Legislature(1999 - 2000)
07/28/1999 01:30 PM Senate MER
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
JOINT SPECIAL COMMITTEE ON MERGERS
Anchorage, Alaska
July 28, 1999
1:30 p.m.
MEMBERS PRESENT
Senator Rick Halford, Chair
Representative Brian Porter
Representative Beth Kerttula
Representative Jim Whitaker
MEMBERS ABSENT
Senator Drue Pearce
Senator Johnny Ellis
Representative Joe Green, Vice-Chair
COMMITTEE CALENDAR
British Petroleum-ARCO Merger
WITNESS REGISTER
WILLIAM BAER, Director
Bureau of Competition
Federal Trade Commission
GUS FLIAKOS, Retired Energy Analyst
Merrill Lynch
BILL BRITT, Pipeline Coordinator
Department of Natural Resources
411 West 4th Avenue, Suite 2C
Anchorage, Alaska 99501-2343
FLOYD HEIMBUCH
240 Saratoga Avenue
Anchorage, Alaska 99517
CHRISTY McGRAW, Director
BACKBONE-Standing Up for Alaska's Future
5412 West Dimond #4
Anchorage, AK 99515
STEVE CONN, Executive Director
Alaska Public Interest Research Group
PO Box 101093
Anchorage, AK 99503
HAROLD HEINZE, 30 year Alaskan resident
1336 Saubbach Circle
Anchorage, Alaska 99508
VIC FISCHER
Anchorage, Alaska
BARBARA WILLIAMS, Alaska Injured Workers Alliance
603 West 18th
Anchorage, Alaska 99503
RICHARD FINEBERG
PO Box 416
Ester, AK 99725
TOM LAKOSH
PO Box 100648
Anchorage, Alaska 99510
ACTION NARRATIVE
TAPE 99-3, SIDE A
Number 001
CHAIRMAN HALFORD called the Joint Special Committee on Mergers
meeting to order at 1:30 p.m.
WILLIAM BAER, Director, Bureau of Competition, Federal Trade
Commission (FTC), specified that the views he will provide today
are his own and are not necessarily the views of the FTC or any
individual commissioner. He also noted that the FTC is under
strict confidentiality constraints as law enforcement officials.
He explained that the law does not allow him to disclose the
details of the information of the investigation, the information
being gathered, and the individuals spoken to. Mr. Baer
acknowledged the help this investigation has received from the
joint committee and the staff from the Governor's task force. He
noted the various meetings he has attended regarding this merger.
MR. BAER explained the process followed by the FTC when
investigating a merger such as the BP-Amoco ARCO merger. Under the
Pre-Merger Notification Act (Hart Scott Rodino), parties such as BP
and ARCO are required to file a detailed pre-merger filing with the
FTC and the Justice Department. The filing explains the deal and
provides basic background into areas in which both companies
compete. Annually, about 4,800 such filings are received.
According to statute, parties must wait at least 30 days before
consummating the transaction. If the FTC determines there are
serious competitive issues, the FTC is allowed to authorize a
second request. The second request demands documents and
information enabling the FTC staff to determine whether a
particular transaction is problematic. After the companies comply
with the second request, the FTC has 20 days to determine whether
to go to court to block the merger. If the FTC does not decide to
go to court, the companies would, after the expiration of the 20
days, be free to close on the transaction. With regard to the
question of when the FTC will make such decisions, that is better
asked to the parties who are in the position to announce when they
will provide the FTC with the information requested.
MR. BAER informed the committee that, in any merger investigation,
the FTC spends considerable time gathering information, data,
documents, and speaking to interested parties. Company documents
are reviewed for competitive concerns. He noted that in issuing a
second request, the FTC identifies the specific areas where it is
thought that the merger may raise antitrust issues. Depositions
and investigational hearings often occur. As the joint committee
and the Attorney General did, the FTC hires experts in the industry
in order to work through the areas of concern. When the parties
have complied with the information sought, the investigating staff
makes a recommendation to the commission, who then makes the
judgement regarding what to do. Mr. Baer pointed out that the
recommendation can take various forms such as to move to court to
block a transaction entirely, which only occurs in one or two out
of 100 investigations. More often, when antitrust concerns are
identified, a dialogue ensues with the parties in an attempt to
arrive at a settlement agreement. If the staff reaches agreement
with the companies, the staff would recommend that the commission
accept the settlement agreement. He noted that a settlement
scenario often occurs when the deal itself is not fundamentally
flawed, but there are some discreet markets which can be fixed
through a divestiture arrangement. There are also cases in which
no problems are found.
MR. BAER commented that the FTC has spent many years investigating
oil mergers. The last wave of mergers was in the early 1980s
during which the FTC was involved in investigating mergers
involving Chevron and Gulf, Sinclair and Mobile Marathon, Sun
Atlantic and Pacific Resources. More recently, there has been a
second major wave of mergers involving Shell and Texaco, as well as
BP and Amoco. Both of those two mergers resulted in consent
agreements requiring some substantial divestitures where
competitive problems were identified.
MR. BAER turned to the BP-Amoco ARCO merger. He said that one
level of concern is likely to be the impact a major oil company
merger would have on exploration and production. He identified the
following as concerns which warrant review. Firstly, a merger may
lessen competition or raise the price for the crude oil. With
regard to this merger, the question is whether the Alaska North
Slope (ANS) crude is fully in competition worldwide. If the crude
is competitive worldwide, the risk that the merger would result in
higher crude oil prices which would result in higher gasoline
prices at the pump would be slight. If ANS crude seems somewhat
uniquely valuable, then there is the possibility that an antitrust
issue would need to be addressed. He identified the second
concern; competition may be lessened in the bidding for the leases
to develop new fields. If a significant bidder is eliminated from
the bid process, it can diminish the revenue to the owner of the
property. In this case, the federal government and the state are
in the business of leasing lands for development. A reduction in
bidding competition, potentially, can raise an antitrust issue
worth review.
MR. BAER informed the committee that he was aware that, in Alaska,
an elaborate infrastructure is necessary in order to engage in
exploration and production. A loss of competition among
exploration and development companies could result in higher prices
or reduced service and may adversely affect decisions of smaller
firms who may need to rely on those present on the North Slope in
order to develop reserves. He also acknowledged that there are
many service companies which deal with exploration and production
companies. Service companies may deal with a single purchaser of
the service which would result in those service companies not
receiving a competitive or fair price for their service. In such
a case, the concern would be that competitive firms would be driven
from the market and competition would be reduced. Mr. Baer noted
that, in the past, the FTC has expressed concern with undue
concentration and anti-competitive effects involving transportation
of crude oil, refined product, and gasoline. A number of cases
with such problems have been brought forward in the past. The
question of ownership of the Trans-Alaska Pipeline and whether one
company having a significant percentage of ownership would
adversely affect the ability of those without an ownership interest
to ship product at competitive rates is an antitrust issue that
would need to be reviewed. The case would be the same for those
with some interest, but with excess supply who need to turn to
others for excess capacity to ship. Mr. Baer recognized that there
are not a large number of firms engaged in the transportation of
crude oil from Valdez to refineries on the West Coast. That would
also be an antitrust issue that would need to be addressed. Mr.
Baer noted the question of existing competition to develop
technology in order to bring to market gas from the North Slope.
Whether the merger would eliminate that competition to make that
product commercially attractive is also an area that would need to
be investigated.
MR. BAER stated that the FTC has the following mission: "To focus
on the issues of competition. Will consumers of a particular
product or service be worse off if a merger goes through?" He
acknowledged that some of the issues that may concern Alaskans may
be broader relating to revenues, environmental issues, and jobs.
Although those are legitimate public policy issues for the
legislature and the Governor to review, they are not necessarily
antitrust issues and the FTC's authority does not extend to those.
In conclusion, Mr. Baer said he was aware that this merger uniquely
affects Alaskans and is therefore, of utmost importance to the
legislature. Furthermore, committee members and members of the
executive branch and Alaskans are uniquely knowledgeable about some
of the competitive issues likely to affect Alaska and the issues
requiring investigation.
Number 166
CHAIRMAN HALFORD asked if the existence of a second request is
something that can be asked and responded to.
MR. BAER said such could be asked, but he could not disclose
whether there has been a pre-merger notification. He stated that
he could disclose that an investigation is occurring. The parties
involved could answer such questions.
REPRESENTATIVE COWDERY inquired as to the time frame, from the
start to approval, of past mergers such as the Shell merger and the
BP-Amoco merger.
MR. BAER replied that the Shell merger was under investigation for
about six to eight months. The BP-Amoco merger was on a faster
time frame as the deal was announced around September 1998 and the
FTC review was concluded by the beginning of the next year. In the
BP-Amoco transaction, the parties were anxious to close and the
competitive concerns of the FTC were identified and an agreement
was made. Mr. Baer noted that the Exxon-Mobile merger was
announced earlier this year and remains under investigation. Those
parties have indicated that they are hopeful that some agreement
would be reached with the FTC by September 1999.
REPRESENTATIVE COWDERY inquired as to the criteria that would have
to be found in order to block a merger.
MR. BAER explained that mergers that have been challenged in the
past have included retail mergers such as the proposed merger of
Staples and Office Depot. The FTC found that 70 or 80 percent of
the deal involved serious antitrust concerns. Therefore, there was
not a negotiated solution from the parties' standpoint. There were
two mergers involving the four largest pharmaceutical wholesale
companies which were investigated and litigated last year. Again,
the FTC did not see a divestiture that worked. Mr. Baer clarified
that it really comes down to how many concerns the FTC has, the
nature and extent of those concerns, and then engaging in a
dialogue identifying the findings and requirements to avoid going
to court.
Number 214
REPRESENTATIVE PORTER asked if Alaska's unique situation of state
ownership and Alaskans interested in receiving a maximized return
would make Alaskans consumers or would the consumer be the person
at the pump.
MR. BAER said he believed that the FTC has, in the past, challenged
transactions in which there was a lessening of competition in a
bidding market. The state and the federal government are entitled
to have a competitive process. However, there is potential for
tension between the state's interests and consumer interest
elsewhere. He explained that the state's revenue, including
royalty and taxes, are a function of the delivered price, the net
price, of ANS crude. Therefore, the state's interest on one level
may be best served by higher crude prices, while consumers in this
state and in the Lower 48 may be best served by competitive, lower
prices.
REPRESENTATIVE KERTTULA inquired as to the effort the FTC would put
forth in Alaska with an investigation; would the FTC hold hearings
in Alaska or meet with individuals?
MR. BAER explained that the process would not be public, and
therefore, public hearings would not be held. He commented that it
is even unusual for staff to appear in this sort of forum.
However, the request seemed reasonable due to the importance of
this merger to the state. He noted that his staff had been in the
state speaking with interested parties. Since the FTC has
investigated the oil industry thoroughly over the past two or three
years, the FTC already has much information relating to general
issues about exploration and production. Therefore, more detailed
information would be necessary. Mr. Baer informed the committee
that the FTC has subpoena authority, as he understood this
committee to have as well. Often, statements of company officials
are taken under oath. Mr. Baer commented that much time is spent
reviewing company documents to ensure that arguments regarding how
a market works or does not work are consistent with the view of the
businessmen in the privacy of their offices. He said that he and
staff would continue to meet with people.
REPRESENTATIVE KERTTULA asked what is the easiest way for people to
directly contact Mr. Baer and staff.
MR. BAER informed everyone that the easiest contact is via e-mail,
wbaer@ftc.com, or through a phone call. Any inquiries received
would be forwarded to staff working on the matter. He stressed
that any information received is kept confidential.
REPRESENTATIVE KERTTULA inquired as to the access members of
Congress have to the documents filed with the FTC.
MR. BAER stated that, generally, members of Congress do not have
access at all. A statute provides that a committee with oversight
authority may seek a confidential briefing on matters pending
before the agency. Generally, documents are not shared with
Congress. Mr. Baer pointed out that the pre-merger review process
works fairly well because highly confidential information has been
protected which allows the agency to obtain necessary information
without much difficulty.
Number 298
CHAIRMAN HALFORD asked what companies can do with assets during the
time after the Hart Scott Rodino filing, but before there is
approval of a merger. For example, Alaska has a law limiting the
amount of leases that can be held by a company. Can companies buy,
sell, or transfer assets? Could the companies sell leases to a
third party; could partial ownership of the pipeline be
transferred? Chairman Halford inquired as to the limitations of
the merging companies during the FTC's period of review.
MR. BAER specified that the companies cannot sell assets to each
other until the period of review is over. There is no barrier to
selling acreage or rights to develop acreage, except the pre-merger
notification rules. Therefore, a transaction with a third party of
significant size, $15 million or more, would require the filing of
a separate merger filing or acquisition report with the FTC.
CHAIRMAN HALFORD asked if that separate process was the same type
of process. If a company wanted to sell 300,000 acres of leases to
a third party with no other current interest in Alaska or sell a
proportion of ownership of the pipeline to a third party. What
would such a situation trigger?
MR. BAER explained that the parties would have to file, but if no
competitive issue was raised by the proposed transaction alone, the
FTC would likely raise no objection and allow the transaction to
move forward. There would be no basis to go to court to block that
transaction. Therefore, companies can engage in self-help to avoid
competitive issues. However, that does not typically occur because
a package deal with the FTC is desired so as to resolve all
concerns. He explained that often companies wait to receive a
sense of the FTC's concerns and incorporate sales to third parties
into the consent agreement. Still, the company has the right to
sell off assets to third parties.
REPRESENTATIVE WHITAKER inquired as to whether there is linkage
between the proposed Exxon Mobile merger and this merger.
MR. BAER stated that there is no formal linkage. He indicated the
need to review the impact each merger has on the other. Although
there is no formal linkage between the Exxon Mobile merger and the
BP-Amoco merger, there are obviously common issues related to
exploration, production, and ownership. Therefore, it is fair to
assume that the FTC needs to be sensitive to the impact of one
investigation on others.
Number 368
REPRESENTATIVE WHITAKER asked if there is a relationship between
the state's position, with regard to FTC issues, and the FTC's
position on those issues.
MR. BAER said that the state would have to make an independent
determination as to what is necessary to discharge its duties, as
will the FTC. However, the FTC is quite sensitive in dealing with
matters that have a unique impact in one state, especially with
something this significant. The practice is to closely work with
the antitrust investigation conducted by any attorney general, as
is being conducted by Attorney General Botelho. The hope is to, by
working closely with the attorney general, arrive at a common
endpoint or at least clearly understand the differences. Again,
each agency or branch of government will make an independent
decision at the end of the process.
REPRESENTATIVE WHITAKER expressed curiosity as to the approach to
a market that is so vertically integrated that it is difficult to
discern the relationship between the downstream and upstream.
MR. BAER reiterated that the FTC has investigated the oil industry
at length in the past few years and is sensitive to special
antitrust issues that arise from vertical integration.
CHAIRMAN HALFORD pointed out that proponents of the merger cite
increased efficiency which will increase benefits to everyone in
the chain, including the state and the consumer, as a reason to
support the merger. However, efficiency is often the argument
against competition; yet historically, competition has been seen as
the way to enforce efficiency. Chairman Halford assumed that the
FTC is biased toward competition. How will the efficiency argument
fare in the arena that this regulatory system works?
MR. BAER informed the committee that the merger guidelines, jointly
promulgated by the FTC and the Antitrust Division, were amended in
1996 to speak to the efficiency question. The guidelines say that
efficiencies are a legitimate factor in mergers that otherwise
might pose anti-competitive problems. To a large extent,
efficiencies must be reviewed with regard to where they originate.
Once the significance of the efficiencies are assessed, those
efficiencies are weighed against the anti-competitive risks
associated with the transaction. "Those guidelines say that
mergers to monopoly or near monopoly rarely will be justified by
any kind of efficiency savings because the commission does believe,
..., that competition is the best way of disciplining the
marketplace and ensuring that not only we get present day goods and
services at competitive prices, but that the competition to improve
product, to exploit resources will continue."
Number 465
CHAIRMAN HALFORD inquired as to the trigger requiring the Hart
Scott Rodino filing.
MR. BAER specified that a statute was passed in 1976 which outlines
the procedure. Essentially, if one company has assets of $100
million or more and another company has assets of $10 million or
more and there is a voting securities or asset transaction
involving $15 million or more, filing is required. Although he did
not know the exact figures in the BP-Amoco ARCO merger, he believed
that the figures may slightly exceed that threshold.
CHAIRMAN HALFORD inquired as to the allowance of pre-merger
activities intended to position for a merger. For instance, would
actions clearing the market three years in advance of a merger in
order to avoid anti-competitive issues be allowed.
MR. BAER said that certain activities are not allowed. Such
activities would be those in which the two companies act as one
before the merger is approved or before the Hart Scott Rodino
period expires. For example, it would be in violation of antitrust
laws for the companies to jointly set prices, market, or bid. With
regard to the subtleties that could occur, Mr. Baer believed it
would depend upon the facts.
REPRESENTATIVE COWDERY posed a situation in which ARCO was prepared
to sell gas prior to the merger. Perhaps, the merger, with BP's
ownership, would create more competitive gas closer to the market.
Would that be of concern with the FTC?
MR. BAER said that it could be problematic for two competing
companies to decide, before the completion of the merger review
process, how marketing would occur or that one company would not
compete as aggressively in order that the buying or selling company
was more successful. That would be reviewed seriously. He
explained that the desire is to preserve the competition that
exists until the state's review and the FTC's review is complete.
CHAIRMAN HALFORD took a short at-ease.
Number 556
GUS FLIAKOS, Retired Energy Analyst, Merrill Lynch, testified via
teleconference. Mr. Fliakos announced that he would provide the
committee with an overview of oil prices and then take questions
regarding the merger. He said the best way to approach the oil
business is to identify two perspectives to oil as a commodity. He
explained that one perspective is that oil as a commodity has long
term, underlying trends which are influenced by broad demographic
factors, technological developments, and broad underlying
variables. Mr. Fliakos believed that the long-term trend in the
oil business is positive, the underlying dynamics are good, and oil
prices will go up. He noted the need to compare his outlook with
the experience of the 1980s during which oil was clearly declining.
During that time, oil demand was weak, there was a low supply and
there was much surplus capacity. Looking ahead, he believed oil
demand will be good and surplus capacity limited. Furthermore, one
must recognize that much oil is supplied from areas that are
politically unstable.
MR. FLIAKOS turned to another perspective which views oil as a
commodity that can have a powerful inventory cycle and can
experience much volatility influenced by temporary events affecting
supply and demand. Such influential events could be an economic
recession, weather patterns, and political developments. In the
past four years, there has been a powerful inventory cycle and
enormous volatility.
TAPE 99-3, SIDE B
MR. FLIAKOS pointed out that oil levels were reduced to
historically low levels in 1996 due to good growth in oil demand
worldwide. That growth was caused by good economic conditions and
a very cold winter in 1995-1996. Furthermore, supplies were
limited because Iraqi oil exports were not in the system. Also the
oil companies had reduced inventories to very low levels as part of
their "just in time" inventory management and wish to improve
financial performance. Therefore, inventories were reduced to
historically low levels which resulted in a strong oil price in
1996. At the beginning of 1997, the price of oil recovered to $25+
per barrel. In 1997, inventories began to build due to the
unusually mild winter of 1996-1997, the flow of Iraqi exports, and
the surfacing of economic problems in the Far East in late 1997
which lowered oil demand there. At the end of 1997, OPEC raised
production in the face of ominous signs. As an analyst, Mr.
Fliakos did not doubt that the price of oil would collapse to the
mid teens, which occurred. OPEC responded by lowering production,
but the reduction was not enough to alleviate the surplus situation
which was caused by weaker oil demand than most expected, himself
included. Earlier this year, OPEC responded to lower prices by
lowering production, which coincided with a better tone in economic
demand due to improved economic conditions in the Far East. OPEC's
response also coincided with lower production from non-OPEC
sources. Low oil prices shut in on economic production and the oil
industry significantly reduced spending which began to impact
supplies.
MR. FLIAKOS explained that as 1999 began, there was a convergence
of the following positive developments: a better tone to oil
demand, lowering of OPEC production, and lower non-OPEC supplies.
He informed the committee that early this year his prediction was
that the correction would be too severe and result in the other
extreme. Once again, inventories would be lowered significantly
and the price of oil would recover by more than expected. He did
not believe it unlikely to expect the price of oil to, perhaps,
reach $25 per barrel. Already, the price has recovered to $20.50
per barrel which is much higher than most expected. Mr. Fliakos
still believed there to be a good chance that the price of oil
would increase because inventories will continue to decline due to
the positive developments mentioned earlier. However, the high oil
price will not be sustained because a corrective adjustment will
occur. He foresaw the following corrective adjustments: recovery
in non-OPEC supplies, return of some economic production, and an
increase in spending by the oil industry. At the same time, he
predicted erosion in OPEC's discipline and eventual raising of
production in order to prevent an extreme price. Mr. Fliakos
feared that the adjustments may be too severe and may occur too
late. Therefore, the price of oil may fall much lower than
expected. Unfortunately, volatility is inescapable in the oil
business and will continue due to the adjustment processes which
are inherently destablizing. He stressed the importance of
recognizing that this volatility occurs around a long-term trend
which he believed to be positive. One must also recognize the
difference between the inventory extremes caused by temporary
factors and the underlying trends.
MR. FLIAKOS turned to the subject of mergers and consolidations in
the oil industry. He believed the basic driver for mergers and
consolidations in the oil industry has been the tremendous attitude
changes in the managements of the major oil companies. This is a
characteristic of corporate America in general. In the 1990s the
management of oil companies has become more shareholder friendly
and financially oriented. The desire to improve financial
performance has, initially, led to very dramatic cost cutting.
Additionally, the oil companies have sold under-performing assets
which was not enough and led to the beginnings of joint ventures
which initially occurred in marketing. Then mergers of specific
business, not entire companies, occurred. Then the environment
turned sour last year due to low oil prices and the desire to
improve performance became more challenging. Therefore,
consolidation of entire companies began. He commented that it
should not be a surprise that Amoco was the first major company to
succumb. Although Amoco was a strong company, it experienced many
years of under performance and Amoco was not able to deliver on the
promises made to shareholders. In the case of ARCO, Mr. Fliakos
disagreed with the timing but recognized that it is very difficult
for ARCO to perform well when oil prices are weak. He pointed out
that ARCO has two strengths, Alaska production and the West Coast
refinery marketing business which is very volatile. ARCO's
performance through the years has not been particularly good and
last year was disastrous. That resulted in ARCO seeking a merger
partner.
MR. FLIAKOS predicted, "As long as the managements are driven by
the desire to improve financial performance and to reward
shareholders, consolidation will continue unless the oil
environment remains so robust that it can perform well even without
consolidating.
Number 161
CHAIRMAN HALFORD inquired as to what Mr. Fliakos would predict the
West Texas Intermediate (WTI) to be if he were to review an average
value over a five year period.
MR. FLIAKOS predicted it would be at a minimum, $20 per barrel, and
perhaps higher. The risks in the years ahead are being confronted
with limited productive capacity in an industry very susceptible to
political shocks. With regard to oil in the ground that can be
tapped, Mr. Fliakos said that the surplus capacity is no more than
7 or 8 percent of global demand. Although that may seem high, he
noted that OPEC shaves a lot of production and oil demand has been
particularly weak in the Far East. He reminded the committee that
in the mid 1980s when the price of oil crashed, the surplus
capacity was 25 percent of demand. The amount of surplus capacity
today is very limited. If the price of oil does not rise very
quickly, he predicted a supply crisis.
CHAIRMAN HALFORD commented that the marginal production capacity of
the Mid East seems to have many incentives to manipulate the long
term non-OPEC capacity in high cost areas. Chairman Halford said,
"I'm not sure just listening to your presentation, that it doesn't
make a lot of sense if I were a hereditary monarch sitting on a
hundred year supply of oil, and I had two ways to keep marginal
production out. One being to hold the price at $12 a barrel, the
other being let the price go to $10 a barrel for six months every
three or four years. I couldn't achieve the same result in terms
of keeping the bankers out of the oil industry and get more money
in the process."
MR. FLIAKOS agreed, except as a dictator one would run the risk of
social upheaval and dislocations. The Economist published an
article in February which suggested that there was a dramatic
change in Saudi policy and the desire to keep the price of oil low
in order to back out the high production cost. Only three weeks
later, the Saudis got together with the Iranians and decided to
lower production in order to raise the price of oil. Mr. Fliakos
specified that he disagreed with that article because the Saudis
were hurting, which leaves one to wonder what is happening in other
countries. It is difficult to manipulate the market in that way.
However, if the price of oil climbs too high, then they are locked.
There is no evidence that any foreign producing country would throw
cost reserves in a manipulative way.
Number 257
BILL BRITT, Pipeline Coordinator, Department of Natural Resources,
informed the committee that the charge of the Pipeline
Coordinator's office is the administration of the Right-of-way
Leasing Act which is codified in AS 38.35. He noted that his
office works within the Joint Pipeline Office(JPO) which is a
consortium of 11 federal and state agencies. He provided the
committee with copies of the JPO's latest annual report and two
comprehensive monitoring program reports.
MR. BRITT explained that the state right-of-way lease for the
Trans-Alaska Pipeline(TAPS) was signed on May 3, 1974 for a 30 year
term. The federal grant had been signed some months prior for a 30
year term as well. Both expire in the year 2004. There have been
indications from owner companies that an application will be
forthcoming. However, the timing is unknown. Currently, the state
administers about half of the right-of-way, about 402 miles, of
which 145 miles are administered through the federal grant because
federal lands were transferred to the state along with the federal
right-of-way. The state was charged with the administration of the
federal right-of-way.
MR. BRITT stated that the renewal will be based on the following:
the federal grant, the state lease, the Trans-Alaska Authorization
Act, and the Right-of-way Leasing Act. He explained that the lease
renewal can occur if the pipeline remains in commercial operation
and is in compliance with state law. The Right-of-way Leasing Act
also mentions compliance with the lease itself. The grant says
that the renewal is subject to the Trans-Alaska Pipeline
Authorization Act(TAPA) which requires renewal based on the useful
life of the facility. Mr. Britt explained that, at some point, an
application will be received which will be publicly noticed.
Furthermore, a commissioner's analysis and proposed decision is
prepared for new applications as well as renewals. He informed the
committee that, recently, new applications have been received from
Badami and Alpine. The commissioner's report on Northstar is
currently out for public review. He anticipated the commissioner's
analysis to address lease compliance, compliance with state and
federal laws, the useful life analysis, and a draft lease is
attached for public review. The commissioner's analysis is
publicly noticed and there is a comment period. Then there is
finalization of the decision and execution of the decision. The
federal process is similar in that a TAPA analysis, similar to a
commissioner's analysis, is done. There have been indications that
there will be a draft grant which would be equivalent to the
state's draft lease. Both the federal government and the state's
office have indicated to each other the need to coordinate the
process. However, there are unanswered questions such as how the
federal government will address National Environmental Policy Act
(NEPA) when an application is received. The federal government
could choose not to address it at all under a categorical exclusion
or require an environmental impact statement. The federal
government's choice will be a large force behind how this moves
forward. Furthermore, the timing of the application is unknown and
the material needed from the owners at the time of application has
not defined. Also, Alyeska's role has yet to be specified.
MR. BRITT, in response to Chairman Halford, said that one
application would be received from the seven owner companies.
Currently, David DeGruyter (ph), former president of BP
Transportation Alaska, has been charged by the owner companies as
the project manager for this process. In further response, Mr.
Britt believed that the original application was a consolidated
application.
Number 357
REPRESENTATIVE PORTER inquired as to the percentage of the line
that has stayed federal.
MR. BRITT said that it is fairly close to 50-50. The private
ownership constitutes less than 10 percent. The private land
ownership is covered by the federal grant. In response to
Representative Whitaker, Mr. Britt explained NEPA. When the
federal government receives an application for an action or
activity that would affect the human environment, a certain process
is required. First, an environmental assessment (EA) is required
in order to establish a threshold determining whether an
environmental impact statement (EIS) is required or not. If an EIS
is not required, a Finding of No Significant Impact (FONSI) is
produced. If an EIS is required, it is done. He noted that for a
variety of reasons the EA can be skipped and an EIS can be done.
Recently, the EIS has been completed for the Northstar project.
The EIS for the Liberty project is just beginning. Mr. Britt
pointed out that the basis of the litigation of the Alpine project
against the Corps of Engineers was that the Corps of Engineers
decided not to prepare an EIS.
CHAIRMAN HALFORD inquired as to the method of enforcement.
MR. BRITT specified that the office does land law which basically
says that if noncompliance is found with the lease, the office is
required to inform the tenant of the deficiencies. The tenant is
given a reasonable amount of time to correct the deficiencies.
Although the commissioner's orders have not been utilized, it is in
the office's power. In a worst case scenario, the lease allows the
state and federal government to do the work and send the bill to
the lessees. In further response to Chairman Halford, Mr. Britt
informed the committee that in 1993, a series of audits of Alyeska
resulted in the identification of some 5,000 deficiencies. Those
deficiencies were formalized as audit action items. Of those, five
remain from 1993 and are expected to close at the end of the year.
These five involve long-term projects such as the deficiency in the
remote gate valves for which the remedy is the fiber optics cable
system being put in along the pipeline. Another deficiency was
some 5,000 drawings that were out of date. Currently, those
drawings have been redlined and an acceptable backlog amount has
been established. Mr. Britt offered to provide the committee with
the other three deficiencies at a later time.
CHAIRMAN HALFORD moved to the public testimony portion of the
meeting.
Number 457
FLOYD HEIMBUCH informed the committee of his representation of the
Kenai Peninsula Borough and his past position as Chair of the Oil
Spill Prevention & Response Committee. Mr. Heimbuch was wary of
the merger; alternatives should be considered. He suggested that
the state should acquire ARCO facilities located in Alaska which
would result in an acquisition study. He acknowledged that both
the merger or an acquisition would be complex with functional and
dysfunctional aspects requiring study. He believed that an
acquisition would allay the two fears often expressed. One fear is
regarding too much ownership by one company, and a foreign company
at that. The other fear is with regard to how the permanent fund
is viewed. If there was an acquisition, there would be a focus
which would allow the elimination of the fear that when politicians
get the money we are not safe. In conclusion, he urged the
committee to consider acquisition.
Number 518
CHRISTY McGRAW, Director, BACKBONE-Standing Up for Alaska's Future,
noted that the organization has been working hard to help Alaskans
understand the issues surrounding the merger. BACKBONE's
membership is steadily increasing as is the understanding of
Alaskans of these issues. She announced that over the next several
weeks, BACKBONE will mount a media campaign. She informed the
committee that BACKBONE published an article which referenced a
recent poll by the Alaska Conservation Alliance which found that 83
percent of 300 people polled statewide believe there should be
conditions placed on this merger. Wide response was received from
that article which illustrates the concerns of Alaskans regarding
the process moving too fast and not allowing Alaska to receive the
best deal it can. She read an anonymous response to the article
which agreed that Alaska could become a company state and that BP
tells soft truths.
MS. McGRAW said, "The world's second largest non-governmental oil
company will have no heart, as evidenced by the Wall Street Journal
article ... on the Amoco takeover." Furthermore, it is the nature
of huge multinational corporations to hold shareholder interests
first and foremost. She believed that this situation will get
ugly, especially since Governor Knowles has yet to take a firm
stand on protecting Alaskan's interests. She informed the
committee that tomorrow and in the next few weeks, BACKBONE will
run a display ad in the Anchorage Daily News which asks Governor
Knowles to stand up for Alaskan's rights and best interests. Ms.
McGraw identified the following as points voters should address to
the Governor:
Ensuring that Alaskans get maximum production and value
for North Slope oil and guaranteeing the sale of our gas
now.
Protecting our land and marine environments and our
fishing industry through their transportation practices.
Eliminating a monopoly on the TAPS and getting back our
Dismantling, Removal, and Restoration (DR&R)Funds.
Maximizing competition and return to Alaskans on North
Slope facilities, pipelines, and fields.
MS. McGRAW emphasized that since the Governor seems unwilling to
act, it will be up to this committee and the Attorney General. She
said that BACKBONE will assist the committee. BACKBONE has formed
committees which will meet in order to develop recommendations for
"your transmittal to the FTC." The following issues will be
examined: access, competition, the state's position, natural gas
and the environment. BACKBONE will provide the committee with a
full briefing in order for the committee to make the best
recommendation. Ms. McGraw requested that this committee do three
things. She requested that the committee appropriate a minimum of
5 [million]...
TAPE 99-4, SIDE A
MS. McGRAW requested that the committee make all the reports and
such that it has available to BACKBONE in order for BACKBONE to
make the best recommendation to the committee. In conclusion, Ms.
McGraw said, "If [Governor] Tony Knowles does not act to protect
Alaska's interest, BACKBONE asks that you work with us and the
people of Alaska to prove we deserve better."
REPRESENTATIVE WHITAKER inquired as to what raised the concern
about moving too quickly.
MS. McGRAW stated that there has been mention of a short time line.
There has also been mention of October 1 to October 15 as the
finalization of the recommendations of the FTC. It is not clear
that is enough time for the FTC or Alaska to understand the issues
and recommendations. As much time as necessary to gain an
understanding should occur.
REPRESENTATIVE WHITAKER recognized that Ms. McGraw seems to
differentiate between the Governor and the Attorney General. He
asked if she had a basis for that differentiation.
MS. McGRAW commented that she did not have a factual basis, but
there have been indications from BACKBONE's committee that the
Governor may not be moving in the right direction in the opinion of
some of the team or the Administration.
CHAIRMAN HALFORD turned to Ms. McGraw's three requests and pointed
out that this committee cannot make any appropriations until the
legislature is in session. He noted that one thought has been to
ask the Administration, whether money would be needed if an
antitrust action is to be filed. With regard to the requests about
information and access to information, he agreed with Ms. McGraw's
desire to have the information public, but he also agreed, in part,
with the companies not wanting the business plan to be public. He
commented that this is the strangest process with which he has been
involved. Either way confidentiality poses barriers.
Number 038
STEVE CONN, Executive Director, Alaska Public Interest Research
Group (AKPIRG), was next to testify. He informed the committee
that AKPIRG is also a member of BACKBONE. This merger seems to be
the most significant public policy question in Alaska's history.
It appears that Alaska's highest concern, when becoming a state,
was sovereignty and the drafters of the Alaska Constitution
understood that "at the crux of political sovereignty was economic
sovereignty. An ability to guide one's destiny through some level
of control of one's natural resources." That ability lives within
a larger world, inhabited by multi-national companies and guided by
market's out of the state's control. At that time and to this day,
the leverage advocated has been competition and a true free market.
The component most important to true sovereignty is the presence or
absence of economic sovereignty. In other words, if one does not
guide economic sovereignty then one is guided. Mr. Conn stressed
that he stands with the committee in its ability to be a true
state's person.
MR. CONN did not believe the FTC can be looked to for support of
Alaska's economic sovereignty. Furthermore, he believed it
unlikely for the FTC to side with Alaska in this issue that
ultimately defines Alaska's destiny rather than the world's. If
anyone is to protect Alaska's economic future, it is to be the
legislature. Mr. Conn endorsed the position of BACKBONE in that
the initiative falls to the legislature for funds sufficient and a
serious antitrust action which would press for the release of
documents necessary for an honest evaluation of Alaska's situation.
He suggested that currently, a multinational oil company is working
its will on Alaska's body politic before a merger has occurred
which is a bad sign for Alaska's future. This is an attempt to
achieve backdoor tax protection for BP. Mr. Conn encouraged the
committee to determine to what degree BP, directly or indirectly,
is underwriting the campaign in favor of the vote. In his opinion,
the committee is entitled to information and to ask BP how it is
spending its political dollar on Alaska's political landscape. He
hoped the issue of how BP will perform as a corporate citizen will
be reviewed along side of the issues discussed today. He stressed
the need to focus on the fact that the members' roles as political
leaders and guiding forces is part of the consideration of the
merger. Alaska is at a cross roads.
Number 0161
JIM SYKES, Oilwatch Alaska, commented that Mr. Conn raised some
very valid points. He believed the reason for this meeting
surrounds whether Alaska can control BP or BP will control Alaska.
He hoped the committee had received Oilwatch Alaska's report
entitled, "The Big Squeeze" which demonstrates how competition has
been eliminated on the North Slope. Historically, those things
which the oil industry has promised the legislature would increase
competition, has virtually eliminated competition. He informed the
committee that after speaking with the FTC, he learned that only
about one percent of the FTC's cases ever go to court. Therefore,
if Alaska wants to affect this process and the decision of what is
best for Alaska, it must happen soon and the state must take the
lead. In review of the mergers considered by the FTC, there have
not been many that the FTC has not approved. When the FTC finds
difficulty with a merger, the parties are approached in order to
negotiate the problems. Going to court is a last resort.
Therefore, Mr. Sykes supported BACKBONE's request for a $5 million
appropriation. If the Governor calls a special session, Mr. Sykes
suggested that while there the legislature should call its own
special session in order to consider this merger. Mr. Sykes
understood that the companies may want to wrap up the merger in
September or early October.
MR. SYKES pointed out that currently Alaska's leasing, royalty and
tax system is based on competition. There is much evidence that
this merger will eliminate competition and he offered to provide
the committee with that information. Mr. Sykes stressed, "The
state cannot react soon enough to deal with a company that has
entrenched itself as the controller of our source of oil and the
majority of our leases and the control of our oil transportation
system over land and marine. The state cannot soon enough deal
with changing the structure to a noncompetitive environment, but
you could do some things during a special session." He suggested
the consideration of emergency powers to deal with a noncompetitive
environment. One such power might be to return to separate
accounting to consider how much BP spends and makes in Alaska and
tax them separately from their worldwide profits. There could also
be consideration of public ownership of TAPS. Mr. Sykes encouraged
taking back the leases in excess of the amount which BP would
legally be allowed to hold were a merger to occur. The state must
empower itself to determine which leases to take and not allow BP
the choice of which leases it wishes to keep.
CHAIRMAN HALFORD asked, "On the day before the merger occurs, don't
they have the constitutional right to give us back what they
choose."
MR. SYKES agreed that appears to be the case and continued with his
testimony. He stressed the need for the state to analyze the
profitability which has not been performed in some time. Over the
past few years, oil and gas lifting costs have been cut by more
than 50 percent resulting in increasing corporate profits while the
state receives the same royalty. Alaska is not sharing in the
technological developments making oil more profitable in Alaska.
Mr. Sykes pointed out, "If you consider, in 1998 dollars, the 100
or so billion dollars of net profit that has been made by the oil
industry in Alaska, approximately half of that has been made by
BP." Furthermore, two years ago Alaska was probably 45 percent of
BP's profitability, of their worldwide corporation. When the BP-
Amoco merger occurred, Alaska fell to about 33 percent of BP's
profitability. Although one would think the acquisition of ARCO
would increase Alaska's emphasis, ARCO has other holdings in the
world. This merger would actually place Alaska at about 25 percent
of the worldwide holdings. Therefore, when a corporation attempts
to perform the best for its worldwide shareholders, that
corporation will review the worldwide view. Sir John Browne said
just that on television last week; that operations in marginal
places will be cut. That is a warning for Alaska which could
become "a backwater of oil development." This is comparable to the
warning given to the constitutional convention. "When a single
entity has large sectors of public land under lease or under their
control, then we are at their mercy." Mr. Sykes noted that
consideration may need to be given to other things such as the fact
that other oil producing regions automatically own 51 percent of
anything a corporation does in their area. He also expressed the
need to review the option of contracting out the extraction and
distribution of oil. A potential problem with the merger is that
even if there was competition in the future, the competition may
not be able to enter the West Coast market to refine or distribute
the down stream products from Alaska because one entity controlling
the oil supply and the transportation also owns a large sector of
the refining and distribution on the West Coast. With regard to
the issue of confidentiality, Mr. Sykes understood from the FTC
that the state is free to release information. Although he
understood the information being gathered is being done upon
agreement of confidentiality, the state does have the authority to
ask the parties to release it to the public. In conclusion, Mr.
Sykes encouraged the appropriation and filing of a lawsuit in the
state or federal court.
Number 278
HAROLD HEINZE, 30 year Alaskan resident, informed the committee
that he was President of ARCO Alaska and ARCO Transportation
Company in the 1980s. In the early 1990s, Mr. Heinze was the
Commissioner of Natural Resources for Governor Hickel. Currently,
Mr. Heinze is a consultant. He specified that he was present as a
private citizen offering his opinion of what the legislature should
do regarding the proposed merger. Firstly, Mr. Heinze did not like
the loss of ARCO in the Alaskan oil industry, but felt it best for
the merger to move forward. The State of Alaska has an opportunity
to enhance the future of future North Slope oil development. "The
small reduction of competitive momentum in Alaska is more than
offset by the greatly strengthened competitive position of Alaska
in the international oil industry." Mr. Heinze did not believe
that a confrontational relationship with a major segment of the
Alaskan economy serves anyone. Furthermore, there is a danger that
some will use merger conditions to construct barriers to oil
development which is and will continue to be in the best interest
of Alaskans.
MR. HEINZE acknowledged that there are issues related to the
state's interest. However, the threats are limited in number and
manageable through existing mechanisms and agencies. Clearly,
Alaska loses when an economic oil field development project is
either delayed or not undertaken. If that became an issue, Mr.
Heinze believed that the Alaska Oil & Gas Conservation Commission
has authority legally to spotlight and correct such an abuse. He
said that if true abuses occurred, the public opinion reaction
would be strong. Furthermore, he believed BP-Amoco realizes that
its best interest aligns with Alaskan public interest.
MR. HEINZE recalled that the Alaska Constitution assigns resource
development policy to the legislature. Therefore, it is
appropriate for this committee to define and highlight Alaska's
development expectations and communicate those directly and
publicly to BP's executive management in Alaska and London.
Resulting from that effort will be a definition of ways to ensure
the vision remains before all Alaskans and is publicly accountable.
REPRESENTATIVE WHITAKER inquired as to what happens if in meeting
with BP it is found that BP disagrees with what the legislature
believes to be in the best interest of Alaska.
MR. HEINZE said that he did not foresee such a scenario. If Alaska
defines what is in its best interest, then that can be communicated
to BP and become the rules in Alaska.
Number 350
VIC FISCHER noted that he appeared before the committee at its last
meeting during which he indicated the need to provide the public
with information. He believed Alaskans are being bombarded by soft
ads intended "to lull Alaskans to sleep." That is of concern. Mr.
Fischer expressed tremendous respect for BP who has done a
phenomenal job developing the North Slope, as has ARCO. He
suggested the committee lean on the Governor and the executive
branch to publicly present the committee with the conclusions and
the public interest aspects of the various task forces studying the
proposed merger. The information that should be provided to the
public has nothing to do with confidentiality.
CHAIRMAN HALFORD stated that Mr. Fischer's suggestion was good.
Furthermore, the conclusions of the task forces are not the
confidential data upon which they are based.
REPRESENTATIVE WHITAKER commented that the committee has subpoena
powers in that regard.
Number 400
BARBARA WILLIAMS, Alaska Injured Workers Alliance, commented that
this merger will affect Alaska's children who receive a permanent
fund. As affected persons, children should have a say in this
merger. Or the child's parent should have a say on behalf of their
child. Ms. Williams did not believe the permanent fund should be
"monkeyed" with. Ms. Williams, as a representative of injured
workers, expressed the need to receive a public commitment from BP
ARCO to continue their level of contributions to community
services. If the merger occurs, she believed there would be less
available to give to communities. She said, "We want to see that
these funds and these contributions remain high and continue for
smaller organizations, such as myself, that provide free services
to people that have worked in the oil fields." She also expressed
the need to protect workers and to make sure that this merger is
not driven by a political agenda. Ms. Williams explained that when
people are chemically injured, they must be flown outside the
state. If no one knows what is wrong with these chemically injured
persons, they are not able to seek medical treatment. She informed
the committee that currently she has a list of five that may die
without proper medical care. Alaska Injured Workers Alliance
provides free services to get those people to the medical care
needed.
MS. WILLIAMS stated that the Alaska Injured Workers Alliance is a
nonprofit, grass roots organization that needs support from
entities such as BP and ARCO. She noted that the alliance works
with the Community Action Groups on Toxics and the Conservation
Foundation in order to provide communities with awareness about
toxins. Those working in the oil industry are often exposed to
many things. Furthermore, oil industry workers are often
encouraged not to report on the job injuries due to bonus packages
available. Ms. Williams explained that the alliance receives many
people who cannot obtain legal services to litigate their claims
because there are 10 attorneys statewide for 30,000 statewide
claims. Therefore, the alliance is the only source of support for
these workers. Ms. Williams asked if it would be appropriate, at
this time, to ask BP if it will commit to a continued level of
giving.
CHAIRMAN HALFORD noted that BP is not present to answer, but he
believed there is a statement from BP or BP ARCO that said the
giving would continue to the level of the combination of the two
entities in the past.
MS. WILLIAMS commented that the alliance has not seen any giving
from them.
Number 496
NICK BEGICH echoed comments regarding the merger being one of the
most important issues facing Alaska. Mr. Begich believed there are
the following two types of oil companies, the multinational oil
companies and the government oil companies. He also noted that
Alaska can be equated to a third world company in many aspects.
Third world companies often reach a point at which the question
arises as to whether it is time for them to produce their own oil.
They question if they are receiving a fair deal from a company that
really represents its stockholders' interests first. He believed
that there has already been debate with London regarding past tax
questions. Alaska has given up billions to our partners when most
prudent businessmen would have been looking for new partners.
MR. BEGICH turned to the question, "What would happen if Alaska
bought the assets of ARCO?" He pointed out that those assets can
be defined as well as segregated from the international and other
Lower 48 interests by the offer made by BP. Alaska could receive
12.5 percent plus about 40 percent of what ARCO Alaska would have
passing through the pipeline. Furthermore, the transportation fees
would offset the expenditure of buying the Alaskan assets. Given
that the value has been defined, Mr. Begich did not believe it
would be many years before the transportation costs would sum the
cost of the acquisition. He alluded to the possibility of
accomplishing that through the Alaska Industrial Development Fund
or placing an option on the ballot. Then discussion would move
from decreasing permanent funds to the future of the permanent fund
over 10 years with 52 percent of North Slope oil moving through
that pipeline. The discussion could then turn to Alaskan hire.
Furthermore, competition between private and public could occur.
Mr. Begich stressed that if this were costed out, there would be
distinct advantages and the revenue stream for the state would
increase. He pointed out that in many politically unrest
countries, there are commitments of billions of dollars and in many
instances, up to 50 percent royalties. Yet, Alaska is a safe
place. What will happen when 70 percent of Alaska's resources are
controlled by one entity? Will Alaska's resources sit in reserve?
Will places be developed that are easy to exploit in terms of
environmental protections? Perhaps, Alaska is in a position to
produce its own resources and maybe this is the time to consider
such. Mr. Begich stated that coming to the table arguing over the
crumbs left, in terms of handouts, is not the position Alaskans
should be in negotiating the fundamental resources. He echoed
earlier comments regarding the intent of the Alaska Constitution.
He stressed, "The idea that we're going to rely on the Federal
Trade Commission, the federal government, to cut a good deal for
Alaskans when they already diminishing the deal they made with us
under statehood, in terms of our royalty shares to open up ANWR or
to open up the Navel Petroleum Reserve; I think is a ridiculous
assumption that we're going to be protected by the federal
government. It's up to Alaskans, it's up to you, elected officers
representing this state, to make sure that we get the best for
Alaskans. Look at an acquisition as an alternative."
TAPE 99-4, SIDE B
Number 001
RICHARD FINEBERG noted that he testified before the committee on
June 11, 1999, regarding the need for the state to consider
acquisition of TAPS as a condition of the proposed merger. He
noted that his premise has been reinforced by data developed since
that testimony. The premise was that unless the pipeline is
operated by an entity that does not have production interests on
the North Slope, the state cannot expect other companies besides BP
to make significant contributions to future North Slope
development. Mr. Fineberg maintained that recommendation based on
four pieces of information that have emerged since the last
meeting. First, through a committee member's request, he has
learned that the pipeline tariffs in 1998 and 1999 illustrate very
little of the competition promised by the 1997 amended capacity
settlement agreement. Furthermore, that information does not
illustrate the benefit of reduced tariffs on the order of those
achievable through state acquisition of the pipeline. He referred
the committee to Table 2 of his June 11, 1999, testimony as well as
his July 21, 1999, memorandum to Chairman Halford. Mr. Fineberg
noted that he had reviewed updates of the previous analysis of
collections under the 1985 TAPS settlement agreement for the
dismantling of the pipeline. He informed the committee that he
concluded that the $1.535 billion collected through 1998 has an
imputed value today of $4.5 to $4.9 billion versus expected
dismantling costs on the same basis of $2.3 billion. "In other
words, the TAPS owners have made a tremendous killing on an
environmental requirement portrayed in the 1985 settlement as a
nonprofit item." The basis for the numbers are in the June 24,
1999, report. He said, "In view of the disparity between DR&R
collections and me and the recent charges by six mid-level Alyeska
employees that senior executives on the pipeline are actively
squelching whistle-blowers and are receiving no relief from state
and federal monitors, environmental and public interest groups have
called for independent audit of the pipeline in connection with the
merger." He noted that was item 3 of the new report.
MR. FINEBERG informed the committee of a rumor, from good sources,
that BP is negotiating this week in Houston to sell 72 percent of
the pipeline to an independent buyer in order to guarantee lower
future tariffs. He recalled that BP and ARCO spent three months
perfecting their takeover plan before informing the state of the
plan. He said, "I would like to know if the state is a party to or
monitoring these negotiations if they are taking place." He
expressed concern with DR&R regarding lease renewal and the request
for low tariffs. Mr. Fineberg encouraged careful research. He
noted the 1999 reports of Professor James Smith of SMU and his
colleague to the National Bureau of Economic Research which refused
the assertion that the Alaska Oil and Gas Conservation Commission
(AOGCC) has sufficient authority to protect Alaska's interests.
Furthermore, the FTC has made it clear that Alaska's situation is
unique and the FTC may not have the statutory authority to deal
with those. In conclusion, Mr. Fineberg urged the committee to
take immediate action in order to ensure that Alaska's interests
are protected.
Number 071
TOM LAKOSH provided the committee with some charts. He noted that
he reviewed this issue from a different light. BP has exerted its
monopolistic control and created the current budget crisis. With
regard to vapor recovery, that has occurred on two berths while two
berths remain uncontrolled. BP's pump at Alyeska and its other
shippers promised that they would be able to ship 1.1 million
barrels per day at the controlled berths and an exemption would be
given at the two other berths in order to meet the Department of
Revenue projections for 1998, 1999, and 2000. The 1998 allowance
was 275,000 barrels per day. The 1999 allowance 205,000 barrels
per day. The 2000 allowance was over 100,000 barrels per day. As
it turns out, only about 1.03 million barrels per day, controlled
and uncontrolled, have been loaded. He pointed out that they have
refused to lower it at the uncontrolled berths. "Initially, this
might seem to be an altruistic reason to prevent air pollution.
But, in fact, if that were the case they'd put the controls on
berth 3 and have control loading at three berths instead. So what
essentially has been happening here is that BP has been controlling
the West Coast market supply by refusing to load their tankers, by
not replacing the tankers that have been retired. And as a matter
of fact, they refuse to service Alaska with tankers that were not
yet required to be retired under OPA 90 [Oil Pollution Act of
1990]." He indicated that BP's further monopolistic control is an
antitrust action which must be prohibited by law. He referred the
committee to the tanker retirement schedule for 1998 through 2008.
There is a southern, northern, western, and eastern line which has
disappeared. From information provided by DEC and RCAC, those
tankers were taken from the fleet in order to avoid having to bring
in extra spill response equipment to meet the response planning
standards for these large tankers. These three or four vessels
that were scheduled for retirement this year have been taken out of
service, which does not allow Alaska to ship its oil. For that
reason, there is a budget shortfall. Those tankers were not
replaced and plans with NASCO to build "Cape" class tankers were
cancelled one week before the announcement merger. Sources in ARCO
say that cancellation of the building of the "Millennium" tankers
would have probably occurred if it would not cost more to cancel
than continue. He believed the plans for the "Millennium" tankers
are being scrapped. Therefore, there are two forms of antitrust,
anti-competitive action. First, the quantity of tankers to meet
the free trade requirement is not being produced. Second,
innovation and quality competition is being stifled. This is a
situation in which BP knows it must have the tankers. He referred
to information which laid out the year of tanker replacement and
what Mr. Lakosh considered the "Millennium" equivalent and the
minimum amount of construction schedules that must be produced
which results in about 20 tankers. Mr. Lakosh proposed the
building of 14 tankers by 2007 because of possible reduction in
through put; that is merely an estimate.
MR. LAKOSH emphasized the need for this committee, as he had
requested from the Governor, to request information regarding the
construction schedule for tankers. The request to the Governor was
passed off to Mr. Dietrick in DEC. He pointed out that it takes at
least two years once construction begins, but yards must be lined
up or nothing will be shipped. Past practices indicate that they
have total control of the state's budget and economy. BP has yet
to provide any information and refused to provide any information
unless secrecy was promised. Mr. Lakosh stated that the response
from Mr. Dietrick was comparable to a BP advertisement in the
paper. He noted that Mr. Britt has heard his appeal and
Representative Kerttula was their counsel when Mr. Lakosh attempted
to enforce the DNR lease with regards to the Valdez marine terminal
contingency plan submitted in August of 1993. Still, outstanding
conditions of appeal on what has not been approved since August of
1993 remain. Mr. Britt and the commissioner have refused to
enforce the lease. Therefore, forfeiture of the lease under
Article VIII Section 8 should be discussed versus the blessing of
the merger. He hoped that the committee would review Mr. Fischer's
analysis of Article VIII. How can ARCO be put out of business when
it was the only company that made efforts to protect Alaska's
natural resources with the design and construction of the
"Millennium" class tankers. If ARCO Marine was maintained, there
would be at least 10 "Millennium" class tankers. Now, there will
only be three "Millennium" class tankers and no "Cape" class
tankers because BP no longer needs to compete with ARCO on the West
Coast for green customers. He reiterated the need to have a
specific tanker construction schedule as well as the data regarding
the turnaround time for those tankers. He stressed the need for
the committee to not only review the consequences of the merger,
but also what would continue even if the merger did not occur with
regard to BP's manipulation of the through put on the pipeline.
This is a continuous debate to achieve the types of protection
Alaska is guaranteed under law. BP's efforts have prohibited the
use of the best available technology throughout the line. For
example, DNR and the Bureau of Land Management (BLM) had a
requirement for annual contingency plan reviews in the lease and
the grant; such has not been seen for seven years. Therefore, the
lease renewal must be closely reviewed.
Number 239
REPRESENTATIVE PORTER asked if the lack of tanker space has
decreased the amount of oil that has went to market.
MR. LAKOSH stressed that the pipeline and production has to be
slowed because of the tanks that were not completed. Therefore,
the tanks fill and they are refusing to go to the berth to load the
tankers. For every day that production is slowed, Alaska has that
many less dollars to spend. Furthermore, such actions raise
gasoline prices.
CHAIRMAN HALFORD asked if anyone else wished to testify. There
being no one, he closed the public testimony. He announced that
another meeting would be scheduled in August.
ADJOURNMENT
There being no further business before the committee, the Joint
Special Committee on Mergers meeting was adjourned at an
unspecified time.
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