Daniel S. SULLIVAN, Commissioner, State of Alaska, Department of Natural Resources, Petitioner,
RESISTING ENVIRONMENTAL, DESTRUCTION ON INDIGENOUS LANDS (REDOIL), Gwich'in Steering Committee, Alaska Wilderness League, Center for Biological Diversity, and Northern Alaska Environmental Center, Respondents.
Rehearing Denied Nov. 1, 2013.
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.
James E. Torgerson and John R. Evans, Stoel Rives LLP, Anchorage, for Amicus Curiae ConocoPhillips Alaska, Inc.
Before: CARPENETI, Chief Justice, FABE, WINFREE, and STOWERS, Justices.
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
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.
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, 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.
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.[]
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."  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 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.
The superior court concluded that DNR's interpretation of the law as 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 ...