Legislature(1995 - 1996)
05/05/1996 04:35 PM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR HOUSE BILL NO. 548(WTR)
An Act authorizing 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.
Co-chairman Halford noted a request by members that CSHB 548
(WTR) be brought on for hearing prior to HB 325 (North Slope
Heavy Oil Royalty Modification).
JOHN SHIVELY, Commissioner, Dept. of Natural Resources, came
before committee to provide an overview of the bill. He
explained that Northstar is an offshore field in northern
Alaska. Five state and two federal leases are involved.
Four of the state leases were part of a 1979 lease sale in
which the net profit was the bid variable. Money is usually
used as the variable. These four leases reflect the only
sale which utilized net profits as a bid variable. The
fifth lease was made in 1983. It involved an established
net profit of 40%, and the bid variable was money.
The field was originally operated by Amarada Hess which
conducted initial analysis. As a result of that and other
work, an independent 1993 Department of Energy study
concluded that the field was uneconomic based on findings
that:
1. Reserves had not yet been confirmed.
2. Net profit provisions made the field uneconomic.
Amarada Hess ultimately reached the same conclusion. The
company believed that development costs could total over $1
billion, and it subsequently offered the leases for sale.
Two companies bid: one was BP. The state allowed the
leases to be transferred to BP in January of 1995.
The net profit concept was discussed (for potential
inclusion in HB 207) in the spring of 1995. A decision was
subsequently made not to do so. Commissioner Shively said
he agreed to "take a look at it" but advised that he did not
have legal authority to change the net profit provision. He
further advised that if agreement in this area could be
reached, it would require legislative confirmation.
As further background information, the Commissioner
explained that four of the five 1979 leases had a 20% base
royalty. For the fifth lease the base royalty was 12.5%.
That lease has been raised to 20%. Northstar would be the
only field on the North Slope with a royalty rate of 20%.
The Northstar agreement also drops net profit provisions and
substitutes a "supplemental royalty" based on the price of
oil. That could ultimately allow the state an additional
7.5% on top of the base 20%.
Further provisions state that if BP does not obtain sanction
or approval from its board of directors within a year of
approval by the legislature, the leases will be returned to
the state for re-lease.
The department performed a series of economic analyses in
reviewing the agreement and progression of the bill through
the legislature. The department has the ability to provide
both 1996 dollars and net present value dollars for all
analyses. Commissioner Shively said he chose to "think" in
1996 dollars.
The department used 130 million barrels of recoverable oil
as the base case. That is approximately half of what is
believed to be in the field. Five wells have been drilled.
State geologists and geophysicists have had more time to
review the field than has BP because information from
Amarada Hess was available to the state, and BP received the
information only after it bought the leases. The department
is comfortable with base numbers.
The department ultimately determined that if net profits
remain in place and the field is developed immediately, the
state would receive $85 million from the lease. If the
supplemental royalty is used and the field is developed
immediately, the state would receive $37 million. That is a
significant difference. However, BP is not likely to
immediately develop the lease with net profit provisions in
place. Due to the manner in which the development account
was established, the longer BP delays, the less net profits
the state will receive. The earliest the state could order
BP into production would be 1998. Under that scenario, oil
would begin to flow in 2002 rather than 1999. A review of
net profits at that time indicates $41 million.
Commissioner Shively explained that under net profits all
operational costs (seismic exploration, engineering,
drilling, construction, and operating) accrue to the
development account. That account is not paid down until
production occurs and revenues begin to accrue. A judicial
decision determined that the development account "goes with
the lease" and not with the company that made the
expenditures. BP thus receives the benefit of "over $200
million which Amarada Hess spent," and the development
account bears interest at prime rate (slightly over 8.5%,
today). That is a large asset. The longer the development
account builds up, the less the net profits are.
The proposed agreement changes the incentive. Under the
supplemental royalty, the longer it takes to develop the
field, the more BP pays to the state.
Co-chairman Halford noted that the leases were scheduled to
expire and asked that the Commissioner describe the
circumstances which led to extension when the leases were
taken over by BP. The Commissioner explained that in
January of last year, the department granted BP authority to
take over the leases plus a two-year development plan. BP
subsequently asked for several months in which to prepare a
more complete plan. It then returned with a three-year plan
which the department approved in April of last year. Co-
chairman Halford voiced his understanding that three years
were added. Commissioner Shively clarified that an
additional year was added. The department previously agreed
to a two-year development plan when it "agreed to the
extension of the leases," in January.
In response to a comment by Co-chairman Halford that the
state did not "get anything" for the extension, Commissioner
Shively noted that it is customary for the department to try
to "make leases work." This is not the first time the
department has granted a change in ownership. The
department was aware of the Amarada Hess figure of "over $1
billion to develop this field." It was not unreasonable to
"take a company that's one of the best in the Arctic and
give them some time to look at it." Everyone recognized
that an 89% net profit was a potential hindrance to
development. Co-chairman Halford agreed.
Commissioner Shively stressed the importance of legislative
involvement in review of the Northstar agreement, saying
that it has enabled legislative leadership and the
administration to send a unified message to BP, and others
in the industry, regarding local hire and use of
contractors. In development of Badami, BP was "looking at
doing . . . all their construction in Canada." The
department used the proposed bill to "get them to rethink
how they can use Alaska and Alaskans." The Commissioner
noted that, for him personally, the foregoing was not a
"critical piece of the pie." If the proposal did not made
economic sense, it would not be recommended, regardless of
Alaska hire.
Senator Rieger asked how the Commissioner could characterize
a lease value lower than either the 1998 start or a present
start (under net profit provisions) as making sense
economically. Commissioner Shively said he could not
guarantee that BP would start in 1998 if net profit
provisions are not removed. The state has never ordered an
oil field into development or threatened to take back
leases. The focus has been on cooperation toward
development. Under net profits, it is to BP's benefit not
to speed up development. That model is "fairly sensitive."
Effecting a small interest-rate change for one year would
move the projected number even lower. The Commissioner
stressed that that is the smallest piece of the pie, saying,
"We're looking at a total take, for the state, of over $435
million." The supplemental royalty and the net profit
royalty are only a small piece. In terms of total
potential, there is approximately a $9 million difference.
Obtaining certainty and "real money" from the supplemental
royalty versus uncertainty of development and good potential
that nothing would ever be paid from net profits represents
a "good economic deal for the state."
Senator Rieger asked if there was a ground rule, at the
start, regarding present value or "money of the day"
equivalency that provided guidance to the direction of
negotiations. Commissioner Shively responded negatively,
saying that he ultimately settled on 1996 dollars. When
viewed from the perspective of net present value dollars, it
looks better from the state's perspective. If viewed from
the perspective of "money of the day," it looks better from
BP's perspective. Part of the bottom line was that if BP
did not "do this, they were going to lose the leases." The
Commissioner stressed that part of the consideration was a
belief that the state would "get real money out of the
supplemental royalty." The state was not going to give up
net profits for nothing.
Co-chairman Frank inquired concerning what the rate of
return on the supplemental royalty would have to be to
achieve the 20% return under net profits. The Commissioner
described the method of projecting supplemental royalty
revenues from a base of $17.35. If the base is driven to
$17.15, with a 7.5% cap, it would be "about equal."
Senator Zharoff voiced support for local hire provisions of
the agreement and referenced correspondence from Teamsters
Union 959.
Co-chairman Frank cited the broad range of activity on the
North Slope and the high number of nonresidents involved.
He voiced need for greater emphasis on Alaska hire,
particularly Fairbanks hire. He stressed need to "bring BP
back to Alaska for development of their modules" and
questioned why the construction was originally to have
occurred in Canada. He suggested that with as much public
exposure and emphasis on local hire over the past ten years,
it is difficult to understand why it is an item of
discussion at this time. Commissioner Shively attested to
positive aspects of legislative debate focusing on what is
meant by Alaskan and Alaska hire. He pointed specifically
to intent included within CSHB 548 (WTR) and noted that what
is constitutionally an Alaskan may not be what the state
intends to count as Alaska hire. Co-chairman Halford
commented that Alaska hire should apply to "somebody who got
a dividend the year before they got hired."
Senator Randy Phillips referenced information from a
constituent working for BP at the Endicott field who
indicates that 50 of the 125 jobs are filled by out-of-state
individuals. The history on this issue is not good. Local
hire is of concern for the Northstar project because of what
has happened in other fields. Commissioner Shively agreed
that Northstar would be a proving time for BP. While BP's
local hire record is not the worst of any industry, it has
been declining. How the company recruits and trains for new
jobs will be critical. If BP does not change its current
system of rotation, it will not be able to meet commitments.
Organized labor, because of its training and recruitment
practices, can also assist. The Commissioner acknowledged
that "It's not going to happen if we're not vigilant."
Co-chairman Frank voiced his preference for structuring the
agreement so that the reduction in the net profit share of
the royalty is "an after-the-fact thing so that we'll know
that they've met the commitments." He said he was
unconvinced that intent would make a change. The House
Resources bill was stronger in that regard. The definition
of a resident contained within CSHB 548 (WTR) is not strong
enough. Commissioner Shively emphasized that Alaska cannot
legally enforce the issue of local hire. The state can
encourage that activity, but constitutional problems are
involved. The House World Trade Committee was forceful in
making the point that this would be a voluntary commitment.
Co-chairman Halford voiced his understanding that there is a
difference between the commitment on local hire and the
commitment on local module construction. Commissioner
Shively agreed. The Co-chairman noted testimony before
Senate Resources Committee indicating that the state could
"absolutely enforce local module construction" while it
cannot enforce local hire. The Commissioner concurred.
Senator Rieger raised a question concerning the nature of
the competitive bid process on the original competitive oil
and gas bids. Commissioner Shively indicated that the
problem with net profit bidding is that it encourages the
bidder to go beyond the comfort level "because there's
nothing on the table." Some feel the process is flawed from
the beginning. While the state has, in the past, changed
terms of leases, it has not before changed the bid variable.
He advised that it would have been easier for the state to
do nothing--"to say 'no,' not to take a look at this."
The Commissioner further advised that he did not believe
other companies would want to develop the field under
original bid provisions. There has been no outcry from
those involved in the bidding process that the proposed
agreement is not proper. Several approaches could have been
taken. One would have been to attempt "to get the leases
back and to rebid them." The department feels the current
approach is the most expeditious means of developing the
fields. The Commissioner stressed that a 20% base royalty
is a good royalty. The state is not giving the field away.
Senator Rieger next inquired regarding the impact of the
probability of later modification on the initial bidding
process. Commissioner Shively acknowledged that it "ups the
bid potential." It limits "somebody's risk." Most leases
are based on base royalties and a bonus bid. If net profits
are used as a variable, there is real danger that costs will
reduce the royalty.
The proposed agreement sends the signal that the state will
"look at things on a case-by-case basis," and, if it makes
sense, try to work toward development of an oil field.
Commissioner Shively acknowledged that some might say that
is wrong, and the appropriate means is competitive bid. He
suggested that had the state declined to deal with BP, taken
the leases back, and put them out to bid, all that would
have been known is that it is not a "very big field," and
development costs would be over $1 billion. The state would
probably not have set a base 20% royalty. It would have
been lower. BP may have gotten one, some, or none of the
leases. The unit would have had to be redone and
engineering commenced again.
Commissioner Shively admitted that if leases were returned,
today, with as much public scrutiny and information from BP
(particularly relating to significantly less development
costs), the state could probably get more bonus money. He
noted, however, risks associated with the first off-shore
development on the North Slope.
Senator Rieger suggested that "someone who assesses that
they don't have the probability of getting a modification,
later, is not going to bother bidding." He expressed
concern over the practice of providing after-the-fact
modification of leases, saying that it is "extremely anti-
competitive" in the long run. Only those who believe they
have the "political stroke" to get a modification will be
bidding in Alaska. Commissioner Shively cited historical
precedent for modifications and listed the companies
receiving them. He reiterated that the proposed agreement
had to stand on its own economics. It was not merely
acceptable because BP was involved.
Co-chairman Halford referenced debate at the time net profit
leases were offered. Majors in the industry objected to
that approach, saying that one of the problems with that
method was that there would be pressure for small companies
that received leases to try to get the terms changed, after
the fact. He noted irony in the fact that those opposed to
net profit leasing are nor the owners of the leases.
REPRESENTATIVE RAMONA BARNES next came before committee.
She referenced Page 2 of the original HB 548 (Sects. 8, 9,
and 10) and quoted language relating to BP's commitment to
hire Alaska residents and to fabricate module units in
Alaska. She further attested to action on the bill within
House Resources Committee and told members that a subsequent
legal opinion deemed the House Resources version of the bill
unconstitutional.
Representative Barnes directed attention to a March 26,
1996, memorandum from Assistant Attorney General James
Baldwin to Commissioner Shively and noted that in changing
the terms of the leases, it is important that the state make
clear what it is getting in exchange for lease
modifications. She then quoted the following from page 6 of
the memorandum:
We believe that a compelling case can be made that
there is adequate consideration to support a
finding of a direct and substantial public benefit
flowing from the reduction of the net profit
share. We assign a low probability to the
possibility of a successful challenge based on the
public purpose doctrine.
One of the issues raised by the public purpose doctrine is
whether leases should be amended in exchange for early
development of the field, local hire, and module
construction in Alaska.
Representative Barnes pointed to past legislation relating
to local hire and the fact that it was deemed
unconstitutional by the Alaska Supreme Court. Since there
is presently no way to constitutionally enforce Alaska hire,
a way must be found to induce industry to do so voluntarily.
Representative Barnes next directed attention to a document
entitled "First Amendment to the Northstar Unit Leases
Between the State of Alaska and BP Exploration (Alaska)
Inc."
END: SFC-96, #113, Side 1
BEGIN: SFC-96, #113, Side 2
Language at Page 5, paragraph 10, consists of replacement
language for that within Section 41 of the original lease.
Replacement language speaks to "Employment of Alaskan
Residents." It is included in the document voluntarily
signed by both the state and BP. Representative Barnes
referenced Page 5, commencing with line 27, of CSHB 548
(WTR) and explained that "Employment of Alaskan Residents"
language from the voluntarily signed agreement was
incorporated within the bill.
CSHB 548 (WTR) not only sets forth provisions of the lease
(in law sections of the bill), it also references signatures
voluntarily affixed. The bill includes provisions requiring
that BP report to the Commissioner of Alaska's Dept. of
Labor, every six months, and that the reports be given to
the legislature. A less formal report will be provided to
the Dept. of Labor every three months, in order to evidence
that provisions of the voluntarily signed lease are carried
out. To ensure a correct understanding between the state
and BP, Representative Barnes said she asked the President
of BP Alaska to provide correspondence acknowledging
provisions and requirements of the lease agreement. She
then directed attention of April 29, 1996, correspondence
from John Morgan, President of BP Exploration. She
reiterated that the key to Alaska hire and hiring of
Alaskans is not something that can be mandated. It is,
however, something "We can get someone to voluntarily agree
to do."
In her concluding remarks, Representative Barnes noted that
the legislature had no knowledge of the contents of the
leases until they were submitted for consideration. The
legislature cannot be accused of coercing participants to
"voluntarily" incorporate language that will employ
Alaskans, put Alaskans to work, and establish a business in
Alaska to build modules. It is hoped that technology
developed in building the modules can be imported to other
places, such as the Russian Far East.
Representative Barnes voiced her belief that everything that
can constitutionally be done has been incorporated within
the legislation to ensure Alaskans will be hired, and the
modules will be built in Alaska.
In response to a question from Co-chairman Halford regarding
reports to the Dept. of Labor and enforcement of both Alaska
hire and in-state module construction, Representative Barnes
stressed the importance of narrowing module construction and
Alaska hire to language within the lease itself. The
proposed bill does that.
Senator Sharp advised that he would be closely reviewing
reports to ensure true Alaska hire. He then suggested that
adjustments in many areas could be made to "get the money
back because Alaska hires weren't done." Representative
Barnes expressed concurrence and directed attention to Page
3 of the bill where legislative intent is spelled out. She
again stressed the voluntary nature of signature by
participants, prior to legislative review and ratification.
Representative Barnes pointed out that under previously
passed SB 207, there is no legal authority for the
Commissioner to make the changes set forth in the agreement
and recited in CSHB 548 (WTR). Beyond that, under the
Alaska Lands Act itself, the Commissioner could not have
made the changes without presentation to the legislature for
ratification.
Co-chairman Frank noted that the language in the House
Resources version was stronger. He then asked how the
executive branch should enforce the terms of the agreement
relative to Alaska hire and Alaska fabrication.
Representative Barnes alluded to comments that she had
extracted the teeth from the Resources version. She
countered those comments by advising that she gave CSHB 548
(WTR) constitutional teeth. She said she would have
preferred the stronger language, but she again referenced
legal opinions indicating the bill was unconstitutional.
She stressed the importance of keeping oil flowing through
the pipeline. When the flow reaches approximately 600,000
barrels a day, the pipeline becomes non-economical. The
narrow language, voluntarily placed in law, is as far as the
state can go toward enforcement.
ERIC LUTTRELL, Vice-president of Exploration and New
Developments for BPX, Alaska, came before committee. He
told members that Northstar legislation relates to
development, alignment of interests, and public commitment.
Development would put $1 billion into the state economy. It
is hoped it will be the first of a new generation of
smaller, economic fields on the North Slope. It also
involves development of a new industry to fabricate modules,
in Alaska, for those oil fields. Development of Northstar
is in the best interest of Alaska and its citizens.
The Northstar agreement is a win/win agreement that unlocks
the potential of a field that has lain undeveloped for
sixteen years. It also ensures optimal development. The
agreement aligns the interest of BP and the state through a
partnership. Normal commercial actions to be undertaken
would benefit both the company and the state, equitably.
That is how all other fields in Alaska operate. That is the
relationship that has led to continuing investment and
reserve growth in those fields. The alignment embodied by
agreement ratification ensures two things:
1. If the oil price or field reserves were to exceed
expectations, state revenues would increase significantly.
2. The state always receives substantially more
revenues than BP, regardless of the price on reserves.
Because of the alignment of interests, BP will continue to
make capital investments, and the field will continue to
produce during deep decline.
The opposite of the foregoing is true of net profits. Net
profits occurring late in field life, when the field is in
deep decline, are likely to have the opposite effect--a
significant reduction of midlife investments and a real
potential for premature abandonment. The would put the
state at risk of realizing neither the $41 million of net
profit share, nor the $19 million in royalty and taxes from
that period of net profit production.
Mr. Luttrell acknowledged that much has been said about non-
binding commitment to Alaska hire and Alaska fabrication.
He then advised,
Let me be clear. We take our public commitment to
the citizens of Alaska very seriously.
BP worked with the department to ensure that Alaska hire and
Alaska fabrication was as strong as possible, without
raising an immediate constitutional challenge. The company
has made a very public commitment to hire Alaskans and help
establish a new industry by building large modules in
Alaska. Mr. Luttrell referenced the letter from the
President of BP (referred to earlier by Representative
Barnes). BP's reputation depends upon honoring its
commitments and reporting the results to the people of
Alaska. Mr. Luttrell urged support and passage of CSHB 548
(WTR).
Co-chairman Frank asked what BP could do to increase Alaska
hire in Fairbanks. Mr. Luttrell attested to industry,
operators, and main contractors working together in an
attempt to improve the record of Alaska hire. The group is
focusing on three main thrusts:
1. Training
2. Advertising
3. Reporting
He attested to the benefits of Doyon Drilling, saying, "They
set out, effectively, to make sure that their shareholders
were trained and available to work on the North Slope."
Ultimately, the focus must be upon training to ensure that
residents of local communities have the skills to qualify
for jobs.
Senator Randy Phillips again referenced out-of-state hire at
Endicott. Mr. Luttrell said he would inquire about
specifics and report back to committee.
Co-chairman Halford voiced his understanding that in the
course of consideration of the Senate version (SB 318), the
Senate Resources bill was deemed unacceptable because it
would require reopening of negotiations. He then directed
attention to legislative findings and intent relating to
specific resident requirements and noted that they are not
part of the agreement. Mr. Luttrell concurred that
findings, within the bill, are supplemental to the original
bill. Co-chairman Halford then asked if addition of
language to clarify that a resident is someone who was
present in the state, last year, would be considered an
amendment to the agreement. Mr. Luttrell acknowledged it
would not be an amendment to the agreement.
Co-chairman Halford next asked if there would be objection
if reporting provisions (compliance on both local hire and
local contracting) included receipt by the Legislative
Budget and Audit Committee. Mr. Luttrell voiced his
understanding that the legislation requires reports to the
legislature. In response to questions from Mr. Luttrell,
Co-chairman Halford clarified his intent that reporting to
LB&A include both local hire and local module construction.
Mr. Luttrell said he could see no reason why that would not
be possible.
KEITH BURKE, General Manager, Support Industry Alliance
Organization, next came before committee. He advised that
the organization has chapters in Fairbanks, Anchorage,
Kenai, and an environmental chapter at Prudhoe Bay.
Membership consists of approximately 350 support industry
contractors who will gain advantage from the project, should
it go forward.
Mr. Burke attested to the shrinking work force and layoffs
associated with decline in production and through-put.
Workers attempting to anticipate layoff in a declining
industry often put their homes up for sale to avoid
inability to meet mortgage payments if they are out of work.
That is one cause of the percentage of non-resident people
working within the industry remaining flat or increasing.
That trend will continue unless the decline in the industry
is turned around and growth begins. Unless that happens
there will be reluctance on the part of specialists
(technicians) to move, from their present residence, to a
state that is not on the growth line. The proposed
legislation evidences a desire to reverse the present trend.
Mr. Burke urged support and passage.
Senator Rieger asked if the organization would turn out as
strongly in support of a lease modification (before the
legislature) next year as it has for the current
modification. Mr. Burke said that if the modification
involves jobs, the economics are in place, and revenues
would benefit the state, the organization would support
modification of a lease that was previously uneconomical and
would not have been developed. He reiterated that the
industry is in decline rather than increase. Oil is the
largest single revenue source to the state.
Co-chairman Frank noted that information indicates union
hire is generally local to Fairbanks while non-union hire is
not. He then asked what is happening in the support
industry to increase resident hire generally, and in
Fairbanks in particular. Mr. Burke said he was part of the
original committee established to study Alaska hire with
ARCO and BP. One of the recommendations from a non-union
perspective is to ensure that advertisement is placed in all
papers, not just Fairbanks, when non-union jobs are
available. The workforce is there. Industry was not
communicating with the community regarding opportunities.
There is an agreement that advertisements will be made to
all areas of Alaska. That is one thing the non-union
contracting force can do.
Mr. Burke further acknowledged that a "certain amount of
courting" of local hire needs to occur. He recommended that
Fairbanks be more aggressive in marketing what is available
in the local market. He pointed to previous construction of
small modules in Fairbanks. The transportation for small
modules is more flexible from Fairbanks than Anchorage.
Fairbanks must sell its capabilities to the industry.
Co-chairman Halford asked at what point Mr. Burke feels the
state should leave oil in the ground for the next
generations because its value is not sufficient for use in
this generation. Mr. Burke acknowledged the difficulty of
the question. He then referenced other state resources that
do not generate significant state revenues but which create
jobs and keep individuals off the welfare system. Co-
chairman Halford noted a significant difference between
renewable resources and oil.
SENATOR LOREN LEMAN next came before committee to speak to
action when the companion bill (SB 318) was in Senate
Resources. Referencing three proposed amendment, he told
members the committee held five hearings and elicited
information to develop substantial findings. He then
referenced findings of fact printed in the Senate Journal
Supplement. Conclusions of those findings are contained
within CSHB 548 (WTR). Senator Leman recommended
incorporation of findings from CSSB 318 (RES) as well.
END: SFC-96, #113, Side 2
BEGIN: SFC-96, #114-A, Side 1
The Senator acknowledged that the Senate Resources approach
met with resistance in that it proposed changes to the
language of the agreement. The House bill contains
language, relating to Alaska hire and Alaska contracting,
lifted directly from the lease agreement. It has no
practical effect in terms of changing the bill submitted by
the administration.
The Senate Resources Committee made effective date changes
proposing that agreement ratification occur the day after
the legislature receives a letter saying that the project
has been sanctioned. This is different than allowing the
bill to become effective immediately and then waiting for BP
sanction. There are practical benefits, to the state,
associated with the change.
Senator Leman attested to interest by some Resources members
to capture the upside potential--either the initial
production rate, if it is substantially higher, or if the
field were substantially larger than projected. The
committee ultimately decided not to address that.
Co-chairman Frank asked if Senate Resources explored the
constitutional question of local hire. Senator Leman said
the committee received advice from legislative attorneys who
believe CSSB 318 (RES) language is forceful and does not
violate the constitution. The Resources committee revised
wording saying that Alaska hire would occur "to the extent
economically feasible" and replaced it with, "To the extent
allowed by law, BP will construct in Alaska and will hire
Alaskans." That became a stumbling point. Co-chairman
Frank asked that Senator Leman provide information from
legislative attorneys on the constitutionality of language
within CSSB 318 (RES).
GERALD HOOD, Chief Executive Officer, Teamsters Union for
the State of Alaska, and Vice-president of the state
AFL/CIO, next came before committee. He referenced his May
3, 1996, correspondence (copy on file in the original Senate
Finance Committee file for HB 548) in support of CSHB 548
(WTR) and asked that the letter become part of the record.
Co-chairman Frank inquired concerning how the industry
chooses contractors and how that relates to "who winds up
working." Mr. Hood deferred comment to the industry. He
referenced earlier discussion of Alaska hire as an issue
much broader then Northstar and acknowledged that one of the
benefits of discussion of the issue, with industry, has been
a broader union rule in areas where unions have not made
significant inroads, such as "core maintenance work." There
is now a "relatively strong commitment from British
Petroleum to, for the first time, sit down and discuss ways
that union contractors can become involved. Creativity on
the part of both unions and BP will be necessary. The
unions are encouraged by this step. Mr. Hood acknowledged
there is no firm commitment that unions will receive certain
amounts of work in the industry. He attested to need for
trust and voiced his belief it would occur. Recent
discussions pertaining to Northstar indicate that union hire
will enjoy 79 to 80 percent. Union local hire numbers are
better than non-union competitors. The unions will employ
Alaskans.
Mr. Hood advised that the union he represents is statewide.
Calls will come from the Fairbanks hall first. Other local
unions are also Fairbanks based. All union North Slope work
derives from those halls. The interior will benefit from
agreements reached with subcontractors.
Co-chairman Halford inquired concerning the union versus
non-union ratio of local hire. Mr. Hood advised that he did
not have the information. The Co-chairman referenced
pipeline construction and noted that at times union hire
appeared to be working against local hire. The Tulsa
Pipeline Union seemed to be in control of "an awful lot of
things against Alaskans for a while."
Co-chairman Frank directed attention to pie charts from the
Dept. of Labor and noted allocation of hire. Mr. Hood
applauded committee comments regarding Alaskan hire. He
suggested that CSHB 548 (WTR) comes as close as possible to
laying a foundation and track record for that to occur. He
acknowledged that BP would be closely monitored and would
have to perform or the tide of both legislative and public
opinion would change dramatically with regard to "the
business that they do here."
ADJOURNMENT
The meeting was adjourned for floor session attendance at
approximately 6:20 p.m.
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