Ex-Arco Official on Hot Seat as Alaska’s Head of Resources : Environment: Serious questions are being raised about Harold Heinze’s involvement with oil-spill cleanup decisions while representing the Los Angeles energy firm.

Harold C. Heinze is the man Alaska’s environmentalists love to hate.

The outspoken former oil executive once called the Arctic National Wildlife Refuge “a flat, crummy place.” He termed environmentalists “extremists” trying to “strangle Alaska.”

His confrontational style may even have hastened his abrupt departure last July from a high-profile job at image-conscious Atlantic Richfield Co. after a 25-year career, industry sources say.

So it was with surprise and dismay that environmentalists learned last December that newly elected Gov. Walter J. Hickel had tapped Heinze to oversee Alaska’s powerful Natural Resources Department, which has jurisdiction over the state’s vast wilderness and oil resources. Heinze’s appointment as commissioner of natural resources has set off a firestorm of protests reminiscent of those against James G. Watt, Ronald Reagan’s controversial Interior secretary in the 1980s. Under Alaska law, Heinze has assumed office subject to legislative confirmation hearings that started last week.

One newspaper editorial likened the appointment to “putting the fox in the henhouse.” Environmental groups around the state have targeted Heinze’s confirmation hearings as a top priority.

“He has the attitude that (companies) have the God-given right to drill everywhere, cut everything and dig up every mineral that can be found in the ground,” said Jim Stratton, an environmental activist based in Anchorage. “It’s Manifest Destiny in (the 1990s), and other values be damned if we can make a dime.”

Now, serious questions are being raised about Heinze’s involvement with oil-spill cleanup decisions while he represented Los Angeles-based Arco on the owner’s committee of the Alyeska Pipeline Service Co., the consortium of oil companies that operates the trans-Alaska pipeline. Arco owns a little more than 21% of the pipeline.

Heinze’s appointment--like the election of his patron, Wally Hickel--says a lot about Alaskans’ complicated relationship with their abundant resources and vast wilderness, a relationship that has grown more complex since the devastating 1989 Exxon Valdez oil spill in Prince William Sound.

Hickel--a political independent returned by voters to the governor’s office 25 years after he was first elected to the job--appealed strongly to one segment of Alaska’s divided electorate: the wing that favors development of Alaska’s rich resources.

But in the past, Hickel has shown an environmental streak as well: As Interior secretary under President Richard M. Nixon, he pushed the first Earth Day, went after polluters and even took on the oil industry after a 1969 spill in Santa Barbara.

Now, Hickel supports his nominee without hesitation. “Harold is a good executive,” Hickel said in an interview. “He’s creative, he’s strong, . . . but he’s not foolish.”

Heinze is considered one of the most pro-development officials ever to take charge of a department already considered the most development-oriented of the state’s three resource agencies.

In an interview, Heinze, 48, made no apologies for that stance. “I’m certainly well-inclined to carry out the (state) constitutional mandate to develop and utilize Alaska’s resources for the benefit of all,” provided such development is “done right,” he said.

Others, however, are raising questions about Heinze’s fitness for public service. “He carries lots of baggage,” said a state legislator who declined to be named. “Very interesting and suspicious baggage.”

Consider:

* In March, the Department of Natural Resources granted a request by Arco and Exxon Corp. to lower the royalty rate due the state on a lease in the estimated 300-million-barrel Point McIntyre oil field. The lower rate stems from the state’s designation of the lease as the site where oil was discovered.

Once production begins on the lease, the decision could save both oil companies tens of millions of dollars, industry critics say.

Though the discovery was announced in 1989, the decision to cut the royalty payments was made just a week before Exxon agreed to the terms of a proposed $1.1-billion settlement of civil and criminal cases arising out of the Exxon Valdez spill--a settlement pushed by Hickel and Alaska Atty. Gen. Charles Cole.

Heinze, denying any involvement in the settlement negotiations, called suggestions of a link between the talks and the royalty decision “absurdity.” The timing was purely coincidental, he said. Cole said suggestions of a link are “absolutely false.”

* Heinze is in line to serve as one of three state trustees who would administer a trust fund set up to disburse proceeds from the proposed Valdez settlement. But as an Arco executive, Heinze was one of several oil officials who oversaw Alyeska, which had primary responsibility for oil-spill response in the sound.

U.S. Rep. George Miller (D-Martinez) has charged that the officials, meeting in Phoenix a year before the spill, secretly decided that Alyeska would refuse to abide by a government-sanctioned cleanup plan in Prince William Sound.

Heinze, who attended the meeting, dismisses Miller’s accusations as “flat wrong.” Alyeska has similarly denied the charge.

The future of the settlement itself now appears in doubt because a federal judge last week rejected a criminal plea agreement that was part of the deal.

* Heinze is one of several defendants in a $50-million lawsuit filed by the Federal Deposit Insurance Corp. that alleges negligence and mismanagement in the failure of two Alaska banks. He formerly served as a director of one bank.

The FDIC alleges that bank officials made risky commercial real estate loans despite repeated warnings. Critics say the matter raises questions about Heinze’s management abilities. Heinze has defended the bank’s policies as sound.

* Hearings this month in the Alaska Legislature have questioned whether tankers used by Arco, Exxon and British Petroleum improperly transported hazardous waste in ballast water for disposal by Alyeska in Valdez harbor.

Heinze, who headed Arco’s tankering operations at the time as president of Arco Transportation Co., says he knows of no hazardous operations during his tenure.

* Environmental groups who helped fashion amendments to Alaska’s Forest Practices Act last year accuse Heinze of trying to undermine the law’s intent by issuing lax regulations. In part, the law calls for the creation of timber “buffer zones” around state streams that serve as fish spawning areas.

Environmentalists charge that Heinze’s intervention threatens the fragile coalition of environmentalists, fishermen, loggers, landowners and mining interests that agreed on the provisions of the new law.

Heinze says the proposed regulations were based on an examination of the science involved, not on politics. “I’m not even at a point where anybody likes them, and that may be a good sign in this case,” he said.

Questions were raised about Heinze’s involvement in several of these matters in a two-hour hearing conducted Monday by the state Senate Resources Committee. The bulk of the testimony opposed Heinze’s appointment.

A committee of the state House of Representatives will hold hearings May 7, and a final vote on the appointment will take place later in a combined session of the two legislative bodies.

Heinze has a strong ally in Hickel, a longtime associate.

“When I called Harold, I found him in New Zealand after he’d left Arco, and I asked him how he’d like to come to work for the largest oil resource company in North America,” Hickel said last week. “He said, ‘Who’s that?’ I said, ‘The state of Alaska.’ And he liked that idea.”

It’s not the first time Heinze has drawn fire. During his tenure at Arco, he managed to anger not only environmentalists but also his corporate sponsors back in Los Angeles, industry officials said.

“He was a team player, so long as he was captain of the team,” said a source who asked to remain anonymous. “Otherwise, . . . he made his own rules. He ran Arco Transportation as if it was a completely separate entity unto itself.”

Heinze, a petroleum engineer by training, joined the energy firm in 1965, a year after graduating from the Colorado School of Mines.

At the end, Heinze was senior vice president of Arco. Before that, he was president of Arco’s Alaska unit, the state’s largest private employer. In that post, he was in charge of Arco’s oil and gas operations in the massive fields of the North Slope.

It was during those years that Heinze made himself well-known to Alaskans.

“He says what he thinks, and he says it emphatically,” said Arco President Robert E. Wycoff. “There were some in Alaska who were put off by that in a political sense.”

At a meeting in Washington state in the 1960s, Heinze was quoted as calling the Arctic National Wildlife Refuge a “flat, crummy place.” Environmentalists and some federal lawmakers are fighting to prevent oil development in the refuge.

Last week, Heinze admitted that his choice of words was poor, but he defended the characterization. “I’ve grown up a lot since then, and today I would say . . . that ANWR (the refuge) during the vast majority of the year is a very inhospitable place with undistinguished terrain.”

Indeed, Heinze seems to have moderated his views toward environmentalists very little. “I believe their agenda does not represent the agenda of the vast majority of Alaskans,” he said.

Last July, Heinze abruptly left Arco. Some industry sources say he was forced out; others say he left out of frustration with his career prospects at Arco.

“Harold was one of the fast-track people,” said one former Arco executive. “But there was only so much room at the top. . . . A few get up into the upper levels, and he was sort of career-blocked, so he left.”

Last week, Arco President Wycoff denied that Heinze was asked to leave and added that Heinze did good work for the company. “It was Harold’s choice,” Wycoff said.

“The company was very open with me and simply said that in the successions to come, they did not see me as competitive,” Heinze said. “And they offered me the chance to pursue other opportunities.”

Now, Heinze is preparing to address the questions about his past. As for the criticism, he says philosophically: “It comes with the territory.”

BIO: HAROLD C. HEINZE In December, Heinze was appointed by Alaska Gov. Walter J. Hickel to oversee Alaska’s natural resources department, much to the chagrin of environmentalists. Heinze has termed environmentalists “extremists” trying to “strangle Alaska.” Legislative confirmation hearings on Heinze’s appointment started Monday.

* Born: Nov. 6, 1942

* Education: Bachelor of science, Colorado School of Mines, 1964.

* Resume: Spent most of his adult life working for Arco, starting in 1965 as a junior engineer and becoming president of Arco Alaska Inc. in 1983. He was named Arco senior vice president and president of Arco Transportation Co. in 1987. He also served on owners committee of Alyeska Pipeline Service Co. He left Arco in July of last year.

* Quote: “Aggressive extremists and activists who operate under the disguise of environmentalists . . . (will) strangle Alaska little by little.”