Court Opinion

ID: 856701
Source: CourtListenerOpinion
Date Created: 2013-03-29 17:30:41.444481+00
Date Added: 2024-06-11T09:06:33.096998
License: Public Domain

Notice: This opinion is subject to correction before publication in the P ACIFIC R EPORTER .
    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,        )                        OPINION
                             )
     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.
              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

      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

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 not required.
              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

      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
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

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

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 A LASKA D EP ’T OF N ATURAL R ES ., BEAUFORT SEA
                                                                      (continued...)

                                              -8-	                                   6769

             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)
A REAWIDE O IL AND G AS L EASE SALE : FINAL FINDING OF THE D IRECTOR , 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

                     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

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

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

             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

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
                     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
              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

              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
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
            A LASKA D EP ’T OF N ATURAL RES ., BEAUFORT SEA AREAWIDE O IL AND G AS
LEASE SALE : FINAL FINDING OF THE D IRECTOR , at D-1 (Nov. 9, 2009).

                                            -18-                                       6769

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

             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

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

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

               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
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
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

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).

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