Legislature(1995 - 1996)

04/29/1996 05:15 PM House WTR

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                HOUSE SPECIAL COMMITTEE ON WORLD                               
               TRADE AND STATE/FEDERAL RELATIONS                               
                         April 29, 1996                                        
                           5:15 p.m.                                           
                                                                               
                                                                               
 MEMBERS PRESENT                                                               
                                                                               
 Representative Ramona Barnes, Chairman                                        
 Representative Gail Phillips, Vice Chairman                                   
 Representative Bill Williams                                                  
 Representative Gary Davis                                                     
 Representative Gene Kubina                                                    
 Representative Eldon Mulder                                                   
 Representative Jerry Mackie                                                   
                                                                               
 OTHER HOUSE MEMBERS PRESENT                                                   
                                                                               
 Representative Kay Brown                                                      
 Representative John Davies                                                    
 Representative Joe Green                                                      
                                                                               
 MEMBERS ABSENT                                                                
                                                                               
 All members present                                                           
                                                                               
 COMMITTEE CALENDAR                                                            
                                                                               
 HOUSE BILL NO. 548                                                            
 "An Act authorizing, approving, and ratifying the amendment of                
 Northstar Unit oil and gas leases between the State of Alaska and             
 BP Exploration (Alaska) Inc.; and providing for an effective date."           
                                                                               
      - PASSED CSHB 548(WTR) OUT OF COMMITTEE                                  
                                                                               
 PREVIOUS ACTION                                                               
                                                                               
 BILL:  HB 548                                                               
 SHORT TITLE: NORTH STAR OIL & GAS LEASE AMENDMENT                             
 SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                  
                                                                               
 JRN-DATE     JRN-PG                  ACTION                                   
 03/28/96      3434    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 03/28/96      3434    (H)   RESOURCES, FINANCE                                
 03/28/96      3434    (H)   FISCAL NOTE (DNR)                                 
 03/28/96      3435    (H)   GOVERNOR'S TRANSMITTAL LETTER                     
 03/28/96      3436    (H)   ATTACHMENT/S&H SUPPLEMENT #21                     
 04/03/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 04/03/96              (H)   MINUTE(RES)                                       
 04/10/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 04/10/96              (H)   MINUTE(RES)                                       
 04/12/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 04/12/96              (H)   MINUTE(RES)                                       
 04/15/96              (H)   RES AT  5:00 PM CAPITOL 124                       
 04/15/96              (H)   MINUTE(RES)                                       
 04/23/96              (H)   RES AT  3:00 PM CAPITOL 124                       
 04/23/96              (H)   MINUTE(RES)                                       
 04/24/96              (H)   MINUTE(RES)                                       
 04/24/96              (H)   MINUTE(RES)                                       
 04/24/96      4019    (H)   WTR REFERRAL ADDED                                
 04/26/96              (H)   MINUTE(RES)                                       
 04/26/96      4040    (H)   RES RPT  CS(RES) NT 3NR 3AM                       
 04/26/96      4041    (H)   NR: BARNES, OGAN, GREEN                           
 04/26/96      4041    (H)   AM: KOTT, WILLIAMS, DAVIES                        
 04/26/96      4041    (H)   FISCAL NOTE (DNR) 3/28/96                         
 04/29/96              (H)   WTR AT  5:00 PM CAPITOL 124                       
                                                                               
 WITNESS REGISTER                                                              
                                                                               
 JIM BALDWIN, Assistant Attorney General                                       
 Civil Division                                                                
 Department of Law                                                             
 P.O. Box 110300                                                               
 Juneau, Alaska 99811-0200                                                     
 Telephone:  (907) 465-3600                                                    
 POSITION STATEMENT:  Answered questions on HB 548.                            
                                                                               
 JOHN SHIVELY, Commissioner                                                    
 Department of Natural Resources                                               
 400 Willoughby Avenue                                                         
 Juneau, Alaska 99801-1724                                                     
 Telephone:  (907) 465-2400                                                    
 POSITION STATEMENT:  Answered questions on HB 548.                            
                                                                               
 ERIC LUTTRELL, Vice President                                                 
 Exploration and New Developments                                              
 BP Exploration (Alaska), Incorporated                                         
 P.O. Box 196612                                                               
 Anchorage, Alaska 99519-6612                                                  
 Telephone:  (907) 564-5460                                                    
 POSITION STATEMENT:  Answered questions on HB 548.                            
                                                                               
 ACTION NARRATIVE                                                              
                                                                               
 TAPE 96-2, SIDE A                                                             
 Number 001                                                                    
                                                                               
 CHAIRMAN RAMONA BARNES called the House Special Committee on World            
 Trade and State/Federal Relations to order at 5:15 p.m.  Members              
 present at the call to order were Representatives Williams, Davis,            
 Kubina and Barnes.                                                            
                                                                               
 HB 548 - NORTH STAR OIL & GAS LEASE AMENDMENT                               
                                                                               
 Number 060                                                                    
                                                                               
 The first order of business was HB 548, "An Act authorizing,                  
 approving, and ratifying the amendment of Northstar Unit oil and              
 gas leases between the State of Alaska and BP Exploration (Alaska)            
 Inc.; and providing for an effective date."                                   
                                                                               
 CHAIRMAN BARNES asked Mr. Jim Baldwin to come before the committee            
 and state his name and position in state government.                          
                                                                               
 JIM BALDWIN, Assistant Attorney General, Civil Division                       
 Department of Law, stated his position in state government.                   
                                                                               
 CHAIRMAN BARNES asked Mr. Baldwin if he is the person who wrote the           
 original legislation.                                                         
                                                                               
 MR. BALDWIN informed the committee he is not the attorney that                
 wrote the original legislation, but he did review it and approved             
 it before it was sent to the Office of the Governor.                          
                                                                               
 CHAIRMAN BARNES asked Mr. Baldwin if he is substantially familiar             
 with it.                                                                      
                                                                               
 MR. BALDWIN state he was.                                                     
                                                                               
 Number 129                                                                    
                                                                               
 CHAIRMAN BARNES asked Mr. Baldwin if he is the person who wrote the           
 opinion under his signature.                                                  
                                                                               
 MR. BALDWIN indicated he did.  He noted he consulted with people in           
 the Department of Law and in the Department of Natural Resources              
 (DNR).  He stated he signed the opinion.                                      
                                                                               
 CHAIRMAN BARNES asked Mr. Baldwin if he is substantially familiar             
 with what is in the opinion.                                                  
                                                                               
 MR. BALDWIN said that he thinks he is.                                        
                                                                               
 CHAIRMAN BARNES asked Mr. Baldwin to go through the opinion he                
 wrote.                                                                        
                                                                               
 Number 205                                                                    
                                                                               
 MR. BALDWIN explained the primary issue they dealt with in the                
 opinion was what was the commissioner's authority to amend a net              
 profit share lease as provided by existing law.  He said they                 
 considered that issue and determined or advised the commissioner              
 that they felt that the law was not clear on this point and that it           
 needed clarification as far as the authority to amend the net                 
 profit share lease and that it was not provided by any existing               
 provision in Section 38.05.180.  He said that there had been some             
 suggestion that there was some authority in Section 180(p).  So the           
 first part of the opinion deals with the fact that they believe               
 that there needs to be specific authority provided to the                     
 Department of Natural Resources to make such a change in an                   
 existing lease.  Mr. Baldwin indicated if the Chair wishes for him            
 to go into detail about that analysis, he would.                              
                                                                               
 CHAIRMAN BARNES said she believes there are only two members of the           
 committee that have participated in any prior hearings on the bill.           
 She said she would appreciate it if Mr. Baldwin would briefly set             
 out that discussion.                                                          
                                                                               
 Number 313                                                                    
                                                                               
 MR. BALDWIN said it was suggested that there was authority provided           
 in subsection (p) of 180, which is basically the general leasing              
 authority in the Alaska Land Act for oil and gas leases.                      
 Subsection (p) is specific authority to make certain changes, when            
 necessary, to implement a unit.  He said because of the wording of            
 the statute, it talked about "may change royalty requirements," his           
 office determined that the language was not broad or specific                 
 enough to cover a net profit share amendment because of the                   
 reference to royalty requirements and the fact that there is some             
 authority out there that a net profit share provision is not the as           
 a royalty.  Therefore, any authority or authorization found in                
 Section 180 (p) or (j), which is the provision that was enacted               
 last year for royalty reduction, that any authority in existing law           
 applicable to royalties was not necessarily applicable to net                 
 profit share reductions.  He said they felt that there needed to be           
 some specific change in the law enacted to authorize the                      
 commissioner of DNR to do what he was proposing to do.                        
                                                                               
 CHAIRMAN BARNES asked that the record reflect that all committee              
 members were present.                                                         
                                                                               
 MR. BALDWIN explained their conclusion was that there needed to be            
 some express authorization provided.  He noted that is what one of            
 the section in the original version of the bill that the Governor             
 introduced would do.  Mr. Baldwin explained since this lease was              
 initially competitively bid, there was a question as to whether a             
 change could be made to the lease at all which took place sometime            
 after the lease was competitively bid, particularly since the net             
 profit share provision was the main variable that was considered in           
 awarding the lease in the first place.  He said they considered               
 that issue and relied heavily on the Kenai lumber case which set              
 out the rules for when you can make changes to competitively bid              
 procurements or solicitations.  In their determination of the facts           
 of this case, it appeared to them that a court would most likely              
 not consider this change to be material.  Principally, they relied            
 upon the passage of time since the award of these leases, and                 
 basically the fact that the initial contracts, incorporated by                
 reference of state law, seems to contemplate that the lease                   
 agreements are subject to change during the term as provided in               
 law.  Therefore, a change of this nature would not be considered to           
 be material.  He said they felt that the Kenai lumber case did not            
 present a bar towards changing a net profit share lease provision.            
 Mr. Baldwin said they also considered the issue of local or special           
 legislation because as it came to them, the department was very               
 concerned that there not be a broad ranging grant of authority                
 given here, that it be very specific.  The department wants to be             
 able to consider these kinds of changes on a case-by-case basis               
 because they are of such significant fiscal effect for the state              
 treasury.  They did not favor a law of general application, they              
 wanted something that was very special and limited in its                     
 application.  Mr. Baldwin said his office considered the issue of             
 whether to propose a statute in that narrow form would violate the            
 local or special prohibition in the Alaska Constitution and                   
 concluded that because this was such a significant revenue source             
 and that under the terms of the lease amendments, there would be              
 some other indirect benefits.  This was a matter of statewide                 
 concern and it could, therefore, not be classified as local or                
 special legislation and they felt that any court that reviewed a              
 challenge on that basis would give a large degree of deference to             
 the legislature in its determination that it wished to make a                 
 narrow statute.                                                               
                                                                               
 MR. BALDWIN referred to the response from a letter he received from           
 the Speaker at the time that they were considering introducing this           
 bill and said the question was raised by the Speaker as to whether            
 or not this proposal would constitute an expenditure of funds that            
 would be in violation of the public purpose doctrine.  He said they           
 considered that issue in the opinion and concluded that there was             
 basically a trade off, a quid pro quo between the state giving up             
 something, but also getting something in return and that in any               
 case the legislature will grant a broad degree of deference to the            
 legislature when it makes a determination concerning the resources            
 or assets of the state and felt that this would pass a muster under           
 the public purpose doctrine of the Alaska Constitution.                       
                                                                               
 Number 764                                                                    
                                                                               
 CHAIRMAN BARNES asked Mr. Baldwin to turn his attention to the                
 original bill that was introduced and said based upon his testimony           
 to the committee at this time, she believes that he has stated that           
 the provisions of the bill would have to show a compelling state              
 interest to change the provisions of the lease and that it must               
 clearly show a general public purpose.  Bearing that in mind, she             
 referred to page 2, line 9.                                                   
                                                                               
 MR. BALDWIN asked if that is finding number (8).                              
                                                                               
 CHAIRMAN BARNES said it is findings (8), (9) and (10).  She                   
 indicated those findings have words in them that she believes both            
 Mr. Baldwin and herself recognizes as being non-binding non-legal             
 terms under the laws in the state of Alaska.  Chairman Barnes asked           
 Mr. Baldwin if he would say that is true.  She read the wording.              
 "(8) BP Exploration (Alaska) Inc. has committed to hire Alaska                
 residents and contractors and to fabricate modules for the unit in            
 Alaska;"  She asked Mr. Baldwin to keep in mind benefits that we              
 are to derive from this compelling public purpose of changing these           
 leases and asked him if he would say that "has committed to hire"             
 means anything in Alaska law.                                                 
                                                                               
 Number 910                                                                    
                                                                               
 MR. BALDWIN said he is aware that the lease provisions that backup            
 this bill are not stated in a mandatory way.  In other words, they            
 are very carefully worded so that there is no apparent state action           
 to force the leaseholder to implement local hire.                             
                                                                               
 CHAIRMAN BARNES indicated that doesn't answer her question.  She              
 asked to Mr. Baldwin to look at sections (8), (9) and (10)                    
 together.  She said, "Since we have to, under our constitution,               
 derive from this legislation a compelling public purpose of                   
 commitment to the state that is concrete, would you believe either            
 one of those three lines, as an attorney for the state, has any way           
 nailed down anything concrete as it relates to hiring Alaskans or             
 to building modules in Alaska?"                                               
                                                                               
 MR. BALDWIN said he doesn't think those findings do that.  He said,           
 "But I think that there is, and as I testified in the Senate                  
 committee and I'll just state that here again that I think as a               
 state, and we're acting with the powers of the sovereign state, we            
 have to be extremely careful that we not do something that would be           
 perceived as state action to implement a discriminatory provision             
 that -- in other words, discriminates against nonresident workers."           
                                                                               
 Number 1041                                                                   
                                                                               
 CHAIRMAN BARNES said with that in mind, she asked Mr. Baldwin to go           
 back to what he just told the committee in that we have to show a             
 public purpose clearly defined for changing these leases.  She                
 asked him if he can show her, since those lines don't do it, where            
 in the bill there is a clearly defined public purposes for changing           
 the leases.                                                                   
                                                                               
 MR. BALDWIN said he believes that there has been testimony in other           
 committees that there is a high degree of expectation that there              
 will be a more expedited development of the field and that there              
 may be a more certain expectation of revenue to the state treasury            
 than we would have otherwise.  He said he thinks there has been               
 testimony and a record created to that effect.                                
                                                                               
 CHAIRMAN BARNES said there is nothing in the bill that says that.             
 MR. BALDWIN explained there is nothing in the bill that says that,            
 but they have been attempting to make that record as they have                
 appeared before the various committees.                                       
                                                                               
 Number 1113                                                                   
                                                                               
 CHAIRMAN BARNES said, "As long as BP, as the company negotiating              
 with the state, voluntarily without coercion from us, concludes               
 that it is in their interest to hire Alaskans and to build these              
 modules in Alaska in exchange for us giving up the net profit                 
 sharing leases -- that would be constitutional wouldn't it?                   
 Voluntary.                                                                    
                                                                               
 MR. BALDWIN answered in the affirmative and said he thinks that's             
 right.  He said, "I know that the Administration has approached               
 this committee -- has approached the legislature with this problem            
 as one of saying to you that we've negotiated this agreement in               
 good faith and that it should be an up or down decision by the                
 legislature.  I know that has wrangled some because they want it to           
 do more and the problem is what you can do is very limited as a               
 state - what you can do is very limited, and if I were to sit here            
 and tick off what you could do you probably wouldn't think that               
 that's enough."                                                               
                                                                               
 CHAIRMAN BARNES said you'll agree that any piece of legislation               
 that is put before a legislative body is subject to amendments.               
                                                                               
 MR. BALDWIN said he would agree to that.                                      
                                                                               
 CHAIRMAN BARNES said, "As long as we don't violate the terms of the           
 lease, then you would say that we have the right to amend it.                 
 Would you not?"                                                               
                                                                               
 MR. BALDWIN responded, "I would say that you can amend the bill.              
 I've been concerned with the fact that some of the committee                  
 substitutes that I've seen coming out of the preceding committee              
 and out of the Senate where actual lease provisions were put in the           
 bill, I think that presents a legal issue.  That's kind of between            
 the executive and the legislature.  To a certain extent we've                 
 almost invited that by bringing it here but it's still...."                   
                                                                               
 CHAIRMAN BARNES said he didn't have a choice.                                 
                                                                               
 MR. BALDWIN said they didn't have a choice.  He explained what they           
 are looking for is for the legislature to change the Enabling Act             
 so that we can do this.  He said that is something that clearly the           
 legislature can do or not do.  Mr. Baldwin noted it gets into a               
 very difficult area when the legislature attempts to renegotiate              
 the contract.                                                                 
                                                                               
 CHAIRMAN BARNES indicated that is the question.  As long as the               
 legislature doesn't renegotiate the contract, there shouldn't be a            
 problem.                                                                      
                                                                               
 MR. BALDWIN said, "No."  The legislature can condition enabling               
 statute and that is purely within the legislature's lawmaking                 
 power.  He noted he has been concerned when he sees rewrites of the           
 amendments in the law.  If the legislature wants to do that, there            
 are other ways to do it.  He said he isn't encouraging the                    
 legislature to do that.                                                       
                                                                               
 Number 1280                                                                   
                                                                               
 CHAIRMAN BARNES indicated she hasn't seen any of those.  She noted            
 she has a proposed committee substitute (CS) she will give to the             
 committee.                                                                    
                                                                               
 Number 1288                                                                   
                                                                               
 REPRESENTATIVE JERRY MACKIE referred to the committee substitute              
 which came out of the Senate Resources Committee and asked Mr.                
 Baldwin if his opinion is that it is unconstitutional because of              
 local hire provisions.                                                        
                                                                               
 MR. BALDWIN said he believes it is a very questionable validity               
 because the drafter attempted to make the bill appear that the                
 leaseholder was expected to operate within the extent permitted by            
 law, but there is also mandatory language as to local hire which              
 confuses the issue a great deal.  He said he thinks it gives cause            
 for those who want to attack whatever hiring scheme is voluntarily            
 implemented by the leaseholder to attack it and perhaps                       
 successfully so.  It is great cause for concern.                              
                                                                               
 Number 1340                                                                   
                                                                               
 REPRESENTATIVE MACKIE asked Mr. Baldwin if it is his legal opinion            
 that there is a high likelihood that would be found                           
 unconstitutional the way it is currently drafted.                             
                                                                               
 MR. BALDWIN indicated he doesn't have an unpublished Supreme Court            
 opinion with him.                                                             
                                                                               
 REPRESENTATIVE MACKIE said his opinion would be fine.                         
                                                                               
 MR. BALDWIN said he thinks it raises a serious legal issue.                   
                                                                               
 REPRESENTATIVE MACKIE referred to the House Resources Committee               
 version of the bill and asked Mr. Baldwin what his opinion is in              
 terms of it's constitutionality in terms of the local hire                    
 provision.                                                                    
                                                                               
 MR. BALDWIN said he thinks it has similar problems.  He indicated             
 he was very concerned when he reviewed the minutes that it felt               
 that that bill was sufficient with out a severability clause.  Mr.            
 Baldwin said he thinks it should have a severability clause, at the           
 very least, if anything is going to be done about local hire.  It             
 should be very clear.  That way, we might have some success in                
 avoiding an injunction that would stop the project.                           
                                                                               
 Number 1405                                                                   
                                                                               
 REPRESENTATIVE MACKIE referred to the original version of HB 548              
 and asked Mr. Baldwin if, in his opinion, that bill is workable and           
 if it would meet the tests of whether or not it would be                      
 constitutional.                                                               
                                                                               
 MR. BALDWIN said, "Yes."  He also said he thinks the provisions of            
 the lease were very carefully drafted and reviewed by his office.             
 He said it was very carefully worded to not create the situation              
 where the leaseholder was forced to do anything.  He said it has              
 been their perception that the leaseholder is very inclined towards           
 Alaska hire and that we, as a state, needn't do anything to force             
 them to do anything beyond that.                                              
                                                                               
 REPRESENTATIVE MACKIE referred to looking at the local hire                   
 decisions that have been thrown out in the past in terms of what              
 previous legislatures have tried to do and asked if there is any              
 way to deal with local hire that would meet those court tests, and            
 had there been a way wouldn't it be in the bill.  He said there are           
 a lot of people that would like to include local hire language in             
 the bill and he would also like to see that, but if it can't be               
 done, it can't be done.  He asked, "If there was a way, would you             
 not have had it in this particular language?"                                 
                                                                               
 MR. BALDWIN said he knows the Administration feels just as strongly           
 about local hire as anybody else does.  He said he presumes those             
 who negotiated the lease pursued all the avenues they could pursue            
 to try and achieve that.  There have been cases such as Hickland v.          
 Orbeck, which is pretty much on point with trying to make                    
 leaseholders of oil and gas leases to employ local hire in their              
 activities and weren't successful in that case.                               
                                                                               
 Number 1510                                                                   
                                                                               
 REPRESENTATIVE MACKIE said he would infer from Mr. Baldwin's                  
 comments that the only thing that works to accomplish this project            
 is the original version of HB 548 which was submitted and agreed to           
 by the Administration.                                                        
                                                                               
 MR. BALDWIN responded, "I'm not saying that we have all the answers           
 or that somebody - that there isn't somebody out there more                   
 creative, but we think that's a safe approach to implementing the             
 project."                                                                     
                                                                               
 Number 1536                                                                   
                                                                               
 CHAIRMAN BARNES said, "Mr. Baldwin, before I go to the next person            
 I want you again to state for the record whether or not the whole             
 key is whether BP voluntarily commits to our Alaskans and whether             
 BP voluntarily commits to build modules in Alaska."                           
                                                                               
 MR. BALDWIN said there are certain things that we can do as far as            
 local hire goes, but they are subtle.  In other words, we cannot              
 directly mandate percentages and that sort of thing.  There are               
 certain things we can do that are subtle.  He said it appears to              
 him that BP intends to do those things.  Those things are requiring           
 instate construction, they appear to agree to do that.  They also             
 appear to support Alaska as being the point of hire.  Mr. Baldwin             
 said those are the two things that we feel, as a state, we can                
 mandate or do.  The Administration believed they had those points             
 covered in the lease agreement.  Beyond that, you embark upon a               
 course of conduct to require more than that which exposes you to              
 protracted litigation over the validity of what you've done.                  
                                                                               
 Number 1623                                                                   
                                                                               
 REPRESENTATIVE GAIL PHILLIPS referred to the House Resources                  
 Committee version of the bill and said the committee put on                   
 sidebars in the last portion of the bill that all of the processes            
 wouldn't go forward until the requirement for the local hire -                
 local contractors, local vendors, local module building had been              
 met.  He asked Mr. Baldwin if when he was negotiating the contract,           
 did the Administration - the department consider putting any kind             
 of sidebars on this that would say the agreement is not going to go           
 into effect until we see the positive results of this.                        
                                                                               
 MR. BALDWIN said he would like to defer that question to DNR.  He             
 noted he didn't sit in on those negotiations.                                 
                                                                               
 CHAIRMAN BARNES asked Commissioner Shively to join the committee at           
 the table.                                                                    
                                                                               
 Number 1755                                                                   
                                                                               
 JOHN SHIVELY, Commissioner, Department of Natural Resources, came             
 forward to answer Representative Phillips' question.  He said, "In            
 answer to Speaker Phillips' question we didn't, to my knowledge,              
 not consider the kind of sidebars that you've put on it for the               
 same kind of reasons I think that Mr. Baldwin talked about.  We               
 felt that we could not force the issue of local hire, that if we              
 required it that it would be a problem for us constitutionally                
 because it would be a state act.  We tried to push the language in            
 the agreement to the brink of what we felt would be acceptable                
 constitutionally, recognizing as I've testified before that such              
 language, as we could get, would not guarantee the state what the             
 Governor wants, what I wanted, what we know the legislative                   
 leadership wants because of the discussions that - that you have              
 had with BP."                                                                 
 REPRESENTATIVE PHILLIPS said, "Mr. Commissioner, if you didn't                
 consider sidebars, did you give any creditability or any discussion           
 to the issue of creating incentives then if the company put these             
 requirements into place.  In other words, if we saw positive                  
 results on local hire, local vendors, modules built in Alaska, why            
 didn't we put a process into place giving incentives for doing that           
 and tie the incentives into that rather than a blanket release                
 right at the very beginning?"                                                 
                                                                               
 COMMISSIONER SHIVELY responded, "Madam Chairman, Speaker Phillips,            
 I think that you need to recognize sort of what we negotiated over            
 and then what I think is of major sort of public concern.  For the            
 department, my major concern was that the economics of the deal               
 made sense to the department and those economics have to do with              
 the risk that we have under the net profits royalty, the need for             
 certainty, the need to be able to get the leases back and rebid               
 them.  That was to me really the negotiated part of the agreement             
 and that was important for the state.  Local hire was important as            
 a piece of what I think people wanted, but if the deal could not              
 stand on the economics, then the department shouldn't be doing it             
 just for local hire.  And so we spent the bulk of our time                    
 negotiating on the economic issues (indisc.)."                                
                                                                               
 REPRESENTATIVE PHILLIPS said it wasn't the matter that they turned            
 down the issue of incentives, it was a matter that they looked at             
 a different aspect of the project instead.                                    
                                                                               
 COMMISSIONER SHIVELY said that is correct.                                    
                                                                               
 Number 1820                                                                   
                                                                               
 REPRESENTATIVE BILL WILLIAMS said, "Along those same lines                    
 (indisc.) incentives goes, is it too late to (indisc.) to the                 
 agreement?"                                                                   
                                                                               
 COMMISSIONER SHIVELY said he thinks the answer is probably yes.               
 From his understanding of BP developing incentives for hire                   
 requires a variety of measures that he thinks are difficult to                
 agree on, not the first of which is "What is an Alaskan?"                     
 Commissioner Shively referred to the Senate Resources Committee and           
 said they gave some very specific guidance as to what they consider           
 Alaskan in terms of how you count them, and what's an Alaskan,                
 constitutionally, are probably two different things.  He said he              
 would be willing to listen to the ideas people have about how you             
 do those incentives.  He said the Native community has probably               
 been the most active in terms of negotiating local hire commitments           
 of an incentive system in that regard.  He referred to Speaker                
 Phillips question and said it is just something that he has really            
 not seen dealt with in that way and if they didn't do it, that was            
 at least one of the reasons.                                                  
                                                                               
 Number 1900                                                                   
 REPRESENTATIVE GENE KUBINA referred to the discussion that has been           
 going on about how to do this and asked if before this ever came to           
 the legislature couldn't the Administration have said to BP, "You             
 know if you signed a project labor agreement for labor and Native             
 hire, before we ever got to the legislature, we wouldn't have to              
 fight this local hire issue."  Representative Kubina said he says             
 that because it seems like when there is project labor agreements             
 with the unions the percentage of Alaskans rises significantly, and           
 yet that wouldn't have been part of any lease agreement.  It could            
 be simply said, "And then when that's done, we'll forward this to             
 the legislature."  He asked if there is anything legally that would           
 have stopped them from doing that.                                            
                                                                               
 MR. BALDWIN said in the last couple of years we have seen                     
 development along the area of project labor agreements and it has             
 been mostly favorable towards their implementation.  He said there            
 was a time when we were reluctant to get involved in that because             
 of the uncertainty, but that uncertainty is starting to be resolved           
 at least on the lower court level in Alaska.  He noted he is aware            
 of a recent case where federal court found a project labor                    
 agreement to be nondiscriminatory.  One of the side benefits, not             
 a direct benefit of a project labor agreement, is the fact that               
 whatever the union does as far as maintaining resident membership             
 you can benefit from that in an indirect way.  So it has had an               
 indirect effect of encouraging local hire just as it is required              
 under state construction contracts that the point of hire be                  
 through local union halls.  That way if the unions are somewhat               
 discriminatory, that wouldn't be state action, it would be private            
 action.  He said that is how you get there.  Mr. Baldwin noted he             
 doesn't know what BP's labor picture is and how much of the work              
 they do is unionized.  It would take an analysis of that before we            
 could say that it would definitely solve this problem.                        
                                                                               
 Number 2014                                                                   
                                                                               
 REPRESENTATIVE KUBINA asked Commissioner Shively if this is                   
 something that ever entered into the discussion at all.                       
                                                                               
 COMMISSIONER SHIVELY indicated it wasn't discussed.  He stated, for           
 the record, "At least the information that I have -- that the                 
 Department of Labor did when they did their statewide local hire              
 analysis, not only of the oil industry but all industries that it             
 is not necessarily true that union contractors, at least by the way           
 they measure it, do significantly better than nonunion.  And that             
 may be somewhat because of the measure that the Department of Labor           
 uses which is running the employment list against the permanent               
 fund dividend list, which is how they come to that analysis.  But             
 at least under that analysis, I was surprised to see that there was           
 not.  In fact, in one company I know of the nonunion arm had a                
 better local hire - Alaska hire record that the union arm.  I don't           
 think the state, in the past, has been really in the business of              
 mandating or suggesting project labor agreements.  That's generally           
 been left to negotiations between industry and unions."                       
                                                                               
 Number 2073                                                                   
                                                                               
 CHAIRMAN BARNES asked Commissioner Shively if he has seen the                 
 document entitled, "First Amendment to the Northstar Unit Leases              
 Between the State of Alaska and BP Exploration (Alaska) Inc."                 
                                                                               
 COMMISSIONER SHIVELY indicated he has.                                        
                                                                               
 CHAIRMAN BARNES referred Commissioner Shively to page 12 of the               
 document asked him to acknowledge, for the committee, that it was             
 executed by him.                                                              
                                                                               
 COMMISSIONER SHIVELY acknowledged it was executed by him.                     
                                                                               
 CHAIRMAN BARNES noted it was also signed by E.M. Luttrell, Vice               
 President, BP (Alaska).  She asked if the document was also                   
 executed for him voluntarily.                                                 
                                                                               
 COMMISSIONER SHIVELY answered in the affirmative.                             
                                                                               
 Number 2140                                                                   
                                                                               
 CHAIRMAN BARNES referred to page 5, (10) and read, "Paragraph 41 is           
 replaced in its entirety as follows:  41. EMPLOYMENT OF ALASKAN               
 RESIDENTS."  She asked Commissioner Shively if this was language              
 that was voluntarily agreed to by him and by BP.                              
                                                                               
 COMMISSIONER SHIVELY said it was.                                             
                                                                               
 CHAIRMAN BARNES asked Commissioner Shively to look at page 7, (5),            
 and read, "Paragraph 31 is replaced in its entirety as follows:               
 31. EMPLOYMENT OF ALASKAN RESIDENTS."  She asked Commissioner                 
 Shively if this was language that was voluntarily agreed to by him            
 and by BP.                                                                    
                                                                               
 COMMISSIONER SHIVELY responded in the affirmative.                            
                                                                               
 Number 2195                                                                   
                                                                               
 CHAIRMAN BARNES referred to page 11 and read "These amendments take           
 effect when and if an Act(s) substantially similar to the act,                
 attached as Exhibit D and incorporated by reference, takes effect.            
 This amendment is dated for reference purposes of March 22, 1996."            
 She noted it is signed by Commissioner Shively and Mr. Luttrell               
 also.                                                                         
                                                                               
 COMMISSIONER SHIVELY confirmed the signatures were his and Mr.                
 Luttrell's.                                                                   
                                                                               
 CHAIRMAN BARNES said Commissioner Shively and BP (Alaska) actually            
 voluntarily agreed to all that is in the document.                            
                                                                               
 COMMISSIONER SHIVELY said, "Yes, Madam Chairman, we did."                     
                                                                               
 CHAIRMAN BARNES asked the committee members to read the pages of              
 the document she so noted.  She gave the committee members a                  
 proposed committee substitute and asked them to review it,                    
 recognizing that Commissioner Shively has testified that the                  
 language before the committee in the contract was put there                   
 voluntarily by BP.  There was not any coercion by the state of                
 Alaska or Commissioner Shively.  Chairman Barnes said she would               
 give the committee members a separate document that relates to                
 legislative intent.  She noted that a lot of the House Resources              
 Committee's version of HB 548 is not included in the proposed                 
 substitute.  The reason it is not included is because she has an              
 opinion from Jack Chenoweth that it was unconstitutional.  She                
 noted that as long has she has been in the legislature she has                
 never knowingly participated in doing something that was                      
 unconstitutional.  Having said that, we have to look for a way for            
 the legislature to accomplish its end in a constitutional manner.             
 She stated a constitutional manner is that which BP and the state             
 of Alaska entered into voluntarily that is now part of the public             
 record of this committee and is so stated under the signature of              
 both BP and the commissioner of the Department of Natural                     
 Resources.                                                                    
                                                                               
 CHAIRMAN BARNES referred the committee members to page 3, line 22,            
 and said the committee will find that directly from the agreement             
 and the lease amendments entered into by BP and the state of Alaska           
 it is reprinted in the legislation verbatim.  In that regard, she             
 said she also has a letter from John Morgan, President, BP                    
 (Alaska), Incorporated.  She asked Commissioner Shively if he had             
 the opportunity to review the draft committee substitute.                     
                                                                               
 Number 2470                                                                   
                                                                               
 COMMISSIONER SHIVELY said he has had an opportunity to review it.             
                                                                               
 CHAIRMAN BARNES asked him if he would say that it contains the                
 language of the leases that were signed by him.                               
                                                                               
 COMMISSIONER SHIVELY indicated it looks like it contains the                  
 language, but noted he hasn't done a word-for-word analysis.                  
                                                                               
 TAPE 96-2, SIDE B                                                             
 Number 007                                                                    
                                                                               
 CHAIRMAN BARNES said she tried to provide some additional                     
 legislative intent.  She noted that we all know that legislative              
 intent does not have the force of law.  Chairman Barnes said they             
 have tried to make some clarifying language in the legislative                
 intent which we understand is nothing more than that clarifying               
 language.  That is whole the problem with the original bill.  The             
 whole bill is legislative intent that means nothing except for                
 ratifying a deal with (indisc.) in a piece of legislation, other              
 than the reference of the contracts.  She asked if there were any             
 questions.                                                                    
                                                                               
 Number 051                                                                    
                                                                               
 REPRESENTATIVE MACKIE said he would like to ask Mr. Baldwin a                 
 question.  He referred to the terms of the committee substitute and           
 said by including the language of the agreement, which was                    
 voluntarily agreed to, does it pose any problems by putting it in             
 the legislation the way that it was drafted in either the Senate or           
 House Resource versions or does it take away that particular                  
 problem.                                                                      
                                                                               
 MR. BALDWIN said as he understands it, they are the exact                     
 provisions that were negotiated.  So we can say that creates any              
 problem other than the one we created for ourselves.                          
                                                                               
 REPRESENTATIVE MACKIE said it is one thing to put it into an                  
 agreement, but it's another thing to put it into a bill or into               
 statute.  He asked if that is a different issue.                              
                                                                               
 MR. BALDWIN said the issue would be if we wanted to go back and               
 amend it.  They would then have to go back to the legislature to              
 change the law.  He said, "Say something happened, a Supreme Court            
 opinion came down that changed the law somewhat.  Then we would be            
 constrained to come back to you to change it and that's up..."                
                                                                               
 Number 115                                                                    
                                                                               
 CHAIRMAN BARNES noted that is done all the time.                              
                                                                               
 REPRESENTATIVE MACKIE asked if the language in the bill, the fact             
 that it's in a bill, it's statute with provisions of local hire,              
 does it achieve what the Chair is trying to achieve by not having             
 the same constitutional problems with local hire provisions that              
 are currently in the Resources version.                                       
                                                                               
 Number 125                                                                    
                                                                               
 MR. BALDWIN said if there is a problem with the language, which he            
 doesn't think there is, whether it's done by the legislature or               
 done by the Department of Natural Resources it is all state action.           
 He said he doesn't think it would make it any worse that it was               
 done by the legislature as opposed to the department.                         
                                                                               
 CHAIRMAN BARNES said she would not think of putting anything in the           
 bill that the department and BP hadn't agreed to voluntarily.                 
                                                                               
 MR. BALDWIN indicated he knows that and said he is glad we have               
 made that record today.                                                       
                                                                               
 CHAIRMAN BARNES said she worked really hard at.                               
                                                                               
 MR. BALDWIN said she has done a very good job in doing that.                  
                                                                               
 CHAIRMAN BARNES noted the letter from Mr. Morgan was also                     
 voluntarily and says essentially the same thing.                              
                                                                               
 Number 176                                                                    
                                                                               
 REPRESENTATIVE KAY BROWN distributed an opinion to the committee              
 members.  She said she appreciates the committee's attention to the           
 constitutional issues in the legislation and she believes the local           
 hire is one of those.  She noted there are others that she hopes              
 they will also consider.  Representative Brown said she asked Mr.             
 Chenoweth to identify what legal issues he sees that are                      
 significant with respect to the legislation before the committee.             
 She said it detailed in a memorandum and urged the committee                  
 members to take a careful look at it.  The point raised in number             
 1 has been brought up before, but she thinks it is worth repeating            
 that the proposal before the committee is not authorized under                
 current law.  She said she doesn't believe that the department or             
 the commissioner had the authority to enter into the agreement that           
 they have entered into.  It is pointed out in Mr. Chenoweth's                 
 memorandum that competitively bid contracts may not be materially             
 amended.  It appears that the modification in this manner is                  
 material by virtually any measure.  That then brings us to the                
 issue of whether the legislature can cure this illegality with                
 another act.  She said she believes there are two constitutional              
 provisions that would invalidate the legislation as it is presently           
 drafted.  One is pointed out on page 2 of Mr. Chenoweth's                     
 memorandum deals with Article 8, Section 17, identified as the                
 uniform application clause.  She referred to "Shepherd v.                    
 Department of Fish and Game, a 1995 case and said that provision             
 basically states, "Laws and regulations governing the use or                  
 disposal of natural resources shall apply equally to all persons              
 similarly situated with reference to the subject matter and the               
 purpose to be served."  She explained he goes on to point out that            
 this bill references only the Northstar leases and no mention is              
 made of any other leases that might similar problems or might                 
 warrant reformation.  That should be carefully considered.                    
                                                                               
 REPRESENTATIVE BROWN said she further questioned Mr. Chenoweth                
 about his finding on the local or special acts limitation.  He told           
 her he had not considered the point of view that she raised and               
 that he would reconsider it and would put something in writing when           
 he has had a chance to review.  Representative Brown referred to              
 her opinion and said it is that Abrams v. State which is, as far as         
 she knows, only case interpreting this local or special acts                  
 limitation in the constitution is a completely different situation.           
 It involved whether there could be a municipality formed at Eagle             
 River and that the reason the court had to come up with this                  
 balancing test was because a general law could not be made                    
 applicable.  It was in fact a localized situation which then led              
 them into nonetheless having to go through this balancing test.               
 Representative Brown explained she thinks the clear language of the           
 constitution says if a general law can be made applicable, the                
 legislature shall not pass a special act.  If it means anything,              
 surely it must apply in a situation like this one where we are                
 passing special benefits for one company.  She stated she believes            
 this legislation has serious flaws constitutionally and doesn't               
 believe that the legislature can go back and cure this agreement in           
 this manner.  She urged the committee members to take those things            
 into account as they further deliberate on this bill.                         
                                                                               
 Number 335                                                                    
                                                                               
 CHAIRMAN BARNES said she does believe the legislature is empowered            
 to make this legislation constitutional because we are the sole               
 controller of the resources in this state.  She indicated that if             
 the legislature chooses to make an amendment and can show the                 
 public purpose than the legislature can pass this bill.  It must be           
 shown how it will serve the public purpose of the people of the               
 state.                                                                        
                                                                               
 REPRESENTATIVE BROWN said, "Madam Chair, I would agree that we can            
 do anything we can get 21 votes to do.  Whether it is                         
 constitutional or not I think is a debatable point.  The                      
 constitution does impose requirements on us as we serve as the                
 trustee of the people's resources.  And it does say very clearly              
 that if you can make a general law applicable no local or special             
 act shall be valid.  And I believe, in this case, there is many               
 ways that we could make a general law applicable and in fact that             
 is one of my concerns about this whole situation is the precedence            
 that were setting and how we are going to deal with our outstanding           
 net profit share leases and all the other companies and lessees               
 that have competitive contracts.  Are we now to throw out our                 
 competitive bidding system and have only a negotiated system where            
 the commissioner can go and in secrete completely renegotiate every           
 competitive lease that we have?  I think that would be most                   
 unfortunate.  And I do believe that we, the legislature, are also             
 subject to the constitution."                                                 
                                                                               
 Number 410                                                                    
                                                                               
 CHAIRMAN BARNES stated she absolutely agrees with Representative              
 Brown and she doesn't believe that the commissioner, under present            
 law, could go renegotiate these leases without ratification by the            
 legislature.                                                                  
                                                                               
 Number 420                                                                    
                                                                               
 REPRESENTATIVE MACKIE asked if you can't have special legislation             
 when a local act can be applicable.                                           
                                                                               
 REPRESENTATIVE BROWN clarified if a general act can be applicable,            
 you can't have special legislation.                                           
                                                                               
 REPRESENTATIVE MACKIE said he thinks that if they could have done             
 it under a general law, they would have just done it without it               
 coming before the legislature and that is why it is before the                
 legislature to adopt.                                                         
                                                                               
 REPRESENTATIVE BROWN said that isn't her understanding.  She said             
 she thinks that was a choice they made to go as a special act as              
 opposed to a general act.  She said she believes it is clearly                
 possible to make a general act and that would be the constitutional           
 way to proceed if the legislature chooses to do so.                           
                                                                               
 Number 454                                                                    
                                                                               
 REPRESENTATIVE KUBINA referred to Mr. Baldwin's letter dated March            
 26, page 3, under 2, he actually makes a statement, "The department           
 intends to seek the narrowest possible provision to specifically              
 authorize amendments to only the Northstar leases."  He said the              
 way it is stated it is like Mr. Baldwin was given direction before            
 he wrote the letter that would be the course of action.                       
                                                                               
 Number 480                                                                    
                                                                               
 MR. BALDWIN responded, "Yes, if it was legally permissible to do              
 that."                                                                        
                                                                               
 REPRESENTATIVE KUBINA said, "Well maybe my question really then is            
 why that way?  Why wasn't it brought as more like 207 or something            
 where something more general was on the small general act that                
 would allow not only what was done in 207, but again what could be            
 done to include this in a 207 type situation?"                                
                                                                               
 Number 506                                                                    
                                                                               
 COMMISSIONER SHIVELY said he would like to answer the question.  He           
 said this really is a unique situation.  First of all, there aren't           
 that many leases on the North Slope that were bid with net profits            
 as a variable.  This is the only oil field which is basically set             
 with four of the five leases based on a very high net profits.                
 Commissioner Shively said they think it is different and is a                 
 situation that can be dealt with and they believed that it was a              
 situation that needed to be dealt with.  He said they could have              
 had a general piece of legislation that, had it passed, would have            
 allowed them to go and negotiate an agreement with BP if they met             
 those standards.  He referred to terms of the timing development              
 and said timing is critical here because of the problem on the                
 development account and how fast it is earning interest, it really            
 gives BP an incentive to delay development, so the state has an               
 incentive here.  This was the way to get it done as quickly as                
 possible and perhaps have construction early this fall.  That is              
 why they did it.  Although there was discussion about a more                  
 general piece of legislation, this was the route they took.                   
                                                                               
 Number 573                                                                    
                                                                               
 MR. BALDWIN referred to the terms of the legal rhetoric and said              
 they're not similarly situated.  In addition, the Abrams case that            
 was cited by Representative Brown is not the only case on local and           
 special legislation.  Another case he cited in the opinion was                
 State v. Lewis which involved a land trade, specific acreage                
 located in the railbelt area.  There was a bill authorizing that              
 specific land trade.  One can always argue that you can do a                  
 general law authorizing land exchanges between private corporations           
 and state lands, but the court reasoned in that case that it did              
 not violate the local and special legislation prohibition because             
 it was a matter of statewide interest.  That case came along after            
 the Abrams case.  That is part of the reason for their opinion.               
                                                                               
 REPRESENTATIVE KUBINA asked what would happen to BP's time line to            
 meet the sanction, which understands is their corporate                       
 headquarters commitment of the funds to the project.  He asked what           
 would happen if the legislature left and somebody immediately filed           
 a lawsuit.                                                                    
                                                                               
 MR. BALDWIN said it depends on the kind of lawsuit filed and what             
 was asked for.  If what was asked for a preliminary injunction and            
 it was granted, then work would stop.  Otherwise, he would guess              
 that BP would have to assess the litigation risks they have and               
 decide whether or not they wanted to proceed with that litigation             
 in front of the court.                                                        
                                                                               
 Number 670                                                                    
                                                                               
 REPRESENTATIVE MACKIE referred to an amendment that will soon be              
 offered to the committee substitute and stated it says the                    
 amendment is drafted to Version M and the committee is working with           
 Version O.                                                                    
                                                                               
 CHAIRMAN BARNES said the committee will adopt 2, as a working draft           
 so she can distribute them.  She said she will then put them in the           
 correct order.                                                                
                                                                               
 Number 707                                                                    
                                                                               
 REPRESENTATIVE PHILLIPS moved to adopt CSHB 548, Version O, dated             
 4/29/96 as the committee's working document along with Amendment M-           
 1, dated 4/29/96.                                                             
                                                                               
 CHAIRMAN BARNES asked if there was an objection.  Hearing none, it            
 was so ordered.                                                               
 REPRESENTATIVE PHILLIPS referred to the issue of special                      
 legislation and the court's decision on the Abrams case, where the            
 court recognizes the statute may effect only one of the very few              
 areas and yet relate to a matter of statewide concern or common               
 interest.  She said the courts then could rule.  If there were a              
 lawsuit on this then the courts could rule that this is an issue of           
 common interest that could be applied in any of these similar tax             
 cases.                                                                        
                                                                               
 Number 771                                                                    
                                                                               
 COMMISSIONER SHIVELY said he thinks all the court could do is say             
 what the legislature had done was constitutional or                           
 unconstitutional.  They couldn't extend this kind of agreement to             
 other net profit leases.                                                      
                                                                               
 REPRESENTATIVE PHILLIPS asked Mr. Baldwin if he thinks they would             
 give credibility if another entity came up and wanted this kind of            
 a benefit.                                                                    
                                                                               
 COMMISSIONER SHIVELY explained it would be somebody in a similar              
 situation.  There really isn't another oil field that looks like              
 this with these kind of net profits on such a large portion of                
 leases.  He said he thinks they would first have to come to the               
 commissioner and be turned down in terms of looking at it to say              
 they hadn't been treated the same.  Two of the existing leases that           
 were bid this way with net profits as a variable are in the Duck              
 Island Unit and are presently under production.  Commissioner                 
 Shively referred to most of the net profit leases the state had and           
 said the net profits were not the bid variable and that's the real            
 difference we see in this situation.  There are a lot of net profit           
 leases, but with most of them the net profits were preset at like             
 30 or 40 percent.  The bid variable was a bonus bid which is what             
 they're accustomed to and there was also some kind of base royalty            
 involved.  This is somewhat of a unique situation and that's why he           
 thinks it can be dealt specifically by the legislature.                       
                                                                               
 REPRESENTATIVE MACKIE asked Commissioner Shively if he has reviewed           
 the working draft the committee has before it.                                
                                                                               
 COMMISSIONER SHIVELY said he has.                                             
                                                                               
 REPRESENTATIVE MACKIE asked if he is comfortable that the work                
 draft will accomplish what the original version did.                          
                                                                               
 COMMISSIONER SHIVELY indicated Chairman Barnes has said that it is            
 the same words that are in the agreement.  He said he thinks it               
 accomplishes what the committee wants it to accomplish.  It                   
 certainly got them as far as they thought they could go using the             
 same words.  "If it works for the committee, it works for us."                
                                                                               
 Number 885                                                                    
 REPRESENTATIVE MACKIE said Commissioner Shively's concern was the             
 constitutionality question of the local hire provisions, etc., that           
 were added in other committees and not necessarily the particularly           
 language to get us to the same result.                                        
                                                                               
 COMMISSIONER SHIVELY said, "I think that the key in what the Chair            
 has said repeatedly is that she is using language, including                  
 language that we had in the agreement, that talked about them                 
 voluntarily agreeing to do this as opposed to the legislature                 
 mandating it.  I think that's the key difference is that they can             
 voluntarily say as a business they've made this business decision.            
 We as a state cannot say, `You have to make that business decision            
 or political decision' or whatever you want to call it."                      
                                                                               
 Number 929                                                                    
                                                                               
 REPRESENTATIVE KUBINA asked Commissioner Shively if he supports the           
 version of the bill before the committee.                                     
                                                                               
 COMMISSIONER SHIVELY said he sees no reason why he couldn't support           
 it.                                                                           
                                                                               
 Number 945                                                                    
                                                                               
 REPRESENTATIVE JOHN DAVIES said he appreciates the amendment that             
 the Chair has put before the committee in an attempt to get farther           
 down the road to a commitment to Alaska hire, but he believes we              
 can go a small step further.  He said, "I think that that has do              
 with putting in and, unfortunately, I appreciate the difficulty of            
 actually amending the agreements.  So what I'm proposing would                
 amend the agreement, it would be language that would amend the                
 agreement.  I'm not sure there may be a way to finesse that, but              
 anyway the proposal that I would suggest - that I would like you to           
 look at is an amendment that I've prepared that would modify the              
 base royalty based on the percentage of Alaska hire.  And so that             
 there would be a relationship between the percentage of Alaska hire           
 and the base royalty that was in the contract.  And what -- in my             
 view, the advantage of this is of cause that, again, I think this             
 is - it would be voluntary situation.  It's an incentive.  I think            
 these have been found constitutional in other states and other                
 jurisdictions that companies can choose to hire as many Alaskans as           
 they want or not hire them, but once they've made that choice that            
 has an effect on what the base royalty would be.  I think that this           
 also satisfies some of the, in my view, it satisfies some of the              
 constitutionality challenges to the contract from the point of view           
 of whether we are getting a fair value for the - from the state's             
 resources for all the people of the state of Alaska that would                
 establish a relationship between the benefit that we're scribing to           
 Alaska hire and the extraction of our resources.  So I just wanted,           
 Madam Chair, the opportunity to put that consideration on the                 
 record and to indicate that I have prepared an amendment and I hope           
 that it could be copies and distributed to the members of the                 
 committee for their consideration and hope to have an opportunity             
 to discuss it with you all at a future date."                                 
                                                                               
 Number 1095                                                                   
                                                                               
 CHAIRMAN BARNES said she would have the amendment copied and                  
 distributed to all members of the committee.  She noted there is              
 floor session at 7:00 p.m.  It would give the committee a chance to           
 review the amendment and then the committee would reconvene after             
 session.                                                                      
                                                                               
 REPRESENTATIVE PHILLIPS referred to page 5, Section 3, of the work            
 draft which relates to reporting provisions.  She said she believes           
 this is a very important part of the bill that has been quietly               
 ignored and read from the bill, "The lessee, BP Exploration                   
 (Alaska) shall file with the commissioner of Labor at least every             
 six months the reports that the commissioner of Labor determines              
 are necessary to evaluate the lessees efforts described under the             
 local hire provisions in the act."  She said she thinks that is a             
 very important to have in the bill.  Representative Phillips asked            
 that the committee consider a technical amendment that the                    
 commissioner of Labor should also send the report to the                      
 legislature.                                                                  
                                                                               
 REPRESENTATIVE MACKIE asked if the committee would reconvene after            
 session.  He also asked if the amendment would be drafted into the            
 bill at that time.                                                            
                                                                               
 CHAIRMAN BARNES indicated the committee would reconvene after                 
 session and the amendment would be included in the bill at that               
 time.  Chairman Barnes recessed the meeting at 6:30 p.m.                      
                                                                               
 CHAIRMAN BARNES called the meeting back to order and noted all                
 members of the committee were present except Representative Kubina.           
                                                                               
 Number 1277                                                                   
                                                                               
 ERIC LUTTRELL, Vice President, Exploration and New Developments,              
 BP Exploration (Alaska), Incorporated, came before the committee.             
                                                                               
 CHAIRMAN BARNES asked Mr. Luttrell if he has had an opportunity to            
 read the draft CS adopted by the committee.                                   
                                                                               
 MR. LUTTRELL indicated he has read the CS.  He said in their                  
 reading of the bill he thinks the bill will do what everyone is               
 trying to achieve.  He requested that he have a chance to review it           
 one more time.                                                                
                                                                               
 Number 1341                                                                   
                                                                               
 REPRESENTATIVE ELDON MULDER asked Chairman Barnes if she would be             
 prepared to explain to the House Finance Committee the changes made           
 in the bill the following day.                                                
                                                                               
 CHAIRMAN BARNES indicated she would have no problem doing that.               
 She asked if there were any questions of Mr. Luttrell.  There were            
 no further questions of Mr. Luttrell.  Chairman Barnes asked if               
 there was anyone else wishing to give testimony.  There being none,           
 she indicated Representative Phillips has a proposed amendment.               
                                                                               
 Number 1390                                                                   
                                                                               
 REPRESENTATIVE PHILLIPS said she would propose a technical                    
 amendment on page 7, line 26, Section 4, where it says, "BP shall             
 file with the commissioner of Labor at least every six months the             
 reports that the commissioner of Labor determines are necessary."             
 She said she would like to add a phrase after the word                        
 "commissioner" add a new sentence, "The commissioner shall submit             
 these reports to the legislature."  Representative Phillips moved             
 the amendment be adopted.                                                     
                                                                               
 CHAIRMAN BARNES asked if there was an objection.  Hearing none, the           
 amendment was adopted.  She asked if there were additional proposed           
 amendments.                                                                   
                                                                               
 Number 1480                                                                   
                                                                               
 REPRESENTATIVE WILLIAMS asked for an explanation of page 6, line              
 17, "The lessee shall furnish the Department of Labor a quarterly             
 report regarding employment of Alaska residents in the leased area            
 in compliance with regulations."  He referred to page 7, Section 4,           
 "The lessee, BP (Alaska) Exploration, Inc., shall file with the               
 commissioner of labor at every six months."  He asked if quarterly            
 is different than every six months.                                           
                                                                               
 CHAIRMAN BARNES said, "Well I think that the first part you're                
 addressing is in the intent language and these don't have to be as            
 concise or conclusive as the ones that will be filed under the law            
 itself."                                                                      
                                                                               
 Number 1552                                                                   
                                                                               
 REPRESENTATIVE PHILLIPS said she thinks this provides us a very               
 good alternative and method of getting on the record everything               
 that the legislature wanted to make sure was on the record, that              
 being the fullest ability or the fullest requirement for making               
 sure that we had existing residential hire on this project.  She              
 indicated she wants to stress the phrase "existing residential                
 hire" for the record.  She said she doesn't mean that we are going            
 to be bringing people up from the Lower 48, giving them an Alaska             
 drivers license and calling them a resident.  It also gives us the            
 strongest language that we can ensure to make sure that those                 
 vendors and suppliers in Alaska are going to get the first crack at           
 getting the contracts on this job and to the best of anybody's                
 ability that those modules will be built in Alaska.  She said she             
 thinks it is very important that the record, throughout these                 
 proceedings and hearings, is very clearly stated in all the                   
 committees that is the intent of the legislature.  We're not                  
 interested in doing incentives, tax breaks, giving royalty breaks             
 or anything unless we are guaranteed that the people of Alaska will           
 be put to work.  Representative Phillips stated she thinks we have            
 gone as far as we can in this amendment without violating the                 
 constitution.  That message is very very clearly on the record.               
 She indicated she will be reading those six month reports on a                
 regular basis.                                                                
                                                                               
 Number 1670                                                                   
                                                                               
 REPRESENTATIVE GARY DAVIS referred to the severability clause and             
 asked how would severability would be enforced as far as do you               
 take out a phrase, do you take out a section, do you take out a               
 paragraph.  He said his concern is the authorization to amend the             
 lease and the employment discussions are in the same subparagraph.            
                                                                               
 CHAIRMAN BARNES said if this should go to court, and perhaps with             
 the new bill it won't, of the court found that one section of the             
 bill or a portion of a section is unconstitutional, it would be               
 severed from the bill and the rest of the bill would remain in                
 tact.                                                                         
                                                                               
 REPRESENTATIVE DAVIS asked if it would be a section of the bill or            
 a portion of a section.                                                       
                                                                               
 CHAIRMAN BARNES said she thinks if the court can find anything.               
 She asked Mr. Baldwin to come forward and clarify that.                       
                                                                               
 Number 1750                                                                   
                                                                               
 MR. BALDWIN explained the way he sees severability working here is            
 that it reflects the intent of the committee that if the local hire           
 provisions in the bill were found to be unconstitutional you would            
 still intend that there be a net profit share reduction and that              
 the state would still receive all the benefits from the net profit            
 share reduction.  That is the intention that we want on the record.           
 He said, "And I'm not quite sure what words or phrases would be               
 dropped from the bill or would be dropped - be stricken by the                
 court, but that's the important thing to get on the record is it's            
 the committee's intent and hopefully the legislature's intent that            
 if one - that if local hire is found to be or provisions relating             
 to local hire are found unconstitutional, or anything else.  The              
 main thing is that the net profit share lease thing - a provisions            
 would stand."                                                                 
                                                                               
 REPRESENTATIVE DAVIS explained that was his concern and that is his           
 intent because the provision to amend is in the same subparagraph             
 as the employment provisions.                                                 
 Number 1849                                                                   
                                                                               
 REPRESENTATIVE MULDER referred to the relation to the revision of             
 the contract and asked if the legislature approves legislation and            
 if the revised contract is signed by the state and BP, what is the            
 ability of the state to, in the future, readdress that contract               
 again.  He said he thinks that it has been very clearly stated on             
 the record that to the extent constitutionally and legally allowed,           
 we have put a moral obligation on BP to hire Alaskans, to create              
 employment in Alaska.  We have gone as far as we can go.                      
                                                                               
 CHAIRMAN BARNES explained the legislature hasn't put the moral                
 obligation on BP, they voluntarily put it on themselves.                      
                                                                               
 Number 1910                                                                   
                                                                               
 REPRESENTATIVE MULDER clarified to the extent allowable, they have            
 put the moral obligation upon themselves.  He referred to the                 
 future and said if they do not live up to the moral obligation,               
 what is the ability of the legislature to revisit the issue.                  
                                                                               
 MR. BALDWIN responded that there is a provision in Title 1 which              
 states that the legislature does not have the power to impair                 
 contracts.  In other words, once a contract has been made with the            
 state or anybody else, the legislature cannot go in and change it             
 as they lack the power to do that.  Mr. Baldwin noted the                     
 legislature is a very powerful body and there are many issues and             
 areas that touch upon the leaseholder.  The institution has a long            
 memory.  He said he guesses there is plenty of opportunity, but not           
 in connection with this particular contract.  He said a breach                
 could be enforced if there is a breach, but this language is                  
 permissive and is voluntarily done by BP.                                     
                                                                               
 Number 2010                                                                   
                                                                               
 REPRESENTATIVE MACKIE referred to page 7, Section 5, relating to              
 severability and asked Mr. Baldwin if he feels that the language is           
 adequate to state the legislature's intent.  He said there is                 
 really nothing in the bill that mandates by the legislature in                
 statue anything that hasn't already been agreed to.  He said he               
 doesn't see how something could be found unconstitutional with the            
 bill the way it is currently written because there is not a                   
 statutory requirement by the legislature to mandate.                          
 Representative Mackie asked if that was accurate and if there is,             
 where is it and does the severability clause still allow for it to            
 go forward if one portion were to be struck down.                             
                                                                               
 MR. BALDWIN said he thinks it is always better to have an express             
 severability clause then merely to rely on the one in Title 1, but            
 by referring it in the bill he thinks it gets the point across to             
 the courts that you do intend for it to severable.  Title 1 says              
 that it applies no matter what, even if the legislature doesn't               
 refer to it, but our courts have said that it is just not good                
 enough to rely on that.  You have expressly relied on it and that             
 is what he recommends be done.  He said in answer to the broader              
 question, he would be happy if nothing were said in the bill about            
 local hire.                                                                   
                                                                               
 Number 2129                                                                   
                                                                               
 CHAIRMAN BARNES again pointed out it's voluntarily.  She said BP              
 has put this in the leasings and, thus, in the legislation.                   
                                                                               
 REPRESENTATIVE MACKIE referred to the severability sentence in the            
 bill and asked if it is adequate to achieve what we want it to.               
                                                                               
 MR. BALDWIN indicated it is.  He noted the sentence in AS 36.10.900           
 is a little bit different, but he thinks the sentence in the bill             
 conveys the legislature's intent that it be severable.                        
                                                                               
 Number 2199                                                                   
                                                                               
 CHAIRMAN BARNES said language was also provided to her by someone             
 else to look at.  She read, "Section 4, Severability.  If any of              
 the provisions of this act are ultimately held unconstitutional,              
 said provision shall be severable from the rest of this act."                 
 Chairman Barnes asked Mr. Baldwin if he would prefer that language            
 or does the current language do what she thinks it does.                      
                                                                               
 MR. BALDWIN said he thinks it does.  He said, "You want to make               
 sure that you're not relying on just the one in title -- the                  
 provision in Title 1 automatically applying.  By it's terms it                
 does, but our court has said severability is a question of                    
 legislative intent and if we don't have any expression of                     
 legislative intent then we're not going to imply it.  And so the              
 fact that you have cited the severability clause and said that you            
 intended it to be severable, I think you've been expressing your              
 intent and it should be fine.  The other one is fine to."                     
                                                                               
 REPRESENTATIVE PHILLIPS said, "If this does what we want it - it's            
 in the language, lets go with it."                                            
                                                                               
 Number 2310                                                                   
                                                                               
 REPRESENTATIVE JOE GREEN said he had spoke to Mr. Chenoweth earlier           
 and he admitted there has been a change over the past few days                
 about his attitude on the constitutionality of what the was done              
 earlier.  Representative Green said he thinks Mr. Chenoweth is of             
 the same opinion everyone else is that there was a constitutional             
 problem that has been cleared up the new language in the CS.                  
                                                                               
 Number 2360                                                                   
                                                                               
 REPRESENTATIVE WILLIAMS said he would ask the department to see if            
 they can include some incentive language in for hiring.  He noted             
 there is some proposed language offered by Representative Davies,             
 but he isn't prepared to offer it.  He noted Kevin Becks put                  
 together a spread sheet.  Representative Williams referred to the             
 committee coming up with some incentives for hiring and indicated             
 he believes the amendment would work a lot better.                            
                                                                               
 REPRESENTATIVE BARNES referred to the amendment that was provided             
 by Representative Davies and said if she thought that she could get           
 away with it constitutionally by adopting it she would, but she has           
 been told she cannot.                                                         
                                                                               
 TAPE 96-3, SIDE A                                                             
 Number 036                                                                    
                                                                               
 CHAIRMAN BARNES referred to the fiscal note in the committee                  
 member's file and said it is her desire to nail down as clearly as            
 possible, in every way possible the, language in the bill is                  
 voluntarily done on behalf of BP.  So after the word "Northstar               
 unit," she would like a statement made that would say "Incorporated           
 by reference in this fiscal note is the attached letter dated April           
 29, 1996, BP Exploration, written to this committee by John C.                
 Morgan, President of BP (Alaska)."  She said they would incorporate           
 the contents of the letter as an addendum to the fiscal note.                 
                                                                               
 Number 121                                                                    
                                                                               
 REPRESENTATIVE PHILLIPS so move that the BP letter, dated April 29,           
 from John Morgan to Representative Barnes be included as an                   
 addendum to the fiscal note.  She noted the committee members all             
 have that letter.                                                             
                                                                               
 CHAIRMAN BARNES asked if there was an objection.  Hearing none, the           
 motion carried.  Chairman Barnes noted the committee has adopted              
 the work draft and said she would entertain a motion to adopt the             
 CS.                                                                           
                                                                               
 REPRESENTATIVE PHILLIPS moved to adopt the CS.                                
                                                                               
 CHAIRMAN BARNES asked if there was an objection.  Hearing none,               
 CSHB 548(WTR) was adopted.  Chairman Barnes said she would                    
 entertain a motion to move the bill from committee with individual            
 recommendations.                                                              
                                                                               
 Number 184                                                                    
                                                                               
 REPRESENTATIVE MACKIE said in regards to Representative Davies'               
 amendment, Representative Davies was told the committee would                 
 address his amendment.                                                        
                                                                               
 CHAIRMAN BARNES indicated the committee just did deal with the                
 amendment.                                                                    
 REPRESENTATIVE MACKIE said he heard a few opinions, but the                   
 committee never dealt with the amendment.  He said he does not                
 support the amendment, but out of courtesy to Representative Davies           
 he was told the committee would address the amendment.                        
                                                                               
 CHAIRMAN BARNES asked Representative Phillips to withdraw her                 
 motion.                                                                       
                                                                               
 REPRESENTATIVE PHILLIPS withdrew her motion.                                  
                                                                               
 CHAIRMAN BARNES said the CS has been adopted.  She noted the                  
 committee was given the amendment by Representative Davies.                   
                                                                               
 Number 224                                                                    
                                                                               
 REPRESENTATIVE PHILLIPS moved Representative Davies amendment for             
 the purpose of discussion.                                                    
                                                                               
 REPRESENTATIVE MACKIE objected to the motion.                                 
                                                                               
 Number 260                                                                    
                                                                               
 CHAIRMAN BARNES said she is led to believe under the separation of            
 power doctrine that the committee cannot deal in a constitutional             
 manner with the amendment that was given to the committee by                  
 Representative Davies although she would be very happy to do so if            
 she thought it was constitutional, but she doesn't.                           
                                                                               
 REPRESENTATIVE PHILLIPS agreed with Representative Barnes that she            
 would also like to consider the amendment, but also the fact that             
 it would change the contract is a (indisc.) that must be taken into           
 consideration.                                                                
                                                                               
 REPRESENTATIVE BARNES said the question is the adoption of an                 
 amendment prepared by Representative Davies.  She asked for a roll            
 call vote.  Representatives Mulder, Williams, Davis, Kubina, Mackie           
 Phillips and Barnes were against the adoption of the amendment.  So           
 the amendment by Representative Davies was not adopted.                       
                                                                               
 Number 360                                                                    
                                                                               
 REPRESENTATIVE MULDER indicated he appreciates the work                       
 Representative Barnes has done.  The second compelling reason for             
 the legislature and state to address this issue is obviously the              
 economics and the House Finance Committee will be looking at that             
 the following day.  He commended Representative Barnes for putting            
 it clear on the record the cooperation between BP and their                   
 commitment toward local hire and local investment voluntarily.                
 Representative Mulder made a motion to move CSHB 548 from committee           
 with individual recommendations and the accompanying fiscal note,             
 as amended.                                                                   
                                                                               
 CHAIRMAN BARNES asked if there was an objection.  Hearing none,               
 CSHB 548(WTR) was moved out of the House Special Committee on World           
 Trade and State/Federal Relations.                                            
                                                                               
 ADJOURNMENT                                                                   
                                                                               
 CHAIRMAN BARNES adjourned the House Special Committee on World                
 Trade and State/Federal Relations meeting.                                    
                                                                               

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