Legislature(1995 - 1996)

04/24/1996 05:45 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                   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.                           
                                                                               

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