03/17/2014 01:00 PM House RESOURCES

                HB 325-OIL SPILL PREVENTION FUND                                                                            
                                                                                                                                
1:26:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  announced that  the next  order of  business is                                                               
HOUSE BILL  NO. 325, "An  Act increasing  the balance of  the oil                                                               
and  hazardous substance  release  prevention  and response  fund                                                               
required to suspend  the surcharge levied on oil  produced in the                                                               
state;  increasing the  amount  of the  surcharge  levied on  oil                                                               
produced in  the state that  may be  appropriated to the  oil and                                                               
hazardous  substance release  prevention  account; and  providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
1:26:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CATHY  MUNOZ,  Alaska State  Legislature,  stated                                                               
that she had  chaired the budget subcommittee  for the Department                                                               
of  Environmental Conservation  (DEC)  operating  budget for  the                                                               
past two years  and that the committee had  closely reviewed long                                                               
term options to maintain the  oil and hazardous substance release                                                               
prevention and response funding.   She reported that the fund had                                                               
originally  been  established to  provide  a  reliable source  of                                                               
payment  to the  expenses  incurred  by DEC  in  responding to  a                                                               
release  or threatened  release of  oil or  hazardous substances.                                                               
In the  wake of the  Exxon Valdez oil  spill in 1989,  the Alaska                                                               
State  Legislature  had  passed  a  bill  which  levied  a  $0.05                                                               
surcharge on  each barrel of  crude oil  produced in Alaska.   In                                                               
1994, there was legislation to  establish two separate funds, the                                                               
prevention  fund  and  the  response  fund.    In  2006,  as  oil                                                               
production  was declining,  there was  legislation to  change the                                                               
division  of  the  receipts  so   that  $0.04  would  go  to  the                                                               
prevention fund to  pay for DEC activities for  the prevention of                                                               
oil spills,  and $0.01  would be dedicated  to the  response fund                                                               
for  major oil  spill response.    She relayed  that the  current                                                               
$0.04  surcharge  for  prevention activities  raised  about  $6.5                                                               
million each  year with  additional interest  income of  about $1                                                               
million  and  income  from  fines and  penalties  of  about  $1.5                                                               
million.                                                                                                                        
                                                                                                                                
REPRESENTATIVE MUNOZ said  that current law applied  the $0.01 to                                                               
the response  fund savings account  until the fund was  valued at                                                               
$50 million, and  then the $0.01 would be  suspended.  Currently,                                                               
that  response fund  account  was  valued at  $49  million.   She                                                               
reported that in  Fiscal Year 2016, the  prevention account would                                                               
operate at  a $6.5 million  deficit, which, due to  declining oil                                                               
production, would increase to almost $8  million by FY 2022.  She                                                               
acknowledged that this did not  take into account new production,                                                               
as it was  based on current revenue forecasts.   She relayed that                                                               
the subcommittee  had adopted intent language  which directed the                                                               
administration  to  present  viable,   long  term  ideas  to  the                                                               
legislature  for financing  and  managing the  oil and  hazardous                                                               
substance  prevention and  response fund.   In  response to  this                                                               
intent language, DEC suggested the  use of general funds to cover                                                               
the projected deficit.   She declared that proposed  HB 325 would                                                               
begin a discussion for a solution  to the long term shortfall for                                                               
activities  by the  Division of  Spill  Prevention and  Response.                                                               
She stated  that the bill had  two components.  Sections  1 and 2                                                               
would maintain  the $0.01 surcharge  in place until  the response                                                               
fund  was valued  at $75  million.   The  second component  would                                                               
increase  the $0.04  surcharge for  the prevention  activities to                                                               
$0.07, an increase of about $4.5  million in annual revenue.  She                                                               
referenced a  letter from  the Chamber  of Commerce  [Included in                                                               
members' packets]  which stated  that prevention  fund activities                                                               
reached across industries  that were primarily funded  by the oil                                                               
industry.  She shared that  the budget subcommittee had discussed                                                               
ways  to  spread  the  prevention   costs,  including  a  refined                                                               
products tax.   She pointed  out that  the proposed bill  did not                                                               
fully fund the  projected deficits, and that  amendments would be                                                               
considered for a broader application.                                                                                           
                                                                                                                                
REPRESENTATIVE  MUNOZ  mentioned  that   the  Division  of  Spill                                                               
Prevention and Response had operated  efficiently, with an annual                                                               
growth over  the past 10 years  of 1.5 percent, and  the addition                                                               
of only  two full  time positions  during that  time frame.   She                                                               
reported that  DEC had cut  back considerably  on its use  of the                                                               
prevention  account,  noting  that  the  department  had  stopped                                                               
requesting  capital  appropriations  for the  clean-up  of  state                                                               
owned sites in FY  2011.  She said that a  loan and grant program                                                               
for the removal of underground  storage tanks was also withdrawn.                                                               
She  declared that  the core  mission of  the prevention  account                                                               
remained to  pay for operational  costs and  readiness activities                                                               
within the Division of Spill  Prevention and Response and to work                                                               
toward preparedness  and prevention  of large  and small  oil and                                                               
hazardous  substance spills.   She  shared that,  with increasing                                                               
exploration  activity,  it was  important  to  maintain a  robust                                                               
spill prevention and response capacity.                                                                                         
                                                                                                                                
1:32:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   KAWASAKI  expressed   his   agreement  for   the                                                               
difficulty to obtain funding, especially  with the decline in oil                                                               
production and  an aging infrastructure.   Referencing the letter                                                               
from the Chamber of Commerce, he  asked if there was a better way                                                               
to do this.                                                                                                                     
                                                                                                                                
REPRESENTATIVE MUNOZ  suggested that  amendments to  the proposed                                                               
bill  could consider  a  broader  application across  industries,                                                               
although it had not been included in the proposed bill.                                                                         
                                                                                                                                
1:34:14 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  directed attention to  the pages in  the pamphlet                                                               
that referenced the spills and  corresponding volume by industry,                                                               
and asked if  there was a directly proportional  cost between the                                                               
size of the spill and the cleanup.                                                                                              
                                                                                                                                
REPRESENTATIVE MUNOZ deferred to DEC.                                                                                           
                                                                                                                                
1:36:02 PM                                                                                                                    
                                                                                                                                
LYNN  KENT,  Deputy  Commissioner, Office  of  the  Commissioner,                                                               
Department of Environmental Conservation,  replied that there was                                                               
no direct proportional increase between  the size and the cost of                                                               
a  spill clean-up.    She said  that variables  such  as type  of                                                               
material  spilled and  location of  spill greatly  influenced the                                                               
costs.                                                                                                                          
                                                                                                                                
1:37:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER opened public testimony on HB 325.                                                                             
                                                                                                                                
1:37:18 PM                                                                                                                    
                                                                                                                                
ANDY ROGERS,  Deputy Director, Alaska State  Chamber of Commerce,                                                               
referenced  the   aforementioned  letter  from  the   Chamber  of                                                               
Commerce, which expressed its concerns  for the proposed increase                                                               
to the  per barrel tax and  to the cap  for the fund.   He stated                                                               
that the business  community had ideological opposition  to a fee                                                               
targeted  at  one  specific  industry,  but  used  to  distribute                                                               
services to a larger community.   He referenced the audit numbers                                                               
for the fund from 2005  - 2007, which listed administrative costs                                                               
for contaminated sites of 53  percent, while administrative costs                                                               
for prevention and emergency response  were more than 72 percent.                                                               
He offered  his belief  that the projected  deficit for  the fund                                                               
could  indicate the  increase to  the administrative  costs.   He                                                               
noted the concern of the  business community for the targeting of                                                               
a single  industry to  fund operations to  police a  much broader                                                               
audience.   He questioned the  necessity of an  increase, opining                                                               
that the business community would like  to have the intent of the                                                               
fund  addressed  if  a  potential   increase,  or  decrease,  was                                                               
proposed to the per barrel tax  levied against the producers.  He                                                               
stated  that these  should be  driven  by the  cost necessary  to                                                               
support  the  intent  of  the   fund,  and  not  by  an  assigned                                                               
percentage increase.   He asked  about the use of  technology for                                                               
clean-ups,  and  how  legislation  had refined  the  wording  for                                                               
liability borne by  spillers.  He suggested that  the state could                                                               
mitigate  some of  its responsibility  to have  funds on  hand to                                                               
deal with  spills.   He suggested  that there  should be  a basis                                                               
beyond "things get more expensive over  time as an argument for a                                                               
potential increase."  He again  referenced the comments contained                                                               
in  the letter  the  chamber  had submitted.    He expressed  his                                                               
desire for more information during  the upcoming discussions.  He                                                               
stated that  the chamber had  significant concerns  for immediate                                                               
percentage increases to the fund and to its cap.                                                                                
                                                                                                                                
REPRESENTATIVE  KAWASAKI   asked  whether  Mr.  Rogers   had  any                                                               
suggestions for the most appropriate way to manage the fund.                                                                    
                                                                                                                                
MR. ROGERS replied that  he did not know if he  was or ever would                                                               
be qualified to  offer a better way to  perform spill remediation                                                               
because he  was not in  the industry.   However, he  stated, when                                                               
the business community  reviewed a fund with  a specified purpose                                                               
and  a  single funding  mechanism  that  did not  solely  address                                                               
problems created by the industry, there was concern.                                                                            
                                                                                                                                
1:45:33 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  asked how other  states managed to  share these                                                               
expenses for funding.                                                                                                           
                                                                                                                                
1:45:47 PM                                                                                                                    
                                                                                                                                
CHRISTOPHER CLARK,  Chief of  Staff, Representative  Cathy Munoz,                                                               
Alaska   State   Legislature,    explained   that,   during   the                                                               
presentations on  the spill  response fund,  they had  asked what                                                               
other states were doing.  He  noted that the history of this fund                                                               
in Alaska was  unique, as it was created prior  to the 1989 Exxon                                                               
Valdez oil  spill, and  "then significantly  tweaked thereafter."                                                               
He  said that  he was  unsure if  there were  any similar  funds,                                                               
although  there had  been discussions  for the  way other  states                                                               
addressed the means for levying fees on industry.                                                                               
                                                                                                                                
1:46:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  announced  that  he  had  three  proposed                                                               
amendments:   one  specifically addressing  a restriction  to the                                                               
usage of the  fund, another for diversifying  the funding source,                                                               
and a third regarding fees for a review of contingency plans.                                                                   
                                                                                                                                
1:47:49 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  asked if there  had been any  consultation with                                                               
the Alaska  Oil and Gas  Conservation Commission (AOGCC)  for its                                                               
perspective.                                                                                                                    
                                                                                                                                
MR. CLARK replied that there had not been any discussions.                                                                      
                                                                                                                                
REPRESENTATIVE SEATON clarified  that he was also  on the finance                                                               
subcommittee for DEC.                                                                                                           
                                                                                                                                
REPRESENTATIVE  P.  WILSON  shared  that  she  was  also  on  the                                                               
subcommittee, and that it had  been evident that it was necessary                                                               
to increase the  availability of funds, as it  was functioning on                                                               
a deficit.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  HAWKER  suggested  that  another  option  was  to                                                               
review the use  of the money, and whether it  was only being used                                                               
for its  designation.  He offered  his belief that the  money was                                                               
being  used for  "things  that absolutely  are  unrelated to  the                                                               
purpose for which  it's being put in there, a  material amount of                                                               
the money."                                                                                                                     
                                                                                                                                
REPRESENTATIVE  OLSON   questioned  whether  this   included  the                                                               
cleaning up for soy bean spills or general training.                                                                            
                                                                                                                                
REPRESENTATIVE HAWKER  expressed his agreement for  "that kind of                                                               
thing  as   well  as  the   commissioner's  office,   I  believe,                                                               
administrative costs, it's  not hard to track, just  look at fund                                                               
sources in  the short  form of  the budget."   He  suggested that                                                               
people would be amazed at where  this money was going.  He stated                                                               
that this  was taking  money from  the oil  industry "to  pay the                                                               
faults of  all the  other industries,  as well  as administrative                                                               
costs that  just really, in  my opinion, should not  be allocated                                                               
to this fund."                                                                                                                  
                                                                                                                                
REPRESENTATIVE  JOHNSON   requested  that  DEC  report   on  what                                                               
percentage  of the  bills  was  not recovered.    He offered  his                                                               
belief  that   this  was  an   emergency  fund  that   should  be                                                               
reimbursed,  and questioned  what portion  was not  reimbursed by                                                               
industry.   He  suggested that  a fund  that was  reimbursed only                                                               
needed "enough money in the pot to respond."                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON reported  that  there  was an  ongoing                                                               
cleanup  effort  which  could  not  be  discussed  because  of  a                                                               
lawsuit, with the possibility that  the state could end up paying                                                               
"an absolute huge amount."                                                                                                      
                                                                                                                                
REPRESENTATIVE  JOHNSON clarified  that he  was not  as confident                                                               
that the  state was truly on  the hook for expenses  as the other                                                               
parties both had deep pockets.                                                                                                  
                                                                                                                                
1:52:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  asked for an  update on the  legacy projects                                                               
at contaminated sites, and an  update on the administrative costs                                                               
at DEC  as the numbers  cited by  Mr. Rogers differed  from those                                                               
which  she   remembered  from  a   presentation  to   the  budget                                                               
subcommittee.                                                                                                                   
                                                                                                                                
MS. KENT replied she did not  know where the Alaska State Chamber                                                               
of Commerce got its percentages.   She said that she did not have                                                               
them with her, but she would supply them to the committee.                                                                      
                                                                                                                                
1:54:25 PM                                                                                                                    
                                                                                                                                
TOM  CHERIAN,  Director,  Division  of  Administrative  Services,                                                               
Department of Environmental Conservation,  said that he would get                                                               
back to the committee with an answer.                                                                                           
                                                                                                                                
REPRESENTATIVE  TARR asked  for  more  information regarding  the                                                               
legacy sites.                                                                                                                   
                                                                                                                                
MS. KENT, in response to Representative  Tarr, said that a lot of                                                               
the contaminated  sites in  which DEC  was involved  were federal                                                               
sites, so federal  grant funding was used for the  clean-up.  She                                                               
said that  the funding by  the response fund from  the prevention                                                               
account for  oversight was used  for other privately  owned sites                                                               
and state owned  sites.  Whenever possible, DEC  tried to recover                                                               
the costs.  She said that  the state had stopped using prevention                                                               
account  funds  for clean-up  of  state  owned or  state  managed                                                               
orphan    sites,   and,    instead,   requested    general   fund                                                               
appropriations  through  the capital  budget.    She opined  that                                                               
there  could still  be open  budgets funded  from the  prevention                                                               
account,  although new  money  had not  been  requested from  the                                                               
prevention account for several years                                                                                            
                                                                                                                                
CO-CHAIR SADDLER  asked if Representative  Tarr was  referring to                                                               
the Bureau of Land Management (BLM) legacy wells.                                                                               
                                                                                                                                
REPRESENTATIVE TARR  asked if there  were a number of  sites that                                                               
still  needed  to  be  cleaned  up,  although  the  projects  had                                                               
finished  decades before,  versus  projects  that were  currently                                                               
active but would need a clean-up should there be a spill.                                                                       
                                                                                                                                
CO-CHAIR FEIGE requested an estimate  of the revenues, as well as                                                               
a range of revenue under  various scenarios, that would be raised                                                               
under  the proposed  amendments to  be offered  by Representative                                                               
Seaton.   He directed a  question to  DEC, and inquired  what the                                                               
different types  of contaminants  were in  each of  those earlier                                                               
spills  in  order to  more  equitably  spread  the costs  to  the                                                               
offending industry.                                                                                                             
                                                                                                                                
1:58:33 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER held  over  HB 325  and  kept public  testimony                                                               
open.