS 38.05.035. 



         B.	     Subsequent Phases Of An Oil And Gas Development Project Are Not 

                 “Disposals” Under AS 38.05.035(e). 



                 Alaska Statute 38.05.035(e) states: 



                 Upon a written finding that the interests of the state will be 

                 best   served,    the  director   may,    with   the   consent    of  the 

                 commissioner, approve contracts for the sale, lease, or other 

                 disposal of available land, resources, property, or interests in 

                 them.   In   approving   a   contract   under   this   subsection,   the 

                 director need only prepare a single written finding. 



(Emphasis added.) The superior court stated, “The [1994] Legislative Findings explicitly 



refer to ‘disposal as a phase of a development project’ and the Court’s reasoning [in 



Kachemak Bay] demonstrates its assumption that each phase is to be treated as a distinct 



disposal of an interest in state lands.”  The superior court concluded that “each phase of 



a project is a distinct disposal of an interest in state land” and, therefore, “the application 



        34      Kachemak Bay Conservation Soc. v. State, Dep’t of Natural Res. , 6 P.3d 



270, 294 (Alaska 2000) (emphasis in original). 



                                                   -17-	                                              6769 


----------------------- Page 18-----------------------

of [AS 38.05.035] can only be reconciled with DNR’s constitutional duties by requiring 



a written [best interest finding] at each phase of a project.”  This was error.  Subsequent 



phases of an oil and gas development project are not “disposals” under AS 38.05.035(e). 



                REDOIL   argues   that   later   phases   involving   the   issuance   of   additional 



permits are “disposals” under AS 38.05.035(e) because subsequent permits that grant 



additional rights to lessees alienate state lands or interests in state lands. REDOIL argues 



that the statute expressly requires a best interest finding for these additional “disposals.” 



                We disagree.      In Kachemak Bay we defined a “disposal” as a “catch-all 

term for all alienations of state land and interests in state land.”35          Further, in Northern 



Alaska Environmental Center v. State, Department of Natural Resources , we held that 

a “disposal” was a “conveyance” of a property right.36             For an oil and gas development 



project, the lease is the only conveyance of property rights that DNR approves.                  As the 



sample lease in the Beaufort Final Written Finding demonstrates, a state oil and gas lease 



conveys “the exclusive right to drill for, extract, remove, clean, process, and dispose of 

oil,   gas,   and   associated   substances   in   or   under   the   .   .   .   land.”37 A   lessee   may   not 



necessarily be allowed to exercise all of these rights without further permits from DNR 



or other agencies, but the lessee has these property rights upon entering into the lease. 



There are no additional property rights to be conveyed at the later phases. 



                The 2001 amendments make clear that the legislature intended the best 



interest finding to apply only to the “disposal” phase, meaning the lease sale phase, of 



        35      Id. at 278 n.21. 



        36      2 P.3d 629, 635-36 (Alaska 2000). 



        37      ALASKA DEP ’T OF NATURAL RES .,BEAUFORT SEA AREAWIDE OIL AND GAS 



LEASE  SALE : FINAL FINDING OF THE DIRECTOR , at D-1 (Nov. 9, 2009). 



                                                  -18-                                             6769
 


----------------------- Page 19-----------------------

a  project.38    The     legislature   defined    “the  post-disposal     phases”    as  “exploration, 



development, and transportation.”39         The legislature acted within its discretion to clarify 



in the 2001 amendments that “disposal” for the purposes of AS 38.05.035(e) meant the 

lease sale phase.40 



        C.	     The     State   Is  Constitutionally      Required      To   Consider     Cumulative 

                Impacts At Later Phases Of An Oil And Gas Project. 



                Integral to the superior court’s analysis was its determination that DNR was 



obligated to continually examine the cumulative impacts of a project throughout the 



project’s phases: 



                [A]pplication of statutory permission to issue only a single 

                BIF     at  the  initial  phase   of  a  development       where    it  is 

                impossible       to   assess    the   cumulative      effects   of    the 

                development as they relate to DNR’s continuing obligation to 



        38      Ch. 101, § 1(b), SLA 2001 (“The [1994] amendment to AS 38.05.035(e) 



provided that, in preparing its best interest finding, the Department of Natural Resources 

may limit the scope of its review and finding to the disposal phase of a multiphase 

project if certain conditions were met.”). 



        39      Ch. 101, § 1(d), SLA 2001 (“When passing the 1994 amendments, the 



legislature was aware that the post-disposal phases, which are exploration, development, 

and   transportation,   would   be   subjected   to   numerous   federal,   state,   and   local   laws, 

regulations, policies, and ordinances; reviewed by numerous agencies; and subjected to 

public review and comment.”). 



        40      REDOIL also argues that permits issued in subsequent phases of a project 



are “contracts” within the meaning of AS 38.05.035(e) and, therefore, additional written 

best interest findings must be prepared at these subsequent permitting stages.  However, 

the subsequent permits DNR may issue are not “contracts” that would trigger a best 

interest finding under AS 38.05.035(e).           “[A] permit is merely a privilege to do what 

would otherwise be unlawful, and is not a contract between the authority, federal, state, 

or municipal, granting it and the person to whom it is granted.”  Mount Juneau Enter., 

Inc.   v.   City   &   Borough   of   Juneau ,   923   P.2d   768,   777   n.9   (Alaska   1996)   (quoting 

Rehmann v. City of Des Moines , 215 N.W. 957, 960 (Iowa 1927)). 



                                                  -19-	                                           6769
 


----------------------- Page 20-----------------------

                consider the public’s best interest violates Article VIII of the 

                Alaska Constitution. 



Although the superior court’s conclusion that the constitution requires a best interest 



finding at each phase of a project is erroneous, we examine whether the constitution 

requires the State to consider the cumulative impacts of a project at later phases.41  This 



is because the underlying rationale of the superior court’s decision was that 



                while phasing may be a function of legislative policy, the 

                duty to scrutinize each phase, which itself arises from the 

                duty to consider cumulative effects, springs from a higher 

                principle   which   supersedes   agency   policy.    Implicit   in   its 

                finding    that   phasing     is  constitutional    is  the   Court’s 

                confidence that the statutory duty to issue findings at each 

                phase insured that DNR would fulfill its constitutional duties. 



                DNR argues, citing Greenpeace, Inc. v. State, Office of Management and 

Budget, Division of Governmental Coordination and Alaska Coastal Policy ,42 that we 



have previously held that a review of cumulative impacts is only a statutory requirement 



rather   than   a   constitutional   one. REDOIL   argues   the   Alaska   Constitution   requires 



cumulative impacts of a project to be considered, even after the lease sale stage.  DNR’s 



interpretation    of  our   prior  case  law   is  incorrect.  We     hold   that  consideration    of 



cumulative impacts is constitutionally required throughout all the phases of a project. 



                Article VIII, section 1 of the Alaska Constitution states:         “It is the policy 



        41      DNR and REDOIL agree that this issue is ripe for review even though the 



Beaufort Sea Lease Sale Area project has not entered the exploration, development, or 

production phases.      DNR stated at oral argument that the uncertainty created by the 

superior court’s decision may mean that the State will be affected by lessees changing 

their investment strategies in light of that decision.         REDOIL argued that there is no 

opportunity for public participation at later phases so the lease sale phase is the last 

opportunity for the public to participate meaningfully in DNR’s decision making.  Thus, 

we decide this issue at this time. 



        42      79 P.3d 591, 594 (Alaska 2003). 



                                                -20-                                           6769
 


----------------------- Page 21-----------------------

of the State to encourage the settlement of its land and the development of its resources 



by    making    them    available    for  maximum       use   consistent    with   the  public    interest.” 



Section 2 states, “The 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.”     The   legislature   is   tasked   with   the   duty   to 



determine the procedures necessary for ensuring that the State’s resources are used “for 

the maximum benefit of its people.”43            It is not the court’s place to provide instruction 



on how the State should determine what action would be for the maximum benefit of the 



Alaskan people. 



                 We     are,  however,     tasked   with    the  duty   to  ensure    that  constitutional 



principles are followed.   A bedrock principle in Article VIII of the Alaska Constitution 



mandates that   the State’s natural resources are to be made “available for maximum use 

consistent with the public interest.”44         The constitution entrusts the legislature with the 



discretion to determine how to ensure that use of these natural resources are “for the 

maximum benefit of its people.”45             We have said that to ensure these principles are 



followed, it is necessary for the State to take a “hard look” at all factors material and 



relevant   to   the   public   interest:   this   “hard   look”   necessarily   includes   considering   the 

cumulative   impacts   of   a   project.46     DNR’s   position   that   it   is   not   required   to   make 



        43       Alaska Const. art. VIII, § 2. 



        44       Alaska Const. art. VIII, § 1. 



        45       Alaska Const. art. VIII, §§ 1-2. 



        46       See   Kachemak   Bay   Conservation   Soc.   v.   State,   Dep’t   of   Natural   Res., 



6 P.3d 270, 294 (Alaska 2000) (holding that even though the legislature was entitled to 

make   the   “policy choice” to expressly allow phasing, this “does not by any means, 

relieve DNR of its duty to take a continuing ‘hard look’ at future development on the 

                                                                                           (continued...) 



                                                    -21-                                              6769
 


----------------------- Page 22-----------------------

cumulative impact assessments after the lease sale violates its constitutional duty to take 

a “continuing ‘hard look’ at future development” throughout the course of a project.47 



                We have noted in prior cases that “the mere decision to lease does not in 



itself bring about great risks to the environment” because “the lease is no more than an 

interest in land, and does not in itself authorize any actual ‘use’ of the land.”48               Here, 



DNR made clear that at the lease sale phase, future impacts were unknown: 



                At this lease sale phase (the disposal phase), it is unknown 



        46(...continued) 



lease sale lands”). 



                The “hard look” doctrine for reviewing DNR’s decisions first appeared in 

Hammond v. North Slope Borough , when we referenced a United States Supreme Court 

statement      that  the   “court    cannot    substitute   its  judgment      as  to   environmental 

consequences, but should only ensure that the agency has taken a ‘hard look.’ ” 645 P.2d 

750, 759 (Alaska 1982) (citing Kleppe v. Sierra Club , 427 U.S. 390, 410 n.21 (1976)). 

A year later, in Southeast Alaska Conservation Council, Inc. v. State, we stated that our 

role is to 

                ensure that the agency “has given reasoned discretion to all 

                the material facts and issues.”  The court exercises this aspect 

                of its supervisory role with particular vigilance if it “becomes 

                aware, especially from a combination of danger signals, that 

                the agency has not really taken a ‘hard look ’ at the salient 

                problems and has not genuinely engaged in reasoned decision 

                making.” 



665 P.2d 544, 549 (Alaska 1983) (quoting Harold Leventhal, Environmental Decision 

Making and the Role of the Courts , 122 U. PA . L. REV . 509, 511 (1974)) (emphasis in 

original, footnotes omitted).       Since then, we have used the “hard look” standard when 

reviewing agency decisions on resource uses.  See Kachemak Bay, 6 P.3d at 275 (“[O]ur 

duty   is   to   ensure   that   DNR   has   taken   a   hard   look   at   the   salient   problems   and   has 

genuinely engaged in reasoned decision making.” (internal quotation marks omitted)). 



        47      Kachemak Bay , 6 P.3d at 294. 



        48      See id. at 279 (quoting Hammond , 645 P.2d at 759). 



                                                  -22-                                            6769
 


----------------------- Page 23-----------------------

                 whether any leases will be sold, let alone which tracts.             Nor 

                 is it known whether exploration, development, production, or 

                 transportation   will   be   proposed,   and      if   it   is,   the   specific 

                 location, type, size, extent, and duration of any proposal.  In 

                 addition,    methods     to  explore    for,  develop,    produce,     and 

                 transport   petroleum   resources   will   vary   depending   on   the 

                 area,   lessee,   operator,   and   discovery.     Speculation   about 

                 possible future effects subject to future permitting that cannot 

                 be reasonably determined until the project or proposed use is 

                 more specifically defined is not required. 



We agree with DNR that it would be unreasonable to speculate about possible future 



effects of the project before more information about the project is known.  But this does 



not mean that these effects, once known, are not to be considered.                     At the lease sale 



phase,   DNR   cannot   assess   and   make   a   meaningful   final   determination   whether   the 



maximum benefit of the people of Alaska will be achieved throughout the course of the 



project because many of the potential impacts of the project are not known.  Therefore, 



these potential impacts must be considered by DNR in the future, at each subsequent 



phase, as more information becomes known, and particularly as DNR decides whether 



to issue permits for future activities.   If DNR failed to consider cumulative impacts and 



provide to the public timely and meaningful notice of its assessment of the cumulative 



impacts of an oil and gas project as the project evolved through its phases, DNR would 



violate its constitutional duty to take a continuing hard look at new information and 



changing circumstances — a duty required to ensure that the State is developing its 



resources   “by   making   them   available   for   maximum   use   consistent   with   the   public 

interest.”49 



                 When   enacting   the   2001   amendments   to   AS   38.05.035,   the   legislature 



stated, “The best interest finding shall be based upon known information or information 



        49       Alaska Const. art. VIII, § 1. 



                                                   -23-                                                 6769 


----------------------- Page 24-----------------------

that is made available to the director, even if all potential cumulative impacts of the 

projects   are   not   known.”50    It   is   within   the   discretion   of   the   legislature   to   limit   the 



parameters of the best interest finding to what is known at the time the finding is made. 



But the legislature also stated when it created phased review of a project in 1994: 



                 The legislature finds that . . . consideration of a disposal 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, but rather is intended to allow for consideration of 

                 those issues when sufficient data are available upon which to 

                 make reasoned decisions.[51] 



DNR’s position that it is not required to make cumulative impact assessments after the 



lease sale phase contravenes not only the constitution, but also the legislature’s vision 



when it created phased review.  Although best interest findings in future phases are not 



required under the constitution, DNR must continue to analyze and consider all factors 



material and relevant to what is in the public interest after the lease sale phase, including 



the   cumulative   impacts   of   the   project,   and     to  provide   the   public   with   timely   and 



meaningful       notice   of   its  cumulative     impacts     assessment     in   order   to  ensure    the 



constitutional   principle of maximum use consistent with the public interest is given 

effect.52 



                 DNR argues that in Greenpeace we held that cumulative impact analysis 



is not required by the Alaska Constitution.  But in Greenpeace we merely concluded that 



a “formal” “cumulative impact” analysis — using the broad and “rigorous” definition of 



        50       Ch. 101, § 1(f)(2), SLA 2001. 



        51       Ch. 38, § 1(11), SLA 1994 (emphasis added) . 



        52       Alaska Const. art. VIII, § 1. 



                                                   -24­                                                 6769 


----------------------- Page 25-----------------------

the term “cumulative impact” in the National Environmental Policy Act (NEPA) — was 



not   required   in   a   consistency   determination   under   the   Alaska   Coastal   Management 

Program.53      Greenpeace       argued   that  Alaska’s    constitution    and   laws   required    the 



consistency determination for an offshore oilfield project to include a formal cumulative 

impact analysis and advocated applying NEPA’s definition of cumulative impacts.54  The 



State argued that under Alaska law, it was “not required to assess the possible effects of 



future development projects” but was required to “undertake a whole-project analysis of 

a   project   under   review.”55   British   Petroleum   Exploration   (Alaska),   Inc.,   the   other 



appellee in the case, argued “[the State] must carefully evaluate the combined impacts 



of all aspects of the project under review, but it need not examine the project in light of 

hypothetical or proposed future development in the region.”56              We found BP’s and the 



State’s arguments persuasive, concluding that “no convincing support for Greenpeace’s 



theory that [Alaska Coastal Management Program] consistency determinations must 



formally   analyze   a   project’s   cumulative   impacts,   applying   the   federal   definition   of 



        53      79 P.3d 591, 593-94 (Alaska 2003). The federal regulations implementing 



the NEPA defined “cumulative impact” as: 



                [T]he   impact   on   the   environment   which   results   from   the 

                incremental impact of the action when added to other past, 

                present, and reasonably foreseeable future actions regardless 

                of    what    agency     (Federal    or   non-Federal)      or  person 

                undertakes such other actions. Cumulative impacts can result 

                from individually minor but collectively significant actions 

                taking place over a period of time. 



40 C.F.R. § 1508.7 (2002). 



        54      Greenpeace, 79 P.3d at 593-94. 



        55      Id. 



        56      Id. at 594. 



                                                 -25-                                            6769
 


----------------------- Page 26-----------------------

cumulative impacts.”57     Instead, we considered cumulative impact analysis under Alaska 



law to be “less formal” and to entail a “whole-project analysis” that “takes into account 

all aspects of a project, considered as a whole and its existing development context.”58 



We reaffirm our holding in Greenpeace here.  We reiterate that it is not the court’s place 



to provide instruction on how the State should analyze cumulative impacts after the lease 



sale phase, for that is the legislature’s prerogative, so long as the process complies with 



the Alaska Constitution and the State’s duty to take a continuing hard look — including 



analysis of cumulative impacts — throughout the course of a project. 



V.      CONCLUSION 



                Because     a   best  interest   finding   after   the  lease   sale   phase   is  not 



constitutionally required and because each phase of a project is not a distinct disposal of 



an interest in state land under AS 38.05.035, we REVERSE the superior court’s ruling 



reversing and remanding the Commissioner’s final decision denying reconsideration of 



DNR’s best interest finding. However, we hold that the State is constitutionally required 



to consider the cumulative impacts at later phases of an oil and gas project. 



        57      Id. 



        58      Id. at 596 (internal quotation marks omitted). 



                                                 -26­                                             6769 

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