Legislature(1995 - 1996)
04/24/1996 05:45 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE RESOURCES COMMITTEE April 24, 1996 5:45 P.M. MEMBERS PRESENT Senator Loren Leman, Chairman Senator Drue Pearce, Vice Chairman Senator Steve Frank Senator Rick Halford Senator Robin Taylor Senator Georgianna Lincoln MEMBERS ABSENT Senator Lyman Hoffman COMMITTEE CALENDAR Confirmation Hearing for Michele Brown, Commissioner, Department of Environmental Conservation SENATE BILL NO. 318 "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." CS FOR HOUSE BILL NO. 394(FIN) am "An Act authorizing shallow natural gas leasing from sources within 3,000 feet of the surface; relating to regulation of natural gas exploration facilities for purposes of preparation of discharge prevention and contingency plans and compliance with financial responsibility requirements; addressing the relationship between shallow natural gas and other natural resources; and adding, in the exemption from obtaining a waste disposal permit for disposal of waste produced from drilling, a reference to shallow natural gas." PREVIOUS SENATE COMMITTEE ACTION SB 318 - See Resources minutes dated 3/29/96, 3/30/96, 4/3/96, 4/11/96, 4/13/96, 4/15/96, 4/17/96, and 4/18/96. HB 394 - No previous action to consider. WITNESS REGISTER Hans Neidig, Staff Representative Scott Ogan State Capitol Bldg. Juneau, AK 99801-1182 POSITION STATEMENT: Staff to sponsor of HB 394. Representative Scott Ogan State Capitol Bldg. Juneau, Alaska 99801-1182 POSITION STATEMENT: Sponsor of HB 394. Earl Ausman 1503 West 33rd, Ste. 310 Anchorage, AK 99503 POSITION STATEMENT: Supported HB 394. Dave Lappi 4900 Sportsman Dr. Anchorage, AK 99507 POSITION STATEMENT: Supported HB 394. James Hansen, Chief Petroleum Geophysicist Division of Oil and Gas Department of Natural Resources 3601 C St., Ste. 1380 Anchorage, AK 99503-5921 POSITION STATEMENT: Commented on HB 394. ACTION NARRATIVE TAPE 96-63, SIDE A Number 001 CHAIRMAN LEMAN called the Senate Resources Committee meeting to order at 5:45 p.m. The following is a verbatim transcript of testimony on SB 318. Number 236 SB 318 NORTH STAR OIL & GAS LEASE AMENDMENT CHAIRMAN LEMAN: We adopted a committee substitute at a previous meeting and took comments from a number of people and what we have done is prepared, in response to the comments, two options here. There is a third option that we're also considering that it could go on another bill that would deal with the issue. The first option that's here in your packets that's listed as alternative one, and I believe, those who are here have received copies of it. If not, they are available here. The committee adopted the previous version, but we have not adopted this new one. One of the comments we heard was, and it's probably the one that caught people initially, was the 40 pages. The reality of it is the first 20 pages of it were findings of the committee and so what we've done here in this new version marked the F version, dated today, is we've taken the first part out and prepared a Findings of Fact of the Senate Resources Committee and that would be a separate stand alone document. In addition to pulling it out, we have worked with the Department of Natural Resources in incorporating many comments. I don't remember, something like 50 or so. In addressing the concern the Department had that, while the comments in most cases may have been accurate, they didn't fully represent the entire picture. So in the interests of having a balanced record, if you will, our intent was not to have an imbalanced record. But we incorporated the Department's comments and I believe we have something that, at least, the Department would agree is much closer to what we agree is the record of the hearings. The other major change in it is we removed I believe in two places the word irrevocable when it referred to the commitment of full funding or the project sanction. That word in its context was a sticking point for many people. And I believe in removing it, it doesn't really change what is happening, but I think it helps to provide comfort to those who are questioning what would happen if, for some reason, the price of oil would drop to $6, we're still going to force BP to develop a project that would no longer be economic. So that was removed. There is one other area and let me note that there were numerous comments since the last CS was issued regarding the issues of Alaska hire, Alaska contracting, and the requirement for fabrication in Alaska. All of those points were expressed by members of this committee, I believe, unanimously by members either here in the committee meeting or to me in other forums as being important issues that needed to be addressed and concern that the agreement that presently exists is either not enforceable or has, as Senator Lincoln has commented several times, has too many weasel words. Without us getting into the details of that, those were changed a little bit. And this CS that we have as a proposal - there was a slight change that dealt with, not only contractors, but also vendors, suppliers, and consultants. Page 9, lines 26 and following it, says for work in connection with this lease, lessee shall purchase materials and services from Alaska vendors, suppliers, and consultants, and shall contract with Alaska firms for fabricating the modules for on site production and processing facilities in Alaska. This shows up also on page 13. So we have, there's that and then the other draft committee substitute more than one committee member had expressed interest in a committee substitute that said essentially produce a record of the committee hearings and come down to the end and the conclusion is that the legislature does not approve or disapprove nor ratify the amendments. We've reviewed them and essentially it's the administration's call. Those are two options. The third option, and I don't know if it's in drafting, but it's one if it found a vehicle it would probably be HB 191. That would be the appropriate one to put it on. It would deal with amendments to essentially last year's HB 207 process which provides a mechanism for the commissioner to follow in doing royalty modifications and it would go in and make changes that would - the process for net profit share changes would follow a similar process to that. So those are three options that I lay before the committee. SENATOR TAYLOR: I think my preference at this point would be to move option G. It's the briefest of the three and really takes no position on the part of the legislature which was my position at the beginning of the hearings. I didn't feel we had a role to play in the process. I know both the administration and BP would like our blessing and if that is the only other alternative that's available, then I guess we could move the original bill as it was submitted, but I don't believe the votes exist for that. So as a compromise I would submit, I would move that we adopt committee substitute, workdraft G, Chenoweth. CHAIRMAN LEMAN: I hear objection to that. SENATOR LINCOLN: I object to that, Mr. Chairman for just purposes of explanation. Does this alternative two or G as noted - does this in any way change the contract that has been negotiated by the administration? CHAIRMAN LEMAN: Alternative two? No, it does not. SENATOR LINCOLN: Could you explain, and maybe you did before I walked in, on page 3, line 9. I don't know if you explained that portion that I believe this was not in the original bill that says the Commissioner does not have legislative authority. CHAIRMAN LEMAN: It says legislative authorization. SENATOR LINCOLN: That was not in the original? CHAIRMAN LEMAN: I'm quite certain it was not. SENATOR LINCOLN: Could you explain why that was added in. CHAIRMAN LEMAN: It's just a statement of fact. This is what we heard from both the Department of Law and the Division that they said they believed the Commissioner does not have the authorization. That's why they came to the legislature. SENATOR LINCOLN: Why was it necessary to put it in as part of a bill? CHAIRMAN LEMAN: Mr. Eason, do you want to respond to that? JIM EASON: It was simply a statement of fact. CHAIRMAN LEMAN: Would you come to the table? MR. EASON: For the record, Mr. Chairman and members of the committee, my name is Jim Eason and the answer is that it was inserted, as the Chairman has noted, simply as a statement of fact based upon the testimony of the Department of Law as well, I believe, the Department of Natural Resources during the hearings on the bill. CHAIRMAN LEMAN: We have a motion before us to adopt a new committee substitute and there was objection to that. We're certainly going to have discussion on that. Senator Lincoln. SENATOR LINCOLN: I had another question. I have a letter of intent that I would like to go with the piece of legislation. Would that occur - would my motion then occur after this is adopted or do I amend the motion? CHAIRMAN LEMAN: I would prefer that that would accompany whatever bill this committee would report. Let's decide what the bill's going to look like and then we can send along a letter of intent from the committee. SENATOR LINCOLN: That would be fine. I don't know if we've got copies. I remove my objection, Mr. Chairman. CHAIRMAN LEMAN: Is there further discussion regarding the motion. Let me note that it's my opinion that even though there's some benefit to this approach and I agree with much of what Senator Taylor said. And maybe we'll hear from others what their reaction might be and I'm not sure what their reaction might be. Maybe the best thing to do is to take testimony and see. I would guess their reaction would be that they think the legislature is somehow shirking its duty even though in reality it may not be. Without putting words in other's mouths we can run up the flag pole. SENATOR TAYLOR: If I could just respond briefly to that. This reminds me of another major piece of legislation that I inherited during the last year. I was told I couldn't fix it and I couldn't kill it and as a consequence, I needed to move it. It appears to me that there's a lot of fixes being offered and don't think those fixes are probably going to fly. I certainly don't want to see a project of this magnitude killed because of the actions we take here and as a consequence I don't feel that there's much other options. I haven't from the beginning felt that the legislature had a true option to be involved in this process. As both parties to the agreement, the Governor and BP have indicated very clearly that we were to review and somehow bless this, but we were not to in any way affect or change it. And I think proposition G basically says that, that we have reviewed it and we are not changing it and we are not taking any particular position on it, either endorsing or not endorsing it. That the parties are free to go forward just as they have. Administrations have done these types of agreements in the past and have not needed or sought legislative confirmation. And if such has not been necessary in the past, I don't see why it's necessary now. And if we're not going to be allowed to change it or modify it in any way, then I don't really see where the legislature truly needs to take a position on it. I know it may be "prudent" for some people to seek legislative approval, but I don't wish to do disservice to their agreement and I'm fearful that if we do attempt to make major modifications, that we may very well end up doing that. So that's why I proposed that solution. CHAIRMAN LEMAN: In response, I concur because the fairly minor modifications that we did propose in the other committee substitute, or at least what I believe is minor, in that it merely restated what this committee heard either in written testimony or in verbal, that met with resistance from BP and they said they wouldn't move forward. And I didn't want to stop a project and so there is some merit to this approach. I believe it accomplishes that. However, I still believe the other approach would be superior and I would hope that BP would rethink its position if that were to be passed by the legislature. Is there further discussion regarding the motion to adopt version G as the committee substitute for mark up purposes. SENATOR PEARCE: Mr. Chairman, I would object only because I agree with what you said. Let's hold off on the motion and get testimony. CHAIRMAN LEMAN: O.K. I think that's fair. We'll, if that's o.k. with you, Senator Taylor? SENATOR TAYLOR: Oh, certainly, I'd like to hear their reaction, too. CHAIRMAN LEMAN: We'll hear from others and their reactions to the two alternatives we have here and then if they'd like to respond to what we can call alternative three which would be a somewhat modified HB 207 approach. It would be a similar process that is outlined in the bill last year. There would need to be some changes to that approach because obviously the provision on this being noneconomic couldn't apply to this and that wouldn't apply and perhaps there would be some change to that. But otherwise it would be a procedure that the legislature and the administration last year agreed on a process that would be followed for modifications. SENATOR FRANK: What did you say about...? CHAIRMAN LEMAN: I said that it couldn't apply specifically to the changing of these net profit share leases because the testimony showed that they were indeed economic. It wasn't that they were noneconomic. Last year's HB 207 applied to conditions when they were noneconomic. SENATOR FRANK: You mean this project is economic? CHAIRMAN LEMAN: We heard that from both the Department and from BP. Further committee discussion? Who'd like to start it off in giving his reaction to these committee substitutes? SENATOR FRANK: It seems like a legal question to me. CHAIRMAN LEMAN: Director Boyd? KEN BOYD: You were staring right at me, Mr. Chairman. I'd like to bring Patrick Coughlin, if I could, to the table, please . CHAIRMAN LEMAN: Please do. MR. BOYD: Mr. Chairman, for the record, my name is Ken Boyd. I'm the Director of the Division of Oil and Gas. I do believe Senator Frank is right, that it is a legal question. I'm not certain where that leaves us. It seems to me, at least, without an ability to make a decision or to go forward. It's been said that we don't have the authority to do this under existing law. I think I won't take it any farther than that right now. I'll ask Patrick if he wants to make any comments again. Patrick is a lawyer, but he's not a lawyer. He works for the Division of Oil and Gas. PATRICK COUGHLIN: My only comment would be that if you adopt work draft G that I think it would mean that the amendment would be, essentially never take effect. Because the current amendment states that these amendments take effect when and if an act substantially similar to the act attached is exhibit D and incorporated by reference takes effect. The key provision in that act which is incorporated is that the legislature, it states, approves and ratifies the amendment. And what I read as G, it basically says the legislature does not approve it or disapprove it and does not ratify it. Therefore, I would conclude that the amendment would never take effect. CHAIRMAN LEMAN: Would it be possible, Mr. Coughlin, to have a new agreement that did not have that provision in it - for the legislature if that were the case? MR. COUGHLIN: Again, I think as Commissioner Shively has indicated, and Mr. Baldwin has testified, that we question whether we have authority to enter into such an agreement without legislative approval. If, for example, you follow the third alternative and you gave us some general authority, I suppose we could go back and try to negotiate a deal, in that instance. I think the point is that, I don't think it will be the Department's view, that I don't think we could go back and renegotiate. I mean, in essence, just do this deal and say it's effective today because we don't think we have authority and that's why. We thought authority was lacking and that's why we came to the legislature. SENATOR TAYLOR: Maybe I misunderstood the comments by the Attorney General when he was here, but I thought the words he used were the legislature's authorization was not legally necessary, but that it would be prudent. In fact, he used the word prudent two or three times in his written opinion. I can understand that prudent might very well mean giving a greater feeling of comfort or security as regards the legislature, but it certainly isn't anything that was either legally necessary or mandated within existing statutes. Because if that were the case, he would have said so. MR. COUGHLIN: Mr. Chairman, Senator Taylor, I think you would have to ask Mr. Baldwin that question. CHAIRMAN LEMAN: Is Mr. Baldwin on line? SENATOR TAYLOR: I asked his boss, the Attorney General, and that was the answer I got, I thought. I know it's all on record. We could look back in our packets and dig out the written opinion, but I think the written opinion very clearly stated the word prudent. MR. BOYD: Mr. Chairman, Senator Taylor, we're not disagreeing with you. We just don't, you know, I think that's a prudent thing to do, also. CHAIRMAN LEMAN: Do you have any other comments regarding the three alternatives and do you agree with my early assessment that the committee findings more accurately reflect the record, at least from the Department's viewpoint. MR. BOYD: Mr. Chairman, I really do appreciate the fact that, you know, that staff took the time to sit down with us and go through all this and I also appreciate the fact that you decided to pull these out, separate them. I think this is a good history and a good explanation of the way the world has been, was, and we obviously haven't had a chance to look at it in any great detail, but we worked with your staff last night for several hours and I'm sure, as you said, we found a balance. Whether the balance is a little bit here, a little bit there, is a fine point. I believe we reached an agreement on everything. Again, I do appreciate the time it's taken to do that and the fact that you've pulled it out into a separate document I think is helpful and useful. CHAIRMAN LEMAN: Of the three alternatives, do you have a preference? Number three, I guess what I'm hearing, you believe it renders - it basically makes the agreement ineffective. How about alternative one? MR. BOYD: Mr. Chairman, I think I have one that says BP won't do it, we can't do it, and I'm not sure how the third alternative will work. SENATOR TAYLOR: Kind of what I was faced with, too. CHAIRMAN LEMAN: Further questions from committee members? O.K. SENATOR FRANK: What's the problem with your approach from BP. You've characterized it as just putting in writing what they've said they'd do and they don't want to be in a straight jacket on that or what? CHAIRMAN LEMAN: Well, that's my understanding. I guess I'm most reluctant to say what others intend, but I believe this committee substitute says what they said in the record, both verbally and in writing. It restates it. It helps clarify those areas that committee members thought needed to be clarified. What BP has told me is that they don't want to reopen the negotiations even though I believe these are fairly modest changes and wouldn't require a substantial revision to the agreement, but it gives that additional security that so many of us really want - primarily dealing with Alaska hire. SENATOR FRANK: What does the Alaska hire provision say? CHAIRMAN LEMAN: The old one or the new one? SENATOR FRANK: The new one, I guess. CHAIRMAN LEMAN: The new one just says to the extent allowed by law they will do it. And the other one - I don't have the language in front of me - but it had a number of... SENATOR FRANK: Senator Lincoln, was your letter of intent directed at the original or at the - you call them weasel words - do you think the weasel words were in the original bill or in this unpopular CS? SENATOR LINCOLN: Well, Mr. Chairman, if I might respond to that, I think that, you know, in the alternative two, as it's being referred to, that the local hire is not in here at all, that I can read. And that's the one that's before us right now. That's the motion that's been made. And the letter of intent that I'm going to propose speaks very strongly about the local hire provision as well as what the Alaska firms and Alaska businesses mean. It's almost too bad that we can't introduce this now, that we can discuss this all at the same time. I think Alaska hire is going to be a subject that's going to be brought up. CHAIRMAN LEMAN: I don't mind your discussing the letter of intent now. SENATOR LINCOLN: If I might, then, Mr. Chairman, the first page of it and I don't know if there's copies up here for the audience if they need it, but there's two full pages and the first page talks about what the Alaska resident is and that the individual has to demonstrate that they've been in the State for one year before the date of hire and that demonstration could be through, and I've laid out those four things. One is that registered to vote in Alaska for the year previous to the date of hire, attending school in Alaska within the year previous to the date of hire, possessing a driver's license, fishing, trapping, or hunting license for at least a year before the date of hire, receive an Alaska Permanent Fund Dividend for the year previous to the date of hire, and then it talks about the availability. And availability could mean anywhere in the State, not just necessarily the - at first I wanted to put it in the area that the work was being done and then decided that might be too confining. So it is anywhere within Alaska and then the second page talks about the phrases Alaska contractors, Alaska firms, and that the Alaska business license has to be held for one year before performing any work in connection with the Northstar lease, and they also have to maintain for one year a place of business within the State that deals in the supply, services, or construction of the nature required for the project before performing any work in connection with the Northstar leases. And then the third part is that - there's four sections on that - and what the proprietor and being an Alaska resident, etc. So I had the chairman also look at the letter of intent and see if there was anything that was offensive in the language or something that I've missed with the discussion that we have had in this committee. It is a letter of intent. It is, as we all know, letters of intent are not binding, but it certainly gives the direction to Northstar that this is what we've been talking about - that it is local hire and not someone who's been here for 30 days or 60 days or 90 days and having a different criteria and the businesses that are used. So I think it gives a very clear picture of what our intentions are. CHAIRMAN LEMAN: I think it's a well written letter and I'm not sure who wrote it, but it says here DNR, Office of the Commissioner and if somebody in your office. I commend whoever did. SENATOR LINCOLN: I think it was a combination of many folks, Mr. Chairman, that had input into this and I appreciate all that input, as well as your office. CHAIRMAN LEMAN: Thanks, and my understanding, at least what I was told verbally is that BP and other contractors have looked at this and didn't have any objection to it. SENATOR LINCOLN: I did share it and I did fail to say that I did share it with the Presdient of BP and asked them to look at it. I also did give it to some of the union folks to look at it and some of the contractors to look at it and see if there were any other changes they would propose in here. I have not heard back that it was offensive to anyone. CHAIRMAN LEMAN: Senator Frank. SENATOR FRANK: I guess I'm a little confused. If they are o.k. with this language that's quite specific, why would they object to more general language that just said you have to comply with the law of resident hire? CHAIRMAN LEMAN: I don't know. But I think that is a good question and you might want to ask it when we get BP up here. Senator Taylor. SENATOR TAYLOR: I certainly wouldn't want to try to answer for them, but a letter of intent is a little like a letter from the chaplain. A letter of the chaplain is about as effective is a letter of intent. It's going to get brought up maybe in a court suit, if in fact, somebody needs to discern what the intention of the legislature was at the time. It certainly can be helpful in interpreting legislative... SENATOR FRANK: It doesn't interpret any law, because there's... SENATOR TAYLOR: As a consequence, since it doesn't do that and since it's only a letter of intent, it probably doesn't have a major impact upon the legislation. I support the concept. SENATOR FRANK: It couldn't have any impact...not to be, you know... SENATOR LINCOLN: I understand. SENATOR TAYLOR: If we had adopted a different version, it might very well relate directly to the provisions within it. SENATOR FRANK: If you adopted this version, then you'd have this reference and it might tie together and, in fact, make some sense. SENATOR TAYLOR: Sure. SENATOR LINCOLN: Mr. Chairman, I did have an amendment that was written to be part of the findings, but that really is nonbinding. It's just putting it in there that, I think, that we're finding in some of the drafts that we have before us and, as I said, that this probably is not binding, but certainly what we have with resident and that being one year, and that you have to show proof. I don't think that's as strong in our statutes with what a resident is. It just varies. SENATOR FRANK: I'm not even sure, I'm not sure, I think we have residency laws, there's lots of different residency requirements in different sections of the statute. I'm not sure what our resident hire TAPE 96-63, SIDE B laws are. I'd have to review them. I haven't looked at them for several years, and I'm not sure what the status is. There have been previous attempts to have local hire laws on the books, and some have been struck down by the court and some not. And some of it relates to whether they're having to do with State owned resources. That's a separate issue, I think. I think, before I could even know what I was talking about I'd want to review the local hire law that's on the books, that ... SENATOR LINCOLN: It's weak. SENATOR FRANK: Yeah, I imagine it is. CHAIRMAN LEMAN: O.K., I'm going to get a word in edgewise and then Senator Taylor. On page 2, under 3 (d) it says is a joint venture composed entirely of ventures that qualify under then has a string of letters and numbers and I am not sure what that refers to and I guess I - we probably ought to clarify that. It may refer to something else in statute or it may be a typo. I'm not sure; it's not real clear to me. SENATOR LINCOLN: It's, Mr. Chairman, if you go back to section 1, I think it's referring to that paragraph there, under the second paragraph, AS36.10.005... CHAIRMAN LEMAN: Well, maybe that's something, you know, the letter of intent, yeah, we should probably clarify that because with the exception of that I think the letter is understandable. Senator Taylor. SENATOR TAYLOR: I guess my concern is not so much with the letter because, as I said, I strongly support local hire and I voted along with the rest of you every time we tried to change it and watched every time when the courts threw it out. That...I guess this is typical, I think, of the minutia that we get ourselves involved in as soon as we attempt to restructure what is a rather complex agreement. And that as we enter into that process, I might add, we're very unwelcome in the process. We're not helping, nobody wants us in there. And as a consequence, I think, as soon as we enter that thing you're either going to have to go in for a penny or go in for a pound. And if you want to go in and restructure this whole thing, then we'll probably need a 40 some page bill here. I'm only advocating that I don't think we really have the time or the energy to embroil ourselves in it and that if, in fact, it's going to further jeopardize the process that has gone on, we may be doing a disservice to either the administration or to the company. I just don't feel it's appropriate in light of the fact that we've had a legal opinion from our Attorney General that it's not necessary that we act. It's only prudent. In fact, when I just reviewed Mr. Baldwin's comments before the committee, he referred to legislative action as a vaccination. A vaccination that would assist in providing some security against some claim that might be brought at a later time by a challenge to the agreement. That's why I think as soon as you enter this door, you enter an entire plethora of problems and complexities that I don't think we can resolve here. SENATOR FRANK: That kind of brings to mind another question. If your assertion is that they don't require - that they now are currently authorized to make these agreements without the legislature, then what is the effect of the legislature taking action that would approve this agreement subject to modifications? What would be the effect of that? Would they, could they, then, in your opinion, ignore the legislature's approval under modified terms and go back to the original terms and approve the project under those terms or would they be prohibited from doing so? Or do you know? SENATOR TAYLOR: I really don't, but my assumption is from their own comments, that as bizarre as that sounds, I think that's very possible, that the legislature could approve this agreement, add some very specific restrictions within it, and I think they could disregard it because I don't think it was necessary in the first place. I think they told us that. SENATOR FRANK: Have we had our attorneys look at this? CHAIRMAN LEMAN: Yes. SENATOR FRANK: And have they rendered an opinion? CHAIRMAN LEMAN: Do you remember?... ANNETTE KREITZER: There were several legal opinions. CHAIRMAN LEMAN: Several legal opinions and I will just add that we have a letter from Mr. Baldwin that I received yesterday that suggested a challenge of the separation of powers, but he also came up with a way to cure that by putting the restriction on DNR and not on BP. And that was what my idea was in the beginning - that we could deal with it that way. He suggested, without suggesting details, he suggested a methodology for doing that. Mr. Baldwin is not with us today. I believe he's in Anchorage. While we are pulling that up, Mr. Luttrell, would you like to join us and give some comment. While we've been talking about you in your presence, we would just as soon hear from you and certainly want to be constructive in this deliberation. The question I have...I've outlined three options. We have two here and the third I hope you can understand it. I can just put it in concept. It would be approximately the same process that would be followed in the HB 207 approach with the exception that for this modification the portion regarding a noneconomic determination obviously would not fit. And that would have to be modified. Otherwise the other process that a commissioner would have to step through for showing things, that process would still be just as valid for this as it was for making the Badami type evaluations or the Cook Inlet... MR. LUTTRELL: Well, Mr. Chairman, it's hard for me to comment about a bill that's as imaginary as the revenues that might come out of Northstar. So until I see such a bill, I couldn't actually endorse it or comment in any way. Relative to the other two options which you are putting on the table today, I don't think they would actually achieve what, I think, BP is trying to achieve or the State's trying to achieve and that is the development of Northstar. As you know, before we made written comments to you about effectively option one saying that we did not feel we could reopen negotiations or change the agreement. I note that you yourself said that the changes are minor and I wonder why if they're minor why they are so important. But that's a separate issue. Option two is something which essentially does not ratify the agreement in any way and I'm pretty sure that BP would not proceed with development under those conditions. I'm not 100 percent sure until I get a chance to go back and talk to my people in London about it. But it would be my guess. So effectively you have not presented an option which would lead to the development of Northstar. There is, however, an option which allows you to go ahead with Northstar and that is to go back to the original bill which I would say is option four which is not in deliberations with the committee right now. CHAIRMAN LEMAN: Let me just check with the committee members. Do we have support from four people here to go back to the original bill and essentially with adopting committee findings and go with that approach, approving the existing one. SENATOR FRANK: Mr. Chairman, I wouldn't want to do that until I understood more clearly what's so offensive or what elements of the alternative one that has the Alaska hire and the Alaska fabrication language in it. Now, I'm under the impression that we've gotten indication from the Support Industry Alliance that they don't want that language in there, insuring Alaska fabrication, I think, I'm not sure if that's true or not, but, is that right? CHAIRMAN LEMAN: We do. Have we shared the letters we've received. So it should be in your packets. I received a call from Keith Burke, the Executive Director of the Alliance and he said, interestingly enough, that he'd - the Alliance doesn't need the assurance of Alaska hire... SENATOR FRANK: Alaska fabrication. CHAIRMAN LEMAN: Alaska contracting and Alaska fabrication. I asked him to send a letter and I haven't received it to the best of my knowledge, but some other contractors who either are or anticipating that they will receive contacts have sent letters saying much the same thing. So they are comfortable enough to have expressed it that... SENATOR FRANK: Is it the Alaska hire or the Alaska fabrication that's of greater concern? MR. LUTTRELL: Both of those elements are of concern to BP the way they are currently written in the original CS. SENATOR FRANK: I don't understand Alaska hire law. I'd have to review it, but what do you find offensive about what appears to me a simple statement that you would qualify or comply with Alaska resident hiring to the maximum extent... MR. LUTTRELL: Mr. Chairman, Senator Frank, I would be pleased to come back with you with a clear understanding from my lawyers about the specifics of the language and I will try to get that done for you by tomorrow, but we have not gone into that conversation in detail and I would not want to speak, because I am also not expert in Alaskan law. SENATOR FRANK: Are there other elements in the CS or is it just those, the fabrication and Alaska hire, that are of concern. MR. LUTTRELL: Because the CS is slightly different than the one that we saw a week ago, it's hard for me to comment about that. At the time there were several items. But I will bring back an analysis of all the places where we see differences. SENATOR FRANK: I didn't really focus on it that much. Informally, could you just say what... MR. LUTTRELL: I know there was one issue about irrevocability which is what Senator Leman says is now out of there, but I haven't read it. SENATOR FRANK: The sanction date - was that a problem, too? MR. LUTTRELL: The sanction date has always been a problem. Not the sanction date, the effective date... CHAIRMAN LEMAN: BP and Mr. Luttrell came back with a letter saying that he didn't like the effective date because it caused him concern about when somebody could bring challenge to the project. Our attorney, Tam Cook said that wouldn't make any difference. The day that the bill is signed by the Governor would be the date that would start and our Supreme Court has so ruled and I'd be happy to get you a copy of that memo. So, in reality, it wouldn't have that effect at all. SENATOR FRANK: Could we, Mr. Chairman, I don't know what you were planning to do, if you were planning to move the bill today or what, but, and I guess I could do it independently, but I would like to understand, and maybe there is somebody from the Department of Labor that would be able to enlighten us a bit on how that Alaska resident hiring law does work. If it has any teeth or not. Or if it's just window dressing, I'd like to know. CHAIRMAN LEMAN: Let me just tell you my intent. I had hoped to report a bill today. I'm looking for some direction from this committee as to what we can report. And what I've said is we get four votes to report a bill, we will report that bill. My other option is tomorrow I'll move to waive this bill and you'll get it and we'll send you our notebooks and have fun. SENATOR LINCOLN: Mr. Chairman , I would like also, if this is not going to out of the committee today, I would very much like to hear the response to the letter of intent and how you would intend to implement the letter of intent as it is stated. MR. LUTTRELL: Again, Mr. Chairman, we will respond to your request. CHAIRMAN LEMAN: And when might we receive that response? MR. LUTTRELL: By the end of the week. SENATOR TAYLOR: ...point started to inquire of the committee. I only moved that one because I thought it was probably the least offensive and easiest to discuss. It was the smallest one. And it characterized my real problem. If there aren't sufficient votes for that, was it your intent then to go back and... CHAIRMAN LEMAN: We never voted. I was starting to do an informal inquiry if there were four votes to move essentially the original bill with, perhaps, the modified findings that we have and attaching the committee record. But the bottom line would be right here - not withstanding any other provision of law the first amendment is approved and ratified. Are there four votes for that version? SENATOR LINCOLN: For the original version, Mr. Chairman? CHAIRMAN LEMAN: The original version, with the modifications of the findings as this committee... SENATOR PEARCE: While, it's true that someone testified that they didn't like it, but you never took the vote. CHAIRMAN LEMAN: That is correct. SENATOR LINCOLN: Tell me what we've got - I realize there is a motion on the floor - but what versions we've got - the original and we've got alternative one and we've got alternative two. CHAIRMAN LEMAN: That's what we have before us. SENATOR LINCOLN: And what I've heard is that alternative one BP is not accepting. Alternative two that it doesn't - it virtually doesn't ratify anything. So that doesn't work either. So then the third option we have before us is exactly as you've pointed out going back to the original, making some - an amendment to that, I guess and then moving it on to the Finance Committee. Is that correct? CHAIRMAN LEMAN: That is correct. SENATOR LINCOLN: O.K. I understand what we've got in front of us, now. CHAIRMAN LEMAN: I would propose that option would be to take section one in version F and it would replace section one in the original bill and I believe that would accomplish the same thing. That's the fall back position. Senator Taylor, do you wish to renew your motion to adopt version G as the committee substitute before us? SENATOR TAYLOR: I think it's still before you. CHAIRMAN LEMAN: It is before us. Is there any other committee discussion? SENATOR FRANK: I frankly would prefer version F or alternative one and try to get the information from BP as to what their concerns are with resident hire. I think that my personal concern is that we have strong language for resident hire. I'm not sure that this language is strong enough, but I'd like to get into that issue. The Alaska contractor issue I see as a separate issue. If enough of those companies come forward and say we're not concerned about that, I could probably say o.k. If, you know, if I don't really have a problem with the sanctioning issue. If they don't go forward, they don't go forward. I'm not that concerned about that. I think they want to go forward. I think we want them to, you know, if we do it, I think they'll have economic motivation to go forward. So I'm not that concerned. I'm not hung up on that. My concern is that we analyze the deal from an economic standpoint and make sure that the State's interests are well protected. They have offered a greater royalty, a supplemental royalty. I haven't really made up my mind if that's adequate. It may be. And then the Alaska hire issue is important. It's important to my community. I want to make sure that we've got something that will work in that regard. I think that the version, quite honestly, that is alternative two is not productive. I don't know what will happen. I think that we may not appreciate this thing being dropped in our lap, but it has been dropped here, and I think that many of us were concerned last year about having legislative approval for some of these deals. And to suggest now that we don't want that responsibility, I think, is contrary to that and if we don't have enough information to approve it, we shouldn't approve it. If we are confident it's a good deal for the State or an acceptable thing for the State, then we should approve it. So I would prefer to move, if we're going to move a bill today, that we move out the alternative one, move it to the next committee. I believe that's Finance. And not move the other one. Now, if we're not ready to move a bill and want to do some further work, I would be fine with that, too. I think we can do productive work on the Alaska resident hire issue, try to work with BP on language that will be effective. I'd like to hear from Department of Labor as to how they enforce Alaska hire as it is. And learn a little bit more about that. That's my long winded position. CHAIRMAN LEMAN: Further discussion before we take the vote? SENATOR TAYLOR: Just in closing on my motion. The State has entered into a previous agreement similar to this involving the same type of leasing proposition. They didn't need legislative authority or blessing at the time. I don't believe we're sitting here today... SENATOR FRANK: Why don't we just let it die in committee then? SENATOR TAYLOR: I appreciate his comment. I think it is very valid. I really do and that may end up being an alternative and it certainly is an alternative. And I think some people are probably considering it. I don't think we need to be involved in this other than for political coverage. And had I heard any other words than the words that I've heard from our lawyers that we're only here because it's prudent to be here and I think once they asked the legislature to involve itself in this transaction, both parties must be willing to stand back and allow us to become players in the process. And if they're not willing to allow us to become players in the process, then we're going to be stonewalled by both the administration and by BP, then the only alternative is either to bless this thing over which we have no control or to be blamed for being the ones that killed the proposition. I don't like either of those options. That's why I felt that this one was a better response at this point - was to say we've reviewed it and we're not taking a position on it. And I don't want - out of that - for people to imply that we're either opposed to it or supportive of it. That's specifically is the last paragraph. And if we're not going to be allowed to participate, I think that's the only thing we can send them, in all honesty. If others feel we can participate, and that somehow out of this negotiated process we may be able to strengthen provisions that many of our constituencies are concerned about, then I'd be willing to go forward with that also. I was just hoping to get us off dead center and move the process along. SENATOR LINCOLN: Mr. Chairman, I hear rustling on the teleconference here. Can you tell me who else is on line. Is there somebody else that we said we were going to hear testimony from folks, I'd like to know. CHAIRMAN LEMAN: I'm not aware that anybody else is on line waiting to testify on this. I haven't received notification of it. SENATOR LINCOLN: Question. CHAIRMAN LEMAN: We're ready for a vote. There's objection to the motion. All in favor of adopting version G. Senator Pearce. SENATOR PEARCE: Last year we passed 207 which some of us like better than others of us. As part of 207, however, one of the things that we did specify before there could be a royalty reduction in 38.05.180, probably 1(c) little i was that after much tinkering in the Senate Finance Committee was that the mechanism has to provide that the value of the potential revenue increase that resulted from the action had to exceed the value of the potential revenue losses. And then we went on to say in the next subparagraph that in addition to the royalty percentage adjustment that a further adjustment based on projected rate of volume from the field could be included and I personally think in this case that if asked if I am going to accept the agreement that was negotiated between the Commissioner and the company, I think it is inadequate because it doesn't include a volume adjustment in case the field is much larger than what is predicted in this on the table. I am willing to vote to neither approve or disapprove it and let the Governor take his chances and I, frankly, don't see the legal problem with that. But I'm not going to vote for anything that's on the table for that very reason. I think that the State stands to leave a substantial amount of money beyond the $4 million that is clearly on the table if the field is larger than is predicted by the company. We have no way to look at the data and figure out whether that makes sense or doesn't make sense. So, that's why I thought G was a possible alternative. SENATOR FRANK: I have just a little response to that. Though - that may be true that the agreement isn't satisfactory in regards to upside potential, but I don't feel comfortable about just washing our hands of it and letting the Governor take his chances. I think the Governor has made his call and he supports it. And I think that if we don't do that, if we do nothing, I think the Governor will go forward, probably, and who knows what the public opinion will be, but I think we will have missed our opportunity to take our responsibility. It's been not only granted to us by the constitution, but in this case, given to us by the Governor. And I think we should exercise it, make a judgement call on the issue, and then see if it's still an attractive deal. I think we should approve it on terms that we think are adequate and right now they've said let's take it or leave it and I think it's very appropriate for us to say, well, these are the terms under which we would approve it. Because we're being asked to approve it. And I get the sense that there isn't enough support to approve it without an amendment and so I think we should, even though the company doesn't appreciate it or want us to do it, I think it's incumbent upon us to say if we don't think it's good enough or right, that we should say these are the terms under which we would. SENATOR LINCOLN: Question. CHAIRMAN LEMAN: The motion is for the adoption of version G, Chenoweth, 4/24/96 version. It is the three page version. There was objection. Please call the role. SENATOR HALFORD: Yes. SENATOR TAYLOR: Yes. SENATOR LINCOLN: No. SENATOR PEARCE: Yes. SENATOR FRANK: No. CHAIRMAN LEMAN: No. Three, three, the motion fails. Do I have a motion to adopt version F. SENATOR FRANK: So move. CHAIRMAN LEMAN: We have a motion before us to adopt version F. Senator Taylor. SENATOR TAYLOR: I thought from the Chair's previous indication that you had intended to drop back to the original. SENATOR LINCOLN: That's what I thought, too. CHAIRMAN LEMAN: We can do it in this order and my intention would be that that would be the third. If this fails, we would go to that as the third vote. SENATOR PEARCE: What does F do? CHAIRMAN LEMAN: F is the version much like we distributed last week except it takes the findings of the committee out and creates a separate document which I believe we can all agree on those. It also takes out the word irrevocable. It takes that out in two places. It makes a slight change to the Alaska hire provisions, but it accomplishes the same thing. SENATOR PEARCE: So it still changes the agreement? CHAIRMAN LEMAN: That is correct. It does change the agreement. SENATOR PEARCE: And the effect of that if it changes it, according to the testimony is that it kills the deal. SENATOR FRANK: I don't know that they said that today. He said he was going to get back to us with the concerns they had about the Alaska resident hire. I guess the way I look at it is that it's the law and they don't have to follow the law? I mean I don't know. Maybe their response is they have to follow the law anyway, so it's inoperative and then, at least for myself, I said I was willing to listen to the testimony from the companies likely to work on it and if they're not interested in it, I guess, I don't think we're going to hear from workers - that no, no, don't worry about putting in the resident hire language. We don't care. We're confident. I don't know that we're going to hear from the majority on that. So I think that's probably the sticking point for me. But I'm willing to consider taking out the company stuff if we get these letters that we're hearing about from Alaska Support Industry and others that they don't want this language in there. That's something that we should consider separately. And then the other issues - the sanctioning issue. Maybe we don't need to have that. That was something I don't fully understand, perhaps. So, I think, yes, we may put out a document that is different, but I think that's more appropriate than just saying we neither approve or disapprove and we don't do anything. CHAIRMAN LEMAN: Whatever version we adopt would be available for further amendments and I understand and believe that there are some amendments that are already prepared that could be offered to that version and you would be welcome to offer other amendments to mark it up. SENATOR HALFORD: Just with regard to the specifics in this version, for example, page 12, it says paragraph 31 is replaced in its entirety as follows and then it adds a paragraph. What is the difference in paragraph 31 originally and this fabrication question where it says lessee agrees to utilize on-site production for processing modules for development and basically the other measure on the same thing is to build the modules in Alaska. What's the difference, just in real short terms, between that and what was in the original agreement? CHAIRMAN LEMAN: Mr. Eason, would you cover that? I didn't bring my marked up copy of the original up with me and I probably should have. Could you step through and explain the differences. MR. EASON: Mr. Chairman, members of the committee, in order to do that we'll need not a marked up copy of the original bill, but we will need the original lease form which is a 1980 lease. And I believe you have a copy. SENATOR HALFORD: I mean I'm looking for just a - I can go back and look it up and do a side by side, but I thought there would be a fairly simply couple of sentences that summarized the differences. MR. EASON: Unfortunately, I think Senator Pearce may have added some documents here as time went on....We're in luck. CHAIRMAN LEMAN: I might note one other change that I failed to mention earlier, but in this paragraph we previously said that this was in concert with BP's assertions that it would not be claiming any money from the State of Alaska or any of its contractors for doing preparing for fabrication work. We put in there that no State monies would be used to which the response was does that mean we couldn't get bonding through AIDA, you know, revenue bonds, and that was not the intent to deny that. But, so the language there has been changed. It says BP Alaska will reimburse the State for any public funds expended to prepare, develop, or operate any sites or facilities necessary for fabrication. I think that accommodates those contractors who were concerned about that and it clearly would allow AIDA bonding and those types of things, but they would just need to pay off the revenue bond. MR. EASON: Mr. Chairman, members of the committee, paragraph 31 in the 1980 prelease form reads as follows: Local Hire: The lessee is encouraged to hire Alaska residents, to the extent they are available and qualified, to perform work done in Alaska in connection with this lease. The lessee shall submit annually to the Director, Division of Minerals and Energy Management, for transmission to the Alaska Department of Labor, a report that details the specific measures the lessee and its contractors and subcontractors have taken or are planning to take to recruit qualified Alaska residents for available jobs, and describes the on the job training opportunities. The report must also include statistical data concerning the number of residential personnel hired within the past year for Alaska opportunities. SENATOR HALFORD: All of the fabrication questions are totally absent in the area being amended. MR. EASON: Mr. Chairman, Senator Halford, that's correct. There's no mention of fabrication or any requirement for fabrication in the original lease forms. As the record established, I believe, in testimony the parties, DNR, and BP negotiated an amendment to paragraph 31 of the 1983 lease forms and its parallel provision in the 1980 lease forms which did include language which, I believe, their transmittal - the Governor's transmittal letter - suggested, in fact, required in-state fabrication of modules and development of, in this State, industry. And again, I believe, one of the findings that the committee has made, as I recall, that based upon the testimony the provisions of the fabrication requirements, as well as the local hire, or Alaska hire requirements as originally drafted in the Governor's bill were unenforceable. And the amendments that have been done in this CS and version alternative one, pardon me, as well as the very similar ones in the CS the Committee adopted earlier for work do expand on and make specific the requirement, the obligation, as a mandatory obligation to construct facilities, to install them, and the reason that was done, Mr. Chairman and members, is because of the apparent importance that was attached to those obligations and those benefits in the negotiations between the parties. CHAIRMAN LEMAN: I might note that the Governor's transmittal letter talked about fabrication within Alaska and so that was being portrayed as being a benefit of these modifications and so... SENATOR TAYLOR: I just wanted to follow up on that briefly. I thought I heard you use the words, and this was one thing as I was reading through the new amended version, that we've got reports going to the Presdient of the Senate, Speaker of the House, they have to tell us how they're doing it; the Division of Oil and Gas gets a report. How would we enforce these? I mean these people are going to invest so many hundreds of millions of dollars to develop this oil field and do we take the field back if they haven't hired enough folks? How do we enforce it? If they didn't hire enough Alaskans? I mean whenever I look at one of these things, I'm always concerned about how you do make the thing work and I don't know what enforcement provisions we would have. MR. EASON: Mr. Chairman, Senator Taylor, one alternative, certainly in a document like this is to specify the performance standards, the measurements that you expect and require monitoring and compliance with those standards. One of the things that was done in the course of the testimony was representations were made as to the number of hires that were likely to result both as temporary hires and as permanent hires after construction of facilities and in addition there was represents about the dollar amount that would be expended instate for the construction and fabrication of modules and their installation. One approach, if someone is interested in tying this to a performance standard, that of course the committee could consider, is to define some level of employees and some level of investment and take either that full amount or some percentage of it that you wanted to see as actually as invested and spent in the State and establish that as a contract term. That's one alternative. Short of that I think that the best we can do, at least I can say the best I would feel I could do short of doing that, if it were an obligation I was entering into in an agreement and I was entering into it on a personal level, is to take the steps we have taken in the drafting of the original CS and version, alternative one, and that is to at least make the language comport with what was represented to be intent of the parties and that is to make it shall, when the language formally was shall use best efforts and to hope with the language that precedes that saying that whatever you do in the implementation of this agreement, it has to be in conformance with valid federal and state laws and hope for the best. SENATOR TAYLOR: That's an awful long answer to whether you can enforce it or not. We were talking about how it was unenforceable. I thought you had used that phrase. Is this more enforceable than the unenforceable provision that was there before? MR. EASON: Mr. Chairman, Senator Taylor, I will make a further disclaimer for the record. I am not an attorney and I think that you would need to consult with your legal services people for an answer that's more definitive. I do believe, again based upon representations that have been made on the record, that there was some discussion of this issue in the negotiations among the parties and you may want to explore further whether or not there were drafts, as I recall there probably were drafts, of alternative for these paragraphs and you might want to ask about what the State felt it might be able to enforce and how it felt it might get more enforceability compared to where it ended up in the negotiated paragraphs. SENATOR TAYLOR: Did I misunderstand you to say that this provision was not enforceable? MR. EASON: Mr. Chairman, Senator Taylor, the provision, I think the comments I made were, as far as the enforceability, was that both the Department of Law and the Department of Natural Resources testified that the language of their original bill, 318 as originally submitted, is not enforceable in regards to Alaska hire and construction of fabrication modules. SENATOR TAYLOR: I guess that was my understanding also cause I was here when they gave that testimony. It seems as though we can tie a lot of whistles and bells onto this thing, but if none of them are enforceable, they're not going to have much effect or if, in the alternative, some of them are enforceable, why would you invest $300 million, or whatever this thing is going to be, with the possible chance occurring in the future that somehow you have violated one of these intent standards and you could lose your entire investment. There seems to be two sides to that concern and why would we want to pass a bill that's unenforceable in the first place. SENATOR LINCOLN: This was the reason I put together this letter of intent and I know that that's unenforceable as well, but the weasel words, as I call them, I still read that in here that to the extent they are available and qualified and they may, that when necessary they shall employ and train when necessary residents of Alaska, recruit qualified Alaska residents for available jobs and so there's still a lot of areas in here that I have concern with and I don't think that this is enforceable and unfortunately the amendment that I have that would have put it in, directly into the bill, it was unenforceable. And this does not still say what a resident is. And that's why I clearly laid out what the term resident that we're implying would mean. But in here resident still could mean somebody who qualifies for a permanent fund, somebody who qualifies for whether it's a 30 day, 60 or a year. So I don't believe there's a fear here on residency and the use of businesses. I don't know why BP would be concerned about having this in here because it really doesn't say much. It doesn't have the meat that I think that we've heard over and over again the concern about the local hire and utilizing Alaskan businesses. SENATOR FRANK: Well, I think you could make it enforceable and I have no experience in writing contracts, but it seems like if you could measure the results and there's been some discussion about having measurable data, then I don't think you would have a situation where you'd just lose your investment. I guess I would envision some adjustment to their royalty provision, if that's what we're talking about. We're talking about a net profits, getting away from a net profit share, going to a supplemental royalty, then I would probably have something in there if it didn't meet the thresholds, that your royalty was adjusted and so there was a financial incentive to achieve those goals. Something like that. CHAIRMAN LEMAN: The question before us is the adoption of version F. Do we have further discussion on the motion? Are we ready for the vote? Is there continued objection to version F? TAPE 96-64, SIDE A SENATOR FRANK: Yes. SENATOR HALFORD: Yes. SENATOR TAYLOR: No. SENATOR LINCOLN: No. CHAIRMAN LEMAN: Yes. SENATOR PEARCE: Yes. CHAIRMAN LEMAN: The vote is four to two and the motion carries and we have before us version F. Do we have any amendments by committee members? I believe that there were some prepared that somebody wanted and whoever wants, offer those. SENATOR LINCOLN: Mr. Chairman, I'm not sure how the letter of intent is going to fit into alternative one now, but if there is some...I think the residency question still fits in there and perhaps even what the intent is for Alaska contractors and Alaska firms might also fit in there and I do apologize if I can just make a technical correction under D that was in question. It should have read under D that qualify under one and then delete cc. Then it would read one, three, and that should have been A and where the C is 1A, B, and C and that coincides with those that are stated above. So, Mr. Chairman, since it is a letter of intent, I would move the letter of intent for SB 318, alternative 1 or F version and then since it is a letter of intent, I think it can be modified then to conform to that particular version and I so move. CHAIRMAN LEMAN: I'll just...Is there any objection to the adoption of the letter of intent to accompany this version of the bill? Hearing none, the letter of intent will accompany it. I'll just note that I went through today and made the changes I thought were necessary to make it conform to this and if you or others find that it doesn't conform, I believe we could change it either in the next committee or we can change it, maybe, before it gets to the floor. O.K. we have a bill before us and a letter of intent. Just before we do an at ease, I'd like to just - if we could adopt the Findings of Fact of the Senate Resources Committee to accompany this. Could we have a motion to adopt these findings. SENATOR HALFORD: I would so move, but what are we doing with them? CHAIRMAN LEMAN: Well, this becomes then part of our committee record and I would suggest that we print them in the Supplemental Journal and they are referenced in this version of the bill. They become some of the basis for any decisions that we make. SENATOR HALFORD: I would move that we adopt them. CHAIRMAN LEMAN: Is there any objection? O.K., the Findings of Fact are adopted and we'll take a brief at ease. We're back on the record and we'll call the meeting back to order. I'm going to set aside SB 318 for just a few minutes and take up HB 394... HB 394 SHALLOW NATURAL GAS LEASING HANS NEIDIG, Staff to Representative Scott Ogan, said the purpose of this bill is to encourage development of shallow natural gas as an alternative fuel source in rural Alaska. HB 394 accomplishes this by relieving the tremendous monetary and regulatory burdens that currently plague independent gas developers in Alaska. He said that this is important to the State because rural Alaska has numerous problems in dealing with remediation of fuel tanks. SENATOR LEMAN asked Representative Ogan if he objected to the changes in the proposed CS. REPRESENTATIVE OGAN said he didn't have any objections to the changes. He added the State spends $20 million per year on the power cost equalization. There is an approximately $500 million problem with bioremediation although we are not solely responsible for that. EARL AUSMAN said he does a lot of work in rural communities on energy related matters. He strongly supported this bill saying it could have long reaching positive effects on Alaska, especially people in rural Alaska. DAVE LAPPI strongly supported HB 394 saying it is good for Alaska, especially rural Alaska and the independent oil and gas industry. He thought this would make an impact on the State budget with the oil spill problems we have in rural Alaska. He thought it would help avoid future oil spills by not barging diesel fuel up and down rivers in the middle of summer (because of flooding). JAMES HANSEN, Division of Oil and Gas, said he thinks that shallow gas leasing is a good idea, but they feel a new program like this needs to be examined to insure that it does what they want it to. They want a straight forward process, something that is easy, simple to implement, and not encumbered by unnecessary administrative bureaucracy. He emphasized that it needs thorough examination. He said it would be good to not have to draft new regulations for this because that is a tremendous process in itself. REPRESENTATIVE OGAN noted that Mr. Dave Hutchins from the Alaska Rural Electric Association wanted to express his support of the bill, but he had to leave. SENATOR LEMAN said they would set aside HB 394 and take it up again on Friday. SENATOR LEMAN asked Mr. Ausman if he had any objections to the changes proposed in the CS. MR. AUSMAN said he had no objections to the changes. SENATOR LEMAN announced an at ease and called the meeting back to order at 8:00 p.m. CHAIRMAN LEMAN: We'll take up SB 318. We have, if we can remember the F version before us. Are there any amendments by committee members to SB 318? SENATOR HALFORD: I would move the bill with individual recommendations and the accompanying letter of intent from Senator Lincoln, and the findings. SENATOR LINCOLN: I object, Mr. Chairman. CHAIRMAN LEMAN: There's objection. Would you like to speak to your objection? SENATOR LINCOLN: Well, Mr. Chairman, the only reason I'm objecting is that I thought we were going to get back to the original version of it and I guess that was my understanding that we were going to do that. I think we should have addressed the original version rather than this one. And that's the only reason I'm objecting. CHAIRMAN LEMAN: I'll just say that when I was counting votes, I thought that you were one who wanted to see this and from what you told me before and I was just a little bit surprised. SENATOR LINCOLN: Well, Mr. Chairman, we did not have the testimony at that time and after listening to the testimony, I'm not sure we're going to get to this point as it is. So I didn't hear all of the other...I think one of the members of this committee said well, let's talk about this a little bit more. Let's hear what they've got to say and get some more information back on it, but if that's not the intent, then I would object. SENATOR TAYLOR: Just briefly, I had announced before I made the motion to adopt the three page version, but I didn't believe the votes existed in the committee for the original bill or I would have moved that. I still don't think it's necessary, but for that reason I would join you in that objection. I think that we may end up finding ourselves in a more difficult pot of water than we're in right now. I applaud the effort. I think...but I don't think the parties involved will allow the legislature to participate. So that's the only comments I have. CHAIRMAN LEMAN: I didn't think there were four votes in this committee to move the original version and, you know, that would have been the next position. Were there four votes to move the original version? SENATOR LINCOLN: But, Mr. Chairman, you were talking about not only just the original version, but some amendments to the original version. CHAIRMAN LEMAN: Original version with new section 1 with the 14 findings. SENATOR LINCOLN: That's right. SENATOR HALFORD: Whatever version is before it, I adopted... SENATOR TAYLOR: We have adopted a version... CHAIRMAN LEMAN: We have a motion to report CSSB 318 (RES) F version. Is there further objection to the motion. SENATOR PEARCE: Yes. SENATOR FRANK: Yes. SENATOR HALFORD: Yes. SENATOR TAYLOR: No. SENATOR LINCOLN: No. CHAIRMAN LEMAN: Yes. Motion carries four to two. Is there any further business to come before us? So CSSB 318 (RES) is reported from the Resources Committee and is on its way to the Finance Committee. CHAIRMAN LEMAN adjourned the meeting at 8:10 p.m.