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Denali Citizens Council v. State, Dept. of Natural Resources

Supreme Court of Alaska

February 14, 2014

STATE of Alaska, DEPARTMENT OF NATURAL RESOURCES, and Usibelli Coal Mine, Inc., Appellees.

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[Copyrighted Material Omitted]

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Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Andrew Guidi, Judge.

Peter Van Tuyn and Karen E. Schmidt, Bessenyey & Van Tuyn, L.L.C., Anchorage, for Appellant.

Rebecca Kruse, Assistant Attorney General, Anchorage, and Michael C. Geraghty, Attorney General, Juneau, for Appellee Department of Natural Resources. David J. Mayberry and Kyle W. Parker, Crowell & Moring L.L.P., Anchorage, for Appellee Usibelli Coal Mine, Inc.

Before: FABE, Chief Justice, WINFREE, STOWERS, MAASSEN, and BOLGER, Justices.


BOLGER, Justice.


This is an administrative appeal from a decision by the Department of Natural Resources (DNR) to grant Usibelli Coal Mine (Usibelli) a gas exploration license in the Healy Basin (the Healy license). Denali Citizens Council (Denali Citizens), a community-based public interest group located in the Denali Borough, challenges DNR's finding that issuing the license is in the best interests of the state on two grounds: first, that DNR failed to take a " hard look" at the economic feasibility of excluding certain residential areas and wildlife habitat from the license; and second, that DNR's treatment of environmental mitigation measures in the best interest finding was arbitrary and capricious.

We affirm the superior court's order upholding DNR's decision to issue the gas exploration license to Usibelli because we conclude that DNR did not act arbitrarily in developing and publishing its best interest finding.


A. Statutory Background

Alaska Statute 38.05.132 authorizes the Commissioner of the Department of Natural Resources (the commissioner) to issue " exploration licenses" to individuals or corporations seeking to discover oil or gas on state land. [1] Such a license gives the holder the exclusive right to explore the land described in the license for oil or gas deposits for up to ten years, [2] as well as an option to convert the exploration license into a lease if the licensee satisfies certain requirements.[3]

In considering a proposal for an exploration license, the Director of the Division of Oil and Gas (the director) is required to make a written finding that issuing the exploration license will be in the best interests of the state (a best interest finding or BIF).[4] Prior to publishing a final best interest finding (final finding or final BIF) and approving a license proposal, the director must make a preliminary best interest finding (preliminary finding or preliminary BIF) available to the public and provide an opportunity for public comment.[5] The final written finding, issued after the close of the comment period, must contain a summary of public comments received by DNR and the director's responses to those comments. [6]

The written finding must set out " the basis for the director's preliminary or final finding ... that, on balance, leasing the area would be in the state's best interest." [7] At a minimum, the director must " consider and discuss"

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two categories of " facts" : first, facts that are " material to issues that were raised during" the public comment period and " within the scope" of the finding, as determined by the director; and, second, facts material to ten specified matters, including " the reasonably foreseeable fiscal effects of the lease sale and the subsequent activity" and " lease stipulations and mitigation measures." [8]

Any person who participated in the public comment process by submitting a written comment and who is " aggrieved" by the final BIF may file a request for reconsideration of the finding with the commissioner.[9] An adverse decision on reconsideration may then be appealed to the superior court. [10] Points on appeal in the superior court are limited to those presented to the commissioner in the request for reconsideration.[11] The party seeking judicial review of a best interest finding has the burden of proving that the finding is invalid.[12]

B. Facts

Usibelli submitted a gas-only exploration license proposal to DNR in April 2004. The proposal covered 208,630 acres in the Healy area, including land west of the Nenana River and adjacent to Denali National Park.

In November 2004, DNR provided notice of its intent to evaluate the proposal and sought public comment in January 2005. Denali Citizens, a " non-profit citizens group ... with a mission of supporting sound planning and sustainable development in the Denali Borough," responded. It noted that the license included residential areas and the wildlife-rich Wolf Townships [13] area west of the Nenana River, and asked DNR to consider excluding some of these areas from the license. Denali Citizens also requested that DNR address noise mitigation and facility siting in its best interest finding.

In August 2005, DNR issued a " Preliminary Best Interest Finding" concluding that issuing the Healy license would be in the best interests of the state. The preliminary finding addressed the reasonably foreseeable effects of the proposed license, including statewide and local fiscal effects and cumulative effects on the area's fish and wildlife.[14] It also described proposed measures " to mitigate the potential adverse social and environmental effects of specific license related activities." These mitigation measures included specific standards addressing noise, such as a noise monitoring plan requirement and maximum ambient noise limits, as well as restrictions on the siting of exploration equipment, such as a minimum setback requirement. Usibelli would also be required

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to obtain the consent of every landowner in a residential subdivision before constructing drill pads or compressor stations on ...

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