Legislature(1995 - 1996)

04/24/1996 08:15 AM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
               HOUSE RESOURCES STANDING COMMITTEE                              
                         April 24, 1996                                        
                           8:15 a.m.                                           
 MEMBERS PRESENT                                                               
 Representative William K. "Bill" Williams, Co-Chairman                        
 Representative Joe Green, Co-Chairman                                         
 Representative Scott Ogan, Vice Chairman                                      
 Representative Alan Austerman                                                 
 Representative Pete Kott                                                      
 Representative Don Long                                                       
 Representative Irene Nicholia                                                 
 Representative John Davies                                                    
 Representative Ramona Barnes                                                  
 MEMBERS ABSENT                                                                
 All Members Present                                                           
 COMMITTEE CALENDAR                                                            
 WORK SESSION:  Pacific Salmon Treaty                                          
 HOUSE BILL NO. 548                                                            
 "An Act authorizing, approving, and ratifying the amendment of                
 Northstar Unit oil and gas leases between the State of Alaska and             
 BP Exploration (Alaska) Inc.; and providing for an effective date."           
      -  HEARD AND HELD                                                        
 CS FOR SENATE BILL NO. 198(FIN)                                               
 "An Act establishing the Homer Airport Critical Habitat Area."                
      - PASSED HCS CSSB 198(RES) FROM COMMITTEE                                
 CS FOR SENATE BILL NO. 199(FIN)                                               
 "An Act relating to environmental audits and health and safety                
 audits to determine compliance with certain laws, permits, and                
      - HEARD AND HELD                                                         
 HOUSE BILL NO. 516                                                            
 "An Act relating to air quality control."                                     
      - SCHEDULED BUT NOT HEARD                                                
 PREVIOUS ACTION                                                               
 BILL:  HB 548                                                               
 SHORT TITLE: NORTH STAR OIL & GAS LEASE AMENDMENT                             
 SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                  
 JRN-DATE     JRN-PG               ACTION                                      
 03/28/96      3434    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 03/28/96      3434    (H)   RESOURCES, FINANCE                                
 03/28/96      3434    (H)   FISCAL NOTE (DNR)                                 
 03/28/96      3435    (H)   GOVERNOR'S TRANSMITTAL LETTER                     
 03/28/96      3436    (H)   ATTACHMENT/S&H SUPPLEMENT #21                     
 04/03/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 04/03/96              (H)   MINUTE(RES)                                       
 04/10/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 04/10/96              (H)   MINUTE(RES)                                       
 04/12/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 04/12/96              (H)   MINUTE(RES)                                       
 04/15/96              (H)   RES AT  5:00 PM CAPITOL 124                       
 04/15/96              (H)   MINUTE(RES)                                       
 04/23/96              (H)   RES AT  3:00 PM CAPITOL 124                       
 04/23/96              (H)   MINUTE(RES)                                       
 BILL:  SB 198                                                               
 SHORT TITLE: HOMER AIRPORT CRITICAL HAB. AREA                                 
 JRN-DATE     JRN-PG               ACTION                                      
 01/05/96      2058    (S)   PREFILE RELEASED - 1/5/95                         
 01/08/96      2058    (S)   READ THE FIRST TIME - REFERRAL(S)                 
 01/08/96      2058    (S)   RES, FIN                                          
 02/21/96              (S)   RES AT  3:30 PM BUTROVICH ROOM 205                
 02/21/96              (S)   MINUTE(RES)                                       
 03/01/96              (S)   RES AT 11:30 AM BUTROVICH RM 205                  
 03/01/96              (S)   MINUTE(RES)                                       
 03/13/96              (S)   RES AT  3:30 PM BUTROVICH ROOM 205                
 03/13/96              (S)   MINUTE(RES)                                       
 03/14/96      2735    (S)   RES RPT  CS  3DP 2NR   SAME TITLE                 
 03/22/96      2831    (S)   ZERO FISCAL NOTE TO CS (DNR)                      
 03/28/96              (S)   FIN AT  8:30 AM SENATE FINANCE 532                
 03/28/96              (S)   MINUTE(FIN)                                       
 03/28/96      2939    (S)   ZERO FISCAL NOTE TO CS (F&G)                      
 03/28/96      2939    (S)   FIN RPT  CS  3DP 1NR   SAME TITLE                 
 03/29/96              (S)   RLS AT 12:05 PM FAHRENKAMP RM 203                 
 03/29/96              (S)   MINUTE(RLS)                                       
 03/29/96      2964    (S)   FORTHCOMING CS RECEIVED                           
 03/28/96      2939    (S)   PREVIOUS ZERO FNS                                 
 04/01/96      2993    (S)   RULES TO CALENDAR  4/1/96                         
 04/01/96      2995    (S)   READ THE SECOND TIME                              
 04/01/96      2995    (S)   FIN  CS ADOPTED UNAN CONSENT                      
 04/01/96      2995    (S)   ADVANCED TO THIRD READING UNAN                    
 04/01/96      2995    (S)   READ THE THIRD TIME  CSSB 198(FIN)                
 04/01/96      2995    (S)   PASSED Y19 N1                                     
 04/01/96      2995    (S)   ADAMS  NOTICE OF RECONSIDERATION                  
 04/02/96      3028    (S)   RECON TAKEN UP - IN THIRD READING                 
 04/02/96      3028    (S)   PASSED ON RECONSIDERATION Y20 N-                  
 04/02/96      3030    (S)   TRANSMITTED TO (H)                                
 04/03/96      3615    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 04/03/96      3615    (H)   RESOURCES, FINANCE                                
 04/03/96      3629    (H)   CROSS SPONSOR(S): NAVARRE                         
 04/22/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 04/22/96              (H)   MINUTE(RES)                                       
 BILL:  SB 199                                                               
 SPONSOR(S): SENATOR(S) LEMAN,Pearce                                           
 JRN-DATE     JRN-PG               ACTION                                      
 01/05/96      2058    (S)   PREFILE RELEASED - 1/5/96                         
 01/08/96      2058    (S)   READ THE FIRST TIME - REFERRAL(S)                 
 01/08/96      2058    (S)   RESOURCES                                         
 01/31/96              (S)   RES AT  3:30 PM BUTROVICH ROOM 205                
 01/31/96              (S)   MINUTE(RES)                                       
 02/02/96      2287    (S)   FIN REFERRAL ADDED                                
 03/06/96              (S)   RES AT  3:30 PM BUTROVICH ROOM 205                
 03/06/96              (S)   MINUTE(RES)                                       
 03/11/96              (S)   RES AT  3:30 PM BUTROVICH ROOM 205                
 03/11/96              (S)   MINUTE(RES)                                       
 03/12/96      2708    (S)   RES RPT  CS  4DP 1NR    NEW TITLE                 
 03/12/96      2708    (S)   FISCAL NOTES TO SB & CS (DEC, F&G)                
 03/12/96      2708    (S)   INDETERMINATE FISCAL NOTE (DNR)                   
 03/12/96      2708    (S)   ZERO FISCAL NOTES TO SB & CS                      
                             (DOT, MVA)                                        
 03/20/96              (S)   FIN AT  9:00 AM SENATE FINANCE 532                
 03/21/96              (S)   MINUTE(FIN)                                       
 03/26/96              (S)   FIN AT  9:00 AM SENATE FINANCE 532                
 03/27/96              (S)   MINUTE(FIN)                                       
 04/02/96              (S)   FIN AT  9:00 AM SENATE FINANCE 532                
 04/03/96              (S)   FIN AT  9:00 AM SENATE FINANCE 532                
 04/03/96              (S)   RLS AT  1:15 PM FAHRENKAMP RM 203                 
 04/03/96              (S)   MINUTE(FIN)                                       
 04/03/96              (S)   MINUTE(RLS)                                       
 04/03/96      3041    (S)   FIN RPT  CS  1DP 4NR 1AM  NEW TITLE               
 04/03/96      3041    (S)   FNS TO CS (DEC, DNR)                              
 04/03/96      3041    (S)   ZERO FN TO CS (DOT)                               
 04/03/96      3041    (S)   PREVIOUS FN (F&G)                                 
 04/03/96      3041    (S)   PREVIOUS ZERO FN (DMVA)                           
 04/09/96      3092    (S)   RULES TO CALENDAR & 1NR  4/9/96                   
 04/09/96      3094    (S)   READ THE SECOND TIME                              
 04/09/96      3094    (S)   FIN  CS ADOPTED Y11 N5 E4                         
 04/09/96      3095    (S)   ADVANCE TO THIRD READING FLD                      
                             Y11 N5 E4                                         
 04/09/96      3095    (S)   THIRD READING 4/10 CALENDAR                       
 04/10/96      3128    (S)   READ THE THIRD TIME  CSSB 199(FIN)                
 04/10/96      3128    (S)   PASSED Y11 N9                                     
 04/10/96      3128    (S)   SALO  NOTICE OF RECONSIDERATION                   
 04/11/96      3161    (S)   RECON TAKEN UP - IN THIRD READING                 
 04/11/96      3161    (S)   PLACED AT BOTTOM OF CALENDAR                      
 04/11/96      3171    (S)   PASSED Y11 N9                                     
 04/11/96      3176    (S)   TRANSMITTED TO (H)                                
 04/12/96      3689    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 04/12/96      3690    (H)   RESOURCES, LABOR & COMMERCE                       
 04/17/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 04/17/96              (H)   L&C AT  3:00 PM CAPITOL 17                        
 04/17/96              (H)   MINUTE(RES)                                       
 04/17/96              (H)   MINUTE(L&C)                                       
 04/19/96              (H)   L&C AT  3:00 PM CAPITOL 17                        
 04/19/96              (H)   MINUTE(L&C)                                       
 04/22/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 04/22/96              (H)   MINUTE(RES)                                       
 04/23/96              (H)   RES AT  3:00 PM CAPITOL 124                       
 04/23/96              (H)   MINUTE(RES)                                       
 04/24/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 WITNESS REGISTER                                                              
 DAVID BENTON, Deputy Commissioner                                             
 Alaska Department of Fish & Game; and                                         
   Pacific Salmon Commissioner, State of Alaska on                             
   the Pacific Salmon Commission                                               
 P.O. Box 25526                                                                
 Juneau, Alaska  99811-5526                                                    
 Telephone:  (907) 465-6136                                                    
 POSITION STATEMENT:  Briefed committee on status of Pacific                   
                      Salmon Treaty                                            
 KEVIN BANKS, Petroleum Economist                                              
 Division of Oil & Gas                                                         
 Department of Natural Resources                                               
 3601 C Street, Suite 1380                                                     
 Anchorage, Alaska  99503-5948                                                 
 Telephone:  (907) 269-8799                                                    
 POSITION STATEMENT:  Testified on HB 548                                      
 KEN BOYD, Director                                                            
 Division of Oil & Gas                                                         
 Department of Natural Resources                                               
 3601 C Street, Suite 1380                                                     
 Anchorage, Alaska  99503-5948                                                 
 Telephone:  (907) 269-8800                                                    
 POSITION STATEMENT:  Testified on HB 548                                      
 SENATOR JOHN TORGERSON                                                        
 Alaska State Legislature                                                      
 Capitol Building, Room 427                                                    
 Juneau, Alaska  99801-1182                                                    
 Telephone:  (907) 465-2828                                                    
 POSITION STATEMENT:  Sponsor of SB 198                                        
 HARRY GREGOIRE, Mayor                                                         
 City of Homer                                                                 
 3891 Kachemak Way                                                             
 Homer, Alaska  99603                                                          
 Telephone:  (907) 235-8303                                                    
 POSITION STATEMENT:  Testified on CSSB 198(FIN)                               
 MILDRED MARTIN                                                                
 P.O. Box 2652                                                                 
 Homer, Alaska  99603                                                          
 Telephone:  (907) 235-6652                                                    
 POSITION STATEMENT:  Testified in support of CSSB 198(FIN)                    
 DEREK STONOROV, Vice Chairman                                                 
 Beluga Wetlands Task Force                                                    
 51795 E. End Road                                                             
 Homer, Alaska  99603                                                          
 Telephone:  (907) 235-8273                                                    
 POSITION STATEMENT:  Testified in support of CSSB 198(FIN)                    
 ROY HOYT, JR.                                                                 
 P.O. Box 2121                                                                 
 Homer, Alaska  99603                                                          
 Telephone:  (907) 235-6387                                                    
 POSITION STATEMENT:  Testified in opposition to CSSB 198(FIN)                 
 LUKE WELLES, Member                                                           
 Homer Economic Development Commission                                         
 P.O. Box 3735                                                                 
 Homer, Alaska  99603                                                          
 Telephone:  (907) 235-5557                                                    
 POSITION STATEMENT:  Testified in opposition to CSSB 198(FIN)                 
 STAN WELLES, Business Owner                                                   
 P.O. Box 1447                                                                 
 Homer, Alaska  99603                                                          
 Telephone:  (907) 235-6788                                                    
 POSITION STATEMENT:  Testified in opposition to CSSB 198(FIN)                 
 RALPH CLENDENEN                                                               
 231 East Danview Avenue                                                       
 Homer, Alaska  99603                                                          
 Telephone:  (907) 235-5187                                                    
 POSITION STATEMENT:  Testified in opposition to CSSB 198(FIN)                 
 LYNN WHITMORE, Co-Chairman                                                    
 Beluga Wetlands Task Force; and                                               
    Chairman, Homer Fish & Game Advisory Committee                             
 P.O. Box 355                                                                  
 Anchor Point, Alaska  99556                                                   
 Telephone:  (907) 235-7220                                                    
 POSITION STATEMENT:  Testified on CSSB 198(FIN)                               
 NANCY LORD                                                                    
 P.O. Box 558                                                                  
 Homer, Alaska  99603                                                          
 Telephone:  (907) 235-8252                                                    
 POSITION STATEMENT:  Testified in support of CSSB 198(FIN)                    
 MARY GRISWOLD                                                                 
 P.O. Box 1417                                                                 
 Homer, Alaska  99603                                                          
 Telephone:  (907) 235-3725                                                    
 POSITION STATEMENT:  Testified in support of CSSB 198(FIN)                    
 JIM REARDON                                                                   
 413 East Lee Drive                                                            
 Homer, Alaska  99603                                                          
 Telephone:  (907) 235-8543                                                    
 POSITION STATEMENT:  Testified in support of CSSB 198(FIN)                    
 JACK CUSHING, City Council Member                                             
 Homer City Council                                                            
 City Hall                                                                     
 Homer, Alaska  99603                                                          
 Telephone:  (907) 235-6745                                                    
 POSITION STATEMENT:  Testified in support of CSSB 198(FIN)                    
 JACK LENTFER, Wildlife Biologist and                                          
   former member, Board of Game                                                
 P.O. Box 217                                                                  
 Homer, Alaska  99603                                                          
 Telephone:  (907) 235-5945                                                    
 POSITION STATEMENT:  Testified in support of CSSB 198(FIN)                    
 SENATOR LOREN LEMAN                                                           
 Alaska State Legislature                                                      
 Capitol Building, Room 115                                                    
 Juneau, Alaska  99801-1182                                                    
 Telephone:  (907) 465-2095                                                    
 POSITION STATEMENT:  Sponsor of SB 199                                        
 KEN DONAJKOWSKI, Representative                                               
 Alaska Oil & Gas Association                                                  
 12211 Lilac Circle                                                            
 Anchorage, Alaska  99510                                                      
 Telephone:  Not Available                                                     
 POSITION STATEMENT:  Testified in support of CSSB 199(FIN)                    
 PETER GAMACHE, Assistant Attorney General                                     
 Medicaid Provider Fraud Section                                               
 Department of Law                                                             
 1031 West 4th Avenue, Suite 200                                               
 Anchorage, Alaska  99501-1994                                                 
 Telephone:  (907) 269-5100                                                    
 POSITION STATEMENT:  Testified on CSSB 199(FIN)                               
 TOBY STEINBERGER, Assistant Attorney General                                  
 Governmental Affairs Section                                                  
 Department of Law                                                             
 1031 West 4th Avenue, Suite 200                                               
 Anchorage, Alaska  99501-1994                                                 
 Telephone:  (907) 259-5100                                                    
 POSITION STATEMENT:  Testified on CSSB 199(FIN)                               
 ROBERT BUNDY                                                                  
 United States Attorney for                                                    
   the District of Alaska                                                      
 Address Not Available                                                         
 POSITION STATEMENT:  Testified in opposition to CSSB 199(FIN)                 
 JANICE ADAIR, Director                                                        
 Division of Environmental Health                                              
 Department of Environmental Conservation                                      
 555 Cordova Street                                                            
 Anchorage, Alaska  99501                                                      
 Telephone:  (907) 269-7644                                                    
 POSITION STATEMENT:  Testified on CSSB 199(FIN)                               
 ERIC LUTTRELL, Vice President                                                 
 Exploration and Development                                                   
 BP Exploration, Alaska                                                        
 900 East Benson Blvd.                                                         
 Anchorage, Alaska  99508                                                      
 Telephone:  (907) 561-5111                                                    
 POSITION STATEMENT:  Testified on HB 548                                      
 NANCY WELLER                                                                  
 Division of Medical Assistance                                                
 Department of Health & Social Services                                        
 P.O. Box 110660                                                               
 Juneau, Alaska  99811-0660                                                    
 Telephone:  (907) 465-3355                                                    
 POSITION STATEMENT:  Testified on CSSB 199(FIN)                               
 MIKE PAULEY, Legislative Administrative Assistant                             
    to Senator Loren Leman                                                     
 Alaska State Legislature                                                      
 Capitol Building, Room 115                                                    
 Juneau, Alaska  99801-1182                                                    
 Telephone:  (907) 465-2095                                                    
 POSITION STATEMENT:  Testified on CSSB 199(FIN)                               
 MARIE SANSONE, Assistant Attorney General                                     
 Natural Resources Section                                                     
 Department of Law                                                             
 P.O. Box 110300                                                               
 Juneau, Alaska  99811-0300                                                    
 Telephone:  (907) 465-3600                                                    
 POSITION STATEMENT:  Testified on CSSB 199(FIN)                               
 ACTION NARRATIVE                                                              
 TAPE 96-65, SIDE A                                                            
 Number 001                                                                    
 CO-CHAIRMAN BILL WILLIAMS called the House Resources Committee                
 meeting to order at 8:15 a.m.  Members present at the call to order           
 were Representatives Long, Green, Ogan, Austerman, Kott and                   
 Williams.  Members absent at the call to order were Representatives           
 Nicholia, Barnes and Davies.  A quorum was present to conduct                 
 WORK SESSION - PACIFIC SALMON TREATY                                        
 CO-CHAIRMAN WILLIAMS announced the committee would receive an                 
 update on the Pacific Salmon Treaty and asked David Benton, Deputy            
 Commissioner, Department of Fish & Game to brief the committee on             
 the status of the negotiations.                                               
 Number 102                                                                    
 DAVID BENTON, Deputy Commissioner, Alaska Department of Fish &                
 Game; and Pacific Salmon Commissioner, State of Alaska on the                 
 Pacific Salmon Commission said, "Mr. Chairman, my presentation to             
 you will be brief.  I know you have a very busy schedule.  It will            
 be pretty much similar to the presentation I made to the Fisheries            
 Subcommittee, but I will provide you with an update as to where we            
 are in the negotiating process.  Mr. Chairman, I'd like to just               
 provide a context for the committee if I can, regarding why                   
 Alaska's in the Pacific Salmon Treaty and why these issues are of             
 such importance to us now."                                                   
 MR. BENTON explained, "In the late 1970s and early 1980s, some                
 events happened in the Lower 48 that changed fisheries management             
 down there, pretty much forever.  And that has to do with the Boldt           
 decision and implementation of the Boldt decision and sharing                 
 arrangements that developed out of that court case to provide fish            
 to the Stevens and Palmer Indian Treaty Tribes in Oregon and                  
 Washington.  Basically, what that did was it set up an arrangement            
 for 50/50 sharing of fish resources between treaty tribe members              
 and non-treaty citizens of the United States.  Towards the end of             
 the `70s and more into the `80s, the tribes sought to extend the              
 Boldt decision allocation into fisheries off the state of Alaska              
 and that litigation and the threat of that litigation was a key               
 component of why Alaska joined the Pacific Salmon Treaty.  In 1985,           
 the - just prior to 1985, a deal was struck whereby Alaska would              
 support and enter into the Pacific Salmon Treaty, be bound by that            
 treaty and provisions in it.  In exchange for that, the tribes                
 suspended their lawsuits to extend the Boldt decision into Alaskan            
 waters and Alaskan fisheries.  That was accomplished through a                
 mechanism called the "Baldridge stipulation" and that basically               
 just set those court cases off to the side and said as long as the            
 Pacific Salmon Treaty is in place, this matter is dealt with."                
 MR. BENTON continued, "When we signed into the treaty, the                    
 protections aside from the Baldridge stipulation that Alaska got,             
 were primarily in the structure of how the commission works on the            
 U.S. side.  In that structure, there are three commissioners.                 
 There's a tribal commissioner, there's a southern states                      
 commissioner and an Alaska commissioner.  Each commissioner has a             
 veto over actions that are being taken place inside the U.S.                  
 section, to develop a U.S. position.  And that was a very key                 
 component for Alaska because - and the other two sort of entities -           
 because it maintained a balance so that no two entities could gang            
 up on a third.  There's a fourth commissioner and it's a federal              
 commissioner and that commissioner does not have a vote.  So, the             
 federal government was specifically excluded from the decision                
 making - from making the final decisions, anyway, within the U.S.             
 section.  The reason I bring that up is that it is a very important           
 context for where we are at right now in the Pacific Salmon Treaty            
 Number 427                                                                    
 MR. BENTON stated, "The Northwest tribes have re-instituted through           
 sort of - I wouldn't say they're sneaky back door channels, but at            
 least they figured out a way to get around the Baldridge                      
 stipulation and re-institute the Boldt decision litigation.  They             
 have -- and that was not the lawsuit last summer.  This is another            
 lawsuit called U.S. v.  Washington and it's scheduled to go to              
 trial this fall.  If they are successful in that, then we believe             
 that it's going to seriously prejudice our position in the treaty             
 and certainly is going to be disruptive for our fisheries in the              
 long run.  The other thing the tribes have done, of course, is that           
 they took us to court last year on Chinook and they succeeded in              
 that litigation and that was primarily because of some procedural             
 issues within the U.S. section and how things were done.  They have           
 given us every signal that they're intending to pursue similar                
 litigation this year.  That's sort of the context, Mr. Chairman,              
 that we're operating under and that's just within the U.S. section            
 and it's not an easy situation to be in."                                     
 Number 527                                                                    
 MR. BENTON commented, "The other aspect, of course, is our                    
 relationship with Canada.  Canada has some very significant                   
 internal political problems and issues they are dealing with.  They           
 are cutting back their fleet dramatically, they're in the middle of           
 a provincial election and we become the good target in all of that.           
 For that reason, if for no other reason, Canada has been again this           
 year very, very active in the press, blaming Alaska for what I                
 believe are a lot of their internal domestic problems."                       
 Number 588                                                                    
 MR. BENTON continued, "Mr. Chairman, with that context, let me give           
 you just a very brief rundown of where we are in the negotiations.            
 There are two issues at play.  One has to do with Chinook; the                
 other one has to do with equity.  The Chinook negotiations have               
 been proceeding since January.  We have done everything we can to             
 avoid any of the procedural issues that we were faced with last               
 year in court.  We have been resolutely pursuing addressing the               
 scientific issues that we brought up last year and we continue to             
 think are valid and keep pushing the southern U.S. and Canada on.             
 In January, the southern United States came forward with a position           
 that would have essentially shut down the Southeast Alaska troll              
 fishery this year.  They've moved off that position since that                
 time.  The Canadians have maintained a very similar position                  
 however, and that would be a harvest level for this year that would           
 in essence shut down the troll fishery for Chinook.  The status of            
 Chinook stocks coast-wide are not good.  The southern Chinook                 
 stocks that do not come to Alaska are in particularly poor shape.             
 The far north migrating Chinook stock complex, which are the ones             
 that we fish on, are in our view, in not as bad a shape.  There are           
 a couple of stocks that have some problems.  Overall however,                 
 abundance is down.  Current forecasts for this year would have                
 abundance sitting at levels lower than the base period under the              
 treaty and significantly lower than the levels that were present              
 when the treaty was signed.  So Alaska believes that we do have to            
 take some action to address that conservation issue; however, the             
 magnitude of that action is what's in debate.  And we do not                  
 believe and do not support and will not agree to the positions that           
 Canada put forward.  And currently, I can say that we do not agree            
 and will not agree to the position that the southern U.S. has put             
 forward.  I can't get into numbers because we're in the middle of             
 the negotiations."                                                            
 MR. BENTON further stated, "I did provide to you and I see you have           
 them and I apologize -- these pie charts that you have that are in            
 black and white -- I only have the one set of colored ones and I              
 only got them about 6 o'clock last night.  We don't need to go                
 through all of them; I just wanted to point out a couple of things.           
 The top one just shows the origin by percentage of the stocks that            
 are in the Southeast Alaska Chinook fishery.  What you can see                
 there is that U.S. natural spawning stocks that are rebuilt                   
 comprise 43 percent.  That means that they are classified in the              
 Pacific Salmon Treaty process as rebuilt.  Canadian natural                   
 spawning stocks that are in our fishery that are rebuilt comprise             
 37 percent of the fishery.  Hatcheries account for roughly 12                 
 percent of the fishery and then natural spawning stocks that are              
 not rebuilding are roughly 8 percent of the overall fishery."                 
 Number 817                                                                    
 REPRESENTATIVE ALAN AUSTERMAN asked, "Dave, 43 percent of the U.S.            
 natural spawning stocks - would you give us a breakout of Alaska              
 versus (indisc.)."                                                            
 MR. BENTON responded, "Roughly, Mr. Chairman, I would say that                
 that's -- I'm trying to think of the percentage -- it's around 10             
 to 12 percent of the U.S. stocks.  The harvest in Southeast Alaska            
 is 85 -- 90 some odd percent stocks that spawn elsewhere, if that's           
 the question.  I can give you a rundown of which stocks are which.            
 I have that information, but I got that at 7:30 this morning and              
 didn't have time to bring it over here.  Of the 43 percent that are           
 rebuilt, those are Columbia River brights...."                                
 Number 826                                                                    
 REPRESENTATIVE JOHN DAVIES asked Mr. Benton to explain what rebuilt           
 MR. BENTON replied, "Rebuilt means when the treaty was signed,                
 there was an obligation to rebuild Chinook stocks - all parties               
 took that obligation on and within the context of the treaty, we              
 are trying to -- we have a suite of indicator stocks and we were              
 trying to rebuild those stocks.  Every year the status is assessed            
 by the parties and then they are classified as either not                     
 rebuilding, indeterminate, rebuilt or else they don't have a                  
 category like that because they're hatchery -- you know, you don't            
 rebuild hatcheries.  So that's what that means.  That means,                  
 generally speaking, they're in good shape.  And of that 43 percent            
 rebuilt, it's Columbia River brights, Oregon Coastals, Southeast              
 Alaska, Washington Coastals, mid-Columbia brights and some others -           
 they constitute about .5 percent of that total.  The Canadian                 
 stocks or North Central B.C. are the more northerly stocks than the           
 upper Fraser early stocks and the stocks that are not rebuilding              
 would be such stocks as Puget Sound stocks and there's just a very            
 small number of them and some of the stocks on west coast Vancouver           
 Island and in Upper Georgia Strait out of British Columbia.  But by           
 and large, most of the stocks that are not rebuilt comprise, you              
 know, 1 to 2 percent or less of the fishery in our fishery."                  
 Number 967                                                                    
 MR. BENTON continued with his briefing, "Presently, Mr. Chairman,             
 we're scheduled for a meeting with the southern U.S. tribes to try            
 and negotiate a U.S. position on May 7.  We're going to go down               
 there and attempt to reach some agreement on a U.S. Section                   
 position.  If we do that, it's my opinion, that it's very unlikely            
 that we will be in court this summer on the Chinook fishery.  I               
 think it's going to very difficult, however, for us to get that               
 agreement from the southern U.S. Section.  They have, if nothing              
 else, some internal political problems.  In the tribal caucus,                
 there's 24 tribal representatives that go to these things and I               
 don't know whether they can get consensus to have an agreement."              
 Number 1016                                                                   
 MR. BENTON further stated, "Mr. Chairman, very briefly I'll touch             
 on the equity issue and then I'll leave it open for questions.                
 Equity is simply one of several principles that are in the treaty             
 and it basically says that you get the benefits of the production             
 that come from your streams and it's an allocation issue,                     
 primarily.  It has been a very contentious issue over the past                
 several years.  It was the issue that brought Canada around to                
 instituting the transit fee in 1994.  It was the issue that was the           
 subject of the mediation involving the New Zealand ambassador last            
 year.  That mediation failed.  You've seen a lot of rhetoric in the           
 press by Canada about that mediation and the desire to release the            
 report and findings of the mediator.  Mr. Chairman, I'm here to               
 tell you that I've never seen, and I've been told by our federal              
 lead negotiator, there is no report from the mediator; the mediator           
 made no findings.  The mediator did float around concepts for                 
 consideration.  Some of those concepts were rejected by Canada,               
 some of those concepts were rejected by the United States.  One               
 observation I make is that Christopher Beebe (sp.) was not a                  
 fisheries negotiator when he was in the New Zealand Foreign                   
 Service; he was their lead ambassador to France.  He negotiated               
 some arrangements for Antarctica on the environment and was in that           
 kind of mode.  He was not familiar with salmon fisheries in the               
 North Pacific at all."                                                        
 MR. BENTON continued, "Before the mediation, we told Canada that we           
 would sit with them - meet with them any time, any where on a                 
 fishery by fishery basis for northern fisheries, the only ones that           
 we have any ability to effect and negotiate an accommodation on               
 equity.  We made that proposal again during the mediation and we              
 said, `Look, we'll sit at the table with you to negotiate these               
 arrangements and have the mediator there to be the referee - that's           
 fine with us.'  They rejected that proposal.  Following the                   
 collapse of the mediation and the withdrawal of Ambassador Beebe,             
 we again made the overtures to Canada and said, `Look, this doesn't           
 have to end the negotiation.  We're willing to sit down on a                  
 fishery by fishery basis on fisheries in the northern boundary                
 area, at least, and negotiate a resolution on equity.'  Canada                
 again refused.  We're going to continue to make those overtures and           
 last week when I was in Anchorage at the North Pacific Fishery                
 Management Council, I also had the opportunity to meet with one of            
 the Canadian commissioners, Mr. Bud Graham, the head of the                   
 Department of Fisheries and Oceans in Canada on the West Coast.  I            
 made that overture to him again.  He rejected that.  I met with               
 David Zirnhelt who is the Fisheries Minister for the Premier for              
 British Columbia.  I informed him of our overtures to the Canadian            
 government and urged him to see if he couldn't get his government             
 to agree to come back to the table and negotiate those                        
 arrangements.  All I can say is that since I've met with him, the             
 Premier has issued a call for more transit fees and things like               
 that.  I'm just not convinced that we're going to get any where               
 quick with Canada on the equity issue.  With that, Mr. Chairman,              
 I'll be happy to answer any questions you have."                              
 Number 1220                                                                   
 REPRESENTATIVE DAVIES asked Mr. Benton to expand on the procedural            
 issues that were involved in the case we lost last year.                      
 MR. BENTON replied, "What happened was, in January 1995 when I                
 first started doing Pacific Salmon Treaty issues -- I've done                 
 international fisheries for the state for quite awhile, but not               
 Pacific Salmon Treaty -- the southern U.S. basically came in with             
 ourselves and said, `We have to develop a U.S. position' and then             
 they laid out a proposal which we all thought was a bit extreme and           
 was built around the use of a computer model to forecast abundance            
 that our scientists had demonstrated to have a fairly significant             
 bias pre-season in terms of forecasting abundance.  And in fact,              
 because of the way the model was constructed and still is                     
 constructed, the abundance forecast is biased low pre-season and as           
 data comes in and is put back into the model, you actually come up            
 with the actual number for the abundance of Chinook.  In some cases           
 it takes two years and the bias is on the order of 20 - 25 percent            
 which is pretty significant.  They wanted to use that model to set            
 our harvest level pre-season and lock us in on that.  And the way             
 that that then benefits southern folks is that if you look at the             
 graphic and you notice that basically 80 percent -- 79 percent of             
 the natural spawning stocks are rebuilt and roughly, I think it's             
 13 percent of our hatcheries -- what happens is when you reduce our           
 fishery, all those fish that (indisc.) other stocks pass south and            
 get caught in other fisheries.  It's a reallocation issue; it                 
 doesn't have a whole lot to do with (indisc.).  What we did was, we           
 went and investigated how that model operated and then proceeded to           
 develop an in-season methodology similar to what we would use in              
 fisheries up here.  And we developed that in-season methodology, we           
 provided it to the southern U.S. in March.  We didn't hear anything           
 from them until basically late June.  That was the first time that            
 we met with Canada -- I think it was -- or was it late May -- these           
 things sort of blur together -- but anyway, much later in the year,           
 and we met with Canada -- no, I know exactly when that is now -- it           
 was on June 6.  At that meeting, Canada came forward with a very              
 draconian proposal that was not based on any evaluation --                    
 scientific evaluation that they had provided to us for our review.            
 They just sort of laid out these numbers and said `Here's the                 
 rationale and you got to do it.'  We said, `no.'  We then proceeded           
 to refine our proposal for an in-season management regime.  We gave           
 them a number that we said we would not fish above but it was lower           
 than the number under the treaty.  It was a number -- 230,000 fish,           
 but it was a number that was acceptable for Endangered Species Act            
 needs and then we proceeded to (indisc.) the fishery."                        
 Number 1401                                                                   
 MR. BENTON continued to explain, "It was at that juncture that the            
 procedural issues that they got us on really came into play.  And             
 that is, we were implementing a new approach in their minds without           
 it going through the proper review inside the Pacific Salmon                  
 Commission.  We contested that perspective and still do because               
 what we said was, `We're not implementing this approach to adjust             
 the fisheries upward or down in mode' which is what you normally              
 would do.  What we said was `We're going to fish to this ceiling              
 level or this quota level - this cap of 230,000 fish or less - but            
 we will implement this methodology just to check whether abundances           
 are certainly as low as you, Canada, and the southern U.S. are                
 telling us you think they're going to be and if they are, we will             
 reduce the fishery accordingly.'  It's sort of a fine point, but it           
 was the point that the judge found particularly intriguing and used           
 to shut down the fishery.  This year we're not doing that.  This              
 year, the way I phrase it is, we've done everything by the numbers,           
 we've gone every step, we've run everything through the commission            
 process, we're not going to do anything like that in terms of                 
 implementing a new regime that has not been reviewed.  And in that            
 way, we're not going to be in that situation."                                
 Number 1468                                                                   
 REPRESENTATIVE IRENE NICHOLIA remarked that she remembered this               
 issue from last September and at that time, the Canadians and the             
 Natives from Oregon and Washington were suing.  She asked if that             
 was an ongoing case?                                                          
 MR. BENTON responded that it was an ongoing case.  He said, "That             
 was the one last summer and it's on appeal now to the Ninth Circuit           
 Court.  It was Washington, Oregon and the tribes and then Canada              
 entered that case as an amicus - as a friend of the court.  They              
 can't legally sue us other than just providing information.  But              
 the court did let Canada in.  It is ongoing and in fact, there were           
 oral arguments at the Ninth Circuit a few weeks ago and the Ninth             
 Circuit has indicated they may rule on that in the not too distant            
 Number 1513                                                                   
 CO-CHAIRMAN JOE GREEN inquired, "In that you've got litigation                
 going on and you've got the ESA that's hanging out there as a                 
 threat, what is that doing to your ability to freely negotiate?  I            
 mean, are you getting hammered by both of those situations and the            
 fact that we're taking a lion's share - we're greedy and, I mean,             
 how is that affecting your negotiations?"                                     
 MR. BENTON replied, "It makes the negotiating process extremely               
 difficult, to say the least.  The threat of the litigation frankly            
 doesn't trouble me a whole lot in the sense that it makes me                  
 reluctant to put forward what I think is the best position, the               
 most defensible position for Alaska.  But what it does do is                  
 because of the way it went last summer, the tribes and the southern           
 states, in particular, it really hardened their position.  They               
 really don't want to negotiate.  It's been pretty apparent by some            
 of their actions.  They have kept saying all along, `This is of               
 paramount importance.  We want to resolve it; we want to meet with            
 you.'  We set up a set of meetings in Victoria in late March.  They           
 showed up late, they left early and they really didn't seem                   
 interested in talking all that much.  I tried to arrange meetings             
 with them on April 15 while I was in Anchorage at the North Pacific           
 Council meeting.  I said, `If you guys want to sit down and                   
 negotiate, let's do it; that's a good time.'  It wasn't a                     
 convenient time, but let's do it.  They couldn't make those dates.            
 We tried to do it for April 27; they couldn't make those dates.               
 And now we have a negotiating session supposedly on May 7.  I don't           
 hold out a whole lot of hope that the southern U.S. folks are going           
 to want to meaningfully engage in negotiations, to be honest."                
 Number 1606                                                                   
 CO-CHAIRMAN GREEN inquired if that's the case, what effect is that            
 going to have on the seasons if these negotiations are pending and            
 just keep being pending.                                                      
 MR. BENTON replied, "At some point we have to get resolution."                
 CO-CHAIRMAN GREEN remarked that fishing is coming up.                         
 MR. BENTON responded that was correct.  He said, "This is not an              
 unusual circumstance in U.S./Canada Treaty forum.  In past years,             
 when there was not an annex provision agreed to with Canada, Alaska           
 has fished according to the latest proposal put on the table that             
 it thought was justifiable.  And we would do the same thing.  I               
 mean, we are in the process right now of putting together and                 
 refining our proposal to the south in terms of what would happen              
 for Chinook.  We think it's going to be quite defensible,                     
 scientifically.  And if there was no agreement and they did not               
 take us to court and we did not have an agreement with Canada, then           
 we would fish in accordance with that proposal.  I don't think                
 we'll get from here to there.  I think either we will have an                 
 agreement or more likely, we'll wind up in court if we don't.  So             
 somebody else may tell us what we're going to do.  In the instance            
 when there is no agreement, we will fish in accordance with the               
 proposal we put forward."                                                     
 Number 1680                                                                   
 CO-CHAIRMAN WILLIAMS remarked that since 1995 the Chinook salmon              
 have been at the forefront of the Pacific Salmon discussion, yet              
 recently the Fraser River sockeye appears to be gaining a bit of              
 attention in Canada as an additional threatening tool and a                   
 political tool.  It was his understanding that fishermen in                   
 Southeast Alaska catch approximately 5 percent of the Canadian                
 grown stock.  He asked if the Canadians had a legitimate claim and            
 what is the state of Alaska prepared to do to combat these                    
 MR. BENTON said, "Mr. Chairman, you've identified a very important            
 issue.  Because there's such a wide misunderstanding in the public            
 of what's going on and you're correct, the stocks in Southeast                
 Alaska - the composition of the catch overall - 95 percent of the             
 salmon harvested in Southeast Alaska are spawned in Alaska.                   
 Roughly 5 percent or so come from waters elsewhere.  Of that 5                
 percent - a very small percent by the way, is Chinook.  The Fraser            
 River in particular is a very troubling situation.  Fraser River is           
 a major salmon producer.  It is one of the premier salmon producers           
 on the West Coast of North America.  It has runs on the order of 10           
 million sockeye a year and that's been sort of historical in recent           
 history, anyway, of the run size.  This year the projections are on           
 the order of maybe 3 million fish and there's not going to be any             
 commercial fishing on Fraser River in Canada.  Probably no fishing            
 on Fraser River sockeye in the United States.  There will be a                
 small Indian food fishery in-river in Canada.  Alaska, in years of            
 very high abundance of Fraser River sockeye and under environmental           
 conditions that cause a fish to swing in as they're migrating                 
 south, so they swing in towards Alaskan waters, we might take out             
 of a run of 10 million fish, 80,000 to 90,000 fish; very minuscule            
 amount.  In the years of low -- like this year will be a low cycle            
 year -- in three of the last four of these low cycles, we have                
 taken no Fraser River fish.  The one year we did take some Fraser             
 River fish in the low cycle was a year of an El Nino event that               
 caused the fish to swing in, we took a few thousand of them.  This            
 is not forecast to be a year of an El Nino event, so we don't                 
 believe we're going to take any Fraser River fish.  We've been                
 trying to educate the public about that.  It's very difficult                 
 because all these things get mixed together but we're not the                 
 problem on Fraser River."                                                     
 MR. BENTON continued, "Nonetheless, Canada has a real problem on              
 the Fraser River and they made it themselves.  They announced a               
 very aggressive fishing strategy because they wanted to get the               
 United States to the table supposedly on the equity issue as a                
 political maneuver on their part.  Because of that maneuver and               
 similar kinds of strategies, coupled with poor management by the              
 Canadian Department of Fisheries and Oceans in the river and ocean            
 fisheries, they have over-fished a lot of their stocks down there.            
 Those stocks don't come up here, but we're getting blamed for it.             
 The Fraser River is one, Southern coho is another and some of the             
 southern Chinook stocks that don't even come to Alaska are the ones           
 that really are in trouble and in some measures, because of their             
 political maneuvering to get the United States to accede to their             
 demands on equity."                                                           
 Number 1851                                                                   
 CO-CHAIRMAN WILLIAMS asked how this would affect District 4                   
 (indisc.) 31 plan for the commercial salmon harvest in Noyes                  
 MR. BENTON responded, "The Fraser River issue is not going to                 
 affect District 104.  We put forward a proposal at the last round             
 of talks where we discussed the boundary fisheries, like District             
 4, and that proposal would increase our fishing time there and                
 probably under normal circumstances result in somewhat higher                 
 harvest of sockeye than in recent years.  Those sockeye do not come           
 from the Fraser River.  The primary Canadian stock involved there             
 is (indisc.) Rivers.  Those are in really good shape.  Last year we           
 fished very responsibly - I think we took 80,000 or 90,000 of those           
 fish.  Canada over-escaped a large number of fish in the system.              
 They couldn't even harvest their fish.  And over the life of the              
 treaty, whether or not there was annex, we've abided by the rules             
 that were agreed to when the treaty was signed.  This year, for the           
 first time that I'm aware of, we put forward a proposal to actually           
 fish beyond that agreement.  Frankly, Alaska's a little bit tired             
 of being the scapegoat for poor Canadian management and we've been            
 constraining our fisheries and Canada hasn't been doing the same              
 thing.  They've been increasing their harvest on some of the                  
 transboundary rivers; they've been hammering the dickens out of               
 coho and Chinook in the south end and we're just going to operate             
 our fisheries responsibly and manage for our stocks and let them              
 chill out for a while."                                                       
 Number 1944                                                                   
 CO-CHAIRMAN WILLIAMS inquired how the state of Alaska and its                 
 respective industries stay out of the Boldt decision?                         
 MR. BENTON responded, "There's three venues that we can try and               
 resolve the Boldt decision issue.  One is through negotiation with            
 the southern United States, primarily with the tribes, to try and             
 reach agreement on a long term sharing arrangement under the                  
 Baldridge stipulation.  We're in the process of trying to do that.            
 The courtroom is another one and that seems to be where the tribes            
 want to take the issue - is to take us into the courtroom.                    
 Frankly, the Department of Law is not overly optimistic about our             
 ability to prevail in the courtroom on this.  And if you look at              
 the history of the tribes' success in the southern United States on           
 Stevens and Palmer Treaty litigation, they're pretty successful.              
 The other one is possibly a legislative solution where the U.S.               
 Congress defines the scope of the application of Stevens and Palmer           
 Treaties.  Some draft language was floated around last fall in that           
 regard by Senator Stevens and that is a possible avenue as well.              
 That avenue is not open this year - probably wouldn't be until some           
 time when the Congress came back after the elections next year.               
 So, those three avenues are there.  Our preference is to avoid the            
 courtroom if we can.  We have made some proposals to the tribes               
 down south that we would like to negotiate this long-term                     
 arrangement and if we're successful, maybe we can resolve it in               
 that manner.  Otherwise, we're either going to be in court or we're           
 going to be seeking other solutions."                                         
 Number 2021                                                                   
 CO-CHAIRMAN WILLIAMS commented that right now it looks like we                
 won't even get close to binding arbitration of any kind.                      
 MR. BENTON stated, "There are two dispute resolution mechanisms               
 that could come into play this year.  Canada has called for binding           
 arbitration to resolve the equity issue between Canada and the                
 United States.  The United States has a longstanding legal policy,            
 if you will, that unless binding arbitration is specifically                  
 provided for in a treaty and the treaty was subsequently ratified             
 with that in it by the Congress - by the Senate, then the United              
 States cannot enter into binding arbitration because that, in                 
 effect, would remove the powers of the Legislative Branch in terms            
 of the ratification.  And the Pacific Salmon Treaty does not                  
 include binding arbitration provisions; it was not ratified in that           
 manner and so the United States government has already informed               
 Canada that legally the U.S. government cannot enter into binding             
 arbitration with Canada.  So, I don't believe we'll see that one.             
 There's another dispute resolution mechanism on the U.S. side to              
 resolve disputes between the southern and northern sections of the            
 U.S. section.  That's called a conciliation board, so that if we're           
 at impasse, like say on Chinook and a position on Chinook - we                
 potentially could go to a conciliation board which there's a                  
 mechanism for appointing it, and that conciliation board could                
 assist us in resolving our differences.  That's under discussion              
 right now and it may come into play.  Our position is that if we're           
 going to use the conciliation board mechanism to resolve our                  
 differences with Washington, Oregon and the Northwest tribes, then            
 that conciliation board should be focused on some of the key                  
 scientific questions regarding the status of these Chinook stocks             
 and how you're going to manage them and not get into policy                   
 matters, because there's no criteria for policy matters.  I mean,             
 that's what the Pacific Salmon Commissioners are for - they are               
 supposed to decide policy but there are certainly scientific and              
 technical issues which we have not been able to get resolution on             
 and I, for one, think it may be a good idea to use the conciliation           
 board in that regard if we can't get the south to meaningfully sit            
 down and resolve these key issues.  It's not my preference, but we            
 may wind up in that situation.  Now the south is pushing very hard            
 for a conciliation board - their view is very different.  Their               
 view is they just want the conciliation board to tell Alaska what             
 number we get this year and then go home and we're not all that               
 sanguine about that."                                                         
 Number 2158                                                                   
 REPRESENTATIVE DAVIES said, "You've mentioned these scientific                
 issues several times throughout your talk and I have two questions            
 relating to that.  One is, it seems from your mannerisms and the              
 way you've presented these that you think that these are pretty               
 clear from Alaska's perspective - that there's some objective                 
 scientific issues that we're putting forward and we're not getting.           
 Is it completely political strategy and negotiating strategy that             
 drives the other side to not accept these issues or are the issues            
 themselves a little bit more -- not as clear as maybe you've led us           
 to believe?"                                                                  
 MR. BENTON said, "Let me give you an example.  A basic premise in             
 fisheries management is the use of maximum sustainable yield                  
 escapement goals to ensure that you have adequate spawning                    
 escapement to maintain the continuation of those stocks.  Under the           
 terms of the treaty when the rebuilding program was agreed to, it             
 was agreed that the parties would develop such goals and then                 
 manage accordingly and attempt through that management program to             
 rebuild those stocks.  And at the time the treaty was signed, for             
 some of the indicator stocks, there just wasn't very good data so             
 what happened was that some interim escapement goals were                     
 established.  For example, on the west coast of Vancouver Island,             
 which is one of the key issues that's before us this year, Canada             
 had very poor data on some of the index streams so what they did              
 was they went back through their historical data, they took the               
 very highest escapement that they ever documented one way or                  
 another on that system, doubled it and said, `There's our                     
 escapement goal for now but we'll get back to it later and we'll              
 sort of look into it and we'll investigate it.'  This issue is                
 particularly important there and it's important in southern U.S.,             
 like Puget Sound systems.  In the Puget Sound area, once we started           
 looking into this, we discovered that they don't have basic bottom            
 line escapement goals for many systems.  What they do is they set             
 those escapement goals on an annual basis to accommodate their                
 allocation issues between the tribal/nontribal sharing arrangements           
 in the southern U.S. and the basic biological sort of shakes out in           
 the end.  The management of our fishery and all those so-called               
 ceiling fisheries in the treaty are based around meeting the                  
 rebuilding goal and that rebuilding goal is driven by meeting                 
 escapement goals.  So you would think that you would want to have             
 escapement goals that are based on basic scientific information.              
 That's probably the key issue that we have (indisc.-coughing) year            
 and a half, almost two years, now is let's sit down, review the               
 data and establish escapement goals for these stocks.  If it's the            
 current escapement goal, so be it, and we'll act accordingly if               
 that's the right goal.  If that's not the right goal, let's come up           
 with the right goal and then let's manage these fisheries according           
 to that goal so that we can rebuild these stocks.  We haven't been            
 able to get them to even sit down and discuss a schedule for                  
 putting together a team to negotiate - not negotiate, but to                  
 evaluate and develop escapement goals for these systems.  That's              
 probably the primary issue that we have in front of us."                      
 Number 2307                                                                   
 REPRESENTATIVE DAVIS inquired, "In light of the importance of these           
 kinds of data driven and scientific issues in the negotiations, how           
 important is it to maintain a healthy Alaska Department of Fish &             
 Game to provide that kind of data?"                                           
 MR. BENTON responded, "If we're not there doing this, Mr. Chairman,           
 then it doesn't get done.  Our budget, like a lot of other agency's           
 budgets are declining and it has real impacts on our ability to               
 maintain a presence.  Because of the importance of this issue, this           
 last year we re-arranged staff and whatnot to try and put more                
 emphasis into this because it is a very staff-driven exercise.  The           
 more our budget gets hammered, the less ability we're going to have           
 to do the job right.  If we don't do it, the outcome of that is we            
 either lose in court, we lose in the negotiation process or the               
 federal government preempts our fishery."                                     
 Number 2353                                                                   
 REPRESENTATIVE DON LONG inquired if the department had been given             
 policy and direction by previous legislatures as to which way to go           
 with this fisheries issue?                                                    
 MR. BENTON responded, "Mr. Chairman, we've had very good support              
 out of the legislature on this matter.  The policy direction with             
 regard to the Pacific Salmon Treaty issues, I think has been pretty           
 clear over the last several years and that is that we want our                
 fisheries management regime to meet the requirements of the treaty,           
 we want you to defend the interests of Alaskans in that treaty                
 process and we want it to be (indisc.-coughing) stocks is                     
 accommodated.  There have been resolutions in the past out of the             
 legislature in this regard and those have been helpful.  Certainly,           
 if the legislature has other recommendations and policy guidance              
 that the legislature wants to provide to us, we'd be happy to work            
 with you and receive that."                                                   
 REPRESENTATIVE LONG commented that the delegation of the authority            
 to manage the fish and game have been given by the legislature to             
 the Administration and he wondered whether or not the department              
 was in fact requesting that assistance from the legislature by a              
 resolution perhaps.                                                           
 MR. BENTON remarked, "Certainly, if the legislature wishes to                 
 provide a resolution on this issue, it'd be very helpful."                    
 TAPE 96-65, SIDE B                                                            
 Number 001                                                                    
 MR. BENTON continued, "...legislature wishes to do a resolution,              
 that'd be great."                                                             
 CO-CHAIRMAN WILLIAMS thanked Mr. Benton for updating the committee            
 on the negotiations and to feel free to contact them if there was             
 anything the legislature could do.  He turned the gavel over to Co-           
 Chairman Green.                                                               
 HB 548 - NORTH STAR OIL & GAS LEASE AMENDMENT                               
 Number 050                                                                    
 CO-CHAIRMAN GREEN said the committee would hear from the Department           
 of Natural Resources as to the economic analysis they have                    
 performed on the Northstar project of which British Petroleum (BP)            
 has brought a considerable amount of interest to the state with               
 their proposal for an offshore operation.  He asked Kevin Banks to            
 come forward to testify.                                                      
 Number 084                                                                    
 KEVIN BANKS, Petroleum Economist, Division of Oil & Gas, Department           
 of Natural Resources (DNR), advised the committee he would be                 
 talking about four things that relate to the model, the most                  
 important he thought was the assumptions the department uses to               
 develop the forecasts of state revenues and the economics to BP.              
 He provided committee members with a list of assumptions and a                
 simple version of a cash flow model to illustrate the main pieces             
 and to show how the arithmetic in the model works.  He said,                  
 "Basically, the model is a cash flow model that predicts what kinds           
 of revenues come to BP and to the state and federal government and            
 from that we can make an assessment about the profitability of the            
 prospect to the company and get some prediction of the kinds of               
 revenues the state can earn whether through severance taxes, income           
 taxes, royalties or others."                                                  
 Number 221                                                                    
 MR. BANKS continued, "The model as I say is a cash flow model; it             
 would be the same sort of thing that economists would use for                 
 public works kinds of projects to predict benefits and costs and              
 then to calculate the distribution of those benefits and costs to             
 the different players.  The state, of course, doesn't participate             
 in the costs, so to speak; that's the obligation of the lessee, but           
 we do earn revenues from taxes, income taxes, severance taxes and             
 royalties and on these leases, we also earn net profit shares.                
 That's the part of the leases that we are changing in the                     
 amendments and then we can see the effect of that change on revenue           
 to the state.  The most important assumptions we make about the               
 field are how much oil is there in terms of the reserves available            
 to produce and also, what kind of production rates we can expect              
 from those, how many wells you need to produce a certain amount oil           
 and then how quickly that production rate can be sustained and then           
 it begins to drop off.  That's the aspect of reserves that's                  
 MR. BANKS stated, "Then we have to make some kind of assumption               
 about price.  In this model, we used the Department of Revenue's              
 mid-case forecast and deducted from a West Coast North Slope oil              
 price a forecast of marine transportation costs and tariffs on the            
 TAPS pipeline.  The third most important aspect of the model - the            
 one thing you have to grab a hold of is the cost of developing the            
 prospect....basically, the capital expenditures needed to construct           
 the island, install the facilities, build a buried pipeline to                
 shore, the operating costs, the everyday variable costs and fixed             
 costs it takes to get oil out of the ground and expect to have to             
 pay for wages and fuel and equipment through the life of the                  
 prospect and then also abandonment costs, some assessment of what             
 you believe it will cost in the future to remove the equipment and            
 to dismantle the island."                                                     
 Number 319                                                                    
 MR. BANKS further stated, "In the assumptions that we make the                
 model that we used in assessing the deal throughout the process of            
 negotiating it, we used some information that BP supplied to us.              
 In the printout you have here and when you receive a copy of the              
 model assumptions - the list of model assumptions - you'll see                
 there's a couple of places where we've changed some assumptions.              
 So this becomes now, a public version of the model.  We've redacted           
 from the model, a couple of items that BP felt were sensitive -               
 internal financial and pieces of information.  Among those are the            
 income tax rates they pay to the state, the discount rate they use            
 for calculating the present value of the prospect, the prime rate             
 of interest, whatever that is, that applies to the calculation of             
 the net profit share and their calculation of abandonment costs.              
 Those have been redacted and we've replaced them with numbers that            
 we could come up with on our own.  For example, after talking to my           
 counterparts in the Department of Revenue, we applied an effective            
 state income tax rate of 2 percent.  The statutory marginal rate is           
 about 9.4 percent, but I'm told that the industry average for oil             
 companies is about 2 percent.  So that's the number you will see in           
 the list of assumptions and when we get to the model, you'll see              
 where it shows up there.  The prime rate used for calculating the             
 net profit share is from the Daily News; 8 1/4 is the current real          
 prime rate at the moment.  We've taken from the Arthur D. Little              
 report that was done for the Governor's Oil & Gas Policy Council,             
 a discount rate of about 10 percent.  That discount rate is                   
 important only in calculating the net present value of the                    
 prospect, which an issue as far as calculating sort of revenues to            
 the state, given the timing that those revenues are earned.  In               
 most of the documents that have probably reached you about this,              
 there hasn't been a lot of present worth calculations shown.  BP in           
 their proposal has shown the total value of the prospect or                   
 revenues to the state in inflation adjusted dollars and we've given           
 you some information that shows what it is in real 1996 dollars."             
 Number 446                                                                    
 MR. BANKS continued, "Moving on to the simple discounted cash flow,           
 this basically illustrates the kind of arithmetic that is going on            
 in the 10 pages of this very hard to read printout.  Basically, we            
 need to know what the oil is.  From that we deduct royalty oil,               
 here it's calculated at 12.5 percent, and the remaining oil - the             
 working interest oil that the lessee has to make their money on.              
 So right off the top the state gets their royalty.  And from the              
 Working Interest Owner (WIO) then, this is the lessee, from their             
 revenue they have to pay for capital expenditures, operating                  
 expenditures and to calculate their net revenues.  Simple                     
 arithmetic - from revenue minus costs, equals net revenue.  That's            
 their taxable income and from that we take away their federal                 
 income tax and state income tax to get an after tax cash flow.  I             
 think, as an economist, I might call that profit, but I know                  
 accountants don't look at it quite the same way.  I want to just              
 leave you with the point that I was focused more on this revenue              
 stream rather than some kind of financial analysis or impact that             
 this prospect would have on say, an income statement or balance               
 sheet which is something the accountants are thinking about.  This            
 is basically an illustration of how the big model works.  Nothing             
 to it really.  There's nothing terribly more complicated than a               
 little bit of multiplication and subtraction here.  We do calculate           
 a net present value of the stream of after tax cash flows that as             
 you see on the bottom of this page - the net present value                    
 discounted at 10 percent is, in this case, it shows $1.50 and the             
 rate of return is 11 percent."                                                
 Number 547                                                                    
 CO-CHAIRMAN WILLIAMS asked Mr. Banks how he got the oil price?                
 MR. BANKS replied, "This little model, Chairman Williams, was a               
 `right out of the air' example to show you.  The model itself,                
 while covering lots of pages and lots of calculations, it really              
 isn't rocket science.  I suppose if I were a rocket scientist, I              
 could say it wasn't brain surgery.  I mean it's not very -- it's              
 not something that involves some sort of mystery."                            
 Number 577                                                                    
 MR. BANKS added, "The model basically has three parts to it.  In              
 the first page, is where we make some of these assumptions that I             
 first talked about - the reserve, the production rates, the number            
 of wells that will be needed, the capital expenditures, assumptions           
 about operating costs and tax rates - that's all done here on the             
 first page.  The second part of the model on pages 2 and 3,                   
 especially page 3, represents the results.  The calculation of                
 state royalty and income taxes and also the cash flow to BP and the           
 federal government.  I might add that you have in the box on the              
 top of page 3, which has "$m,MOD"; that's money of the day, that's            
 in inflation adjusted dollars or what economists will sometimes               
 call nominal dollars and then of course, down below in the second             
 box is real numbers; that would be real 1996 dollars not accounting           
 for inflation.  The third part of the model is what follows and               
 that's basically all the financial calculations it takes to get to            
 this page.  I'll point out just a couple of things.  Returning to             
 the first page, the little box in the top left are most of the                
 assumptions about federal income taxes and interest rates and the             
 calculation of abandonment.  There are a couple of boxes - the                
 three smallest boxes on this page, the ones entitled "Supplemental            
 Royalty Control Panel" and the "MonteCarlo simulation" are                    
 basically, I call them switches that gives us an opportunity by               
 changing whether or not we want to look at NPSLs, switch that to on           
 and the rest of the model will then calculate a net profit share.             
 I switch that off and the supplemental royalty to on, it will go              
 through and calculate the supplemental royalty.  The long                     
 rectangular box towards the bottom in the middle is where we get              
 into the assumptions about production, capital expenditures, the              
 price of oil and the tariffs that we are deducting from the West              
 Coast prices."                                                                
 Number 719                                                                    
 CO-CHAIRMAN GREEN asked, "When it comes to numbers of wells drilled           
 and operating costs and costs of oils, are you getting that from              
 the operator or are you doing those on your own?"                             
 MR. BANKS said, "I would have to say that the capital expenditures            
 information was given to us by BP.  We looked at them, however, did           
 not do an independent engineering study of that.  I can say that              
 with respect to the reserve estimates, our staff had quite a bit of           
 information from the previous owner, Amerada Hess, that had been              
 provided to us through the years and we actually had a more                   
 independent assessment of the capability of this oil field to                 
 produce the oil that BP had said they could.  There is a                      
 distinction in the level of scrutiny that we could give to that.              
 We simply just don't have in-house, the engineering staff that BP             
 has.  Furthermore, I think BP is extending the envelop on capital             
 expenditures, as you are well aware.  We do have some information             
 about historical costs on the Slope, which would have been higher             
 than all of these.  That would be our immediate assumption would be           
 to say, `Well, if there is an attempt to illustrate to the state              
 that this is somehow not a project that they could do, they've low-           
 balled the estimates for capital expenditures' which would indicate           
 to me that there was not an attempt to gain the (indisc.) some way,           
 at least on that account here."                                               
 Number 806                                                                    
 MR. BANKS further stated, "Page 2 has a whole list of oil prices              
 and the model took the Department of Revenue oil price forecast for           
 each year and then interpolated a smooth growth in prices for each            
 month.  The reason for that is that the supplemental royalty is               
 paid on a monthly basis.  So we wanted to capture the effect of               
 changing oil prices each month and the impact that would have on              
 the calculation of supplemental royalty.  I'll get into this later,           
 but there's actually a couple things happening on this page.  In a            
 single run of the model that we would look to say the prices -- I'm           
 looking in the column for 1999 for example, for January -- the very           
 first price in that column is $17.39, so in January we would assume           
 possibly some -- I can't say that for sure but that's the price               
 that would be used to determine the supplemental royalty, if the              
 state were due that.  Down below that January 1999 number, in the             
 second set of rows that's shaded, that number is actually                     
 calculated as a part of a distribution of randomly generated                  
 prices.  So if you wanted to see the impact of varying prices over            
 time, the number that would appear here represents just one run of            
 the model.  We have the capability of running the model 200, 300              
 times to create a distribution of results.  If you'd like, I can              
 get into that in more detail later.  The supplemental royalty,                
 then, is calculated for each month and an average supplemental                
 royalty is calculated for the year.  And then that's the number we            
 use to gin up the final calculation of the value of supplemental              
 royalty to the state."                                                        
 MR. BANKS continued, "Page 3 is where we get all the results.  As             
 I said before, we passed out to you and to the Senate, information            
 about what we believe is the potential forecasted revenue to the              
 state and it's simply the sum of these rows which are added up on             
 the righthand column.  You can see that we're looking with a fair             
 amount of detail - probably more detail than we can objectively say           
 is -- or at least with precision that's probably beyond our                   
 capability to know about the future, but we can tell you some                 
 things about severance taxes, ad valorem taxes and the share of               
 royalties we get from the federal tracts in the prospect and income           
 tax to the federal government."                                               
 Number 958                                                                    
 CO-CHAIRMAN GREEN remarked, "Collectively though that number of               
 things are pretty minor, I would imagine compared to the total                
 MR. BANKS replied, "I think you can see from this that the state              
 gets their biggest bang from royalties right off the top.                     
 Severance taxes, because the effects of ELF are not very high and             
 income taxes are relatively minor.  Ad valorem taxes, by the way,             
 in some of the discussions that I've had with people, we've assumed           
 that most of that - 75 percent of that probably goes to the North             
 Slope Borough.  That's just a rule of thumb."                                 
 Number 963                                                                    
 MR. BANKS noted, "On page 6 - this will be basically the last                 
 detail of the model I'd like to point out - is a calculation of the           
 tract allocations.  So, you've heard us talk about the net profit             
 share rate at about 89 percent.  That represents a weighted average           
 of the net profit share for each of the leases weighted by the                
 amount of reserves that we have tentatively allocated to each                 
 lease.  This shows that, for example, the federal leases have about           
 20 percent -- 23 percent of the oil on those two tracts to the                
 north and they bear a 16 2/3 percent royalty to the feds.  The                
 state, in turn, gets 27 percent of that back as part of the                   
 (indisc.) Lands Act statutes."                                                
 MR. BANKS remarked, "I've mentioned just very briefly that we have            
 this capability of sort of varying the assumptions to some degree             
 so that we can run the model repeatedly to create a distribution of           
 results.  It's not an uncommon process - it's called MonteCarlo,              
 actually.  It was invented in the very early `50s to predict                  
 whether or not the hydrogen bomb would work before they built it.             
 I think a good way of describing it is - to give you a clue about             
 how the mathematician discovered how it worked - he was playing               
 solitaire and realized that after he'd played a few cards that he             
 could predict the result of the game - whether he would be able to            
 beat the solitaire game or not.  So by just looking at the                    
 variation of a couple of things at the very beginning, you can get            
 a notion of where you might be towards the end.  And that's sort of           
 what MonteCarlo does.  It gives us the opportunity to randomize our           
 expectations about capital expenditures, operating costs,                     
 particularly oil prices in this model, and the reserve estimates.             
 So on page 2 there's a little box called, `Development Summary                
 MonteCarlo' and you see that the ML for reserves in this case - ML            
 is the most likely - 130; however, there's a max and a minimum of             
 105 million barrels and 160 million barrels is considered the                 
 maximum.  We do the same sort of thing for oil prices and that's              
 illustrated in this page - the graphic here.  What we've done is              
 that we've assumed that prices will vary each month according to              
 some kind of normal distribution, that there's an equal chance of             
 the prices being higher or lower than what we think is the average.           
 However, what we are randomizing in that is the standard deviation            
 and that is represented by this little triangular box.                        
 Historically, prices have varied - that standard deviation has                
 varied between about $1 and $7 with an average of about $1.80.  Now           
 that says that the chances are - about 70 percent of the time, the            
 oil price will be either - our average prediction plus or minus               
 $1.80.  That's simply what we're saying so the model is allowed to            
 vary that by that kind of deviation from the average.  That's how             
 we crank in what I think you can all attest to, the kind of                   
 variation you see in oil prices from month to month as it goes up             
 ad down with the markets.  Fairly unpredictable variation, so we              
 don't know or we can't predict with any certainty why prices go up            
 and down ahead of time in these short little run ups and downturns.           
 But this gives us an opportunity to say, `Well, within these                  
 boundaries we know the prices may sometimes exceed the average by             
 $7 at least 30 percent of the time -- 35 percent of the time -- and           
 may fall below that at times.  That has an impact of turning on the           
 supplemental royalty, in fact, every now and then as the price                
 exceeds the trigger price and so you've seen a couple of numbers I            
 think, for supplemental royalty.  The supplemental royalty with               
 price volatility is what we mean here - that we've racheted on the            
 supplemental royalty and triggered that event by this kind of                 
 Number 1267                                                                   
 CO-CHAIRMAN GREEN said, "That would explain fluctuations due to               
 something beyond the control of the state or the operator.  What              
 about the variation on a long-term basis from prognostications such           
 as you said you were being driven by the Department of Revenue's              
 long range oil forecast.  Sometimes those long range oil forecasts            
 have a tendency to either be more optimistic or pessimistic.  Does            
 this take into account any long range or is it strictly based on              
 the fluctuation along the line that's established?"                           
 MR. BANKS said it was the later and added, "The Department of                 
 Revenue has predicted that oil prices in real dollars will increase           
 about three-tenths of a percent each year over the next 15 years or           
 so.  So there is a slight inflationary effect that they are                   
 predicting or an effect that would exceed inflation by a tiny bit.            
 It's almost flat but it has some rise to it so you'll see, for                
 example, in the prediction of the West Coast oil price, in the year           
 2010 for example, this is a nominal dollar but it's $26.82 and that           
 reflects this tiny bit of growth in real oil prices plus 3 percent            
 or so inflation rate.  The trigger price grows at half of that rate           
 or about 1.5 percent of our assumed -- an inflation rate of 1.5;              
 roughly half of what we assumed that's occurring here.  The fact              
 is, there is some growth in real oil prices predicted by this                 
 model.  I can tell you that in the course of going through the                
 negotiations we looked at what happens when the prices are flat.              
 What that does is it turns on the supplemental royalty a little bit           
 earlier or rather delays the supplemental royalty a little.  That's           
 really all I have to say about the model and I hope I've raised               
 some questions that I can answer for you."                                    
 Number 1393                                                                   
 REPRESENTATIVE ALAN AUSTERMAN referred to page 3 and said, "In                
 reading the real dollar figures, indicates to me that this is a 15            
 or so year field?"                                                            
 MR. BANKS said, "That is correct.  The end of field life is 2011.             
 That's as you say, just 15 years of production."                              
 Number 1427                                                                   
 REPRESENTATIVE AUSTERMAN referred to the righthand column on the              
 outside of the boxes and asked if those were the numbers that                 
 should be looked at for total (indisc.)?                                      
 MR. BANKS responded that was correct.                                         
 Number 1440                                                                   
 REPRESENTATIVE AUSTERMAN asked if the bill that was before the                
 committee was based on this model?                                            
 CO-CHAIRMAN GREEN said, "Well, we have another -- unless you would            
 care to answer that - we have another member of DNR that might want           
 to discuss that.  The economics are based on this.  The bill and              
 the negotiations as it were, is that what you're getting to?"                 
 REPRESENTATIVE AUSTERMAN responded affirmatively.                             
 MR. BANKS replied, "What you have here is the public version.                 
 There are a few - as I mentioned earlier, Mr. Chairman, there are             
 a few assumptions that we've changed to protect BP's financial --             
 basically information that's confidential to the firm which we have           
 allowed that they could keep secret.  As a result, some of the                
 numbers, some of these totals, will be different than the                     
 information that we have produced for you.  The basis on which we             
 negotiated the deal was using their confidential numbers."                    
 REPRESENTATIVE AUSTERMAN asked if the assumption could be made that           
 BP's numbers would be higher?                                                 
 MR. BANKS replied, "In this particular instance, as I look at it,             
 we have -- the differences that I've reported total income to the             
 state with the supplemental royalty to be $435 million and you can            
 see here that's it's $424 million.  The biggest effect in this                
 particular run is on income tax."                                             
 Number 1545                                                                   
 CO-CHAIRMAN GREEN said he had a few questions that were based on              
 "what if" cases and was aware that the MonteCarlo sort was supposed           
 to address that, but it's limited within the parameters that it's             
 given.  He wondered, "if you ran just an arbitrary case with a                
 greater inflation of prices than the one that Department of Revenue           
 (DOR) has.  For example, back 20 years ago there were price                   
 estimates that by the end of the century oil would be $60 or $80 a            
 barrel, so obviously they were wrong.  But instead of a growth rate           
 that is essentially flat with a slight increase due to inflation,             
 did you run one that says there could be some problems with oil               
 supply and therefore over the next 16 years or 18 years or whatever           
 this project is going to go, that we could see a 5 percent increase           
 (indisc.).  So, just as a "what if."                                          
 MR. BANKS responded, "Mr. Chairman, the answer to that question is            
 that at one point in the process of evaluating the deals, as we               
 played the tennis match, we looked at the DOR high priced case, the           
 mid-price case here and a low price case and in the DOR high price,           
 there is an assumption of greater real growth in prices and a                 
 higher inflation rate.  Something like 4.5 percent instead of 3.2             
 percent which is in their mid-case.  So, yes we did see -- the                
 impact of doing that obviously has an impact on the value of the              
 supplemental royalty and net profit shares; both go up as a                   
 Number 1669                                                                   
 CO-CHAIRMAN GREEN asked, "And is it fair to ask -- obviously we               
 realize that some of that information is proprietary, but was there           
 a sensitivity to that of significance.  In other words, when you              
 went up at 50 percent increase -- roughly, I think is what you                
 indicated to us -- in the inflation rate, that would affect both              
 the supplemental royalty and the net profits and was that effect of           
 MR. BANKS said, "Let me try to give you an illustration.  You have            
 to remember that this model -- and it may be apparent to you by               
 looking at it -- a (indisc.).  It's because it started out in the             
 fall as a fairly simple spreadsheet and as we went along, it got              
 more and more complicated, and stuff was simply added to it as our            
 refinements were added - the oil price forecasts and so forth.  The           
 point I'm trying to make is that when we did those kinds of runs in           
 early March, we were using a version of the model that was slightly           
 different than this and different only in the calculation of                  
 abandonment costs and how those abandonment costs affect net profit           
 share.  Now having said that, this model produces a net profit                
 share amount which is slightly less than what we were working with            
 in the course of negotiating.  So, let me try to give you an idea.            
 I have results from those sensitivities and I'll try to give you an           
 idea of where we ended up."                                                   
 Number 1777                                                                   
 MR. BANKS continued, "The supplemental royalty in the high priced             
 case - just assuming that the DOR numbers were what we were looking           
 at - went from, I believe we had a number like 37 million and in              
 the high priced case, it went to 102 million.  In the low priced              
 case, there is no supplemental royalty.  With respect to net profit           
 shares, this model produces a number and we've shared with you a              
 number of about 85 million as the approximate calculation of net              
 profit shares in 1996 dollars in the most likely case.  In the high           
 number, it's going to be something in excess of about 2 l/4, I'd              
 say.  I'm hedging here because I know for a fact that this model,             
 if I were to run that again, would produce a number that's                    
 different than the one that I did in early March.  But I think                
 roughly speaking if the proportions are the same, that's the kind             
 of difference that would happen."                                             
 Number 1860                                                                   
 CO-CHAIRMAN GREEN said in the low case net profits also were zero.            
 MR. BANKS confirmed that.                                                     
 CO-CHAIRMAN GREEN asked, "Would it be a fair assumption -- and I              
 know this is drawing on something you may not want to answer -- if            
 instead of the 50 percent increase, would this be linear or                   
 exponential, do you think?   These number, for example, the high              
 case going for 100 million, more than doubling, if you were to                
 double the rate of inflation, would we expect say a fourfold                  
 increase in net profits or is that beyond what you want to stretch            
 MR. BANKS said he rather not because he only had two estimates to             
 make that prediction.                                                         
 CO-CHAIRMAN GREEN asked if it was a fair assumption that it is                
 sensitive to that?                                                            
 MR. BANKS responded both supplemental royalty and net profit shares           
 are sensitive to it and it would appear -- that the net profit                
 shares, at least on the high side is more sensitive to a price                
 increase over time.                                                           
 Number 1953                                                                   
 REPRESENTATIVE AUSTERMAN inquired about the prices of oil on page             
 MR. BANKS responded, "The Department of Revenue forecast is, I                
 think it's 3.2 percent for the first couple of years and then 3.0             
 percent thereafter.  No, vice versa - 3.0 through about 1999 and              
 then 3.2 percent inflation through the remaining period.  There's             
 also a tiny bit at three-tenths of a percent growth in real prices.           
 So the number you see, as I pointed out, 2010 is 26.41.  That                 
 represents what an accountant would see when he opens up the                  
 newspaper in 2010.  So it represents a number that includes some              
 inflation over time and a tiny bit of growth in real prices."                 
 REPRESENTATIVE AUSTERMAN inquired if these were the Department of             
 Revenue figures.                                                              
 MR. BANKS confirmed that.                                                     
 Number 2022                                                                   
 REPRESENTATIVE AUSTERMAN asked if that compared with the last 10              
 years - from 1986 to 96 figures and is that basically what the                
 percentage of growth has been?                                                
 MR. BANKS said he had looked at the last 10 years and there is no             
 reliable correlation between time and price.                                  
 Number 2073                                                                   
 CO-CHAIRMAN GREEN asked, "We've found there is some sensitivity to            
 crude price.  Did you, in these runs where you had difference in              
 ultimate recovery, did you also vary the rate during those cases in           
 order -- did the project expand in time or in production rate or              
 MR. BANKS stated, "We did some forecasts like that for the Senate             
 Resources just last week - week before last.  In those assumptions,           
 in the high side - they had asked specifically for a total recovery           
 of about 180 million barrels which is outside the 160 that we had             
 capped in the model.  And we did predict that the production rates            
 at peak rose from 50,000 barrels a day to 80,000 barrels a day and            
 then dropped off rather suddenly after that to get us to this same            
 end point.  In each case, that 15 year assumption was held, except            
 in one run at a very low production where you hit the same peak               
 (indisc.) 50,000 but then the field is exhausted prematurely or               
 sooner than 2011."                                                            
 CO-CHAIRMAN GREEN questioned, "Did you, from those runs, find a               
 sensitivity that would affect the comparison between supplemental             
 royalty and (indisc.)."                                                       
 MR. BANKS responded, "As I'm looking this up, Mr. Chairman, I want            
 to add that increased production comes at a fairly high cost.  The            
 most likely case represents what kind of facilities you perceive              
 you can put on the island initially and that in order to achieve              
 higher rates, it's my understanding that those facilities have to             
 be beefed up by quite a bit and may even require importation of,              
 from other fields, substances that are used to inject into the                
 ground to lift the oil.  So there are -- it's true that you might             
 be able to get greater production, but it will come at a cost that            
 has a significant impact on the payout of the net profit share."              
 Number 2287                                                                   
 CO-CHAIRMAN GREEN commented, "I can certainly see that if you time            
 constrain it, but if you were to say that there's more oil there              
 and you may have a few additional wells, but in effect what you               
 could do is rise to the truncation of your erroneously low                    
 production and keep that truncation for a longer period of time;              
 similar to what happened at Prudhoe.  Obviously, Prudhoe Bay was              
 capable of producing far more than 1.5 million per day, but that              
 was the MER that was established and so that rate was continued               
 over several years whereas it might have gone way up which would              
 have increased the amount of paraphernalia that would have been               
 required to do it.  But by not doing it, they just kept what they             
 had and were able to continue the rate which while it does increase           
 the length of time, it still may have a significant sensitivity to            
 the total economics.  Did you by chance run anything like that?"              
 Number 2363                                                                   
 MR. BANKS replied, "We were a little bit more optimistic, Mr.                 
 Chairman, in terms of how long the rate could be sustained than BP            
 when we had these discussions with them.  However, I would have to            
 say that no, that was not a consideration -- sustaining say 50,000            
 barrels for a longer period of time in order to achieve those                 
 higher rates."                                                                
 Number 2400                                                                   
 REPRESENTATIVE DAVIES commented he would be interested in knowing             
 what the results of such a run would be.                                      
 CO-CHAIRMAN GREEN agreed and added, "Because there may be again a             
 fairly significant sensitivity to that.  Now I can understand if              
 you have to beef up facilities so that your capital expenditures              
 skyrocket with an additional....                                              
 TAPE 96-66, SIDE A                                                            
 Number 001                                                                    
 MR. BANKS stated, "...royalty.  Insofar as you can lengthen field             
 life means that the inflation has caught up with your trigger                 
 price.  Recall now that the trigger price is inflating at only half           
 of what the inflation is.  So the model will produce 7.5 percent              
 supplemental royalties in those out years consistently, assuming              
 the prices (indisc.) as we predicted they would.  I think in the              
 model here you can take a look, but you'll see that, I think, in              
 the last four years or so, we're hitting the 7.5 percent all the              
 time, while obviously, if you can continue production beyond that,            
 that will add 7.5 percent of supplemental royalty each time you're            
 charged for it."                                                              
 Number 100                                                                    
 CO-CHAIRMAN GREEN remarked, "It may not be as effective on the net            
 profits, then.  If what you're saying is case, if costs are going             
 to trail with an increase in crude price, then that would adversely           
 affect net profits more than it would the 7.5 supplement?"                    
 MR. BANKS responded, "I'll speculate and I believe that actually --           
 you have to keep in mind that we're getting 90 percent of                     
 everything over and above what it takes to get the oil out of the             
 ground in the net profit share.  So, I would speculate that the net           
 profit share would turn out to be much better in a case like that."           
 CO-CHAIRMAN GREEN remarked, "In additional recovery...."                      
 MR. BANKS interjected, "In terms of additional revenues."                     
 Number 150                                                                    
 CO-CHAIRMAN GREEN inquired, "Much better meaning, much better than            
 the base case or much better than the supplemental royalty case?"             
 MR. BANKS noted, "Much better than the base case."                            
 Number 161                                                                    
 CHAIRMAN GREEN questioned, "How do you speculate it would affect or           
 -- what we're trying to do is maybe get from you a speculation that           
 may avoid asking you to make a run.  We may ultimately do that,               
 MR. BANKS commented, "Maybe it would be best that we do a run like            
 that because then we can avoid misunderstanding."                             
 Number 206                                                                    
 REPRESENTATIVE DAVIES referred to the numbers that were given to              
 the Senate and asked what the sensitivities were to the assumptions           
 on the total amount of recovery.                                              
 Number 241                                                                    
 MR. BANKS said, "Mr. Chairman, they asked us to give them some                
 estimate of what would happen to the field if you were producing at           
 160,000 million barrels as the top case - sorry, 190,000, I believe           
 it was.  And we had supplemental royalties in that instance and I             
 recall that things are dropping off at the end of 2011 of $49                 
 million under that case.  In the case for net profit shares, we               
 assumed that production start up would be delayed and that would              
 produce a $217 million net profit share.  So that's the comparison            
 for the 190 million barrel case."                                             
 CO-CHAIRMAN GREEN inquired if that was based on the most likely               
 crude price.                                                                  
 MR. BANKS responded affirmatively and added, "The only thing we're            
 changing is reserves and the capital expenditures together."                  
 Number 333                                                                    
 REPRESENTATIVE DAVIES remarked, "And also the assumption here is              
 that the rate goes up to keep the time constant."                             
 MR. BANKS said that was correct.                                              
 REPRESENTATIVE DAVIES said he would like to get one that looks at             
 the other case.                                                               
 Number 353                                                                    
 CO-CHAIRMAN GREEN asked if it would be a fairly easily accessible             
 MR. BANKS responded he could have something for the committee                 
 perhaps by the end of the day.                                                
 CO-CHAIRMAN GREEN stated, "If we could do that and I would also               
 like to see if -- just for -- I mean, you can always decide whether           
 it's likely or not, but it's good to know -- if we could do what              
 you did for -- just for the base change in price that you would do            
 that as well with this increase in recovery so that you would have            
 both the -- the new case then would show an expanded rate without -           
 - expanded time to get the additional oil and it would also show              
 that this is the most likely crude price -- what if we were to find           
 crude prices going up or inflation going up at I think you used               
 about a 4.5 percent.  Again, we're not trying to nitpick, we're               
 just trying to get a feel of sensitivities."                                  
 MR. BANKS replied, "okay."                                                    
 Number 434                                                                    
 REPRESENTATIVE RAMONA BARNES said, "In your presentation, you said            
 that you knew a lot about these leases because of Amerada Hess                
 holdings of these leases previously.  And assuming that you knew a            
 lot about them, then did you not also assume that BP knew a lot               
 about them when they purchased them?"                                         
 MR. BANKS replied, "We had available to us, information that was              
 supplied to us by Amerada Hess as a result of their plans of                  
 development in the course of developing the field or drilling.                
 Some of the -- I think Mr. Boyd can give you more of the details,             
 however, we had information on wells and their development costs as           
 well that was not acquired by BP until they bought the property."             
 Number 527                                                                    
 KEN BOYD, Director, Division of Oil & Gas, Department of Natural              
 Resources, confirmed that Mr. Banks was correct.  He commented, "As           
 Kevin said, we had the data and we would get the seismic data that            
 they shot as soon as they shot it.  We would get that right away              
 because that's part of the law.  But BP would not.  The same thing            
 is true of the wells; we would have gotten the wells as part of the           
 plan of development.  They were held confidential for a certain               
 number of years.  BP sort of bought this as a kit.  They got the              
 Northstar kit with engineering studies, the seismic data, the wells           
 -- here's your money - here's your Northstar kit.  Good luck                  
 because we thought it was going to cost a billion and a half                  
 dollars to develop and go see what you can do."                               
 Number 584                                                                    
 REPRESENTATIVE BARNES said, "Well, having said that, you don't                
 suppose that BP would have bought it if they thought they were                
 buying a pig in a poke, would you?"                                           
 MR. BOYD responded, "Mr. Chairman, I believe you'd have to ask BP             
 that.  I certainly hope not."                                                 
 REPRESENTATIVE BARNES continued, "But you would think that BP would           
 have known that the way the leases were written, would you not,               
 that there were net profit sharing as well as your royalty written            
 into them?"                                                                   
 MR. BOYD replied, "Mr. Chairman, I should back up.  By the time BP            
 bought the package, I presumed that they had seen the wells --                
 three of the wells were public domain.  There's still one that's              
 held confidential in this other lease and perhaps had been given a            
 demonstration or been shown the seismic data - probably the maps of           
 the structures and things.  So I think BP was fairly well informed.           
 I mean, you can ask them as to what they were shown, but typical of           
 these sort of deals, when someone is trying to sell something,                
 they're not going to (indisc.), but they're going to show it                  
 (indisc.) as possible.  So, I believe the answer to your question             
 is yes."                                                                      
 Number 654                                                                    
 REPRESENTATIVE BARNES said, "Well, if they knew what we know today            
 in the testimony before this committee and other committees exactly           
 what those leases provided for and now they're saying a very short            
 time later that they can't develop them under the scenario they               
 purchased them under, do you have any idea as to why they purchased           
 MR. BOYD responded, "It's a better question for BP, but I believe             
 in previous testimony they say they took a chance.  They bought               
 this and said. `Gee, I hope we can go to the state and make a deal            
 and if we can't,' -- I don't know what they would have done.  I               
 believe it's a better a question for BP as to what their motive was           
 for buying -- again, in testimony and I don't want to short change            
 BP on this, but they said they thought maybe they could make a deal           
 and that's what they're trying to do."                                        
 Number 713                                                                    
 CO-CHAIRMAN GREEN commented, "Not speaking for BP, but I think                
 another reason is that they have a history on the North Slope of              
 being able to develop projects at less value than other operators.            
 I know they did that at Endicott and that may have been another               
 thing that drove them, thinking, as Director Boyd had indicated,              
 the original concept was that this was going to cost a lot more               
 than I think now BP feels that they can develop it for.  So,                  
 therein may have been their ace, thinking, `We'll get this thing              
 and do it at a less up-front money, therefore we can make money.'             
 But that again I think, probably would be a question that we need             
 to ask BP.  But it's a combination of things when you're making               
 these kinds of investments."                                                  
 Number 771                                                                    
 REPRESENTATIVE BARNES asked Mr. Boyd to explain how the net profit            
 sharing is different in these leases than in other leases.                    
 MR. BOYD said, "I'll let Kevin get into the egregious details but             
 they're not different.  It's just a high enough profit share.  It             
 was the bid variable for the lease which does make it different.              
 It was actually the bid variable in the sale.  When companies were            
 bidding, there was a fixed bonus, there was a fixed royalty and               
 variable.  The thing you won with was the net profit share and the            
 net profit share win - it was slightly different on each of the               
 four leases, but it was about 90 percent - 89 percent.  Some were             
 78, some were 91.  But that was the number that won.  If you bid              
 that high number, you got that.  Now that's different than net                
 profit shares in the sense of oil leases where the net profit share           
 was fixed.  There are a number of leases that say a 40 percent net            
 profit share (indisc.).  But that was a fixed part of the sale.               
 The bid variable is something else.  So, I think the only unique              
 part, and Kevin's going to correct me here when I'm wrong, but the            
 only unique part about the net profit share at Northstar is it was            
 the bid variable and it's also the highest net profit share                   
 anywhere in the state."                                                       
 MR. BANKS verified that was correct.                                          
 Number 852                                                                    
 CO-CHAIRMAN GREEN said, "And just for a microcosm of background.              
 In the decade before this, there was a fairly large extension in              
 southern California called the Wilmington Offshore and that was, to           
 my knowledge at least, certainly the biggest and I think one of the           
 earliest of that kind of leasing.  And in that case they knew                 
 exactly what they had and the only variable was the net profits               
 back to the state and the city of Long Beach.  I didn't like it               
 then; I don't like it now, but at any rate that's...."                        
 Number 891                                                                    
 REPRESENTATIVE BARNES stated, "The royalty that was in the original           
 leases, could you just explain to us then briefly, what is the                
 supplemental royalty to these leases that we're getting in exchange           
 for giving up the 89 percent net profit sharing."                             
 MR. BOYD said, "I'll let Kevin address that, but again four of the            
 leases have a 20 percent royalty and the fifth lease had a 12.5               
 royalty (indisc.) this other lease, that part of the deal has been            
 jacked up to 20 percent.  So, there's a base, I think in more                 
 simple terms -- I think of that as a brick of 20 royalty and you              
 build some steps on top of it, but I'll let Kevin go into the                 
 supplemental royalty goes from 17....you've always got that 20                
 percent royalty and Kevin is going to build a ramp on top of that             
 that's gets as high as 7.5 percent on top of the 20."                         
 Number 968                                                                    
 MR. BANKS stated, "And in the details, Mr. Chairman, we've set a              
 price at $17.35 - that's the ANS West Coast reported spot price -             
 we calculate an average price each month.  If it exceeds that                 
 amount, then the proportion that it exceeds that amount is                    
 multiplied by 1.5 times to calculate a supplemental percentage.  So           
 if it's a dollar more, then BP will pay us 1.5 percent more in                
 supplemental royalties.  It's linear - there's no steps in it; it's           
 strictly a calculation of a line and it's capped at 7.5 percent               
 which you'd hit at -- well, at today's price, BP would be paying a            
 total of 27.5 percent because we're right now in this blip of high            
 prices.  The trigger price, and this is really the only other                 
 refinement -the trigger price will inflate at one-half of the                 
 inflation rate, as calculated by the producer price index.  So,               
 there's a certain amount of sharing in the inflation risk between             
 the state and BP, so to speak.  We get that one-half between the              
 actual rate and the inflation rate on the trigger price, so                   
 eventually if prices show a trend that can keep up with inflation -           
 - if oil prices keep up with inflation -- at some point, the state            
 will just -- the trigger price will be lower than the average price           
 and we'll always get some kind of supplemental royalty in the out             
 Number 1072                                                                   
 REPRESENTATIVE BARNES asked how the ELF affects these particular              
 leases under this particular scenario laid out.                               
 MR. BANKS responded, "In fact, the ELF, Mr. Chairman, has the                 
 effect in the early years of -- I think the ELF is at about seven-            
 tenths at its peak, so seven-tenths of 12.25, whatever is the rate            
 in those first few years of production, amounts to about 8 or 9               
 percent severance tax.  It drops off pretty quickly.  As the field            
 declines, severance tax doesn't pay anymore.  I think I can                   
 illustrate that by taking a quick look at the model.  I believe on            
 page 4, in the middle of the page, you see the oil severance rate -           
 a row titled under the `Tax ($m, mod)' you see the oil severance              
 rate and the oil ELF and as I said, at it's highest point, it's               
 seven-tenths but then it falls to zero effectively by 2005."                  
 Number 1186                                                                   
 CO-CHAIRMAN GREEN said, "Kevin, I have one more of these                      
 sensitivity things to ask you about.  With BP's exemplary history             
 of being able to develop safely at a lower development investment,            
 have you run any cases to see if there would be a sensitivity to              
 that.  That another order of magnitude, for example, which we're              
 getting into the almost never, never land, but they already passed            
 into the never, never land on some of their other developments,               
 according to the other operators initial estimates.  So is that a             
 sensitivity issue of (indisc.) capital development?"                          
 MR. BANKS replied, "It'll have an effect on the net profit share.             
 It has no effect on the supplemental royalty, obviously.  But if              
 you would like us to cook up something like that to see."                     
 CO-CHAIRMAN GREEN commented, "And again, this doesn't mean that               
 even if you do one these that it would be logical.  It's just to              
 see if there is a sensitivity to it and maybe that's too draconian.           
 Something with enough significance to see if it makes a difference            
 - maybe at 25 percent or so decrease.  And I would think probably             
 both wells and facilities.  Just to see if it's sensitive to that."           
 MR. BANKS said he would do that.                                              
 Number 1268                                                                   
 REPRESENTATIVE DAVIES asked if abandonment costs were a big deal in           
 this calculation or not?                                                      
 MR. BANKS replied, "It has an impact on the kinds of taxes that are           
 paid because under -- for income tax purposes, it's a cost that can           
 be charged against taxes before you spend it and it's depleted over           
 the life of the field as oil is produced.  So, that's the principal           
 place where it kicks in.  It also has a rather perverse effect on             
 the net profit sharing.  I say this because according to our                  
 regulations, even though they're going to spend this money in 2012,           
 they get to count it against their revenues throughout the life of            
 the field in the calculation of the revenue account and net profit            
 share.  So, it's an outright deduction -- it is adjusted by the               
 rate at which the oil is depleted from the field."                            
 Number 1334                                                                   
 CO-CHAIRMAN GREEN stated, "Let's say that two years into this, it             
 becomes a 160 million barrel instead of 130, then you have to                 
 adjust your amount that you can deduce by the amount of barrels               
 produced over that which will be produced."                                   
 MR. BANKS inquired, "If in the middle of the field life, you                  
 changed your reserves?"                                                       
 CO-CHAIRMAN GREEN said, "Somehow they find something better or..."            
 MR. BANKS responded, "That's right.  Those numbers calculated would           
 be lower -- well, per barrel would be lower.  The impact it has               
 early on -- as long as the development account -- we can get into             
 net profit share calculations but if there is a development account           
 - in other words, if the net profit shares have not begun to pay,             
 in effect these charges on dismantlement and abandonment are                  
 accruing interest.  They are accruing interest on the development             
 account in a sense."                                                          
 CO-CHAIRMAN GREEN asked, "The unspent dollars?"                               
 MR. BANKS replied, "Yes, sir.  That's as I say, it has some                   
 perverse effect on the profit share because of that.  In our                  
 assumption about what the abandonment costs will be in terms of               
 impact to the company's economics, what we focused on is that it's            
 in the cash flow, it is just a number that appears in 2012 and has            
 an impact then on your present value of the prospect.  The                    
 secondary effect or those other effects are on taxes and profit               
 Number 1416                                                                   
 REPRESENTATIVE DAVIES said, "We've look at in the principal                   
 variables that we've talked about are in how much oil is there and            
 the rate of production issues and the price - we've talked about              
 that - and the cost of development, so I think we've sort of                  
 covered the waterfront there.  But, I guess the argument that BP              
 brings to us as to why we want to go into a deal like this is that            
 they claim, of course, that they simply wouldn't develop under the            
 net profit arrangements in that they indicate that the state -- in            
 that part of the problem is that the state's interest and BP's                
 interest in the waning days of the field are not in alignment.  In            
 going through the analysis just in terms of the economic model --             
 these assumptions that you've made here -- would you be driven to             
 concur with that?  Do you see evidence in doing these calculations            
 where as you get out in say the second half of the life of the                
 field that we begin to have divergent interests?"                             
 Number 1480                                                                   
 MR. BANKS responded, "Mr. Chairman, I think the answer to that                
 question is they predict that their per barrel funds flow drops off           
 as soon as they to pay net profit shares.  I'm sure that will have            
 an impact in one respect, but if there are any possible incremental           
 projects to be done in the field, recognizing that 90 percent of              
 the profits of those would be taken away by the state, it would be            
 a disincentive to incremental production towards the end of the               
 field life.  With respect to how that funds flow behaves, I believe           
 that the company could, although my conversations with even our own           
 accountants are not completely in agreement with this, it seems to            
 me if you can anticipate that you're going to have an obligation to           
 pay the net profit share towards the end of the field life, they'll           
 figure out a way of attributing that to the early production                  
 somehow; in the same way the abandonment costs are attributed to              
 every barrel that's produced.  Now, I'm not an accountant so I                
 don't know what the rules of thumb are for that kind of write down,           
 but it seems to me that that would be a capable thing for them to             
 do.  On the other hand, I think you should also ask BP for a more             
 thorough explanation of how that works."                                      
 Number 1558                                                                   
 MR. BOYD interjected, "Mr. Chairman, I just want to make sure that            
 the committee is clear that we're not making any representation of            
 what BP may or may not (indisc.) field life.  But Kevin's question            
 was theoretical -- I mean the answer is really theoretical.  What             
 someone may or may not do based on a set of circumstances -- BP has           
 said they would not do it.  I can't represent that they will or               
 will not do it, neither can Kevin Banks."                                     
 CO-CHAIRMAN GREEN said he understood that.                                    
 Number 1579                                                                   
 REPRESENTATIVE DAVIES said, "I'm not asking that.  I'm asking if              
 you look at this analysis, do you see evidence for our interest               
 being misaligned with theirs.  That's really what I'm asking."                
 Number 1584                                                                   
 MR. BANKS responded, "Well, the model will show under net profit              
 shares that their revenues are significantly cutoff in the last               
 three or four years of production.  It's simply because the net               
 profit shares are being paid at that point."                                  
 Number 1591                                                                   
 REPRESENTATIVE DAVIES questioned, "But isn't -- I guess -- almost             
 by definition, isn't it also true that at that point in the game              
 they've taken all their costs off and that these are pure profits             
 basically to them and to the state at that point?  I mean there's             
 no, except for the continued operations costs, there's no further             
 capital costs to be attributed to the project?"                               
 MR. BANKS said, "The way we've modeled it, we have no incremental             
 capex expenditures out there in the field life, you are right.                
 They have earned a return on capital expenditures equal to the                
 prime rate and whatever value the development account had when they           
 acquired the leases from Amerada Hess."                                       
 Number 1633                                                                   
 REPRESENTATIVE DAVIES asked, "Can you tell me at that point in time           
 how the return to BP, according to these kinds of calculations that           
 you've done, how the return to BP would compare to the operating              
 cost.  In other words, if you considered this as an investment and            
 you had the operating cost to be an investment, we have to put up             
 $1.00 a barrel, what is the return to BP on that dollar                       
 MR. BANKS said, "I believe BP has done an analysis like that, Mr.             
 Chairman for the Senate Resources Committee and have shown that               
 their rate of return is something in the order of 10 percent.  I              
 think that's the answer to your question.  By the way, operating              
 costs are deducted from the revenues that are calculated in the net           
 profit share, as well."                                                       
 REPRESENTATIVE DAVIES said, "I understand that but I'm trying to              
 get a kind of `apples and apples' comparison.  If you're in this              
 circumstance and you're BP, and ask, `Does it make sense for me to            
 continue to put this money out in terms of -- considering the                 
 operating costs and investment.  This may be kind of an unusual way           
 to look at it, but I'm just trying to get some sense for how                  
 misaligned we are."                                                           
 MR. BANKS remarked, "I think I'd like to punt, Mr. Chairman."                 
 CO-CHAIRMAN GREEN remarked, "Well, that's true.  I think that                 
 they're asking maybe some questions that -- as long as it's                   
 numbers, it's one thing, but if it's philosophy, that's another --            
 that you get into a situation in that latter part of the life that            
 it would not be to the operator's benefit to make an investment               
 which would then ultimately perhaps would affect the ultimate oil             
 recovery with a possible bizarre, and let's hope it never happens             
 scenario, that the economy would come to such a low rate of                   
 inflation that investing in something like this where the inflation           
 rate is fixed would be a better investment than trying to invest in           
 something else with a lower rate of return.  Because after all, an            
 oil company is no different that a bank -- they're in business to             
 make money.  So if they can get a glob of money and put it in at a            
 rate that exceeds what their normal corporate rate would be -- and            
 that's why I say, God forbid that would ever happen, it could be to           
 their advantage to put it in here.  Otherwise, I can't see that it            
 ever would because most oil companies have a higher demand or                 
 higher rate of return requirement than they would get in investment           
 here.  So then, I guess in that regard, there would be a divergence           
 and I think their corporate president has mentioned that.  He has             
 testified to that extent that there would be a divergence of                  
 (indisc.) and would not be good."                                             
 Number 1772                                                                   
 REPRESENTATIVE DAVIES commented, "Mr. Chairman, I stipulated that.            
 I know that's what BP says.  I'm just trying to find out what our             
 guys say."                                                                    
 Number 1783                                                                   
 MR. BANKS stated, "It would be the same kind of effect if you                 
 assumed -- I believe this would be the case -- if you assume in the           
 model that there is no balance in the development account, there's            
 a $262 million assumption in here - that's the size of their                  
 CO-CHAIRMAN GREEN interjected, "Plus abandonment."                            
 MR. BANKS continued, "That accrues later.  But if you assume that             
 it starts out at zero, I think a similar result happens.  The cash            
 flow produces a rate of return of just 10 percent.  Now is that               
 enough to accumulate investment in a field?  And that's the                   
 question for BP.  As I said, I think I'm trying to interpret your             
 question that in the end of field life, if they are paying the net            
 profit share, the development account balance is zero, they face              
 similar economics.  Any investment made because of the impact of              
 net profit shares would be somewhere in the order of 10 percent."             
 Number 1828                                                                   
 REPRESENTATIVE DAVIES stated, "But in investment -- I was talking             
 about the operating costs and (indisc.), but if the company were to           
 make an investment at that point in time, that would also be a                
 capital cost that would come off - it would go back into the                  
 development account at that point - that would come out.  So I                
 guess one would have to look at whether that - what the tradeoffs             
 would be there."                                                              
 Number 1854                                                                   
 CO-CHAIRMAN GREEN added, "A fixed rate there and an uncertain rate            
 in the future, so it just depends on what would happen."                      
 Number 1872                                                                   
 CO-CHAIRMAN GREEN noted, "I know we have several questions of the             
 operator and we will probably -- I don't know how we're going to be           
 able to arrange times, but we do have a lot more questions.                   
 Unfortunately, we don't have any more time for this meeting and so            
 we would hope that maybe we can reconvene.  In fact, on this issue            
 we won't adjourn, we'll just recess at the call of the Chair and              
 perhaps get in some questions to the operator at that time."                  
 REPRESENTATIVE BARNES commented that she had some questions for Jim           
 Baldwin on this issue and asked that he be present at the next                
 CO-CHAIRMAN GREEN announced the committee would recess the hearing            
 on Northstar to the call of the Chair and move on to SB 198.                  
 CSSB 198(FIN) - HOMER AIRPORT CRITICAL HAB. AREA                            
 CO-CHAIRMAN GREEN indicated the next bill on the agenda was CSSB
 198(FIN).  He asked Senator John Torgerson for come forward to                
 present his bill.                                                             
 Number 1930                                                                   
 SENATOR JOHN TORGERSON, Sponsor of SB 198, distributed a photocopy            
 of an aerial photograph of the proposed critical habitat area.  He            
 read the following statement:  "The Homer Airport encompasses about           
 1100 acres totally.  This particular legislation would take 295               
 acres and set it aside as a critical habitat area.  The primary               
 purpose for a critical habitat area is for the moose habitat for a            
 relatively large herd of moose that winter - when the high snows              
 hit, they come down and winter in that particular area.  The bill             
 contains language for guaranteed public access to the area to                 
 continue whatever uses have been going on in the past such as                 
 fishing, hunting, trapping and other public access to the area.               
 This bill is supported by the city of Homer, by resolution, and               
 also by the Kenai Peninsula Borough Assembly, by resolution.  The             
 city of Homer is the local jurisdiction that has the zoning and               
 other authorities that have to do with lands within that                      
 jurisdiction.  There's also other letters of support in your packet           
 from quite a few other different agencies.  We've tried our best              
 through this piece of legislation to maintain a lot of the                    
 activities that are currently happening within that area and not              
 put any undue restrictions on things that may take place."                    
 SENATOR TORGERSON continued, "One of the reasons that I bring this            
 bill forward is that it does have the underlining restrictions that           
 are on airport property that preclude any development of any kind             
 in height restrictions, building and other things unless it's                 
 approved by the Federal Aviation Administration (FAA).  So, this is           
 probably the overlining restrictions placed on it because it is               
 airport property are a lot more intense than any critical habitat             
 area that we have in the state as far as any type of development.             
 This just basically sets this aside so that the moose habitat will            
 be protected in that area."                                                   
 Number 2063                                                                   
 CO-CHAIRMAN GREEN referred to the map that Senator Torgerson had              
 distributed and asked if the area being discussed was the black               
 outlined area.                                                                
 SENATOR TORGERSON responded yes.  He added, "The original intent of           
 the legislation had two small triangle pieces down here in the                
 lower corner and also the big chuck right here.  As you can see,              
 this larger piece is currently all wetlands except for a portion.             
 I don't know how with today's rules on wetlands development, how              
 we'd ever develop that into being anything.  That's another reason            
 why that this makes good sense to set this aside; it truly is                 
 probably just moose habitat except for maybe a small portion.                 
 These two chucks down here, were amended out in the Senate Finance            
 Committee, so they are no longer a part of that, but I couldn't               
 block them out very well."                                                    
 CO-CHAIRMAN GREEN noted there were two other areas and asked if               
 they were still a part of it.                                                 
 SENATOR TORGERSON replied those were the areas he was referring to            
 and they were not a part of it; just the larger piece which would             
 be the north side of the runway.   He noted that he had a technical           
 amendment for the committee's review on the boundary change that              
 the Department of Transportation and Public Facilities had recently           
 given him.                                                                    
 Number 2126                                                                   
 REPRESENTATIVE BARNES made a motion to adopt CSSB 198(FIN) as the             
 working document.  Hearing no objection, it was so ordered.                   
 Number 2139                                                                   
 REPRESENTATIVE BARNES made a motion to adopt Amendment 1 on page 1,           
 line 13, deleting "S1/2NE1/4" and insert "S1/2NEl/4NW1/4".  Hearing           
 no objection, Amendment 1 was adopted.                                        
 CO-CHAIRMAN GREEN asked if there were any questions of the sponsor.           
 Hearing none, he asked the wish of the committee.                             
 Number 2160                                                                   
 REPRESENTATIVE BARNES made a motion to move CSSB 198(FIN) as                  
 amended from the House Resources Committee.                                   
 CO-CHAIRMAN GREEN noted there were a number of individuals waiting            
 to testify via teleconference on SB 198.                                      
 Number 2194                                                                   
 HARRY GREGOIRE, Mayor, City of Homer, testified via teleconference            
 that a group of registered voters had circulated a petition asking            
 that they be allowed to vote on SB 198.  He noted the voters have             
 more than the required number of signatures and requested that                
 committee members allow the voters to have a meaningful election.             
 CO-CHAIRMAN GREEN asked if Mr. Gregoire was indicating that he                
 wanted to have an election in Homer?                                          
 MR. GREGOIRE said affirmatively and added, "They have circulated a            
 legal petition by the registered voters of Homer.  They have the              
 required signatures and I respectfully ask that your committee                
 allow them to have this election."                                            
 CO-CHAIRMAN GREEN questioned what would prevent them from doing               
 that on their own right.                                                      
 MR. GREGOIRE said it would be moot if the committee passed the                
 legislation without some stipulation that the voters would be                 
 allowed to have an election.                                                  
 Number 2260                                                                   
 REPRESENTATIVE BARNES asked Mr. Gregoire if he thought the people             
 who had sponsored and supported the petition were opposed to this             
 MR. GREGOIRE responded they definitely appear to be opposed to it.            
 He added it's estimated that 1 person out of 10 would be in favor             
 of the legislation; the rest would be against it.                             
 REPRESENTATIVE BARNES inquired how many signatures were on the                
 MR. GREGOIRE responded, "In excess of 200.  The required amount               
 that had to be on the petition was 163 or 25 percent of the last              
 Number 2296                                                                   
 SENATOR TORGERSON said he knew the petition had been circulating in           
 Homer.  He stated his direction comes from the city council in this           
 particular instance.  This is not a new issue for the city of                 
 Homer; there's been a working group around for about the last 8-10            
 years to try to set this land aside.  He stated, "I did check with            
 Legislative Legal to see if we could put an effective date on this            
 bill that would be something that would trigger with the local                
 election.  The legal opinion basically says we cannot do that.                
 That would be delegating authority that rests sort of with the                
 legislature to some other body that we don't recognize.  So I                 
 thought at best, that would be a good way to handle this to just              
 let the election process go.  I will tell the committee for your              
 information that the council has overrode the mayor's veto four               
 times on this particular issue and I believe the council is                   
 representing the people of Homer; it has been unanimous consent               
 when they overrode this veto so I don't know exactly where else I             
 could get any direction if it wasn't from the council on this                 
 Number 2343                                                                   
 REPRESENTATIVE LONG asked if it was municipal or state lands.                 
 SENATOR TORGERSON responded it was state lands within the                     
 municipality of Homer - within the city limits of Homer.                      
 Number 2390                                                                   
 CO-CHAIRMAN GREEN inquired as to the reason for the opposition to             
 dedicating this land as wetlands and leaving it undeveloped.                  
 MR. GREGOIRE responded that eventually the city is going to have to           
 take over the operation of the airport from the state.  There has             
 been some indication of that in the past and the state now wants to           
 cut over 700 feet of their runway which would turn them into a bush           
 airport.  He added, "We have to have the lands on both sides for              
 airport-related businesses.  This is not something that has just              
 come up.  Our Homer Economic Development Commission has a long list           
 of things that has been passed and approved by the council for the            
 economic development of the airport.  It's nothing new."                      
 CO-CHAIRMAN GREEN noted the committee had heard testimony that Mr.            
 Gregoire's opinion had been overridden several times.                         
 MR. GREGOIRE replied, "Well it has in effect that a year ago when             
 we touched on this subject, I was assured that there would be lands           
 on both sides of the airport for airport related businesses.  That            
 hasn't happened and now there's only the south side which has a               
 lake which is floating the whole area over there that needs some              
 work to keep it from making more wetlands out of the whole                    
 CO-CHAIRMAN GREEN thanked Mayor Gregoire for his testimony and                
 called Mildred Martin to testify.                                             
 Number 2415                                                                   
 MILDRED MARTIN testified from Homer that the legislation before the           
 committee was a culmination of over 10 years of work.  She had                
 personally been involved with the committee for about four years              
 and in that time, she participated with the first petition which              
 received about 200 signatures in two days.  She added, "This                  
 legislation enjoys the support of five of the six city council                
 members who are elected and represent the residents of Homer.  The            
 legislation also enjoys the support of the Kenai Peninsula Borough            
 Assembly.  The proposed critical habitat area comprises over 85               
 percent of high value wetlands.  The lands for future Homer airport           
 expansion have already been withdrawn."  She urged committee                  
 members to support and to pass SB 198 out of committee.                       
 CO-CHAIRMAN GREEN thanked Ms. Martin for her testimony and asked              
 Derek Stonorov to testify.                                                    
 Number 2450                                                                   
 DEREK STONOROV, Vice Chairman, Beluga Wetlands Task Force,                    
 testified via teleconference that the task force had been created             
 more than three years ago with a goal of creating the Homer airport           
 critical habitat area.  He said, "We believe that only through                
 appropriate habitat protection can we have a viable and harvestable           
 lower peninsula moose herd.  Senate Bill 198 addresses future                 
 airport expansion, airport safety, airport operations and does an             
 excellent job or protecting the last large piece of moose habitat             
 on the Homer bench.  The proposed legislation is actually more                
 restrictive than the 1985 Homer Airport Master Plan which proposed            
 this land transfer in the first place."  He noted they had gone               
 through the democratic process on this and he, personally, had gone           
 before the city council on five different occasions.                          
 TAPE 96-66, SIDE B                                                            
 Number 001                                                                    
 MR. STONOROV continued, "...committee hearing.  At that time, 23              
 were in favor and 3 were opposed."  He recommended quick passage of           
 SB 198.                                                                       
 CO-CHAIRMAN GREEN asked Roy Hoyt, Jr. to testify next.                        
 Number 011                                                                    
 ROY HOYT, JR., testified via teleconference from Homer that he                
 commenced flying in January 1942; was an air traffic controller for           
 (indisc.) years and was in Alaska and an air traffic facility                 
 manager for over 20 of those years.  Forty two years ago while in             
 the military, he was involved in a fatal aircraft accident that was           
 caused by a Canadian Goose going through the windshield.  He                  
 mentioned the recent accident at Elmendorf Air Force Base where 24            
 lives were lost and said that should be cause for thought.  He                
 stated historically there have been problems with birds at the                
 Homer airport.  He felt it was irresponsible to have a critical               
 habitat area adjacent to the airport.  By creating a critical                 
 habitat area, the state is certainly increasing their liability for           
 any aircraft accidents caused by a bird strike.                               
 CO-CHAIRMAN GREEN thanked Mr. Hoyt for his testimony and asked Luke           
 Welles to testify.                                                            
 Number 063                                                                    
 LUKE WELLES, Member, Homer Economic Development Commission,                   
 testified via teleconference in opposition to SB 198.  He said, "As           
 a resident of the city of Homer, I am very much opposed to a                  
 critical habitat area being formed within the city limits by state            
 legislation.  Some of the 295 acres around the airport are                    
 wetlands, but not all.  There are several large sections of spruce            
 trees (indisc.) growing on the land around the airport signifying             
 areas which cannot be identified as wetlands.  There are myriads of           
 ways to develop in sections this land which could enhance both the            
 airport as a port and the economy for the city of Homer.  The land            
 is current zoned as general commercial 2 by the city which                    
 indicates the economic potential of this property to the city of              
 Homer.  If the state deems this property a critical habitat area,             
 it will ban the citizens of Homer from ever using this property for           
 any economic development.  This ban should not occur especially               
 without approval from the people who are affected the most - the              
 citizens of Homer."                                                           
 CO-CHAIRMAN GREEN called on Stan Welles to present his testimony.             
 Number 116                                                                    
 STAN WELLES, Business Owner, testified from Homer that he owns all            
 or a significant part of three businesses and he is opposed to the            
 habitat area.  He said, "I'm used to working with (indisc.) and               
 aviation; each are important, each are needed and each have a place           
 but not the same and definitely not at the same time.  Holstein               
 bulls and moose have about the same temperament; gentle except when           
 they don't want to be.  From a safety and liability point of view,            
 we have enough moose per capita now.  Conscientiously enhancing the           
 in-town moose brings implicit liability in the case of personal               
 injury or death.  With respect to wildlife management, the browse             
 in the proposed area is only marginally adequate to support the               
 moose feeding there now.  Gene O'Dell (indisc.) of the Alaska                 
 Department of Fish & Game has proposed a limited hunt - a                     
 controlled hunt to further control this moose population.  Tourist            
 viewing - not often during the summer.  It's too warm; a marginal             
 food supply and too many people.  We send our tourists to North               
 Forks road."                                                                  
 Number 168                                                                    
 RALPH CLENDENEN testified via teleconference in opposition to CSSB
 198(FIN).  He said he concluded that the establishment of an                  
 uncontrolled wildlife preserve in the middle of the first class               
 city of Homer must be unprecedented; thereby giving the contingency           
 of personal injury attorneys much reason to applaud the                       
 legislature's actions in this matter.                                         
 CO-CHAIRMAN GREEN thanked Mr. Clendenen for his testimony and                 
 called on Lynn Whitmore to testify.                                           
 Number 199                                                                    
 LYNN WHITMORE, Co-Chairman, Beluga Wetlands Task Force; and                   
 Chairman, Homer Fish & Game Advisory Committee testified from Homer           
 that he has been involved with the Fish & Game Advisory Committee             
 for about 15 years, so he is familiar with the issues involved.               
 He said, "I don't usually agree with Fish & Game when it comes to             
 cow hunts, but in this case since we have a severe habitat                    
 depletion, we now have a cow hunt.  This proposed habitat would               
 allow us to utilize our food source which is one of the few                   
 remaining for the Homer Bench herd in the wintertime.  (Indisc.)              
 funds will be available to a nonprofit corporation made up of                 
 representatives from AEA, Fish & Game and Homer Fish & Game                   
 Advisory Committee.  This corporation could target high use areas             
 of the moose by enhancing browse away from the immediate vicinity             
 of the Homer airport to the far side of the proposed habitat -                
 those areas are shown on drawing you have in front of you - which             
 is where most of the desired (indisc.) already exists anyway.  So             
 funds for such a project are already in place through a cash                  
 endowment and transfer of mitigation lands for the Bradley Lake               
 hydro electric project (indisc.).  This is one of the requirements            
 of the federal energy regulatory commission license."                         
 CO-CHAIRMAN GREEN announced that Nancy Lord would be next to                  
 Number 247                                                                    
 NANCY LORD testified via teleconference requesting the committee              
 look at the record in that this proposal is part of the Homer                 
 Airport Master Plan that was adopted 10 years ago.  It went through           
 the entire process of review by the city advisories, the planning             
 and zoning committee, the park & recreation committee, the city               
 council by a unanimous vote, the borough assembly with unanimous              
 support, letters of resolutions in support from agencies and                  
 organizations, etc.   She noted that Senator Torgerson, Senator               
 Leman and the Senate Resources Committee had made a personal visit            
 to Homer at which time it was widely supported.  She urged the                
 committee to pass CSSB 198(FIN)_ from committee.                              
 CO-CHAIRMAN GREEN asked Mary Griswold to testify next.                        
 MARY GRISWOLD testified from Homer that she lives just outside the            
 Homer city limits on a moose traveled corridor between their summer           
 range and their wintering grounds, along the Homer Bench.  She                
 said, "I regularly walk from my house to the Beluga wetlands in               
 their hoof prints and enjoy watching them in my front yard on their           
 search for browse.  I am also a hunter and enjoy eating moose meat.           
 Moose are essential to my Alaskan experience and protecting natural           
 habitat is essential to their survival as expanding human                     
 residential development replaces their traditional range."  She               
 urged the committee to support the Homer airport critical habitat             
 Number 316                                                                    
 JIM REARDON testified from Homer that he is a 40-year resident of             
 Homer and has been involved in fisheries and wildlife management in           
 Alaska since 1937 as Professor of Wildlife Management at the                  
 University, fisheries biologist for the Department of Fish & Game,            
 board member for 12 years on the Board of Fish & Game and the Board           
 of Game, and outdoors editor for 20 years for Alaska Magazine.  He            
 strongly supported CSSB 198(FIN).  He said, "In 40 years, I've seen           
 moose habitat in the Homer area disappear.  Latecomers don't have             
 the perspective that I have on it.  Another point I'd like to make            
 is that Merrill Field several years ago was a three or four mile              
 drive from Anchorage.  Now it's engulfed by urban sprawl.  Each               
 year several small planes lose power on takeoff at Merrill and have           
 to land on (indisc.-coughing).  I'm a private pilot and if I lose             
 power on takeoff, I'd rather land in the trees or the swamp than on           
 a freeway or a house.  And this would prevent house and freeway               
 development in the immediate vicinity of the Homer airport."                  
 CO-CHAIRMAN GREEN thanked Mr. Reardon for his testimony and asked             
 Jack Cushing to present his testimony.                                        
 Number 366                                                                    
 JACK CUSHING, City Council Member, Homer City Council, testified              
 from Homer that he is a professional engineer, licensed in the                
 state of Alaska and trained in the area of economic development               
 since the age of 18.  He stated, "I believe this is a great idea to           
 put this into a habitat.  If you talk about development cost of               
 trying to build anything in this wetland, it would just be                    
 incredible.  We'd be coming to you guys asking for funds every                
 which way trying to do just about anything in this habitat, or the            
 majority of it.  It should be left to the moose."  He noted the               
 signatures on the petition are uncertified; they had not been                 
 counted by the city clerk yet.  He added this habitat has nothing             
 to do with either end of the runway.                                          
 CO-CHAIRMAN GREEN asked Mr. Lentfer to give his testimony at this             
 Number 437                                                                    
 JACK LENTFER, Wildlife Biologist and former member of the Board of            
 Game, testified from Homer that the winter habitat for the moose is           
 severely depleted in the Homer area because of human development.             
 He said this area needs to be protected as winter moose habitat.              
 Also, development is eroding the quality of life in Homer.  As an             
 example, the Homer Spit was an essentially pleasing and                       
 biologically productive area but it is now being trashed.  He noted           
 that the aesthetic and natural value of some of the areas in the              
 Homer area needed to be maintained.  He urged the committee to                
 support CSSB 198(FIN).                                                        
 Number 471                                                                    
 REPRESENTATIVE BARNES withdrew her motion.                                    
 Number 476                                                                    
 REPRESENTATIVE TORGERSON stated, "Mr. Chairman, the Senate                    
 Resources and myself who is introducing this legislation took very            
 seriously the concerns of pilots and other people that use the                
 Homer airport or any airport as far as that goes, but this                    
 particular bill has three sections in it which prohibit any                   
 activity that would enhance the bird population.  Again, in Senate            
 Resources, we didn't think that was enough so we put one more                 
 section in that says, `Neither the Department of Fish & Game nor              
 any person may create, develop or enhance bird habitat within the             
 Homer Critical Habitat Area.'  When Senator Leman went to Homer,              
 that was one of his major concerns was to look at the two out                 
 piecings that I showed you on here - the small triangles - that was           
 one of the major reasons they were removed from the legislation was           
 that that was the intent at that time, to enhance - not enhance -             
 but to protect a small group of Aleutian terns that are nesting               
 there.  I would also say, Mr. Chairman, there is nothing in this              
 bill that would prohibit the Department of Transportation from                
 going in and doing their normal bird control that they would do in            
 any airport anywhere within their jurisdiction.  And if there is an           
 accident or something that relates to that and it can be proven               
 because there's too many birds in the area, the responsibility                
 would fall back on the Department of Transportation for not doing             
 something that they would normally do under normal sense.  It has             
 nothing to do with this legislation."                                         
 Number 570                                                                    
 REPRESENTATIVE PETE KOTT made a motion to pass HCS CSSB 198(RES)              
 out of the House Resources Committee with individual                          
 recommendations and accompanying fiscal note.  Hearing no                     
 objection, it was so ordered.                                                 
 CSSB 199(FIN) - ENVIRONMENTAL & HEALTH/SAFETY AUDITS                        
 Number 611                                                                    
 CO-CHAIRMAN GREEN announced the next bill on the agenda was CSSB
 199(FIN) and called Senator Leman to present his bill.                        
 SENATOR LOREN LEMAN, Sponsor, stated, "Senate Bill 199 is a piece             
 of legislation that will encourage self-audits and that is for                
 businesses to look at their own operations, find out what's wrong,            
 identify them, make the changes so it can improve their                       
 environmental response and their health and safety records and go             
 on.  It is pro environment, pro law enforcement and more                      
 importantly, pro common sense.  At a time when government                     
 inspectors are not going to be able to be doing full time                     
 inspections in all businesses, we need to recognize that we can do            
 things to encourage businesses to inspect their own operations and            
 turn around and make the changes.  Environmental and health and               
 safety laws are complex.  Large businesses, in many cases, have the           
 technical staff and legal staff to respond to them but what I call            
 the `mom and pop' businesses in Alaska often do not.  What this               
 will do is remove some of the fears that those businesses have now            
 so they will be encouraged to do it."                                         
 SENATOR LEMAN continued, "The bill has two main parts.  It provides           
 for limited immunity for those who do the right thing - the good              
 actors and it provides for a privilege which means that the                   
 information that you produce as part of this audit cannot be used             
 against you as a road map for prosecution.  Those are both worthy             
 ideas; in fact I would say that in the first week of the session              
 when I went and talked to the commissioners whose departments are             
 most responsible for this, we got unanimous agreement for the                 
 concept.  And still in all the testimony that we've heard in all              
 the committees, they all will come through here and you'll probably           
 hear them say again, `We agree with the concept, but it's the                 
 details that bog you down.'  Well we've worked very carefully to              
 craft legislation that implements the concept that everybody agrees           
 with.  It's the carrot approach rather than the stick approach and            
 I believe the legislation we have before us is good legislation.              
 There is a national campaign and a state campaign to discredit this           
 type of thing - this type of legislation - but I'll just note that            
 17 other states have legislation like this enacted and 9 other                
 states are in the process of enacting this legislation plus there's           
 legislation introduced in Congress and our Congressman Young is one           
 of the prime co-sponsors of the legislation.  I'll note that the              
 EPA, even though they resisted this type of thing initially, has              
 come out in terms of their policy and recognized that this type of            
 approach is good - I mean in concept - they still don't like the              
 concept of the states doing it, but they want themselves to do it.            
 They still have - I guess what I'd call the belt way mentality of             
 controlling - but even the EPA under the current Administration is            
 acknowledging that this type of approach is good."  He believed               
 this legislation would be good for Alaska; it would enable us to              
 not only enforce our environmental and health and safety laws, but            
 to do a better job.                                                           
 Number 789                                                                    
 CO-CHAIRMAN GREEN inquired if committee members had questions of              
 the sponsor.  If not, there were three people in Anchorage wishing            
 to testify via teleconference.                                                
 Number 802                                                                    
 KEN DONAJKOWSKI, Representative, Alaska Oil & Gas Association,                
 testified that he works as an audit consultant with ARCO and                  
 supports CSSB 199(FIN).                                                       
 Number 817                                                                    
 PETER GAMACHE, Assistant Attorney General, Medicaid Provider Fraud            
 Section, Department of Law, testified from Anchorage that he is               
 responsible for the prosecution of Medicaid fraud.  He said, "I               
 have no quarrel again with the concept of self-audits and self-               
 reporting.  I think a lot of agencies are going in that direction.            
 Even the U.S. Department of Health & Social Services has a                    
 voluntary disclosure program for medical providers.  My concern               
 with this bill is that it's so broad it's sweeping, that it may               
 have unintended consequences in the health care area.  I'm not                
 addressing environmental concerns or occupational licensing                   
 concerns.  I'm not even addressing the licensing aspect of health             
 care - whether they be facilities or individual providers.  My                
 concern specifically is with the criminal prosecution of Medicaid             
 fraud; an area where very often there's agreement as to the facts,            
 disagreement as to the intent behind the facts.  Access to                    
 information is critical in proving criminal intent.  And wherever             
 you have a provider or facility that's volunteering information,              
 that's entirely inconsistent with criminal intent.  My suggestion             
 is that any bill that intentionally could affect medical providers            
 needs to address the law enforcement aspect.  The reason being --             
 we've talked about `mom and pop' providers - they're among the top            
 providers in the medical area now under the state's choice or                 
 waiver program, providing all sorts of medical care including home            
 health care, personal care assistants."                                       
 Number 911                                                                    
 MR. GAMACHE continued, "My point is that absent effective criminal            
 prosecution of fraudulent providers, the lawful, honest providers             
 and facilities can't be protected.  And I think this bill fails to            
 address those concerns."                                                      
 CO-CHAIRMAN GREEN thanked Mr. Gamache for his testimony and called            
 Toby Steinberger to testify.                                                  
 Number 932                                                                    
 TOBY STEINBERGER, Assistant Attorney General, Governmental Affairs            
 Section, testified that one of her duties is to represent the                 
 Department of Labor before Alaska OSHA Review Board.  In her                  
 opinion, this proposed bill could affect the state's OSHA program             
 to customize it or possibly jeopardize it.  Under state and federal           
 law, our state OSHA program must be as effective as federal OSHA.             
 This bill would make it less effective than the federal OSHA Act.             
 In the mid-1970s, the United States Congress passed the                       
 Occupational Safety & Health Act which gave the U.S. Department of            
 Labor the power to recognize workplace safety.  It also gave the              
 U.S. Department of Labor the authority to enter places of work and            
 conduct inspections...."                                                      
 CO-CHAIRMAN GREEN interjected there was a time limit for testimony            
 and inquired what her attitude was on self-audit.                             
 MS. STEINBERGER responded, "Well, what would happen is under                  
 federal OSHA, which we must be as effective as the federal, is that           
 our funding could be jeopardized if we're not as effective as the             
 federal program."  She added the U.S. Department of Labor can                 
 approve state OSHA programs.  The state OSHA programs, which we are           
 one of, must be as effective.  Under federal law, the U.S.                    
 Department of Labor can conduct inspections.  That means they can             
 document - that means they can have access to, under this law,                
 state OSHA which we must be as effective including in our                     
 inspections.  We will be less effective (indisc.) audit.  She said            
 this would be very important in our prosecution of the wilful                 
 cases.  She discussed the importance of testimony and her belief              
 that a document is an excellent trail of evidence.  An audit can be           
 very helpful important in proving (indisc.) a wilful citation.  She           
 added that federal OSHA does not allow immunity for anyone and we             
 would be giving immunity for the violators.                                   
 CO-CHAIRMAN GREEN noted that Mr. Bundy was available to testify.              
 Number 1144                                                                   
 ROBERT BUNDY, United States Attorney for the District of Alaska,              
 testified that he has lived in Alaska for over 25 years.  He had              
 been the District Attorney in Nome, Assistant District Attorney in            
 Anchorage, worked for the Attorney General's Office in the Anti-              
 Trust Enforcement and White Collar Enforcement areas, as well as              
 Chief Assistant District Attorney in the Anchorage District                   
 Attorney's Office.  He had also been a partner in a large law firm            
 for over 10 years in which he litigated both with, in behalf of and           
 against, law corporations in the natural resources and                        
 environmental areas.  He stated, "It is with that background that             
 I come to discuss this with you, mostly as a citizen of the state             
 of Alaska.  That I happen to work for the Department of Justice, I            
 think is beside the point in the things that I have to say."                  
 Number 1196                                                                   
 MR. BUNDY continued, "The question that strikes me as I read this             
 bill, is exactly why are we facing this - what are we looking at -            
 is something broken that needs to be fixed?  I can tell you that              
 based upon a speculation that certain businesses may conduct more             
 audits in the future, we are balancing that against the absolute              
 certainty and guarantee that this bill is going to create enormous            
 problems in all types of environmental and health and safety                  
 litigation which is going to drag things out and make them more               
 expensive and make it increasingly difficult, if not impossible, to           
 enforce some of the most critical environmental and health and                
 safety laws that we have in this state.  The privilege as a portion           
 of the bill, is an example.  For instance, it expands the privilege           
 of these audit things far beyond anything that we see in any kind             
 of privilege that exists in the law today after hundreds of years             
 of fine tuning the law of privileges as it now exists in our law."            
 Number 1256                                                                   
 MR. BUNDY further stated, "The Fifth Amendment privilege which is             
 probably the most important privilege that we have - or one of the            
 most important privilege - doesn't even approach the breadth of               
 this thing.  First of all, the Fifth Amendment privilege does not             
 apply to corporations.  Obviously, this would apply this to                   
 corporations and all kinds of business entities.  The reason for              
 the failure to apply, or the decision over the many decades that              
 we've had this, to apply it to corporations has simply been that              
 corporations are different than individuals.  A privilege such as             
 this is a personal privilege to individuals to protect them against           
 the government.  Large business entities have a much larger role in           
 the health and safety of people and in what they can do and what              
 they're capable of doing and in all of the lawyers, accountants,              
 and everybody else they have that can look after them."                       
 Number 1300                                                                   
 MR. BUNDY said, "The privilege also does not apply to documents               
 that are not compelled testimony.  For instance, the privilege                
 applies if you were to subpoena somebody to your committee and they           
 would say `I'm not going to testify and answer your questions' it             
 would not apply if you told them to bring with them documents that            
 they created on this subject matter.  That applies even in the                
 personal - the individual - not a corporation because documents are           
 important evidence and have been recognized by the courts for a               
 long time that they're important evidence as to a whole variety of            
 important considerations such as intent, knowledge and all of the             
 other things that must be dealt with.  The fact of the matter is,             
 balanced against this extraordinary expansion of the privilege - of           
 the various law of privilege - is the speculation that somebody may           
 conduct more audits.  I submit to you that businesses, at least the           
 ones that I have dealt with in litigation, have a tremendous                  
 incentive already to conduct self-audits and the biggest incentive            
 they have is the possibility of criminal and civil prosecution.  If           
 a business were to come to me and say `What can I do to protect               
 myself most from the possibility of criminal prosecution or civil             
 proceedings by some governmental agency - state or federal,' I                
 would tell them `You need to look and see what your business has              
 been doing - what has occurred and do what you need to do to fix it           
 right now.'  That's the kind of advice that these companies are               
 getting right now."                                                           
 Number 1388                                                                   
 MR. BUNDY commented, "The statistics if you look at it are that               
 environmental audits and health and safety audits are increasing at           
 an incredible number rather than decreasing or remaining the same.            
 That doesn't indicate to me that there needs to be additional                 
 incentive.  And the point is too, is that under this bill, the                
 companies that would most benefit by this are the ones that already           
 have the most incentive to do it.  The small `mom and pop'                    
 organization - the small company - they're not going to be able to            
 afford the kind of intensive labelling of documents and audits that           
 this bill the way it's presently constituted will protect."                   
 Number 1435                                                                   
 MR. BUNDY concluded, "This bill is a litigator's dream.  This                 
 should be the criminal environmental defense bar relief act.  This            
 thing will allow a decent litigator, almost a Mr. Potatohead if the           
 truth be known, to be able to slow down, (indisc.) and delay                  
 environmental enforcement litigation almost indefinitely.  If you             
 go through the terms that are used describing the documents,                  
 describing when they're privileged, when is a document related to             
 an audit report..."                                                           
 Number 1481                                                                   
 CO-CHAIRMAN GREEN asked Mr. Bundy what his response was to the fact           
 that there is a movement to do this in that several states have               
 already done it and others are in the process.                                
 Number 1490                                                                   
 MR. BUNDY replied, "Many of these bills were submitted to the                 
 various states, all approximately at the same time, often went                
 through without much consideration.  In the most recent experience            
 among the states, once the National District Attorney's Association           
 and the various prosecutions had figured out `My gosh, what's going           
 on here' and have testified and brought their views and Maryland              
 and Florida, the most recent states to consider it, have rejected             
 this particular bill.  The reason they rejected it is for the many            
 reasons I'm sure you've already heard about how difficult it would            
 be to make a difference."                                                     
 Number 1524                                                                   
 CO-CHAIRMAN GREEN asked if it was Mr. Bundy's view that we should             
 be punitive or we should be corrective.  If we're corrective, it              
 seemed to him that self-audit would lead to that as quickly or more           
 quickly than a punitive approach of fining.                                   
 Number 1534                                                                   
 MR. BUNDY said, "I think you're exactly right but I think that the            
 thing to remember is that right now already built in to the                   
 prosecutorial discretion, the policies of the EPA, and the policies           
 of the United States Justice Department and I'm sure policies of              
 the state prosecutors as well -- having been one I understand how             
 prosecutors work -- is that when a company comes to you or an                 
 individual comes to you and says, `I've made a mistake, I've found            
 my mistake and I've corrected it' the chances that there would be             
 any criminal prosecution to begin with are small.  The chances that           
 any penalty imposed if there were any kind of prosecution or civil            
 proceeding would be much smaller.  The point I'm trying to make is            
 that there's already a terrific incentive built in for people to              
 come forward."                                                                
 Number 1587                                                                   
 CO-CHAIRMAN GREEN said, "It's seems though it's that small clause             
 that this has got people concerned to actually admit `Hey, I've got           
 a problem here - I realize that' and then be wide open for you to             
 come back and say `Oh man, thank you very much.'  It seems like               
 that's a concern."                                                            
 MR. BUNDY responded, "I guess as a theoretical concern, my question           
 is can anybody point to a single instance in which that's ever                
 CO-CHAIRMAN GREEN said there have been several pointed out in where           
 this - at least one place I know that the source of this kind of              
 legislation - I remember the National Energy Council and that was             
 touted there and I think from there it spawned to several states.             
 Texas cited several examples where they had been hammered."                   
 MR. BUNDY commented, "I think if you look in Alaska, I bet you                
 won't find one and I bet if you look in the United States                     
 Department of Justice, these are the two agencies that are going              
 affect the people effected by this bill, I think you won't find any           
 there either."                                                                
 CO-CHAIRMAN GREEN remarked, "Good point."                                     
 Number 1648                                                                   
 REPRESENTATIVE AUSTERMAN inquired who all was affected by this                
 MR. BUNDY responded, "Affected by the bill presumably, are the                
 state agencies - the Alaska Department of Law and the various state           
 agencies, the DEC, the - I guess what we heard - OSHA, the Health             
 & Social Services on the Medicaid side.  Also affected are people             
 that may have been injured in an environmental thing because of the           
 privilege portion.  Unlike the way it is now in the ordinary rules            
 of discovery when somebody has a claim whether it's for injury to             
 their property or to their person or for abated nuisance or                   
 anything else, they are entitled to find -- the parties exchange              
 information so there can be some reasonable resolution so people              
 can get to the truth.  This would deny citizens of the access to              
 the information that they can get now.  And I don't know that                 
 they're abusing now."                                                         
 Number 1711                                                                   
 REPRESENTATIVE AUSTERMAN mentioned the seafood industry and the               
 processing plants and asked if this bill actually made it easier              
 for them to do self-audits and clean up their stuff?                          
 MR. BUNDY responded, "It's no easier for them to do so and I submit           
 to you that they already have a tremendous incentive to do that.              
 What this does is this allows -- against a small, at least arguable           
 increase in the incentive to do so which I don't honestly think is            
 there but which other people in good faith suggest it is -- is                
 against the ability to use the bill the way it's set up for people            
 that have been violators - consistent violators - to hide behind              
 and avoid any ability of either citizens or the state to hold them            
 Number 1773                                                                   
 CO-CHAIRMAN WILLIAMS asked Mr. Bundy to go over that again.                   
 MR. BUNDY stated, "The point I'm making is that on one side you've            
 balanced -- if this bill is  passed, it may be true and I                     
 personally doubt it but others whom I believe are speaking in good            
 faith, think it is true -- more audits will be conducted.  The                
 truth of the matter is that the Colorado Attorney General has                 
 recently found and it's one of the states that was the first to               
 pass this, has found there have been no more reports based on                 
 audits which either means no more audits were conducted, the audits           
 didn't find any environmental harm or the audits were conducted and           
 nothing was disclosed.  That being the case, on the other hand                
 that's balanced against the very real possibility in situations               
 that are set up by this bill for under the rubric of audit and                
 disclosure certain chronic violators to void responding to either             
 citizens or to state agencies to stop their ongoing efforts.                  
 There's so many questions about what it takes to get immunity.  The           
 terms are so broadly defined and so loose and so, I submit, vague             
 that this will result in years of litigation - roomsful of                    
 documents.  It's just, like I said, a criminal and civil defense              
 lawyer's dream.  And I was one for many years and I can guarantee             
 you, I can think of many, many ways to take advantage of each and             
 every one of these provisions."                                               
 Number 1884                                                                   
 CO-CHAIRMAN GREEN said that Mr. Bundy had referred to the chronic             
 abuser and asked if the chronic abusers were being prosecuted now?            
 MR. BUNDY replied, "Yes.  I can think of a couple of instances                
 right now that we have under investigation that - and these are               
 organizations that have absolutely the resources to hire as many              
 lawyers as they need to figure this out - that had this bill been             
 in effect at the time, that we would be effectively precluded from            
 proceeding with our investigation and any potential penalty against           
 these people."                                                                
 CO-CHAIRMAN GREEN asked, "It's your opinion then that the only                
 recourse would be that they would have to continue to self-audit              
 and show what they're doing and get some reasonable clearing...."             
 MR. BUNDY said the self-audit can be anything.  It can be oral.               
 All they have to do is send a notice under this to the affected               
 department, whatever that might be, indicating they are now                   
 auditing and our audit will start on January 1 and conclude in                
 December.  He added, "There are a million ways -- you may say,                
 `Well, maybe nobody will believe that' but that's just another                
 piece of litigation that's going to go in."                                   
 Number 1969                                                                   
 CO-CHAIRMAN GREEN asked, "Would it be your opinion if there were              
 three violations - three types of violations by manufacturer X and            
 they self-audit on one of those that the DEC inspectors or the OSHA           
 inspectors would still not be available to find two other                     
 violations and fine them on those basis?"                                     
 MR. BUNDY said, "The problem with that is that it is going to be              
 very difficult draw those lines in any particular way and any                 
 document that might be marginally relevant to the other two that              
 was disclosed in the first one is going to be said to have created            
 both a privilege and some kind of immunity."                                  
 REPRESENTATIVE OGAN asked, "What part of the bill do you like?"               
 MR. BUNDY responded, "Not much."                                              
 Number 2085                                                                   
 JANICE ADAIR, Director, Division of Environmental Health,                     
 Department of Environmental Conservation, testified, "As the                  
 sponsor of the bill noted, we too think that the concept of the               
 bill is worth pursuing but we do have some concerns as to the                 
 details of how that concept has been delineated in this proposed              
 legislation.  Representative Austerman asked who this bill applies            
 to and that is actually one of our concerns.  Environmental health            
 and safety laws (indisc.) the bill specifically says are to be                
 broadly construed.  We interpret the bill as applying to the state            
 as a landowner, DNR and DOT, to all of our regulations and you                
 would expect some of those - air, water quality - but also our                
 seafood processing requirements and since those are based on                  
 voluntary self-audits under the federal hazard analysis critical              
 control point plan that was adopted by this legislature last year             
 in House Bill 208, we don't know if we would be able to adopt that            
 program if this bill were in place.  It is a concern; it has                  
 something I have had talks with the AG's Office about and we just             
 don't have a good handle on that yet, but that is a serious                   
 concern.  Other kinds of food processing also operate under                   
 voluntary audits - under their own (indisc.) type arrangements that           
 are not subject to any kind of legislation like HB 208 with seafood           
 processing.  And as we read this bill, we would be unable to obtain           
 that documentation.  So we do have concerns about the broad                   
 applicability of the bill.  And that is the basis for the fiscal              
 note, by the way, for DEC because we do think that the courts would           
 ultimately make that decision."                                               
 MS. ADAIR continued, "How the audits are done, who can conduct them           
 and then the scope of the audit report are all very problematic.              
 Environmental audits are still really relatively new management               
 tools.  Some companies - larger companies, particularly those who             
 operate in Europe have been doing them for awhile.  The European              
 Union, as a means to kind of level the playing field, is adopting             
 international standards.  There's an organization called the - the            
 letters don't fit - the abbreviation is ISO, but it's the                     
 International Organization for Standardization so they don't have             
 their letters quite right but they have adopted standards for                 
 management standards.  They started with technical standards so               
 that there would be a level playing field; there's 111 countries              
 that participate in the ISO, the United States is one of them, they           
 then went to their 9,000 series which adopted other kind of                   
 management standards (indisc.) is one of those and now they're                
 working on environmental standards, their 14,000 standard series              
 and those do include standards for how audits are done and who may            
 do those for environmental laws.  And you don't see any of the                
 aspects that the ISO believes are important in getting a credible             
 audit done in Senate Bill 199."                                               
 MS. ADAIR further stated, "The DEC does work with companies that              
 want to do audits; we have a pit stop program and I did provide               
 that to you in the packet of information I gave you, where we will            
 go in to car shops through our pollution prevention office and help           
 them devise an audit standard.  Then help them do the audits                  
 against that standard and figure out whether or not they're in                
 compliance and we do not take action against anyone who does                  
 discover something as a result of that and voluntarily reports it             
 to us."                                                                       
 Number 2404                                                                   
 CO-CHAIRMAN GREEN announced the House of Representatives was going            
 into floor session and recessed the House Resources Committee                 
 meeting to the call of the Chair for HB 548 and CSSB 199(FIN).                
 TAPE 96-67, SIDE A                                                            
 Number 001                                                                    
 CO-CHAIRMAN GREEN reconvened the House Resources Committee at 4:10            
 p.m.   He announced the committee would consider House Bill 548 at            
 this time.                                                                    
 HB 548 - NORTH STAR OIL & GAS LEASE AMENDMENT                                
 Number 027                                                                    
 ERIC LUTTRELL, Vice President, Exploration and Development, BP                
 Exploration, Alaska, said he was available to answer questions and            
 if time allowed, he would discuss the material that had been                  
 distributed to committee members.                                             
 CO-CHAIRMAN GREEN recalled that Representatives Barnes and Davies             
 had indicated in the earlier meeting that they had questions of the           
 Number 105                                                                    
 REPRESENTATIVE BARNES said her first question had to do with the              
 purchase of these leases from Amerada Hess.  She wanted to know,              
 specifically, if BP was not aware of the conditions set forth in              
 the leases at the time BP bought them from Amerada Hess.                      
 Number 145                                                                    
 MR. LUTTRELL responded, "When we acquired the leases from Amerada             
 Hess, we were aware that there were net profits (indisc.) on the              
 REPRESENTATIVE BARNES asked, "At that time, did you believe that              
 they were economically feasible to develop under the scenario set             
 forth in the leases?"                                                         
 MR. LUTTRELL replied, "At the time we had an inkling that we might            
 be able to make them economic.  We did not have economic runs at              
 that time."                                                                   
 Number 164                                                                    
 REPRESENTATIVE BARNES inquired, "Meaning that you didn't presume to           
 change the leases at that point or ask for changes in the leases."            
 MR. LUTTRELL stated, "We bought them with the risk that we might              
 have to ask for a change.  We did not have that planned at the time           
 we bought the leases."                                                        
 REPRESENTATIVE BARNES questioned, "I guess since this has never               
 been done in the state of Alaska or anywhere else in the world that           
 I can find, did you think it was something that the legislature               
 would do or did you think it had to come before the legislature?"             
 MR. LUTTRELL replied, "As a matter of fact, we were aware at the              
 time that we bought it that there was already a precedent within              
 the state of Alaska for an exchange between net profits and                   
 REPRESENTATIVE BARNES inquired what that was.                                 
 MR. LUTTRELL said, "That's a precedent set at the (indisc.) Island            
 case between the Department of Natural Resources (DNR) and Exxon              
 Corporation.  So we were aware that at least there was an                     
 opportunity to make an exchange.  The conditions were slightly                
 different, but at least an exchange had been made."                           
 Number 298                                                                    
 REPRESENTATIVE BARNES asked Mr. Luttrell to explain what those                
 differences were.                                                             
 MR. LUTTRELL remarked, "I think it'd be better if you were to ask             
 that of the DNR because they're very technical.  It has to do with            
 -- DNR, I think believes that it's easy to do at the time of unit             
 formation and more difficult to do at any other time.  The way the            
 read the regulations and the law, they can make that exchange at              
 the time of unit formation, but they would not be able to at other            
 REPRESENTATIVE BARNES remarked, "So this situation then is                    
 MR. LUTTRELL responded, "It is different."                                    
 Number 350                                                                    
 REPRESENTATIVE BARNES inquired, "If you were not able to make these           
 changes in the leases, what did you think you would do at that time           
 if you were not able to make those particular changes."                       
 MR. LUTTRELL replied, "I think I understand the question.  The way            
 I would answer the question is that we made what I would call a               
 `risk investment.'  We took the leases - we acquired them from                
 Amerada on the thought that we might be able to make an agreement             
 with the state.  What we would do if that was not successful, is              
 something which we hadn't done a lot of thinking about.  It's                 
 simply, we took a risk investment."                                           
 REPRESENTATIVE DAVIES stated, "Mr. Luttrell, in your responses to             
 some questions that the Senate committee put forward, you'd                   
 indicated that you had requested permission from Amerada Hess to              
 provide information to the legislature about the purchase price and           
 that would be under some sort of confidentiality agreement.  Did              
 you make that request and have you heard anything from Amerada                
 MR. LUTTRELL responded, "We did make the request from Amerada Hess.           
 We have the authority to reveal that information to the legislators           
 in a closed session."                                                         
 REPRESENTATIVES DAVIES inquired if any such discussion had taken              
 MR. LUTTRELL replied, "The Senate has not chosen to go into                   
 Executive Session to ask that question."                                      
 REPRESENTATIVE DAVIES inquired if it was Mr. Luttrell's                       
 understanding that it was a possibility at this point in time.                
 MR. LUTTRELL responded affirmatively.                                         
 REPRESENTATIVE DAVIES said, "I was just trying to do some quick               
 figures here.  Also, in that same correspondence, you had indicated           
 that you -- and I'm assuming that this is in the context of                   
 Northstar although in the sentence it just says `In Alaska we look            
 to make about 3.25 per barrel on our capital investments of 3.50'             
 and I'm just trying to understand how that relates to -- if I                 
 multiply the 3.25 times 130, I get numbers that are larger than               
 what are on these graphs and I'm just wondering how I relate those            
 MR. LUTTRELL responded, "What you're referring to is a paragraph              
 that has to do with the relative value to BP of the Venezuelan                
 investments and the Northstar investments -- I think that's what's            
 REPRESENTATIVE DAVIES responded that was correct.                             
 MR. LUTTRELL continued, "In order for you to make the calculation             
 I think you want to make there, you need to net the barrels from              
 130 down to what we would get relative to the royalty shares."                
 REPRESENTATIVE DAVIES asked, "Take the royalty shares out?"                   
 MR. LUTTRELL commented, "I think if you do that, you'll find it.              
 One other thing you need to be careful about is that the graphs               
 you're looking at there are in revenue and I think the number                 
 you're looking at is in income and they're similar, but they're not           
 REPRESENTATIVE DAVIES asked if revenue was different than profit?             
 MR. LUTTRELL replied, "Revenue is different than profit."                     
 REPRESENTATIVE DAVIES commented, "You'd expect profit to be smaller           
 than revenue."                                                                
 MR. LUTTRELL responded, "Different.  Similar but different."                  
 Number 630                                                                    
 REPRESENTATIVE BARNES asked Mr. Luttrell to explain the difference            
 for the record.                                                               
 MR. LUTTRELL stated, "I actually don't feel qualified to explain              
 the accounting of why revenue is slightly different than income,              
 but I know it is and I will bring it back as a written document, if           
 that's alright with you."                                                     
 Number 659                                                                    
 REPRESENTATIVE DAVIES said, "I guess the other question I had that            
 related to this morning's discussion, Mr. Chair, was -- which I               
 think is actually dealt with in the handouts that were distributed            
 from BP and they have to do with the issue of alignment and                   
 misalignment and whether -- actually I think these charts are                 
 consistent with my understanding of what BP had testified earlier             
 about, although they go into it in considerably more detail about             
 the issue of alignment between the state of Alaska and BP and I               
 guess maybe I would just ask that you first -- sort of a two part             
 question -- one is, were you basically in agreement with the                  
 presentation that we had this morning in terms of the finances as             
 the state indicated they were, and secondly, if you would like to             
 expand some more on the issues of alignment."                                 
 MR. LUTTRELL remarked, "As best I can tell, we're comfortable with            
 the state's representation of the economics that were presented               
 this morning in terms of their model of our model, in effect, as a            
 common model and right now we're not running any conditions where             
 we're not getting the same answer, if that's the question."                   
 REPRESENTATIVE DAVIES said, "That was the first part of the                   
 question.  Let me just ask it bluntly.  There were some numbers               
 that the state used that weren't your numbers and I'm just asking             
 you to give us some assurance from your point of view that they               
 were fairly representative of the overall agreement."                         
 MR. LUTTRELL said he would be more comfortable if Representative              
 Davies would give him an (indisc.) example.                                   
 Number 817                                                                    
 CO-CHAIRMAN GREEN asked if Representative Davies was referring to             
 field size and projected revenues and things like that?                       
 REPRESENTATIVE DAVIES said he was concerned about things like the             
 discount rates, the income tax issues, the ones that were redacted            
 from the...."                                                                 
 Number 836                                                                    
 MR. LUTTRELL interjected, "When the state presented the model this            
 morning, it put numbers in there to protect the confidentiality of            
 BP.  If you were to look at the numbers that have been presented by           
 the state and BP for the value to the state of things like royalty,           
 severance, supplemental royalty and look at the model presented               
 today, you'll see the numbers are fairly similar.  Now that simply            
 means that the assumptions the state used are similar to the                  
 assumption that was used in the negotiation.  They're not exact but           
 in the rounding error of the kind of numbers we're working, I would           
 consider them to be very similar."                                            
 Number 883                                                                    
 CO-CHAIRMAN GREEN said, "While we're not sophisticated enough on              
 this committee even to know in minute detail but in direction or              
 relative comparison, you would find -- or I think your answer to              
 Representative Davies' question was that `Ya, certainly in that               
 broad spectrum, you'd expect to see maybe even plotable numbers               
 within reason."                                                               
 MR. LUTTRELL stated, "To answer the question another way, I did               
 provide both of you today, Mr. Chairman, copies of the slides that            
 are now in front of you and for all intents and purposes, it's my             
 belief that if you were to plot the model on a graph like that,               
 the lines would overlay for all intents and purposes.  There is               
 nothing in the model as presented to you with BP specific numbers             
 out of them, that would give you a different result, if that's the            
 very specific question."                                                      
 CO-CHAIRMAN GREEN remarked, "And I think, Representative Davies,              
 that we'll be able to do that when we get these runs back, that               
 we'll be able to say that, `yes, this trend graphically is the same           
 sort of thing we would expect to see from that run.'  Whether the             
 numbers are exact is not the issue."                                          
 Number 962                                                                    
 MR. LUTTRELL commented, "Given the scale of those plots, they would           
 plot on top of each other."                                                   
 Number 972                                                                    
 CO-CHAIRMAN WILLIAMS brought up the local hire issue and asked Mr.            
 Luttrell what he could tell the committee regarding how BP would go           
 about the local hire issue on their capital project.                          
 MR. LUTTRELL replied, "One of the things that we were very                    
 conscious of in the conversation about Northstar and local hire was           
 we did not want to solve a perceived problem of local hire on the             
 part of the oil companies which actually have a very good record of           
 local hire and local employment, on the backs of Northstar.                   
 Clearly, they are related issues.  Clearly, we understand it's very           
 important to the state of Alaska, the citizens of Alaska and this             
 legislature.  If we were to set a target of 90 percent local hire             
 on Northstar, what we would think would happen actually is you'd              
 see people moving across the boundary and some other projects would           
 lower.  So it is a problem that is something which we are working             
 very diligently to improve, both ourselves and our contractors on             
 a general basis.  I'm sure that's helping you specifically but we             
 recognize the concern of the citizens and the legislature and have            
 committed ourselves to improving our record.  That's specifically             
 in the areas of training and in the areas of advertising and making           
 sure everyone has an opportunity to get these jobs.  And                      
 ultimately, publicly indicating what our record was and how it's              
 Number 1080                                                                   
 CO-CHAIRMAN GREEN remarked, "Well, I think one of the things - I              
 dare say I speak for the committee, but I think I speak in the                
 approach the committee would like to see - is that you have a                 
 project and there's some things that could help you and that could            
 help us, but one of the things that really is in the `help us'                
 category is to not only try and get as many Alaskans - people                 
 living here now - hired, but I've said this several times and                 
 probably will continue to say it as long as they keep bringing me             
 back here, but here's a golden opportunity for the state to get               
 involved in a ramp-up, as it were, for module construction and to             
 me, that is a really key ingredient for the future of this state to           
 have that capability for not only Northstar or heavy oil or the               
 next discovery and I hope there is several of those next                      
 discoveries, but also for the Eastern Rim that we might be able to            
 be a staging area for places like Russia and maybe even China.  So            
 that really looks good to us so what we're hoping to see from BP              
 would be some commitment that says, `Yes, we will help you kick               
 that fledgling opportunity off' with local people."                           
 Number 1169                                                                   
 REPRESENTATIVE BARNES asked if Mr. Luttrell had read the opinion by           
 Mr. Baldwin?                                                                  
 MR. LUTTRELL responded, "Yes, but I haven't read it today."                   
 REPRESENTATIVE BARNES asked if he was fairly familiar with it?                
 MR. LUTTRELL noted he was reluctant to say he was familiar with it            
 because he didn't have it in front of him.                                    
 REPRESENTATIVE BARNES stated, "Mr. Chairman, let me first of all              
 say that I don't always agree with Jim Baldwin but sometimes I do             
 and in this instance, I have read this several times and I've read            
 this piece of legislation several times and I do not believe this             
 piece of legislation does in any shape, form or fashion what Jim              
 Baldwin says in this opinion that we must do to show a correlation            
 between changing the net profit sharing from 89 percent to the                
 royalty arrangement - the supplemental royalty arrangement in this            
 legislation.  Now let me tell you why.  Under his opinion and it's            
 lengthy, what he says is - very clearly over and over and over -              
 that we must show a cause and effect as to how this piece of                  
 legislation that is before us relates to changing the terms of a              
 lease.  And I submit to you, if you have the legislation before               
 you, you'd please turn it over to the back page and what he says is           
 that as long as we can clearly show that Alaska - the people of               
 Alaska, the state of Alaska - is benefitting from this (indisc.-              
 paper shuffling).  Now then, if you were to turn on page 2 on line            
 9, number 8, it says `BP Alaska, Inc. has committed to hire Alaskan           
 residents and contractors to fabricate modules for the unit in                
 Alaska' and I want to tell you that says absolutely nothing.                  
 Nothing.  There is nothing binding any where on you.  Absolutely              
 nothing binding.  And then if you look on line 11, number 9, it               
 says, `the timely development of the unit may result in increased             
 state revenue in future leases.'  The word `may' is there and even            
 the most freshmen legislator here knows that `may' means nothing."            
 REPRESENTATIVE BARNES continued, "Then if you look down at number             
 10, line 13, it says, `the timely development of the unit may                 
 result in technological breakthroughs and other cost savings.'                
 Again, we have the word `may' that means absolutely nothing.  And             
 I've got real serious problems with this and I have been told, and            
 that's why I asked Mr. Baldwin to present his body here, that                 
 officials of BP have said they would accept no changes in this                
 legislation.  This legislation is not the agreement that you have             
 with the DNR.  This legislation is the piece of legislation that's            
 a contract between this legislature and the people of the state of            
 Alaska.  And when we pass it from this body, there had better be              
 something binding in it or we're going to all end up in court under           
 the opinion written by James Baldwin.  Now, I'd like to hear your             
 Number 1388                                                                   
 MR. LUTTRELL said, "Representative Barnes, I'm not qualified and I            
 know you have the intention of asking Mr. Baldwin the legal issues            
 and I would request that you do that.  BP's commitment is the                 
 conversation that we had had with the legislative leadership as               
 well as the Governor about two months ago.  Our commitment here was           
 going to be a public commitment to fabricate modules in the state             
 of Alaska and hire Alaskans and that seemed to be, at that time --            
 the Governor was comfortable with that and the legislative                    
 leadership seemed to be comfortable with that -- and that's how it            
 ended up on the agreement.  It is our commitment to do this and I'm           
 sure you can bring up any number of contractors who are currently             
 working with us in our alliance and they will tell you that's how             
 we're behaving is though these modules will be built in the state             
 of Alaska.  It's how we're designing it to do; it was being                   
 designed specifically - my team is out there doing that right                 
 Number 1442                                                                   
 REPRESENTATIVE BARNES interjected, "If you've got all these                   
 commitments, then you won't mind us nailing it down real tight in             
 this piece of legislation, will you?"                                         
 MR. LUTTRELL responded, "Our concern about rewriting the actual               
 agreement between BP and the state of Alaska, which is one option             
 that certain parties have wanted to do, was that once you open up             
 that pandora's box, Lord knows what that agreement is going to look           
 like when it finally comes through the legislature.  It's just very           
 difficult for us to enter into a conversation which says we can               
 amend it here and amend it there and then ultimately have something           
 that BP would be willing to sign.  It's a very difficult thing to             
 negotiate with 60 people."                                                    
 Number 1475                                                                   
 REPRESENTATIVE BARNES stated, "I don't in any way see that you're             
 negotiating with the legislature.  I see that you're telling the              
 legislature - you're putting whatever facts you choose to put on              
 the table before us, and based upon the conversations that we're              
 having, we're to approve a piece of legislation.  That piece of               
 legislation is not the contracts and it does not necessarily mean             
 that that piece of legislation has to be renegotiated as part of              
 the contracts.  What it can say and clearly say is `unless such and           
 such happens, then this is not in effect.'  And that doesn't mean             
 that you have to renegotiate but what it might mean is that you had           
 to come up with an amendment with the commissioner of the DNR                 
 because we sometimes amend things and you know, we are rarely ever            
 given anything that says `folks, you can't amend this' and the only           
 time I'm aware that there's ever been anything before us that says            
 `folks, you can't amend this' is in the case of royalty oil and               
 once those are negotiated, we have the opportunity to vote up or              
 down on those.  And every time that we have had those since 1979,             
 although today I'm a peon, I was in the presiding officer's chair             
 every time those happened, so I fully understand what's at risk               
 here and how it is normally done.  This is very different.  This is           
 not a contract; it is a piece of legislation - very different."               
 Number 1560                                                                   
 CO-CHAIRMAN GREEN remarked, "Thank you, Representative Barnes,                
 especially for that history and having been peripherally involved             
 back in `79 and subsequently in the `90s, you're right that those             
 were contracts arrived at and approved by the legislature.  But in            
 that same document that Mr. Baldwin talks about where in some cases           
 net profits has been considered royalty by both the federal                   
 government and the state government and therefore could be                    
 construed to be within the purview of the commissioner of natural             
 resources to do the royalty changing as one of his charges, that he           
 goes on to say it would be better if the legislature condoned it              
 with a piece of legislation.  Unfortunately, there were very few              
 people here when Jack Chenoweth who is legislative legal advisor to           
 us, gave some testimony that he felt that as long as the                      
 legislature would change over a geographic area that would apply to           
 more than one specific location, that was a good idea.  However,              
 this is specific to an operator and it was Mr. Chenoweth's concern            
 that that may not pass muster as far as the legislature coming in             
 and modifying that.  I don't know whether you've had privy to any             
 of that testimony or not."                                                    
 MR. LUTTRELL stated, "Mr. Chairman, if you could get me a specific            
 question, I'm certain we would be willing to respond."                        
 CO-CHAIRMAN GREEN commented, "Well, it was that -- that this                  
 project that we're looking at -- since it's specific and not                  
 general that we may have trouble with the Constitution on the                 
 legislature doing something like this."                                       
 Number 1667                                                                   
 REPRESENTATIVE BARNES stated, "In the opinion of Baldwin as well as           
 the opinion I have from Chenoweth, it gets to the question of                 
 special legislation when general legislation is that which we're              
 supposed to pass.  But if you pass special legislation, you've got            
 to show it as a correlation in a bigger scheme of things and they             
 attempted to do that I think in this when they used those words               
 `committed' and `may.'  It's just that I don't think they nailed it           
 down.  Also, in this agreement, Baldwin is very specific and that's           
 why I need him here, that these things have to be nailed down tight           
 as to what the effect of the legislation will have on the people of           
 the state of Alaska and what we are, under the public purpose                 
 section, getting from it.  And I think it has to be very, very                
 tight or it will never stand a legal challenge.  And when we walk             
 out of here as a legislative body and get beat to death with this,            
 it had better have some benefit to the people of the state of                 
 Alaska that's nailed down real tight and that's why I need Mr.                
 Baldwin over here."                                                           
 CO-CHAIRMAN GREEN remarked that unfortunately he was out of town.             
 Number 1717                                                                   
 CO-CHAIRMAN WILLIAMS stated, "I guess, knowing how complicated this           
 agreement was to put together by the DNR and your office, we're not           
 the experts on this.  It would be very difficult for me to                    
 understand all that you've put before me.  But information - and              
 not having this type of information before us and having the time             
 to study these issues - I think maybe what we should be talking               
 about instead of special legislation, is maybe we should be talking           
 about a resolution.  I think what we're doing here today is                   
 gathering information, talking to people at BP, talking to the                
 Administration and finding out, without really getting into detail,           
 how far off we are.  You've got our feelings on the issue of local            
 hire - I think that has been said enough times, I think maybe if we           
 came up with a resolution saying this is what we'd like to see,               
 maybe that what we should be dealing with right now.  I'm glad the            
 Governor did bring this before us so that we could at least say               
 that `Hey, I talked to the BP people.'  I'm not an expert in oil              
 but I think I've seen enough deals and talked with enough people to           
 understand what is going on here and we're not just trying to push            
 something under the rug or the Administration has done their job in           
 making sure that the state is protected.  I think what we're doing            
 here today is reassuring you how important it is that we do have              
 local hire.  I understand all the problems and things that you have           
 to go through just to keep within your ranges that you put here               
 before us -- you're putting 444 million at the top and the base at            
 350 and the 305, I think, at least in that range it's very                    
 difficult.  These are the ranges that you're looking at in order to           
 make this project a viable project, is that right?"                           
 MR. LUTTRELL responded, "Yes, Representative Williams, the                    
 information that you're looking at there is at the table of input             
 to the model that we and the DNR have put together and we're                  
 comfortable those are good representations of the possible outcomes           
 of cost and (indisc.) reserves."                                              
 CO-CHAIRMAN WILLIAMS asked how long BP and the DNR had been                   
 negotiating these?                                                            
 MR. LUTTRELL replied, "The detailed negotiations started before               
 Christmas and they were in earnest early in the year.  But they               
 basically started out where we gave them all information that we              
 were aware of about the field.  It was a complete open exchange of            
 CO-CHAIRMAN WILLIAMS commented that he had seen logging companies             
 take over a job that to another company looked like it couldn't be            
 done, and because of expertise and management were able to make it            
 work.  He added, "Perhaps that's where we are with BP today on the            
 Northstar project."   The legislature doesn't have the time to                
 review this and raise technical questions, but he thought what they           
 needed to do was get around the edges and see if it is done in an             
 (indisc.) manner.  He said, "We've been working to get the oil                
 field open.  I think it's better for the state of Alaska if we do             
 and we try to work in that sense."                                            
 CO-CHAIRMAN GREEN said he concurred that there was a built in                 
 problem with the legislature getting into the details because first           
 of all, there's proprietary information that is actually exchanged            
 between the Department of Revenue and the operators that the                  
 legislature won't have privy to.  So the legislature couldn't get             
 too detailed except by analogy and he thought that's what BP has              
 tried to do with this and the model this morning in which they put            
 in some almost, but not quite figures that kind of puts the                   
 legislature on the outside looking in.  He almost agreed with Co-             
 Chairman Williams in that it was perhaps where the legislature                
 should be anyway.                                                             
 CO-CHAIRMAN GREEN asked if there were any other questions for Mr.             
 Number 1985                                                                   
 REPRESENTATIVE DAVIES said, "I have one last question that relates            
 to the sort of category of assurances that BP can make to the state           
 of Alaska or to the citizens of the state of Alaska in connection             
 with this.  It's an issue that we've talked about before but I'd              
 just like to have a response on the record.  There are a lot of               
 people in the Fairbanks area who asked the question `Why should               
 we make any other deals with the industry until we get some                   
 commitment on the gas pipeline issue' and there does seem to be a             
 lot of connection in people's mind on these issues and I wonder if            
 you could comment on that."                                                   
 Number 2024                                                                   
 MR. LUTTRELL responded, "BP and the other operators continue to               
 work diligently to find a market for North Slope gas and to work              
 the cost issues and it's something which they are doing.  It's not            
 something which I'm part of; it's in a different part of the BP               
 organization.  Beyond that, I don't know what else I can say to               
 you.  It is something which we are positively working toward to               
 make work for the state of Alaska and for ourselves."                         
 Number 2051                                                                   
 CO-CHAIRMAN GREEN inquired, "Along that same line, are you aware              
 that last week we were visited by - I think it was on Wednesday -             
 we were visited - several offices were - by a representative from             
 the Japan Oil Company or Oil Company of Japan who is housed on the            
 East Coast with another office in Houston.  That representative               
 indicated to us that the window of opportunity, as it were, for               
 selling North Slope gas coincided much more closely with the Yukon            
 Pacific presentation than it did with the operator's presentation             
 by as much as eight years.  Now I know this is not what you're here           
 to testify on but since the pipeline...."                                     
 MR. LUTTRELL interjected, "Mr. Chairman, I'm not aware of the visit           
 from anyone."                                                                 
 CO-CHAIRMAN GREEN remarked that he had some written information               
 coming and would make that available to the operators.  He comment            
 that time is short - if that window is what we're talking about,              
 time is very short.                                                           
 Number 2093                                                                   
 REPRESENTATIVE BARNES commented that she had a letter from the                
 president of China Petroleum indicating they are still very                   
 interested in buying our gas and that they're also very interested            
 in joint venturing the pipeline and they want to know what's                  
 happening and what we can do to expedite it.                                  
 Number 2117                                                                   
 CO-CHAIRMAN GREEN said "There has been, at least conceptually, an             
 amendment that may or may not get proposed by this committee - we             
 have made a copy available to you - that covers essentially and in            
 effect what it says is that there would be a strong emphasis to the           
 point of actually saying `this is what we, BP, have done to try and           
 hire locally' while we can't specify local hire because of a                  
 federal decision, but then it goes on further to say that the                 
 contracting for construction facilities would be done in-state.               
 That is really putting the nail down deep.  Do you have anything              
 that you'd like to say on that now or would you rather wait to see            
 -- that may or may not actually even be offered as an amendment,              
 MR. LUTTRELL responded, "Mr. Chairman, there was an amendment put             
 into Senate Resources to amend the actual agreement and we publicly           
 stated at that time that we could not actually accept an amendment            
 to the actual agreement because it was effectively reopening the              
 negotiations.  To the best of my knowledge, the amendment that I've           
 seen from your office is an amendment to the actual agreement.  It            
 looked to me in reviewing it, that much of what was in that                   
 amendment could become actually part of the findings section and              
 actually be quite valuable as part of the findings section and                
 which I would think actually the committee would want to do, but to           
 be part of the actual agreement would require a lot of work."                 
 CO-CHAIRMAN GREEN noted, "Well yes and just for the record, that              
 amendment wouldn't do anything as far as reopening the agreement              
 you've got with the DNR; it would only be a commitment in effect -            
 almost a side agreement because it doesn't get into the whether or            
 not this is a good thing as far as changing the royalty schedule or           
 anything like that.  It just says that you will make your doggonest           
 effort to hire locally and that you will commit to construction.              
 That's, of course, still subject to the fact that you even have a             
 project here.  I know this has not gone through sanction - it                 
 hasn't been sanctioned yet so you can't very well commit to                   
 something you haven't even gotten approval for."                              
 Number 2227                                                                   
 MR. LUTTRELL stated, "Mr. Chairman, let me be real clear about                
 this.  On the basis of the agreement that we negotiated with the              
 Department of Natural Resources and now in front of you for                   
 approval, I went to London and got specific approval to indicate              
 that sanction would take place.  We cannot actually ask the board             
 for sanction until I have a class 2 cost estimate, but BP is                  
 convinced that class cost estimate will be of enough quality that             
 we will not make the decision, if you understand what I'm saying."            
 Number 2262                                                                   
 REPRESENTATIVE DAVIES asked, "Mr. Luttrell, so is it still your               
 position that there's no possibility for any opening of the                   
 contract at all?"                                                             
 MR. LUTTRELL replied, "Representative Davies, I think you can                 
 understand why we have said that all along because of the                     
 difficulty of not knowing what the agreement will ultimately reach            
 when it's passed, whenever it happens, from the legislature.  So,             
 our sense is that to (indisc.) we were asking the legislature to              
 live with the agreement that we got and decide whether that's the             
 agreement you can agree to.  If not, we'll have to go do something            
 else.  But if we try to make amendments to that agreement, I'm                
 afraid what's going happen ultimately is that I won't be able to              
 sign it and then we won't have anything either one of us can live             
 Number 2288                                                                   
 REPRESENTATIVE OGAN stated, "On that point if I may.  Seems to me             
 that if we -- your last statement that you said if we don't have              
 something we can sign, we don't have anything but if we open up the           
 agreement, you're afraid we won't have anything - seems to be one             
 in the same."                                                                 
 MR. LUTTRELL responded, "It comes across as one in the same.  If we           
 start amending the agreement then I have to go back and decide                
 whether it's something that I can agree to and sign and I'm very              
 much worried that the language will be such that we won't be able             
 to do that."                                                                  
 Number 2317                                                                   
 CO-CHAIRMAN GREEN stated, "Well it's possible and this kind of                
 brings in what you've heard from Representative Williams and from             
 all of us, that in order for the legislature to condone this                  
 activity, that we might have to actually see contractual                      
 obligation.  Otherwise, it may be the view of the legislature that            
 we stand back and maybe make a resolution and allow the                       
 Administration to continue with the agreements that have been made            
 without perhaps having passed legislation to that effect.  I mean,            
 I don't know where we are but those are things that have been                 
 kicked around.  I can understand your position not wanting to open            
 the negotiations and I hope you can understand our position that              
 unless we can get a commitment that there is something more than              
 the speculated benefit to the state because we'll get more or we'll           
 get almost as much or depending.  And with the open end on the                
 sensitivities that we've talked about that if it's bigger than we             
 think or the prices are higher than we think or the development               
 costs are lower than we think, that we're giving up a potential out           
 there that may be almost too much to swallow.  So unless we could             
 get a contract that says, `Well ya, but you'll also get guaranteed            
 construction and training and that sort of thing' we may be in a              
 real tenuous position over the next couple weeks."                            
 Number 2379                                                                   
 REPRESENTATIVE BARNES asked if that wasn't what Jim Baldwin's                 
 opinion said?                                                                 
 CO-CHAIRMAN GREEN thought so.                                                 
 REPRESENTATIVE BARNES said, "That's exactly what I think and he               
 works for the Administration who gave us this piece of legislation.           
 Again, I want it made very clear that this is not a contract; this            
 is a piece of legislation.  It's very different from the contracts            
 on royalty oil that we've had in the past."                                   
 CO-CHAIRMAN GREEN asked if there were any other questions.  He                
 thanked Mr. Luttrell for his testimony.  He said, "We're hopeful              
 that we're not causing you to be cross-threaded with the Senate.              
 I hope we're not sending you mixed signals."                                  
 Number 2434                                                                 
 CO-CHAIRMAN GREEN announced the committee would continue to hear              
 testimony on CSSB 199(FIN).  He asked Janice Adair to come forward            
 and continue her testimony.                                                   
 REPRESENTATIVE BARNES said she would like to ask Ms. Adair a                  
 question that pertains to another bill.                                       
 REPRESENTATIVE BARNES commented, "Ms. Adair, I've had occasion                
 today to read a second memo - fiscal note, that you had put out               
 after a bill left this committee and on the record, is it not a               
 fact that a member of the legislature called you into their office            
 and demanded you write that fiscal note."                                     
 MS. ADAIR said, "That is incorrect."                                          
 REPRESENTATIVE BARNES asked, "Did you discuss writing this fiscal             
 note with a member of the legislature before you wrote it?"                   
 MS. ADAIR replied, "Yes, but that was after it was brought to the             
 commissioner's attention...                                                   
 TAPE 96-67, SIDE B                                                            
 Number 001                                                                    
 REPRESENTATIVE BARNES stated ..."such as it was.  Is that not a               
 MS. ADAIR replied, "I was asked that question.  That's a fact."               
 REPRESENTATIVE BARNES questioned, "And you based on that revised              
 fiscal note after it had been scheduled on the floor?"                        
 MS. ADAIR responded, "Not based on that conversation, no.  I have             
 talked to this committee chairman, I have talked with the bill                
 sponsor and apologized for that; it was a mistake.  I was                     
 misadvised by our staff and I feel as bad about it as anybody.                
 I've never been in that position before - didn't really quite know            
 what to do about it."                                                         
 REPRESENTATIVE BARNES commented, "Mr. Chairman, just for the                  
 record.  I overheard a conversation - I wasn't trying to listen -             
 where a member of this legislature told other legislators about the           
 conversation with Ms. Adair and the fiscal note on this bill and              
 this legislator's feelings on it and how this new fiscal note                 
 MS. ADAIR replied, "I do think it's important -- I got a call last            
 night from our commissioner that the person who had been - Susan              
 Braley - had been advising us on the technical aspects of the bill            
 was trying to get a hold of me about her - she had some renewed               
 concerns.  I thought it was technical; did not realize it was                 
 fiscal.  I found out about them this morning but that had already             
 been relayed to the member of the legislature to whom you refer and           
 I kind of came in in the middle of a conversation.  I did not know            
 about it before then, but she did do an analysis of how she came -            
 our staff person - how she came to that decision and I think it's             
 based on what they had to say is legitimate.  I think it was just             
 the timing - I agree it looks odd, but I don't believe that she was           
 set up to do that."                                                           
 Number 076                                                                    
 REPRESENTATIVE BARNES continued, "Mr. Chairman, just on a -- and              
 I'm sorry to do this but it's too important as far as I'm                     
 concerned.  Ms. Adair, how long has it been since we had a water              
 quality bill on the floor in this legislature?"                               
 MS. ADAIR replied, "I honestly don't know.  I honestly don't know."           
 REPRESENTATIVE BARNES asked, "Would you check?"                               
 MS. ADAIR replied, "Sure."                                                    
 REPRESENTATIVE BARNES continued..."and see if we haven't had a                
 water quality bill within the last couple of years that had a                 
 fiscal note on it that should have provided some (indisc.) that               
 water quality bill that we had before if you weren't given staff to           
 do that with under the original bill."                                        
 MS. ADAIR said, "I'd be real happy to look."                                  
 Number 100                                                                    
 CO-CHAIRMAN GREEN stated, "Thank you.  Again, this is coming as a             
 surprise, but you were not threatened by any member of the                    
 legislature to either build or to elevate a fiscal note.  Okay,               
 good.  I hope to heavens that's the truth."                                   
 MS. ADAIR commented, "The timing, as I said, was very unfortunate.            
 These things happen -- mistakes happen and the timing was just                
 CO-CHAIRMAN GREEN remarked, "Understood.  And there was a lot of              
 confusion to say the least."                                                  
 MS. ADAIR stated, "A lot of confusion and I think that because the            
 bill after it was all amended, you know, it moved out right away              
 and the staff didn't have a chance to really read it and                      
 contemplate and think about it.  And when you're dealing with                 
 people who are new to dealing with legislation, the immediate                 
 impacts are not seen.  It takes them awhile to kind of cogitate               
 about it."                                                                    
 CO-CHAIRMAN GREEN commented, "I think that bill had some bad hooks            
 on it anyway because if I recall, that's the bill that we could not           
 add up to eight.  We had five and four and got eight."                        
 MS. ADAIR remarked, "The bill seems to have some problems.  So,               
 what we will be doing is we'll withhold our fiscal note until it              
 gets to the Senate.  We'll issue the fiscal note when it gets to              
 the first committee of referral on the Senate side rather than                
 issue it now in the House.  But I wanted to let you know, as I did            
 this morning, as soon as I found out that there had been that                 
 mistake that -- I know that you adopted amendments with the                   
 intention of zeroing out the fiscal note; certainly that's what we            
 all thought was the impact, and we were wrong."                               
 CO-CHAIRMAN GREEN remarked, "For the record, I laud your candor and           
 I thank you very much for that."                                              
 MS. ADAIR said she felt real bad about it.                                    
 CSSB 199(FIN) - ENVIRONMENTAL & HEALTH/SAFETY AUDITS                         
 Number 181                                                                    
 CO-CHAIRMAN GREEN said the committee would resume testimony on CSSB
 MS. ADAIR said, "I think where we left off is we were expressing              
 our concern with the scope of the audit reports, how the audits are           
 done and who can conduct them.  I was explaining that there is an             
 international organization for standardization that is developing             
 standards for - not required standards, but guidelines for how to             
 do credible audits with the idea that proper management systems,              
 proper management standards can lead to actually more reliability             
 in producing goods and services and in that you can level the                 
 playing field is everybody is sort of doing the same thing.  This             
 is something that is particularly important in the European Union             
 where they are trying very hard to kind of bring all those                    
 countries together.  We do try to help companies develop audit                
 standards.  We agree that doing a self-assessment is a very good              
 idea.  The more you know, the more you can change or adjust to come           
 into compliance.  It's usually those companies that try to hide               
 what's going on from themselves that end up with having compliance            
 MS. ADAIR continued, "There are no generally accepted standards for           
 audits but there are, I think, some generally accepted standards              
 for how audits should be done and the relationship between an                 
 auditor and the company being audited.  That's not to say that the            
 auditor should always be a third party or an outside employee, but            
 if you're asking someone to come in and give a critical review of             
 how your operation runs, it may not be the best situation if that             
 person reports directly to the person who has responsibility for              
 how that operation is running if they are going to really be honest           
 and critical on it.  This legislation allows audits to be done                
 basically by anyone; they can be done randomly; there's no vision             
 that they be done in any structured way and we think that's very              
 important.  Particularly if there's going to be an immunity                   
 attached to what those audit findings are."                                   
 Number 274                                                                    
 MS. ADAIR explained, "The definition of audit report is extremely             
 broad.  I think it takes up nearly a page of the bill and it                  
 includes the corrected action plan.  The way that the situation               
 would work is a company would notify any department that would be             
 impacted by whatever the scope of the audit would entail of their             
 intent to do an audit and then we would not hear anything from them           
 again unless they found a violation - they would let us know that             
 perhaps.  And that is part of the public record.  But how they                
 intend to correct that violation is not.  It is confidential.  The            
 public can't review it; your citizen councils, community councils             
 can't review it to make sure that they agree.  It just becomes a              
 secret document and we find that very problematic.  The bill does             
 require that the facility cooperate with us in investigating the              
 issues disclosed, but then we can't ask for the audit report and              
 that includes the corrective action plan.  So there's not a real              
 good connection there."                                                       
 MS. ADAIR continued, "By the terms of the legislation, the                    
 privilege is not limited to just a critical self-analysis of past             
 events.  You can - a company would be able to look at what they're            
 doing, try to determine whether or not it could cause a violation             
 prospectively and decide that gee, ya it does, but we're going to             
 continue to do this.  All that documentation would be privileged.             
 It would show a state of mind if we wanted to pursue - if something           
 did happen and you wanted to show that they understood, they knew             
 what was going on, the document would be privileged, however.  In             
 federal courts that have recognized a critical self-analysis                  
 privilege, they limit it to an analysis of past actions.  So if you           
 have an event and you're trying to figure out how to prevent that             
 thing from happening again, you might do an audit of your                     
 operations to see how you can prevent that violation from                     
 occurring.  And that's very different than something where you're             
 looking at something prospectively and we find that to be                     
 MS. ADAIR stated, "We also believe that protecting criminal actions           
 through a privilege or immunity is bad public policy.  There are              
 laws on our books that make certain actions a crime.  The DEC or              
 any agency does not really make that determination.  We refer                 
 things to the Department of Law and the Department of Law then uses           
 its prosecutorial discretion to bring a case or not.  So we have a            
 real problem with immunizing or holding or applying the privilege             
 to anything that deals with potential criminal actions.  We think             
 that the privilege is also unnecessary.  As I stated earlier, I               
 think, we do provide a limited immunity when people self-report               
 violations to the department.  We do have a program through our               
 pollution prevention office that helps people do audits if they               
 don't know how and most small companies don't.  If you look in the            
 yellow pages of the phone book, you're not going to find                      
 environmental auditor or auditors in the yellow pages.  There's               
 just not a lot of people out there that do that.  Larger companies            
 - it's something that they have developed internally and they do              
 have a pretty good system, most of them.  But this is something               
 that is still very new for the smaller companies.  So we think it's           
 very important for the department to be proactive and help these              
 companies develop these programs.  We, in fact, had a provision               
 drafted for our air regulations that would have provided a limited            
 immunity for inspections that were done by the certified inspectors           
 in the air program and we removed that for the public notice draft            
 because of this legislation.  We wanted to see where this                     
 legislation was going to go.  But it is something we're talking               
 about internally.  We believe that having an immunity in limited              
 sense for people who self-report give us ability to do some                   
 guidance on how you do an audit makes good sense and it is                    
 something that we're looking at developing kind of a standard for             
 all of our regulatory packages that we might need to adjust based             
 on whatever the program may be, but they would get that through               
 regulation.  It wouldn't be a privilege - privilege makes a                   
 document secret - no one can get it.  You can't get it, the courts            
 can't get it, we can't get it and it just doesn't seem to really              
 correspond with the kind of a good neighbor policy that we try to             
 develop with not only between us and industry, but industry and the           
 people that live around those facilities."                                    
 MS. ADAIR remarked, "The EPA testified that this legislation could            
 negatively impact our delegation of federal programs and that was             
 also the issue for the Department of Labor's attorney that she was            
 mentioning for the state OSHA program.  That's a delegated program            
 much like DEC's air program and solid waste program.  EPA has said            
 that -- in order to delegate a program, we have to be able to                 
 demonstrate that we can enforce the law and they want to have that            
 so that everybody is treated the same.  If the you operate here or            
 if you operate in Idaho, the laws are treated the same and the                
 citizenry is protected the same.  So, EPA has taken a very cautious           
 approach to this kind of legislation and has gone on the record as            
 saying that certain elements of it do give the very good                      
 probability that delegation of the programs would be impacted.                
 What they did in Idaho - Idaho passed a similar law, although it              
 deals only with environmental rules, and their Title V delegation             
 package was pending before EPA at the time.  EPA had noticed their            
 intent to fully delegate the air program and after Idaho passed               
 this law, they amended that notice to give them interim delegation            
 only until Idaho goes back and fixes its law.  So I think they've             
 got two years to make the changes and then EPA will start the                 
 process to take the program over in Idaho.  And we think that's               
 very serious."                                                                
 Number 568                                                                    
 CO-CHAIRMAN WILLIAMS asked if the department was currently                    
 contracting out any type of services, such as inspections?                    
 MS. ADAIR responded the department doesn't do that at this time.              
 She added, "We had a program - we were looking at doing something             
 like that, I believe it was in waste water and there is a legal               
 problem with the department contracting out for what is considered            
 its discretionary responsibilities and Marie might be able to                 
 answer that more fully, but it's something that I don't believe we            
 can legally do."                                                              
 Number 596                                                                    
 CO-CHAIRMAN WILLIAMS inquired, "With the declining revenue and the            
 problems we're having in that area of being cutback, is this an               
 area that you would be maybe contracting this type of auditing                
 services.  I know that there's some people that worked for DEC that           
 are now working for the private sector.  Is the department willing            
 to look at something so that we can do some of these audits by                
 outside people - private sector people?"                                      
 Number 629                                                                    
 MS. ADAIR replied, "The department doesn't do audits now.  We don't           
 go in and audit companies, I mean, yes, we will do inspections to             
 ensure compliance with our laws and that's something that, as I               
 said, we really can't contract out to do audits.  Let me digress              
 for just a second.  There are a number of DEC employees - past                
 employees who have gone to work for environmental consultants and             
 I don't mean to identify any of them in this story, but the                   
 environmental consulting field is very interesting.  There's a                
 number of them that are (indisc.) - they really know what they're             
 doing and then there's -- this is a completely unregulated field,             
 really anybody can hang up their shingle and call themselves an               
 environmental consultant.  We've had cases where -- a quality                 
 assurance program plan is something that we require if someone's              
 going to do a contaminated site cleanup - you have to tell us about           
 your chain of custody and how you're going to go about testing for            
 the contaminant and monitoring it, so we know that you know what              
 you're doing.  We've had consultants come in and take other                   
 consultant's quality assurance program plans from our files because           
 they're public records, copy them and simply change the names and             
 then submit them as their own.  The way that we find that is                  
 because they miss some places and they don't get all the name                 
 changes in there right.  So, it causes great concern when we know             
 there are consultants out there that would stoop that low.  But               
 then you say, `And now we want you to go out and do audits of these           
 companies' and then we're going to provide these companies not only           
 with immunity, but we're going to hold all those documents                    
 privileged and no one can ever see them to know what's in them.  So           
 we somehow have to get a handle, I think, on how audits are done              
 and making sure that there is an appropriate relationship between             
 the auditor and the auditee.  I think this is an avenue worth                 
 exploring.  You don't get it in this legislation in my opinion."              
 Number 725                                                                    
 CO-CHAIRMAN WILLIAMS said he understood there are auditors and                
 there are auditors, but inasmuch as most companies want assurance             
 that their audit was done correctly, an auditor will have to be               
 credible or won't be in business very long.                                   
 Number 761                                                                    
 CO-CHAIRMAN GREEN noted he had just been informed that Eileen                 
 Maclean had passed away and the committee would take a moment of              
 Number 797                                                                    
 REPRESENTATIVE DAVIES asked Ms. Adair to briefly outline the                  
 department's current policy on limited immunity.  Also, he inquired           
 if she was aware of any case in which DEC was involved where anyone           
 was prosecuted based on information that came to light as a result            
 of an environmental audit.                                                    
 MS. ADAIR replied, "I'll answer the last question first because               
 it's easiest - no.  What our policy is right now and I gave you a             
 little brochure in our packet of our pit stop program and that's              
 probably the most formal that we get about it - but we just                   
 generally have a policy that if someone comes in to the department            
 and self-reports a violation that they discovered, and they don't             
 have to necessarily say that we performed this elaborate audit, but           
 they self-report a violation and there's not been any harm to                 
 another person, it doesn't appear that they intended to do it --              
 you know they are telling us about it and they're doing everything            
 they can to correct it or in some cases they have already corrected           
 it - then we don't pursue any penalties of any sort.  Now if it's             
 a contamination issue - and this is another thing that gets wrapped           
 up into this and Mr. Chairman, I'm sure you'll be most interested             
 in this - this also would impact how we use the response fund and             
 then our ability to cost recover for the response fund.  Because as           
 long as this documentation is kept from the department, if it's               
 contaminated, it still has to be cleaned up.  And if we can't get             
 the information to show who the responsible party or parties are,             
 then the state is likely going to end up on the hook or a                     
 municipality if they have to take a property back because of                  
 failure to pay property taxes.  So we would see a potential                   
 increase in the use of the response fund to clean up contaminated             
 sites where we couldn't find the responsible party.  Now in a case            
 like that right now, if someone comes in and self-reports                     
 contamination, they still have to clean it up.  That in our mind              
 isn't a penalty; that is simply restoring the environment.  There's           
 not a monetary penalty or anything like that that's added on top of           
 Number 951                                                                    
 CO-CHAIRMAN GREEN said, "You've indicated that under the current              
 system if somebody does come in, you help them clean up, you make             
 sure it's cleaned up properly but you don't hammer them.  If you              
 were to go to regulations to accomplish essentially what this bill            
 would try and do, would there be an immunity involved or would it             
 just be kind of a `well, trust us' type thing?"                               
 MS. ADAIR replied, "Mr. Chairman, we did provide you with a copy of           
 a draft amendment to this bill that we had prepared several months            
 ago, I think almost by now, that we think captures what our policy            
 is.  So I would see any regulations that we would do to be very               
 similar to that amendment or committee substitute or whatever it              
 is.  But we would likely set out the standards for what we would              
 consider a voluntary report of a violation and under what                     
 circumstances we would forego any penalties or administrative                 
 action.  As I said, where there was contamination or some kind of             
 harm done, that would be something separate.  You'd still have to             
 take care of that.  And any place where the federal law, because of           
 the program delegation, would preclude us from doing that and that            
 is something that's in our amendment that we did.  We'd probably              
 have a little bit more flexibility in a regulatory sense to do                
 something like that because regulations are usually more                      
 discretionary.  But we really wouldn't want to jeopardize program             
 delegation through an immunity provision and I think you can                  
 understand why.  You don't want to have two sets of rules that                
 people have to follow - the state and the feds - two permits to get           
 and all of that; it doesn't really make sense."                               
 Number 1040                                                                   
 CO-CHAIRMAN GREEN inquired, "And then the regs - then you would               
 bypass this concern that I think is a just concern that there                 
 wouldn't be any public oversight.  There would still be the                   
 existing oversight that you have now."                                        
 MS. ADAIR replied, "Mr. Chairman, that's correct.  We would not               
 provide for any kind of privilege, of course.  And then the                   
 regulation development process would be subject to the                        
 Administrative Procedures Act and would be out there for public               
 comment and we would be able to look at the whole range of issues.            
 One of the problems with this bill is that there are no issues to             
 point to to say this is what we're trying to fix.  And so as a                
 result, the language of the bill can be -- it's very broad and                
 there's a lot of things we don't really know what it means.  We               
 don't really know how it would apply because we don't have any                
 examples to point to.  It makes it very difficult; although we know           
 there will be a fiscal note.  It makes it very difficult to                   
 understand the full ramifications of the legislation."                        
 Number 1093                                                                   
 CO-CHAIRMAN GREEN commented, "I think -- we heard this morning from           
 the federal government that while other states have enacted the               
 same or similar legislation, there are some problems with it and              
 that maybe we would find that same problem -- we can't go to other            
 states and say we'll model ours after yours, like we do in some               
 MS. ADAIR responded, "Mr. Chairman, that's what we've found, too.             
 My review indicates that only Texas has included health and safety            
 laws in the audit bills and they don't have a delegated OSHA                  
 program either.  So they're not the same as Alaska.  All the other            
 states have only environmental audits.  I did call around to some             
 of the other EPA regions just to see what their experience was.  A            
 lot of them don't have any experience yet because the bills are               
 still too new but we have recently learned that in Colorado and               
 Oregon it really isn't working like they thought it would work."              
 Number 1157                                                                   
 REPRESENTATIVE OGAN said, "Kind of on a different line -- looking             
 at a letter written to Mr. Robert Bundy by Senator Loren Leman --             
 are you familiar with the letter?"                                            
 MS. ADAIR replied that she had not seen the letter.                           
 REPRESENTATIVE OGAN said, "He brings up some points in here I'd               
 like to ask you to comment on.  It says that under EPA's new                  
 policy, violations reported must not have -- they have apparently             
 a -- violations that are discovered through self-audit and promptly           
 reported to the agencies - similarities to what this bill does --             
 violations reported must not have resulted in serious harm to the             
 environment, repeat offenders are excluded, regulated entity must             
 correct the problems, take steps to prevent future reoccurrence.              
 Do you concur that that's part of this bill?"                                 
 MS. ADAIR replied, "No, I don't.  I don't think the bill is drafted           
 very well and I mean I could take you to the section like on the              
 repeat violations -- it's only repeat violation if it's in the same           
 facility.  You could have an operator - and we do have operators              
 that do this  - a dirt mover is a very good example because they              
 move around.  If you go from facility to facility, you can have the           
 same violations a whole bunch of times as long as you're in a                 
 different facility, it doesn't count against you.  So it hasn't               
 really -- repeat violators really haven't been addressed in this              
 Number 1277                                                                   
 REPRESENTATIVE OGAN remarked, "Well, his assertion is that SB 199             
 actually is stricter in some respects.  Immunity is available only            
 if a business first provides notification to the agency of its                
 intent to conduct an audit, the EPA has no such requirement.  In              
 addition, EPA offers a 75 percent reduction in penalties even if              
 the reported violations were not discovered through a self-audit.             
 In contrast, immunity in SB 199 is allowed only for violations that           
 arise from a self-audit.  Would you care to comment on that."                 
 MS. ADAIR asked if Representative Ogan could repeat the first                 
 REPRESENTATIVE OGAN responded, "The first one is that immunity is             
 available only if....                                                         
 MS. ADAIR interjected, "...only for things that are reported as a             
 result of the audit.  I do believe that is in the bill.  I think              
 that's correct.  And the second part was..."                                  
 REPRESENTATIVE OGAN said, "Immunity is only allowed for violations            
 that arise from a self-audit."                                                
 MS. ADAIR replied, "I believe that's correct, also."                          
 REPRESENTATIVE OGAN inquired, "So you would still have the ability            
 to check up on these people even though they didn't have a self-              
 MS. ADAIR stated, "We would still be able to inspect.  We would               
 still be able to have involvement with the company.  When you take            
 the privilege and the immunity together, that's where the problems            
 start to occur because the privilege takes all of this                        
 documentation and keeps it from any kind of review by anyone.  So             
 while the violation may be the result of an audit -- may have been            
 discovered as the result of an audit and reported, there's no way             
 for the agency to go in and look at the documentation.  And to the            
 extent it is revealed to us, we have to keep it confidential.  So             
 then there's no way for the public, who may have a keen interest in           
 whatever the violation was, to check to see if their interests are            
 being taken care of - if we're doing our job."                                
 REPRESENTATIVE OGAN asked, "What is the information that agencies             
 routinely use in enforcement proceedings that will be denied to               
 them if a self-audit privilege is enacted in Alaska."                         
 MS. ADAIR replied, "We look at the definition of the audit report.            
 It includes photographs, drawings, legal analysis, field notes,               
 records of observations, laboratory analysis, maps, charts, graphs,           
 surveys, other communications associated with other audits,                   
 memoranda and the corrective action plan.  So if you have a company           
 that's trying to hide something - and there are companies out there           
 that are like that - if they're trying to hide something, they do             
 an audit, they just scoop up all this information, they stamp it              
 confidential as part of their audit document, and it's gone from              
 any kind of public review.  So, it's hard to answer that question             
 real directly because the possibilities are so broad what could be            
 privileged under this bill that we would otherwise routinely get.             
 We do -- I know that the Department of Law, on our behalf, when we            
 are trying to figure out contamination issues, we will ask for an             
 audit through the discovery process - or the Department of Law will           
 so that we can try to figure out who the responsible party is if an           
 audit is available - if they've done any."                                    
 Number 1527                                                                   
 REPRESENTATIVE DAVIES asked if Ms. Adair was familiar with the EPA            
 policy with respect to self-audits?                                           
 MS. ADAIR responded yes.                                                      
 REPRESENTATIVE DAVIES commented that it's his impression from what            
 he's read that one of the essential elements of the EPA policy is             
 disclosure.  He asked Ms. Adair if she knew what that entails?                
 MS. ADAIR replied, "Well, the EPA policy doesn't have the privilege           
 and I think that's a very important distinction.  As I understand             
 the EPA policy, they won't routinely ask for an audit when they're            
 doing an inspection, but they may ask for it if they believe that             
 it's important to determine compliance.  And the reduction in any             
 penalties that may be offered by the Department of Justice do                 
 depend on a voluntary disclosure of the violations that may have              
 been found as a result of the audit -- that the facilities come to            
 EPA and say, `This is what we did, this is what we found, this is             
 what we're going to do about it' and give them the documentation              
 that goes along with that."                                                   
 REPRESENTATIVE DAVIES inquired, "So the disclosure in that context            
 doesn't have to do with the audit itself, but with the violation."            
 MS. ADAIR responded, "It's my understanding that they get the audit           
 also - they get the documentation."                                           
 REPRESENTATIVE DAVIES added, "Because there's no privilege attached           
 to it."                                                                       
 MS. ADAIR replied that was correct.                                           
 REPRESENTATIVE DAVIES said, "Mr. Chairman, just for the record it             
 would seem to me that that would be an important part -- I mean               
 that's one of the problems that I see with this is that we don't              
 have the information that's shielded whereas in a process where               
 you're encouraging openness and working with people, you'd want to            
 have the information on the table."                                           
 CO-CHAIRMAN WILLIAMS thanked Ms. Adair for her testimony.                     
 Number 1663                                                                   
 NANCY WELLER, Division of Medical Assistance, Department of Health            
 & Social Services, said the department was concerned about SB 199             
 for many of the same reasons that the DEC had expressed because the           
 definition of the environmental or health and safety law is so                
 broad that it could negatively impact a lot of the functions the              
 department performs in relation to the Medicaid program.  She said,           
 "The Division of Medical Assistance, in administering the Medicaid            
 Program, is charged with licensing and certifying health facilities           
 and ensuring that payments to providers are accurate, and linked to           
 services that are actually rendered."                                         
 MS. WELLER further stated, "The division certifies health care                
 facilities under our contract with the federal health care                    
 financing administration.  Facilities and health care providers who           
 are certified are then allowed to bill both Medicare and Medicaid             
 for services provided.  The surveyors look not only at the physical           
 plant of the buildings but at all of the financial and patient care           
 records to determine if care being provided is done in a safe                 
 environment and if everything is correctly documented.  The                   
 entities are encouraged to do self-audits and reviews but if these            
 records are kept from the state, potentially life-threatening                 
 situations could go undetected."                                              
 Number 1740                                                                   
 MS. WELLER continued, "The division also conducts active programs             
 of surveillance and utilization review and audits of health care              
 providers to assure that payments for health care services are                
 correct.  As required under federal law, a provider fraud unit                
 exists in the Department of Law, and you heard from them earlier              
 today.  Cases involving providers misconduct and fraud are very               
 time consuming and costly for the states to pursue.  The audit                
 privilege under SB 199 would create the perfect avenue for a                  
 dishonest person to conceal illegal activities by preventing access           
 to the very records necessary to verify that services were                    
 correctly provided and billed, or by proving the provider's mental            
 state in order to prove that fraud or program abuse had occurred.             
 Additionally, a provider could claim an audit privilege which would           
 prevent the division from imposing sanctions relating to program              
 abuse.  One of the sanctions we have in our sanction regulations              
 allows us to recoup money that was illegally paid to a provider.              
 We are required under federal law to return any money that was                
 illegally paid within 60 days of discovering the illegal payment.             
 If someone were to take an audit privilege and we could never                 
 collect the money, we would have to pay back to the federal                   
 government money that we would never be able to collect."                     
 MS. WELLER explained, "The Medicaid Rate Advisory Commission within           
 the department also shares similar audit concerns about this bill.            
 The commission is charged with setting rates of payment for health            
 care facilities.  The commission auditors rely on access to                   
 facility records, self-audits and cost reports in the complex rate            
 setting process.  If they have lack of access to any of the                   
 numerous documents necessary to determine that rates are in                   
 compliance with the federal `Boren Amendment', to assure that                 
 payments are related to economically efficient operation, it would            
 add much greater complexity to the rate setting process."                     
 MS. WELLER concluded, "The Department of Health & Social Services             
 believes that in order to protect the public's safety, the                    
 investment in the Medicaid program and to guarantee the health and            
 safety of all Alaskans who receive care in health facilities, that            
 any activities related to the Medicaid program should be excluded             
 from the definition of environmental and health and safety audit."            
 Number 1873                                                                   
 CO-CHAIRMAN GREEN thanked Ms. Weller for her testimony and asked if           
 there were any questions.                                                     
 Number 1923                                                                   
 MIKE PAULEY, Legislative Administrative Assistant to Senator Loren            
 Leman, advised the committee he wished to comment on some of the              
 testimony he had heard.  He said, "In our view, much of the                   
 testimony stems from basic misunderstandings of what the bill does            
 and does not do.  But what I'd first of all like to address is the            
 issues raised this morning about why is this bill even needed.  It            
 was suggested that companies are already doing self-audits so why             
 pass an incentives bill.  The reason for approving legislation such           
 as SB 199 is that it will encourage more companies to conduct self-           
 audits and it will help improve the quality of audits that are                
 already being performed.  Last year Price Waterhouse conducted a              
 survey of 369 companies nationwide, which represented 14 different            
 manufacturing and service sectors of the economy.  It was found               
 that 75 percent of the companies now perform some form of self-               
 auditing, but it's useful to note that two-thirds of those                    
 companies stated that they would expand such programs if penalties            
 were eliminated for problems that the companies themselves                    
 identified, reported and corrected.  In addition, 20 percent of the           
 companies that do not perform audits stated that they feared the              
 audit information could somehow be used against their company.                
 This fear is unfortunately validated by the experiences of                    
 companies that are performing audits:  25 percent reported that               
 outside third parties had attempted to obtain their audit data and            
 15 percent reported that those attempts were successful.  An                  
 additional 12 percent said that audit reports had been used for               
 enforcement purposes against them.  Clearly, many companies                   
 question why they should go above and beyond what the law requires            
 by conducting expensive audits, only to discover problems that will           
 lead to penalties and other punitive actions.  Too many companies             
 simply choose not to search for problems; it's the attitude that              
 says, `I'd rather not know.'  But a compliance problem that goes              
 undetected and unnoticed by management is still a problem.  And we            
 ought to measure the success of our environmental laws not by how             
 many court cases have been filed or how many fines have been handed           
 out, but by how many regulated entities are conscientiously                   
 complying with the law."                                                      
 MR. PAULEY further stated, "Regulated entities understand the need            
 for self-audit incentive legislation and that's why SB 199 has been           
 endorsed by the Alaska Oil and Gas Association, the Alaska State              
 Chamber of Commerce, the Alaska Miners Association, the Alaska                
 Forest Association and many other groups.  These groups and                   
 businesses represent the vast majority of private sector employment           
 in Alaska.  I might also note that last week the Alaska Municipal             
 League lent their endorsement to this legislation."                           
 MR. PAULEY continued, "But a second factor is that in addition to             
 encouraging more companies to perform audits, we think that SB 199            
 will improve the quality of audits that are already being                     
 conducted.  This is because the privilege provision in the bill               
 makes businesses more comfortable using frank and unambiguous                 
 language in the audit reports.  Many of the audit reports that are            
 now being produced employ vague and indirect language out of fear             
 that the report might somehow be compromised.  For example, I have            
 brought here today a popular textbook which guides companies in the           
 art of self-auditing.  It's called `Environmental Health, and                 
 Safety Auditing Handbook' written by Lee Harrison and the book is             
 full of admonitions about how your audit report shouldn't be too              
 specific about what you actually find in case someone actually gets           
 a hold of it.  Just as one example, there's a quote here to the               
 effect that says, `The possibility that audit reports could become            
 public or be disclosed to potentially adverse parties should also             
 shape the language auditors use in their reports.  It is usually              
 unwise and unnecessary to opine in an audit report that a given               
 activity or condition is illegal or a violation; rather auditors              
 should identify applicable requirements and summarize conditions              
 noted in the field.  Thereafter in a separate written or oral                 
 communication, legal counsel can assess whether a violation has               
 occurred.'  The sponsor of SB 199 believes that the audit documents           
 ought to be frank and get straight to the heart of the problem, as            
 opposed to using vague and ambiguous language.  We're not                     
 interested in sanitized documents that are written in legalese and            
 which are of no use to anyone.  Protecting audit reports through              
 privilege will encourage the use of honest and straightforward                
 Number 2279                                                                   
 MR. PAULEY said, "The second area I want to address is the immunity           
 and privilege provisions.  It's been suggested that they are overly           
 broad and that they are somehow going to offer a haven for bad                
 actors.  On the contrary, we'd argue that there are numerous                  
 caveats and conditions set on the immunity and privilege provisions           
 in this bill.  We like to think SB 199 is less like a haven and               
 more like a minefield for bad actors.  Let me explain.  Regarding             
 the privilege provision, the privilege does not apply to any                  
 information which is already required to be reported to agencies or           
 otherwise maintained as part of an existing law, regulation or                
 permit.  If you're required to report it, if you're required to               
 maintain records on your premises about certain activities under              
 existing law, you cannot invoke privilege for such information or             
 for such documents.  The audit privilege can't be invoked for                 
 information that a regulatory agency obtains through its own                  
 observation or sampling or monitoring.  The privilege also doesn't            
 apply to information received from a whistleblower or third party."           
 Number 2363                                                                   
 MR. PAULEY said, "Under the CS that is before the House Resources             
 Committee, there is also a provision that allows an audit report to           
 be reviewed by a judge if there is a valid suspicion that the audit           
 was conducted for a fraudulent purpose, such as an attempt to                 
 shield information needed for an ongoing investigation.  It it's              
 determined that the audit was conducted for an invalid purpose                
 during the in camera review by a judge, the privilege is lost.  The           
 privilege also does not apply to records and information that are             
 already developed or maintained as part of a regular business                 
 practice such as inventories of supplies or materials; if it's                
 something that you already do as part of a normal accounting                  
 procedure, you can't claim privilege for that.  It's not protected            
 by the audit report."                                                         
 MR. PAULEY continued, "On the immunity, this also has strict                  
 limitation and these limitations are in some cases even stricter              
 than the EPA's new policy which was promulgated last year.  You're            
 only eligible for immunity for violations that arise from a self-             
 audit report.  You must have provided notice to the appropriate               
 agency of your intent to conduct an audit or else immunity will be            
 invalid.  Disclosure of the....                                               
 TAPE 96-68, SIDE A                                                            
 Number 001                                                                    
 MR. PAULEY continued..."substantial on-site injury or substantial             
 off-side harm.  No immunity is available for violations that had              
 already been detected by an agency or already subject to an                   
 investigation.  No immunity is available if it is proven that the             
 regulated entity knowingly committed the violation.  This bill only           
 applies to unintentional violations.  Furthermore, immunity is not            
 available for any persons that have a history of noncompliance.  So           
 in conclusion, there's a lot of conditions placed on the immunity             
 and if even one of them is violated, the immunity is lost.  These             
 exceptions constitute a minefield which will kill or maim any bad             
 actor that seeks to use this bill as a shield for improper                    
 MR. PAULEY stated, "Another issue I'd like to raise is litigation.            
 It was suggested this morning that this bill is a lawyer's dream;             
 that there will be no unemployed lawyers in the state of Alaska               
 after this bill is created because of litigation that will spawn.             
 First, I cannot deny the possibility that if this bill is enacted             
 that it might be tested in the courts.  Most laws that really                 
 matter in people's lives eventually get tested in the court.  The             
 Alaska and Federal Constitutions have probably been the subject of            
 more litigation than any individual statute that comes to my mind.            
 Civil rights laws have generated enormous litigation.                         
 Nevertheless, I doubt that many of us would question that these               
 laws have served us well.  Having said that, it is useful to note             
 that one-third of the states in the Union have adopted self-audit             
 laws.  We are not aware that it has resulted in an explosion of               
 litigation in those states.  Furthermore, there are existing                  
 privileges in Alaska, such as the attorney/client and work product            
 privilege, and the sponsor is not aware that any of these                     
 privileges have generated an obscene amount of litigation.  With              
 the Chairman's permission, I would like to just share with the                
 committee an existing privilege that is in the Alaska Statutes                
 under Title 18, Chapter 23.  This relates to protecting the                   
 proceedings and records of physician peer review panels.  All 50              
 states have these laws on the books.  The law recognizes that a               
 public interest is served by maintaining confidentiality for the              
 proceedings of a physician peer review panel.  The concept here is            
 that if the minutes or other documents from a physician peer review           
 panel were disclosed, few doctors would be honest in their                    
 assessment of their own performance or the performance of other               
 doctors.  Thus, it's been recognized that a public health interest            
 is served by establishing the privilege for these proceedings."               
 MR. PAULEY explained, "The premise of SB 199 is no different.  We             
 argue that the public interest in environmental protection and safe           
 work places is ample justification for extending a narrow,                    
 qualified privilege for self-critical analysis in these areas.  The           
 detractors of SB 199 argue that the privilege is an untested,                 
 radical and dangerous concept.  On the contrary, we have privilege            
 laws on the books already.  They have worked.  They have not been             
 abused.  The end result of these new applications would be a                  
 cleaner environment and safer work places.  That is a goal in which           
 we should all be able to agree.  That concludes my remarks on the             
 testimony this morning and just with regard to testimony we've                
 heard in the last hour, I would only say that in response to Ms.              
 Adair's concern that the audits should be limited to retroactive              
 analysis, in the CS that's before the committee, the definition of            
 self-audit report - some language has been added that states that             
 the self-audit can only apply to current or past compliance with              
 laws.  So the prospect of having an audit determined to plot a                
 future course of action of noncompliance and figuring out whether             
 it would be profitable to the company to be out of compliance with            
 the laws, that possibility is far-fetched, as we believe it is, has           
 been excluded by the new definition in the bill."                             
 Number 349                                                                    
 CO-CHAIRMAN GREEN commented, "You mentioned that if a company has             
 a history of violation, then they can't fall under this, and I'm              
 thinking how would that be interpreted do you think, for a company            
 like a North Slope oil field operator who may have developed a                
 plethora of potential pits, where they use gravel as the berm                 
 around it, and they would fill with rain water or snow and then the           
 snow would melt and seep through the gravel and because there is a            
 law that says you can't have leaking pits, they were cited and they           
 were cited many, many times because they were leaking rain water              
 out of these pits that they've never used.  Now would that mean               
 that under this law that if that company came in and self-audited             
 for a leaky pit that they couldn't use the immunity that they just            
 told on themselves?"                                                          
 Number 425                                                                    
 MR. PAULEY responded, "Chairman Green, that is a legitimate concern           
 and one that has been wrestled with a lot.  The best I can do to              
 answer it is to refer you to page 8 of the CS, if the members have            
 that - Version 9-LS1312\O, which is the House CS - but on page 8,             
 line 8, letter (h), it says `the immunity under this section does             
 not apply if a court or administrative law judge finds that the               
 person claiming the immunity has on or after the effective date of            
 this Act, one repeated an unreasonable number of times or                     
 continuously committed violations that are the same as or similar             
 to the violation for which immunity is sought under this section              
 and not attempted to bring the facility operational property into             
 compliance so as to constitute a pattern of disregard of                      
 environmental or health and safety laws.'  So I think the key word            
 here is the word `and.'  Not only is it the repeated violations               
 considered but also you would have had to have a record where you             
 hadn't attempted to correct that.  So, the bottom line answer to              
 your question is that I think that they - with the information I              
 have and as you've described it - I think they would be eligible              
 for immunity so long as they had attempted to bring themselves into           
 compliance.  There were a large number of violations, but unless              
 they had just ignored that and not taken any efforts to correct it,           
 this would not be a problem."                                                 
 CO-CHAIRMAN GREEN remarked, "And that was the case - they didn't              
 because they weren't leaking anything but snow melt and rain water.           
 So it wasn't anything that created a problem; they weren't                    
 impounding anything that nature didn't impound.  However, they were           
 in violation because the law said you will not have pits that leak,           
 even though you're not using them."                                           
 MR. PAULEY interjected, "Regardless of what they're leaking."                 
 CO-CHAIRMAN GREEN said that was right and they were cited.                    
 MR. PAULEY responded, "I don't know if I have the answer to that              
 other than that maybe the regulation -- I mean if there's poorly              
 written existing laws and environmental regulations, this bill is             
 not going to solve that problem.  It addresses how they're                    
 implemented and how they're enforced but in that case, it sounds              
 like it's just an ill-thought out regulation."                                
 CO-CHAIRMAN GREEN remarked, "And I think the regulation was written           
 with the context that you're putting something in there and it                
 shouldn't leak out.  And everybody agreed to that; however, there             
 were a plethora of pits developed that never were used and nobody             
 thought about that.  And it was the use of the law to punish that             
 causes some people concern of `Hey, wait a minute why do I blow the           
 whistle if I've seen in the past that this bites me' and so that              
 was just an issue I just wondered about.  The other thing, Ms.                
 Adair indicated that while several states - a third I think you               
 used - about a third of the states have employed something like               
 this, her comment went on to say that `yes, but it was perhaps ill-           
 advised and that now they're seeing that maybe those weren't done             
 as well, they were too hasty and may not be all that it was cracked           
 up to be."                                                                    
 Number 676                                                                    
 MR. PAULEY responded, "Mr. Chairman, during our Resources Committee           
 hearings on SB 199, we heard testimony from representatives from              
 Oklahoma and also from Texas which both have self-audit laws on the           
 books.  The testimony we heard was that those laws have been very             
 positive, that they had inspired companies to do audits who hadn't            
 been previously doing them before.  We heard testimony from John              
 Riley who is the litigation director for the Texas Natural                    
 Resources Conservation Commission - sort of their counterpart to              
 our DEC, and he had very positive reviews about how the law has               
 been implemented there and the number of companies and                        
 municipalities, I might add, who are taking advantage of its                  
 provision.  The testimony we heard has been positive.  I mean, we             
 haven't talked to every single one of the 17 states that have this            
 because of limited time and staff resources, but with the ones we             
 talked to, we've heard positive feedback.  On the other hand, I               
 have not heard any convincing testimony from other states about               
 that their laws were lemons or that they haven't been working as              
 Number 751                                                                    
 MR. PAULEY continued, "If I could just throw in one thing sort of             
 on a different subject, but this is something I forgot to bring up.           
 There was some testimony given a little while ago on the issue of -           
 - that this bill could hypothetically be used to protect                      
 information that is needed to determine proper Medicaid payments to           
 hospitals and detect fraud and things of this nature and this has             
 come up at repeated hearings before and we're unclear as to what is           
 motivating the testimony.  The definition of environmental health             
 and safety law contained in the law very plainly states that where            
 health and safety is concerned, we're talking about occupational              
 health and safety - occupational health and safety only.  So as               
 applied to a hospital, the only application this bill has would be            
 to occupational safety issues with regard to the employees of the             
 hospital.  It has nothing to do with patient care standards or                
 anything of the sort or whether excessive treatments are being used           
 or whether the Medicaid payments are fraudulent.  It's just not               
 even touched by this bill and we think there's just a fundamental             
 misunderstanding - that they don't understand that health and                 
 safety is limited to occupational.  It doesn't have anything to do            
 with patient care status.  I might add though that the existing               
 privilege law in the Alaska Statutes very much has an impact on the           
 treatment of patients.  I'm not aware that has caused (indisc.)               
 abuses and it's been on the books since the early `70s."                      
 CO-CHAIRMAN GREEN asked if there were any questions and thanked Mr.           
 Pauley for his testimony.                                                     
 Number 871                                                                    
 MARIE SANSONE, Assistant Attorney General, Natural Resources                  
 Section, Department of Law, said she has been the lead attorney for           
 the Department of Law on this bill for the Civil Division.  The               
 Criminal Division has followed it separately and probably would               
 want to express their concerns.  She said, "We do have many, many             
 concerns with this bill and our concerns primarily arise out of the           
 breadth and scope of the bill.  First of all, the laws that are               
 affected -- if you look in the definitions in Section 490 (a) or              
 (3), the bill defines environmental or health and safety law.  It             
 applies to all federal and state environmental laws and the                   
 municipal ordinances passed in conjunction with or to implement               
 those laws.  This first of all is broader than the EPA policy.  The           
 EPA policy only applies to the laws that EPA enforces.  So when you           
 say all environmental laws, DEC certainly implements the majority             
 of the state's environmental laws but so do the other agencies and            
 departments.  The Alaska Oil and Gas Conservation Commission, for             
 example, regulates a lot of environmental and health and safety               
 aspects with the injection wells.  The Department of Natural                  
 Resources - their forest practices regulations would certainly be             
 considered an environmental regulation; they regulate water                   
 Number 985                                                                    
 MS. SANSONE further stated, "Then if we look at this issue about              
 the occupational safety and health laws, they are all the federal             
 and state occupational health and safety laws and the municipal               
 ordinances adopted to implement and in conjunction with those.  So            
 they are not just OSHA.  They're a broad array of health and safety           
 laws that come into play in an occupational setting.  We feel that            
 if the sponsor truly intends this to really be just OSHA, it would            
 be a simple matter to amend the bill to say that.  But without that           
 limitation, we cannot interpret the bill broadly and in fact, in              
 Section 490(b), the bill tells us we have to interpret this term              
 `environmental or health and safety' laws broadly.  So there's a              
 huge sweep of laws throughout all the Titles of the Alaska                    
 Statutes.  Then in the definitions also, they define the term                 
 `audit' and that's in Section 490(a)(2).  An audit can be conducted           
 by anybody affiliated with a company; it can be an employee of the            
 company; it can be a contractor.  They don't have to have any                 
 authority to conduct the audit.  They don't have any money -                  
 authorities spend money to conduct the audit - they may not have              
 the authority to spend the money to make the corrections that the             
 audit recommends.  So anybody anytime can initiate an audit.  Well            
 that's a problem - that's a very serious problem and one that we              
 feel sets up this bill for fraud and abuse."                                  
 MS. SANSONE continued, "The audit report is defined in 490(a)(1).             
 The audit report - it sounds like that term ought to just be the              
 report and the analysis, but it's not.  It's everything that goes             
 into making that report.  It's all the data, all the evidence, and            
 Ms. Adair read them - photographs, analyses and so on - and there's           
 even a catchall in case they missed anything - all documents and              
 communications associated with the audit.  Well that's everything.            
 It would pick up the corrective action plan unless under the                  
 immunity you come in and get to see that, but for the privilege you           
 don't.  That's just way too broad."                                           
 Number 1114                                                                   
 MS. SANSONE stated, "The bill creates - it really has two parts -             
 it has a privilege and that's found in Section 450 and 455 and also           
 in Section 2 of the bill, there's an amendment to Title 12, the               
 Criminal Code, so they're putting it into the criminal laws, as               
 well.  Then there's immunities in Section 475.  Now the important             
 point to remember about these is that they're really treated very             
 differently and for the limitations, we've just heard that the                
 sponsor believes there's a lot of minefields and I guess we would             
 disagree with that.  We think there are limitations but they're               
 confusing and ambiguous, but they're there for the immunities from            
 penalties.  For the privilege, there really are no limitations.               
 The privilege is triggered without any advance notice of the audit.           
 For the immunity you have to give advance notice of the audit; not            
 for the privilege.  You just start your audit.  For the immunity,             
 you have to undertake corrective action which is appropriate.  If             
 you're going to be forgiven penalties, you need to fix your                   
 problem.  Not true for the privilege.  For the privilege, you do              
 not have to correct your violation.  So we have a bill that's set             
 up so that for minor violations, for the most part, you could make            
 a limited disclosure and get immunity.  If you had a really serious           
 problem or one that you really felt you needed to hide, well you              
 just use the privilege and you don't have to worry about meeting              
 any requirements; you just assert it."                                        
 MS. SANSONE further stated, "Now in this new CS, they've inserted             
 a provision that we can have an in-camera review to find out if               
 there's fraud and so forth.  That provision is really an                      
 impossibility.  We cannot prove fraud; we cannot prove those                  
 conditions unless we have the evidence.  The evidence you need to             
 prove fraud is the evidence that would be concealed by the                    
 privilege.  So that provision really does not help us out - I mean,           
 it's nice to put it there but in practice, we won't be able to do             
 Number 1285                                                                   
 MS. SANSONE explained, "Now, because the privilege is so broad                
 that's of concern in itself, but in the very first section of the             
 bill - in the first paragraph it tells us it applies to every type            
 of case; every type of civil case.  So, we're not just talking                
 about enforcement cases.  We're talking about cases where people              
 are injured.  We're talking about construction claims.  We're                 
 talking about insurance cases.  We're talking about cases to                  
 recover money for contaminated sites.  Any type of civil case you             
 can imagine is impacted by this bill.  Criminal proceedings are all           
 impacted and administrative proceedings are, as well."                        
 Number 1350                                                                   
 MS. SANSONE provided background on what a privilege is.  She said,            
 "A privilege is something in the law of evidence and procedure that           
 really is very special.  A privilege has a much broader meaning               
 than just confidential.  Confidential information is not                      
 necessarily privileged so the two terms do not mean the same.  In             
 the law, the concepts relating to privilege are very old.  They               
 have been defined and interpreted by courts over a long time - even           
 hundreds of years - some of the concepts.  Privileges can be                  
 created by the courts and they can also be created by the                     
 legislature.  There are two ways that information can be                      
 privileged.  First of all, we talk about information that's                   
 privileged from disclosure.  If a person is entitled to claim a               
 privilege, that means that that person cannot be compelled to                 
 disclose the information to any other person.  And it also means              
 that the person claiming the privilege can prevent any other person           
 from disclosing the information to another person.  So privileged             
 from disclosure means you can't access the information and you                
 can't find out about it.  The other way information is privileged,            
 is privileged from use as evidence.  Evidence is privileged; it               
 cannot be used as evidence in court.  So even though you have that            
 information, if somehow it was disclosed to you, even if everybody            
 in the courtroom has that information, you cannot use that as                 
 evidence.  The judge doesn't get to hear it.  The jury doesn't get            
 to hear it.  If it's a hearing in front of a legislature, the                 
 legislature doesn't get to hear it and can't use it.  Now this is             
 really an oddity in evidence law because most of the laws of                  
 evidence are designed to bring out the truth - and you hear the               
 trial lawyers and prosecutors say that litigation is a truth                  
 seeking process.  When people cannot resolve their disputes through           
 settlement, they have to go to court and part of that is to find              
 out what really happened.  And when the witnesses get on the stand,           
 you probably remember, they swear to tell the truth, the whole                
 truth and nothing but the truth.  Now privilege is different from             
 that because a privilege allows you to conceal the truth, not bring           
 it out.  So the privilege keeps information concealed.  Privileges            
 protect important information; they're not designed to protect                
 trivial unimportant information.                                              
 MS. SANSONE continued, "So when lawyers talk about the privilege,             
 they'll say the information is probative - it would have helped to            
 prove a claim or a defense.  They might say that the information              
 that is being privileged was prejudicial; it would have made                  
 someone's claim weaker or it would have made someone's defense                
 weaker but it would have made a difference.  You have to ask if the           
 courts are supposed to be figuring out the truth, why have we                 
 created this privilege to keep away the evidence that's important             
 that would have helped the judge or jury decide the case.  The                
 reason for that is that it furthers - there has to be some goal               
 that we're trying to further and that's usually that you're trying            
 to strengthen a relationship to improve communications in a                   
 relationship.  So you have a husband and wife privilege to further            
 the marriage; you have a lawyer/client privilege so that clients              
 can come in and be very candid in their disclosure and get good               
 advice; you have a doctor/patient privilege so that you don't have            
 to be afraid what you tell your doctor is going to be found out by            
 everyone.  These privileges though are very narrow because you're             
 keeping evidence away from people that need it to make decisions.             
 It usually will protect only the communication and not the                    
 underlying evidence.  All these privileges have clear cut                     
 exceptions like in a malpractice case, a client gives up their                
 attorney/client (indisc.-coughing), doctor/patient privilege.  Many           
 of the privileges are called qualified, meaning they can be                   
 overcome if you show hardship or that it's impossible to get your             
 evidence any other way such as when a witness dies, you can't                 
 interview that person.  And finally, most privileges are waived by            
 disclosure.  The party that wants to keep the information                     
 privileged has the responsibility and obligation to keep it                   
 MS. SANSONE remarked, "I wanted to go over these characteristics              
 and Mr. Bundy talked about some of them because the privilege in SB
 199 has absolutely none of those characteristics.  The privilege in           
 SB 199 is broad; it's not narrow, it has no exceptions, it's not              
 qualified if it's impossible or an undue burden to get the                    
 information any other way, and it's not waived by disclosure.  As             
 lawyers and people that enforce the law, that causes us concern               
 because all the other privileges have these characteristics.                  
 They've evolved that way over hundreds of years and they work.  And           
 that's why they're the way they are.  So when we have a new                   
 privilege developed that doesn't match any of the characteristics             
 of regular privileges, that really troubles us.  It troubles us               
 because not only are we looking at enforcement, and maybe for                 
 enforcement some narrow exceptions might be appropriate, but we're            
 going to apply this privilege to everybody whether they're private            
 parties - it could be a purely private case where two people can't            
 figure out who has contaminated whose property.  It could be public           
 litigation where the state has been sued -- and I have a case right           
 now where we can't figure out who's responsible for how much                  
 contamination on the property and frankly, the state's going to end           
 up paying for most of it.  All types of cases.  So that troubles              
 Number 1598                                                                   
 MS. SANSONE stated, "Now the last point I want to say about                   
 privileges is that there's already two that can be used to protect            
 environmental audits.  The trade secret privilege protects                    
 information - confidential, proprietary business information, so              
 that would be a key type of information that a business                       
 legitimately would be concerned about protecting and they can                 
 protect it.  They can protect it under the evidence rules and under           
 many, many statutes that the legislature has passed in particular             
 areas to protect that kind of information.  We also have the                  
 attorney/client privilege and I'd be the last person to disagree              
 with Mr. Pauley that that can be abused in an audit because it                
 should not be used to make the audits confusing or ambiguous.                 
 That's not appropriate.  But where an audit is raising questions              
 about criminal liability or serious tax problems or something of              
 that nature, it's very appropriate to bring in the lawyer and try             
 to figure out how to deal with it and they have that privilege they           
 can use.  Now there's a couple other ways to protect information              
 because there's an implication here that people don't have any                
 tools to protect information.  That's not true.  There are                    
 exclusionary rules.  These are rules of evidence or procedure where           
 the information is not privileged or secret among the parties, but            
 it's kept out of evidence - kept out of the courtroom.  And the key           
 one that gets used in connection with audits is the exclusionary              
 rule for subsequent remedial measures.  If there's an accident -              
 someone falls down a broken staircase and I repair that staircase,            
 the fact that I repaired it cannot be used as evidence that it was            
 broken.  So that's one type of exclusionary rule that protects                
 evidence of situations where people have found out about a problem            
 and fixed it.  Other types of evidence get excluded through the               
 rules of criminal procedures such as motions to suppress evidence             
 when there's been an improper search or seizure or an illegal                 
 confession.  So there are techniques to exclude evidence when                 
 there's been an abuse."                                                       
 Number 1706                                                                   
 CO-CHAIRMAN GREEN interrupted Ms. Sansone to inform her that the              
 committee was running out of time and asked her to provide a copy             
 of her testimony.  He asked her to summarize the other issues that            
 were of concern.                                                              
 Number 1751                                                                   
 MS. SANSONE stated, "I did want to cover that we can protect                  
 information under court rules if it's annoying, embarrassing,                 
 oppressive, if there's an undue burden or expense.  We feel there             
 is simply no need for a privilege when you have privileges,                   
 exclusionary rules and protective orders available.  Protective               
 orders can be tailored to unique situations so if someone did have            
 information that was highly sensitive, they can go to court and               
 they can ask for whatever type of order they feel is appropriate -            
 whatever they come up with, they can ask for if they can justify              
 they can protect it.  The audit privilege, we feel that it                    
 originates with the type of privilege called a self-evaluative                
 privilege developed by the courts but it has gone way beyond that.            
 It does not meet any of those criteria that the courts have set up            
 for that type of privilege.  That privilege is recognized in                  
 environmental cases and in the Ninth Circuit.  It's something we              
 had discussed in Senate Finance as a possible alternative.  The               
 audit privilege sort of grows out of there but it's really an                 
 aberration.  In the medical peer review privilege that Mike Pauley            
 gave you a copy, is an example of that and if we looked at that in            
 comparison to the audit bill, we'd see it's much more narrow, many            
 protections and limitations - a much more acceptable way to deal              
 with information without sweeping it all up.  This bill - the                 
 privilege is so broad, it operates as a vacuum cleaner literally to           
 sweep up all the evidence of crimes and violations.  We are                   
 concerned with people that really are criminals; that have                    
 intentionally and deliberately set out to violate the law and to              
 hide evidence.  We're almost talking two different languages from             
 the sponsor.  The sponsor talks about moms and pops, we're talking            
 about midnight dumpers, fly-by-night operators, people that engage            
 in fraud and deliberate efforts to conceal and hide information and           
 that submit false reports to the state.  That's why the fact that             
 they're required to submit reports is not sufficient, if they're              
 submitting false reports.  And how do you know they're false                  
 reports?  Well, in the course of an investigation, you would access           
 the types of documents, information and evidence that are concealed           
 by this audit privilege.  So that's of great concern to us."                  
 Number 1866                                                                   
 MS. SANSONE concluded, "We don't feel that the bill truly is                  
 working in other states.  The Colorado Deputy AG has stated there's           
 been no significant increase in voluntary disclosure or compliance,           
 which is important because Colorado was one of the first states to            
 put this law on the books.  It's the only state where the AG and              
 the enforcement agencies have really supported an audit privilege.            
 All enforcement attorneys in offices have vehemently opposed this             
 privilege as we heard today from the United States attorney.                  
 Colorado which was a very friendly environment is now reporting no            
 significant increase in disclosure or compliance.  The bill is not            
 working there.  The Tennessee attorney general thinks it may be               
 unconstitutional and it'll burden the courts, make the courts do              
 work that enforcement agencies are to do.  So the other states are            
 reporting problems.  They're having problems with their federally             
 delegated programs but the really adverse effects won't come to               
 light for awhile because the adverse effects are going to stem from           
 the bad actors who are going to abuse the bill, hide the evidence             
 and we're not going to know - we're not going to know until people            
 show up and they want to know why am I injured - why is my property           
 not worth any money - why do I have this funny rash - why can't I             
 breathe, and they're not going to be able to find out.  And that's            
 when we're going to know that this bill does not work.  The bill is           
 just like a trojan horse.  It looks nice, it sounds good, it sounds           
 like it's going to help.  You'll find the supporters all say we               
 like the concept of the bill - the concept is very attractive but             
 what's inside is not very good and it's not going to work and it's            
 going to cause us a lot of trouble."                                          
 Number 1939                                                                   
 CO-CHAIRMAN GREEN asked if Ms. Sansone had testified on the Senate            
 MS. SANSONE replied, "yes."                                                   
 CO-CHAIRMAN GREEN inquired what the response had been to her                  
 Number 1962                                                                   
 MS. SANSONE responded, "We had quite a bit of testimony, Mr.                  
 Chairman, in the Senate Resources Committee.  Senator Leman removed           
 a number of troubling provisions, but the problem -- and then we              
 had some more amendments in Senate Finance to deal with the                   
 specific problem.  The problem with amending the bill is that the             
 concepts here really are contrary to the way the law works so to              
 try to amend the bill - it's like trying to drive the wrong way on            
 a highway.  If the evidence law is set up to be a certain way, to             
 be narrow and have disclosure and so on, and you're trying to dodge           
 all these cars, eventually you crash.  If we went through the                 
 details, I could be here until the end of session going through               
 every sentence, telling you `Well, this sounds like it's going to             
 work, but here's what's really...' -- it has these funny twists and           
 turns.  It's a long bill and it has a lot of those and they're                
 CO-CHAIRMAN GREEN thanked Ms. Sansone for her testimony.  He                  
 announced that because of the tremendous difference of attitude on            
 the bill, he would place it in a subcommittee of Representatives              
 Austerman, Nicholia and chaired by Representative Kott.                       
 There being no further business to come before the House Resources            
 Committee, CO-CHAIRMAN GREEN adjourned the meeting at 6:27 p.m.               

Document Name Date/Time Subjects