The provisions contained in S. 341 relating to compensation to states for impacts resulting from the development of adjacent federal tracts seem to be entirely appropriate. As the Coastal Energy Impact Program clearly recognizes, offshore development almost always places a serious strain on the onshore infrastructure, causes burdens to be placed on the people who live in the adjacent onshore areas, and forces changes in communities which are not always ready or equipped to deal with those changes.

For these reasons, I believe your approach is sound in this particular area of the Act.

Thank you for your letter of February 27, 1991, regarding certain provisions in S 341, the National Energy Security Act of 1991. We support those provisions contained in pages 88-93 of Section 8001 entitled "Coastal State Community Outer Continental Shelf Impact Assistance" of S. 341. These provisions pertain to impact assistance to coastal states and communities relating to oil and gas development and production on the Outer Continental Shelf) (OCS). It is our understanding that these provisions would provide revenues to the coastal states in addition to the revenues received by the states under other provisions of the law, including section 8 (g) of the Outer Continental Shelf Lands Act, as amended. With regard to the sharing of royalty revenues resulting from oil and gas production from OCS tracts, we would recommend that distribution of those revenues derived from natural gas production be on an equitable basis with the revenues derived from oil production.

As you may be aware, Alabama is emerging as a significant oil and gas producing state. We anticipate being a major supplier of natural gas for the nation when the deep natural gas resources in offshore Alabama are at optimum production. We have consistently supported energy programs that expedite oil and gas exploration and production, while providing careful and due consideration of environmental concerns. The discovery of new oil and gas reserves and a continued focused inventory of our potential oil and gas resources, particularly those resources of the OCS areas, are vital to national energy security. We believe, however, that those coastal states and communities affected by OCS activities should receive a fair share of the financial benefits of such development and production.

OCS leasing, drilling, and production continues to be focused on the Central and Western Gulf of Mexico areas. The new Comprehensive OCS Natural Gas and Oil Resource Management Program for 1992-1997 proposes up to 23 sales. Ten of the sales, or 43

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areas.

percent, are scheduled for the Central and Western Gulf of Mexico With such an emphasis on the Gulf of Mexico, we maintain that the four coastal states, including Alabama, chiefly affected by OCS activities should have an opportunity to share in the financial benefits resulting from these activities. We believe S. 341 would provide Alabama with a fair share of the benefits resulting from OCS leasing activities.

We have recently learned that the majority of the natural gas produced from OCS tracts off our coast will be brought ashore by pipelines to cleansing and processing facilities in southern Mobile County. This plan of action is logical because the industry infrastructure necessary for such operations is in place in Mobile County. The infrastructure was established to process the natural gas produced from state coastal tracts. We support the centralization of these cleansing and processing facilities in southern Alabama but maintain that our affected coastal communities should have an opportunity to share in the financial benefits resulting from this OCS production. We believe S. 341 would provide Alabama communities with a fair share of the benefits resulting from OCS Production.

If you have any questions concerning oil and gas activities off Alabama's coast, please have your staff contact Ernest A. Mancini, Director of the Geological Survey of Alabama at (205) 349-2852.

CC: Dr. Ernest A. Mancini

Sincerely,

Suey Hunt

Guy Hunt
Governor

As his OCS Policy Coordinator, Governor Wilson has asked me to respond to your request for comments on the energy impact assistance provisions of S. 341, the "National Energy Security Act of 1991." The Governor has also asked me to express his appreciation for your solicitation of our views on this proposal, which could directly affect California and our coastal local governments.

As you know, the Secretary of the Interior has recently released his Draft Proposed Comprehensive OCS Natural Gas and Oil Resource Management Program, and is currently in the midst of the consultation process with the coastal governors pursuant to section 18 of the Outer Continental Shelf Lands Act, as amended. This Program includes a proposal for revenue sharing with coastal state and local governments, although the details have not yet been set. On behalf of Governor Wilson, I am currently conducting an extensive public participation process that will be used to prepare the Governor's comments to Secretary Lujan. This process includes public hearings, meetings with local governments and other interested parties, and detailed reviews by State and local agencies. One issue we have highlighted in this process is the broad question of revenue sharing as contemplated by Interior.

The results of this public participation process and the Governor's formal response to Interior
unfortunately will not be available prior to March 22. Rather than pre-judging the public input on
this issue, I would prefer to delay a detailed response to the proposed provisions of S. 341. Instead, I
will be happy to provide you with copies of the Governor's comment package to Interior once it is
available at the end of April. I will also be prepared at that time to provide a more thorough analysis
of S. 341 as its provisions would affect California. In the meantime, however, I would also like to
provide some general information for your consideration, as discussed below.

Currently, the only form of impact compensation received by the states from federal offshore energy activities derives from the provisions of section 8(g) of the Outer Continental Shelf Lands Act, as amended. Most of the other coastal states have statutory and/or constitutional restrictions on the use of these funds, and have generally allocated them according to the procedures set for energy revenues from state waters. Typically, these uses have been limited to general fund purposes and trust funds for education and natural resource conservation.

Printed on recycled paper

The Honorable J. Bennett Johnston
March 22, 1991

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California has established no such restrictions on our 8(g) funds, and has applied these monies to a variety of activities. These uses have included programs established to address directly impacts from offshore oil and gas activities in both federal and State waters. One program consists of a multi-element approach to addressing impacts on California's commercial fishing industry. The other provides grants from the 8(g) revenues to coastal counties and cities for a variety of planning and mitigation purposes related to offshore energy. This second program in particular was established as a permanent vehicle which could be used to allocate federal impact assistance funds to our coastal local governments, and is an existing means which could be used to implement section 4(b) of S. 341. We are currently completing an evaluation of both programs, and I will be happy to provide you with copies of the reports once they are available. The evaluation of the local government assistance program should be released publicly in May. The evaluation of the fisheries program should be ready by July.

There are several broad issues raised by the proposed provisions of S. 341. First, impact assistance would only be derived from "new" OCS revenues. California along with the Gulf Coast are the only two areas in the United States with existing offshore oil and gas development in federal waters. Offshore oil has existed in California in some form since 1898, and in federal waters since 1954. Our local governments adjacent to this existing development have long maintained that impact assistance should be provided to address both past and future impacts, similar to the long-standing revenue sharing provisions that have been in place for onshore federal oil development. S. 341 would limit the funds available to those areas of the country that have sustained impacts in the past.

Other local governments in California have also objected to similar proposals along this line, that would tie impact assistance to accepting expanded offshore development. They have argued that revenue sharing should not be used to try to overcome community objections to the risks posed by offshore development, and that instead, the federal OCS leasing program needs to become more responsive to protecting our coastal and ocean resources where the risks from development are clearly too high.

Again, we appreciate this opportunity to provide preliminary comments on S. 341. If you have any questions on this information, please feel free to contact me or have your staff contact my staff or Ben Haddad of the Governor's Washington Office. I also look forward to providing you with more detailed comments on the specifics of this proposal, following completion of our public participation process on Interior's draft leasing program.