Legislature(2017 - 2018)ADAMS ROOM 519

03/29/2018 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 305 OIL/HAZARDOUS SUB.:CLEANUP/REIMBURSEMENT TELECONFERENCED
<Bill Hearing Canceled>
-- Public Testimony --
+ SB 158 OIL/HAZARDOUS SUB.:CLEANUP/REIMBURSEMENT TELECONFERENCED
Heard & Held
-- Public Testimony --
<Companion Bill to HB 305>
+ HB 322 OIL SPILLS/POLLUTION:PENALTIES;PREVENTION TELECONFERENCED
Heard & Held
-- Public Testimony --
+= HB 216 TRANSFERS FROM DIVIDEND FUND; CRIMES TELECONFERENCED
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 322                                                                                                            
                                                                                                                                
     "An  Act relating  to penalties  for discharges  of oil                                                                    
     and  other   pollution  violations;  relating   to  oil                                                                    
     discharge   prevention   and  contingency   plans   for                                                                    
     commercial motor  vehicles transporting crude  oil; and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
2:11:28 PM                                                                                                                    
                                                                                                                                
ANDY  JOSEPHSON,  SPONSOR,  explained  that HB  322  was  an                                                                    
update of  spill penalties and fee  assessments. The genesis                                                                    
of the bill stemmed from  the previous year, when there were                                                                    
natural  gas  spills  following pipeline  ruptures  in  Cook                                                                    
Inlet. At  the time he had  asked Ms. Ryan if  there was any                                                                    
authority she  needed and  did not  have. The  spill penalty                                                                    
statutes had  not changed  much since  the 1970s  and 1980s,                                                                    
and inflation had  undercut the value of  the penalties. The                                                                    
bill  was  there  to  provide tools  for  SPAR.  Spills  had                                                                    
continued, but  the state's ability to  penalize responsible                                                                    
parties had diminished significantly.                                                                                           
                                                                                                                                
Representative Josephson reviewed the sponsor statement                                                                         
(copy on file):                                                                                                                 
                                                                                                                                
     Because   oil   spills   harm  Alaska's   economy   and                                                                    
     environment, our  statutes have for  decades authorized                                                                    
     penalties  for discharges.  But inflation  has severely                                                                    
     undercut  those  penalties  since  they  were  enacted.                                                                    
     Spills have  continuedthe  Department  of Environmental                                                                    
     Conservation responded  to 20  in FY17but   the State's                                                                    
     ability to penalize  responsible parties has diminished                                                                    
     very significantly.                                                                                                        
                                                                                                                                
     CSHB  322 adjusts  penalties per  inflation, gives  the                                                                    
     department authority to  levy administrative penalties,                                                                    
     and requires trucks transporting  crude to submit their                                                                    
     federal spill response plans to DEC.                                                                                       
                                                                                                                                
     This  bill  mostly  adjusts penalties  to  2018  dollar                                                                    
     values,  but  more   sharply  increases  penalties  for                                                                    
     continuing  violations.  It  ratchets  up  the  maximum                                                                    
     penalty  a  court  may impose,  and  also  doubles  the                                                                    
     minimum penalty  a court  must impose  when a  party is                                                                    
     proven  responsible  for  a spill.  If  DEC  levies  an                                                                    
     administrative  penalty, the  court must  subtract that                                                                    
     from any  civil penalty it hands  down. Penalties would                                                                    
     rise with inflation annually.                                                                                              
                                                                                                                                
Representative  Josephson referenced  a bill  he carried  on                                                                    
the  House floor  relating to  failure to  purchase worker's                                                                    
compensation  insurance,  which  had illustrated  a  similar                                                                    
authority  that  the  Department   of  Labor  and  Workforce                                                                    
Development was seeking.                                                                                                        
                                                                                                                                
Representative Josephson continued to discuss the sponsor                                                                       
statement:                                                                                                                      
                                                                                                                                
     We now  see trucks transporting crude  oil via Alaska's                                                                    
     highways, and that may increase,  so this bill requires                                                                    
     crude  oil trucks  to  provide  their federal  response                                                                    
     plans to DEC.                                                                                                              
                                                                                                                                
     Water mixed  with spilled oil (refined  or crude) would                                                                    
    count as oil for purposes of calculating penalties.                                                                         
                                                                                                                                
     Holding parties  responsible for spills is  an integral                                                                    
     part  of the  responsible development  Alaska is  known                                                                    
     for. The House Resources Committee welcomes your                                                                           
     support of this legislation.                                                                                               
                                                                                                                                
Representative  Josephson   indicated  that  in   the  House                                                                    
Resources  Committee there  had  been a  lot of  complicated                                                                    
testimony and  dialogue about what was  required relative to                                                                    
the production  of contingency plans.  Often the  plans were                                                                    
prepared  under federal  regulation,  but DEC  had not  been                                                                    
privy  to the  plans directly.  The bill  proposed that  DEC                                                                    
would be  cognizant of the  plans. The bill  also calculated                                                                    
water mixed with oil as  oil for the purposes of calculating                                                                    
penalties.  He discussed  the toxicity  of water  mixed with                                                                    
oil, which was known as "produced water."                                                                                       
                                                                                                                                
Representative  Josephson stated  that  the bill  was not  a                                                                    
revenue measure but was rather  a preventative measure which                                                                    
would generate about  $75,000 more in revenue.  In the event                                                                    
of  a serious  spill, the  legislation provided  "teeth." He                                                                    
reflected  on the  need to  update to  statutes relating  to                                                                    
spills.  He asserted  that holding  parties responsible  for                                                                    
spills was  an integral part of  the responsible development                                                                    
Alaska was  known for.  He referenced  interesting testimony                                                                    
from the  oil industry that  indicated it was  not typically                                                                    
the responsible party.                                                                                                          
                                                                                                                                
2:18:30 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki  asked if  DEC had brought  the bill                                                                    
forward  to  the  House  Resources   Committee,  or  if  the                                                                    
committee had formulated the idea for the legislation.                                                                          
                                                                                                                                
Representative Josephson  responded that  when he  had asked                                                                    
Ms.  Ryan  what  she  needed, she  had  responded  that  the                                                                    
statutes  needed  updating. The  bill  proposal  had been  a                                                                    
collaborative  effort with  work  by  the Legislative  Legal                                                                    
Division,  an assistant  attorney general,  and others.  The                                                                    
committee had  obtained the authorization to  draft and file                                                                    
the bill.                                                                                                                       
                                                                                                                                
Representative  Guttenberg  referred  to page  4,  line  19,                                                                    
which added the  need for enhanced civil  penalties to deter                                                                    
future non-compliance.  He asked if  the intent was  to turn                                                                    
the  matter over  to the  department  or elsewhere  to do  a                                                                    
regulatory regime on spills.                                                                                                    
                                                                                                                                
Representative   Josephson  deferred   to   his  staff.   He                                                                    
indicated that the section being  referred to was Section 6,                                                                    
and in  Section 7  the language existed  in current  law and                                                                    
was designed to  be one of many elements that  would go into                                                                    
consideration of a proper and equitable fine.                                                                                   
                                                                                                                                
2:21:14 PM                                                                                                                    
                                                                                                                                
TOM ATKINSON, STAFF,  REPRESENTATIVE ANDY JOSEPHSON, pointed                                                                    
to page  2, Section 2  of the  bill. He noted  that previous                                                                    
legislatures   had   authorized   the   department   through                                                                    
regulation  to set  a schedule  of fixed  penalties for  the                                                                    
court to  follow in  civil processes.  He imagined  that the                                                                    
same  process  would be  used  by  fixing the  penalties  in                                                                    
regulation  promulgated by  the department.  He invited  Ms.                                                                    
Ryan to respond.                                                                                                                
                                                                                                                                
2:22:30 PM                                                                                                                    
                                                                                                                                
KRISTIN  RYAN, DIRECTOR,  DIVISION OF  SPILL PREVENTION  AND                                                                    
RESPONSE,   DEPARTMENT    OF   ENVIRONMENTAL   CONSERVATION,                                                                    
responded  that the  legislation  would add  the ability  of                                                                    
deterrence for the department when calculating penalties.                                                                       
                                                                                                                                
Representative Guttenberg pointed out  that Section 1 of the                                                                    
bill was  legislative findings. He  asked if Ms.  Ryan could                                                                    
speak about what was in place.                                                                                                  
                                                                                                                                
Ms. Ryan responded  that the bill would  change existing law                                                                    
in   terms  of   considering  deterrents   when  calculating                                                                    
penalties. She referenced  page 2, line 15 of  the bill. She                                                                    
thought  it was  a significant  consideration for  the House                                                                    
Resources  Committee to  allow  the  department to  consider                                                                    
punitive  or  deterrent  considerations when  calculating  a                                                                    
penalty.                                                                                                                        
                                                                                                                                
Representative  Guttenberg  asked  if the  punitive  damages                                                                    
were considered inside of the department or in the courts.                                                                      
                                                                                                                                
Ms. Ryan  responded that  only oil  spill penalties  had the                                                                    
punitive  aspect  removed  by existing  law.  Violations  of                                                                    
other  environmental  law  (air  and  water),  the  punitive                                                                    
aspect was allowed to be  considered by existing law. As the                                                                    
department obtained  primacy for  certain programs  from the                                                                    
Environmental  Protection  Agency  (EPA),  it  required  the                                                                    
state  to  consider  punitive  aspects  when  it  considered                                                                    
deterrents.  Spill  prevention  response  did  not  have  an                                                                    
equivalent  federal paradigm,  and  the state  did not  have                                                                    
primacy  for the  EPA to  do  oil spill  response. When  the                                                                    
state   developed   the   laws  in   the   1970s,   punitive                                                                    
considerations were not part of an oil spill response.                                                                          
                                                                                                                                
Vice-Chair  Gara  recalled  that  in  1989  when  the  state                                                                    
litigated the case of the  Exxon-Valdez oil spill, there had                                                                    
been two forms of damages:  the actual damages that could be                                                                    
proved,  and  the per-barrel  oil  spill  penalty. He  asked                                                                    
about  the  per-barrel  penalty  and  whether  it  had  been                                                                    
changed.                                                                                                                        
                                                                                                                                
Mr. Atkinson replied that the  information would be provided                                                                    
in the upcoming presentation.                                                                                                   
                                                                                                                                
2:27:14 PM                                                                                                                    
                                                                                                                                
Ms.  Ryan clarified  that the  penalties were  enacted after                                                                    
the Exxon-Valdez oil spill in the early 1990s.                                                                                  
                                                                                                                                
Ms. Ryan  introduced the PowerPoint  presentation: "Division                                                                    
of   Spill   Prevention   and  Response:   Spill   Penalties                                                                    
Overview."                                                                                                                      
                                                                                                                                
Ms. Ryan began with slide 2: "The Division's Mission":                                                                          
                                                                                                                                
     Preventing spills of oil and hazardous substances,                                                                         
     preparing for when a spill occurs, and responding                                                                          
     rapidly to protect human health and the environment.                                                                       
                                                                                                                                
Ms. Ryan reviewed slide 3: "2017 Spill Statistics."                                                                             
                                                                                                                                
       2,046 substance releases                                                                                                 
       271,809 gallons spilled:                                                                                                 
       1,665 gal crude oil                                                                                                      
       188,379 gal non crude oil                                                                                                
       62,527 gal hazardous substances                                                                                          
       18,980 gal process water                                                                                                 
       Large spills accounted for over 80% of the total                                                                         
     volume released                                                                                                            
                                                                                                                                
Ms. Ryan  indicated that  refined fuel  spills was  what the                                                                    
department   typically  responded   to.  She   thought  that                                                                    
historically crude  oil was  probably the  larger percentage                                                                    
of spills  by volume.  She stated that  producers, exporters                                                                    
and transporters  were heavily regulated; and  made the case                                                                    
that  prevention   had  worked   and  that   the  division's                                                                    
oversight had added  value. There were more  spills in areas                                                                    
that  were   not  regulated,  and   much  of   refined  fuel                                                                    
transportation  was in  the category  via trucks  and boats.                                                                    
She  discussed   the  difference  between   processed  water                                                                    
(related  to mining  and used  to remove  ore) and  produced                                                                    
water (which came up with oil during oil exploration).                                                                          
                                                                                                                                
Ms.  Ryan discussed  the  graph on  slide  4: "Total  Volume                                                                    
Released by Fiscal Year." The  number of spills had declined                                                                    
and had stayed level.                                                                                                           
                                                                                                                                
Ms. Ryan pointed to the spill  locations on the map on slide                                                                    
6:  "Spill  Locations  Across Alaska."  She  commented  that                                                                    
spills happened everywhere.                                                                                                     
                                                                                                                                
Ms. Ryan reviewed  the oil spill behaviors on  slide 7: "How                                                                    
Do Oil Spills Behave in the Environment?":                                                                                      
                                                                                                                                
   Marine Oil Spills                                                                                                            
      Oil tends to accumulate at the surface and float on                                                                    
        the water and move with the current; oil sheens can                                                                     
        last a very long time                                                                                                   
                                                                                                                                
   Land Oil Spills                                                                                                              
    Oil can penetrate underground and move downward,                                                                         
        potentially reaching groundwater                                                                                        
      May also move laterally along less permeable layers                                                                    
        (including surface pavements) or with groundwater                                                                       
        and surface waters                                                                                                      
                                                                                                                                
   Underground Oil Spills                                                                                                       
      Spills from pipelines or leaking underground storage                                                                   
        tanks                                                                                                                   
      High potential to affect the groundwater since the                                                                     
        vertical traveling distance is reduced                                                                                  
                                                                                                                                
Ms.  Ryan indicated  that water  was  a significant  driving                                                                    
factor in  how quickly a  spill needed to be  addressed. She                                                                    
mentioned the  complexity of  underground spills  from tanks                                                                    
or underground pipes.                                                                                                           
                                                                                                                                
Ms. Ryan  looked at  slide 8,  which showed  a picture  of a                                                                    
SPAR employee looking for a spill.                                                                                              
                                                                                                                                
Ms. Ryan reported the health  impacts of oil spills on slide                                                                    
9: "Examples of Spill Impacts: Health":                                                                                         
                                                                                                                                
   Direct contact with the skin                                                                                                 
      Oil can irritate the skin and penetrate the body via                                                                   
        skin absorption                                                                                                         
                                                                                                                                
   Inhalation                                                                                                                   
      Many components in oil are volatile and  may easily                                                                    
        evaporate; while breathing, these components can                                                                        
        enter our bodies                                                                                                        
      Less volatile  compounds  may  adsorb  on  airborne                                                                    
        particulates and can enter the body through                                                                             
        inhalation                                                                                                              
                                                                                                                                
   Ingestion                                                                                                                    
      Both short and long term health problems  can occur                                                                    
        by consuming contaminated water, particles, or                                                                          
        consuming contaminated food                                                                                             
      Oil components can bioaccumulate  in organisms  and                                                                    
        can become highly concentrated                                                                                          
                                                                                                                                
Ms. Ryan explained that DEC did its work because it did not                                                                     
want people to be harmed by spills.                                                                                             
                                                                                                                                
Ms. Ryan turned to the picture on slide 10, which showed an                                                                     
oil spill in a small body of water.                                                                                             
                                                                                                                                
Ms. Ryan conveyed the environmental impacts of spills on                                                                        
slide 11: "Examples of Spill Impacts: Environment":                                                                             
                                                                                                                                
      Oil spills can result  in the  loss of  animals and                                                                    
        fish habitat                                                                                                            
                                                                                                                                
      Heavy oils may  affect  several organism  functions                                                                    
        like reproduction and development, respiration,                                                                         
        feeding, and thermo-regulation                                                                                          
                                                                                                                                
      The entire ecosystem can change due to the toxicity                                                                    
        of the chemical components and elements of the                                                                          
        spilled oil                                                                                                             
                                                                                                                                
      Oil can pollute and  damage groundwater  resources,                                                                    
        then residual oil can remain in the subsurface and                                                                      
        continue to pollute groundwater                                                                                         
                                                                                                                                
2:31:14 PM                                                                                                                    
                                                                                                                                
Ms. Ryan looked  at the picture on slide 12,  which showed a                                                                    
large truck on its side.  She noted that there was regularly                                                                    
quite a bit of media  attention focused on truck roll-overs.                                                                    
The  roll-overs  happened  somewhat regularly,  however  the                                                                    
amount of volume  released from truck spills was  not in the                                                                    
top ten recorded spills.                                                                                                        
                                                                                                                                
Ms. Ryan reviewed slide 13, "Examples of Spill Impacts:                                                                         
Socio-Economic":                                                                                                                
                                                                                                                                
      Mariculture/Agriculture                                                                                                
         Valuable commercial fishing or farming areas may                                                                    
          be closed due to risks of contaminants                                                                                
         Contaminants found in organisms can lead to bans                                                                    
          on human consumption                                                                                                  
         Boats, gear, and equipment can  be directly  and                                                                    
          indirectly damaged by spills                                                                                          
                                                                                                                                
      Tourism/Recreation                                                                                                     
         Businesses operating or supporting  recreational                                                                    
          or professional activities in affected areas may                                                                      
          suffer significant economic losses                                                                                    
                                                                                                                                
      Industry                                                                                                               
         Facilities relying on stable resources  (such as                                                                    
          clean water) can be negatively affected by                                                                            
          contamination in their piping systems                                                                                 
                                                                                                                                
      Property                                                                                                               
         Property values can  be  adversely  affected  if                                                                    
          adjacent to or within a polluted area                                                                                 
                                                                                                                                
      Cleanup and Resource Costs                                                                                             
         Costs to clean up contamination and the  cost of                                                                    
          lost fuel can be expensive                                                                                            
                                                                                                                                
Ms. Ryan highlighted slide 14: "Cost of Spill Response to                                                                       
the State."                                                                                                                     
                                                                                                                                
         If responsible parties are unable or unwilling to                                                                   
          pay, the liability to the State can amount to                                                                         
          millions of dollars                                                                                                   
                                                                                                                                
         The estimated financial liability at sites where                                                                    
          the Division is leading investigation and cleanup                                                                     
          efforts currently stands at over $12 million                                                                          
                                                                                                                                
         The current fine and penalty structure addresses                                                                    
          less than 5% of the average oil spill response                                                                        
          and cleanup costs                                                                                                     
                                                                                                                                
Ms.  Ryan detailed  that there  were costs  to the  state to                                                                    
respond to  spills. Law  required a  spiller to  address the                                                                    
spill,  no matter  the size.  The current  fine and  penalty                                                                    
structure was  in place to  encourage companies to  take the                                                                    
right steps to avoid spills.                                                                                                    
                                                                                                                                
Ms. Ryan reviewed slide 15, "Oil Trucking":                                                                                     
                                                                                                                                
    One well at the Cosmopolitan oil and gas field in Cook                                                                   
     Inlet  restarted production  in March  2016. There  are                                                                    
     currently two  producing wells with a  total production                                                                    
     of  8,083   barrels  per  month   (Alaska  Oil   &  Gas                                                                    
     Conservation Commission, 2017)                                                                                             
                                                                                                                                
    The first tanker of crude oil from the Cosmopolitan                                                                      
     field  delivered to  the Tesoro  refinery  in Kenai  in                                                                    
     April 2016. At that time,  they expected to deliver two                                                                    
     tankers  per  day  to the  refinery.  (Alaska  Business                                                                    
     Magazine, 2017)                                                                                                            
                                                                                                                                
    The highest producing month was August 2017 at 10,653                                                                    
     barrels of crude.                                                                                                          
                                                                                                                                
    Current contingency plan indicates tanker trucks up to                                                                   
     250 barrel  capacity would  be used  to haul  oil. That                                                                    
     would  mean about  1 tanker  per  day to  keep up  with                                                                    
     production.                                                                                                                
                                                                                                                                
    As the Cosmopolitan field increases production, tanker                                                                   
     truck  traffic will  increase on  the Kenai  Peninsula.                                                                    
     This  will  ultimately increase  the  risk  of a  crude                                                                    
     spill.                                                                                                                     
                                                                                                                                
Ms. Ryan provided examples of the effects of penalty                                                                            
changes on slide 16: "Examples of Penalty Change Effects":                                                                      
                                                                                                                                
     For including produced water in penalty volume:                                                                            
                                                                                                                                
     There were three large  primarily produced water spills                                                                    
     within two months during the  winter of 2009 (DS 6 Well                                                                    
     11, L3  Common Line, and  R Pad Produced  Water Spill).                                                                    
     Individually, none  of them exceeded 18,000  gallons of                                                                    
     oil. Had we  been able to consider  the produced water,                                                                    
     the L3  Common Line  release would have  totaled 46,000                                                                    
     gallons  spilled,  allowing  the Department  to  assess                                                                    
     fines for the  damage caused. The other  two would have                                                                    
     remained  under  the  18,000   threshold  even  if  the                                                                    
     produced water was considered.                                                                                             
                                                                                                                                
     For lowering penalty volume threshold:                                                                                     
                                                                                                                                
     A  2008 spill  from a  facility released  approximately                                                                    
     13,630  gallons of  Jet-A into  containment. A  tear in                                                                    
     the  lining   allowed  2,777   gallons  to   enter  the                                                                    
     surrounding soil. The release  did not meet the penalty                                                                    
     volume threshold. This  case was eventually transferred                                                                    
     to the Contaminated Sites Program.                                                                                         
                                                                                                                                
Ms. Ryan  discussed produced water, which  DEC considered to                                                                    
be  as  damaging  as  the  oil  itself.  She  spoke  of  the                                                                    
difficulty  of  cleaning salt  water  from  soil. The  slide                                                                    
discussed volumes  and thresholds. The  legislation included                                                                    
an administrative penalty authority  for spills smaller than                                                                    
18,000 gallons. She felt  the department's penalty authority                                                                    
could be improved to deter spills.                                                                                              
                                                                                                                                
2:35:44 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki  referred  to slide  14  and  asked                                                                    
about  responsible persons  or  companies  being subject  to                                                                    
violation and assessed fines and penalties.                                                                                     
                                                                                                                                
Ms.  Ryan   stated  that  there  was   currently  a  penalty                                                                    
structure in place; the  proposed legislation would increase                                                                    
the amount of penalty the department could consider.                                                                            
                                                                                                                                
Representative Kawasaki  mentioned the previous  bill having                                                                    
to do with  residential spills. He contrasted  that one bill                                                                    
encouraged people to contact DEC,  while HB 322 seemed to do                                                                    
the opposite.                                                                                                                   
                                                                                                                                
Ms.  Ryan clarified  that the  cost  recovery was  different                                                                    
than  penalties.  She  asserted  that  penalties  were  only                                                                    
brought into play  when there was a variety  of factors that                                                                    
happened.  An accidental  release by  a homeowner  would not                                                                    
instigate a penalty - mainly due to volume.                                                                                     
                                                                                                                                
2:38:31 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki had  a question  about slide  5 and                                                                    
the  aggregated  number  of   spills  per  fiscal  year.  He                                                                    
wondered  if   the  number  included   all  spills   of  all                                                                    
substances.                                                                                                                     
                                                                                                                                
Ms. Ryan  explained that  the slide  listed an  aggregate of                                                                    
all  spills.  She  noted  that the  division,  by  law,  was                                                                    
required to publish  a detailed annual report  of all spills                                                                    
each year.                                                                                                                      
                                                                                                                                
Representative Kawasaki mentioned the  rate of inflation and                                                                    
raising fees.  He thought  it seemed  like there  were fewer                                                                    
spills  and  wondered about  the  logic  behind raising  the                                                                    
fees.                                                                                                                           
                                                                                                                                
Representative  Josephson thought  that there  was truth  in                                                                    
what Representative Kawasaki stated.  However, he thought it                                                                    
was important  to have a  penalty that reflected  the actual                                                                    
costs for damages,  as well as the inevitability  of a large                                                                    
spill.                                                                                                                          
                                                                                                                                
Representative  Wilson  referred  to  page  4.  She  thought                                                                    
normally  penalties  were  added  to  change  behavior.  She                                                                    
commented that from 2011 it appeared folks were complying.                                                                      
                                                                                                                                
Representative  Josephson  indicated  that   a  lot  of  the                                                                    
improvement was commendable  but did not offset  the need to                                                                    
increase  the penalties.  He reiterated  that the  penalties                                                                    
should  have  meaning  and value  in  the  current  economic                                                                    
climate.                                                                                                                        
                                                                                                                                
2:42:47 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  reiterated   that  penalties  should                                                                    
incentivize behavior  change. She imagined that  the federal                                                                    
government also  had penalties depending on  the location of                                                                    
the spill.  She wondered if  the sponsor thought  the spills                                                                    
were intentional.                                                                                                               
                                                                                                                                
Representative Josephson responded in the negative.                                                                             
                                                                                                                                
Representative  Wilson  thought   it  was  commendable  that                                                                    
spills  were   decreasing,  but   reiterated  Representative                                                                    
Kawasaki's   point   about    two   groups   being   treated                                                                    
differently.                                                                                                                    
                                                                                                                                
Representative Josephson  thought cost containment  was also                                                                    
part  of the  picture,  and whether  the  department had  to                                                                    
absorb some of the expenses.                                                                                                    
                                                                                                                                
Ms.  Ryan reported  that the  question  had come  up when  a                                                                    
spill had occurred in Cook  Inlet the previous year, and DEC                                                                    
had  not had  the  authority to  penalize  the company.  She                                                                    
thought  the  oil  industry  had  done  a  great  job.  When                                                                    
something   when  wrong   and  the   environment  had   been                                                                    
negatively  impacted,  she  thought the  penalty  should  be                                                                    
commensurate with the damage caused.                                                                                            
                                                                                                                                
2:45:15 PM                                                                                                                    
                                                                                                                                
Representative Wilson  thought she  had heard  that industry                                                                    
did not  always have to  pay the cost  of what DEC  did. She                                                                    
recalled that DEC was required to do cost recovery.                                                                             
                                                                                                                                
Ms. Ryan answered  in the affirmative and  replied that many                                                                    
times  there were  spills  where there  were  no parties  at                                                                    
fault.                                                                                                                          
                                                                                                                                
Representative  Wilson noted  letters  of  concern from  the                                                                    
Alaska  Trucker's Association  and  the Alaska  Oil and  Gas                                                                    
Association  (AOGA)  (copy  on  file).  She  asked  how  the                                                                    
department had addressed the concerns.                                                                                          
                                                                                                                                
Ms. Ryan indicated that she  had had some conversations with                                                                    
the trucking  association and learned  that the  members had                                                                    
to  contingency  plans  for   the  federal  government.  The                                                                    
division had no interest  in duplicating response plans. She                                                                    
thought   it  was   a  positive   result  of   bringing  the                                                                    
legislation forward.                                                                                                            
                                                                                                                                
Representative  Wilson  suggested  that although  the  state                                                                    
would not  necessarily penalize,  there's no  guarantee that                                                                    
someone might pursue litigation for damages.                                                                                    
                                                                                                                                
Ms. Ryan  confirmed that the proposed  legislation would not                                                                    
impact  the  ability  to  pursue  a  court  case  against  a                                                                    
spiller.                                                                                                                        
                                                                                                                                
Representative  Guttenberg referenced  slide  4 and  thought                                                                    
there were unanswered questions. He  could not tell the size                                                                    
and number of  spills. He referenced a problem  on the Glenn                                                                    
Highway. He  asked Ms. Ryan if  she had a sense  of behavior                                                                    
and volume of  spills in various industries.  He wondered if                                                                    
there  was a  profile of  where remedial  work needed  to be                                                                    
done by contractors.                                                                                                            
                                                                                                                                
Ms.  Ryan   responded  that  the  department   had  detailed                                                                    
information in the  slide which went into  further detail in                                                                    
the  annual report.  She offered  to provide  a link  to the                                                                    
report.                                                                                                                         
                                                                                                                                
2:49:38 PM                                                                                                                    
                                                                                                                                
Representative Pruitt  was very  surprised that DEC  had not                                                                    
known the federal government required contingency plans.                                                                        
                                                                                                                                
Ms. Ryan confirmed  that the department had  not known about                                                                    
the  plans,  and detailed  that  the  federal Department  of                                                                    
Transportation had  not required the plans  to be submitted.                                                                    
She  continued that  it  was unknown  that  truckers had  to                                                                    
submit   contingency  plans   until   the  legislation   was                                                                    
proposed.                                                                                                                       
                                                                                                                                
Representative Pruitt  asked if Ms. Ryan  was suggesting the                                                                    
duplicative section be removed from the bill.                                                                                   
                                                                                                                                
Ms.  Ryan believed  that the  House Resources  had addressed                                                                    
the  issue by  changing the  bill to  ensure the  department                                                                    
would be given copies of the contingency plants.                                                                                
                                                                                                                                
Representative Pruitt was still  uncomfortable with the fact                                                                    
that DEC had not spoken  with the stakeholders regarding the                                                                    
contingency plans.                                                                                                              
                                                                                                                                
Representative Josephson  referenced Representative Wilson's                                                                    
remarks. He  thought that the subsequent  presentation would                                                                    
show that the efforts would  not be duplicative. Part of the                                                                    
issue had grown  out of increased crude oil  trucking on the                                                                    
Kenai  River,   which  was   a  sensitive   environment.  He                                                                    
specified  that   he  and  his  staff   had  conferred  with                                                                    
BlueCrest Energy,  Inc., on  advance of  any hearing  of the                                                                    
bill; and he did not  think the company was caught unawares.                                                                    
He thought there  had been broad consensus  that copying the                                                                    
contingency  plans was  not  overly  burdensome. He  queried                                                                    
whether Mr. Atkinson had the same recollection.                                                                                 
                                                                                                                                
2:53:29 PM                                                                                                                    
                                                                                                                                
Mr. Atkinson  responded that he had  conversation with Benji                                                                    
Johnson  from  BlueCrest  Energy,  Inc. prior  to  the  bill                                                                    
having its  first hearing in the  House Resources Committee.                                                                    
He  had  also  communicated  with  an  individual  from  the                                                                    
trucking association, who had  brought to his attention that                                                                    
truckers  were  required to  submit  response  plans to  the                                                                    
federal government.                                                                                                             
                                                                                                                                
Co-Chair  Seaton  discussed  marine  contingency  plans  for                                                                    
vessel  spills that  were submitted  electronically and  had                                                                    
taken legislative action to require.  He thought it would be                                                                    
important that  electronic submission would be  required. He                                                                    
noted that  contingency plans changed, and  it was important                                                                    
to have all parties connected.                                                                                                  
                                                                                                                                
2:56:24 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt  wanted  people  to  understand  that                                                                    
instituting state penalties would  not change the actions of                                                                    
a trucker.  He did not  believe Alaska's penalties  would be                                                                    
an  incentive. He  thought the  provision was  a desire  for                                                                    
access to  information and was  duplicative. He  thought the                                                                    
provision  was   excessive  regulation   and  would   be  an                                                                    
administrative  burden for  the user.  He thought  it was  a                                                                    
burdensome bill.                                                                                                                
                                                                                                                                
Representative Josephson  asked Ms. Ryan to  respond. He had                                                                    
seen  a  rash  of tractor-trailer  roll-overs  and  wondered                                                                    
about DEC's  response vis--vis   the federal  government. He                                                                    
thought the bill was not  duplicative. He thought it was the                                                                    
committee's view that  the state would want to  know how the                                                                    
trucking  industry intended  to respond  to spills  on state                                                                    
land.  He  reminded  that  contingency  plans  were  already                                                                    
required by  the federal register, so  the information could                                                                    
be  shared. He  stated that  no  one from  the industry  had                                                                    
suggested that the information was privileged.                                                                                  
                                                                                                                                
3:00:09 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki agreed  with the  bill sponsor.  It                                                                    
sounded like  it was  something the  parties already  had to                                                                    
submit, the  state should have  the information. He  did not                                                                    
want  things  duplicated. He  thought  it  was important  to                                                                    
respond to spills  promptly before it was a  problem for the                                                                    
environment. He referred to Section  13 wondered if the bill                                                                    
only  addressed  crude oil  transport.  He  asked why  other                                                                    
fuels had not been discussed.                                                                                                   
                                                                                                                                
Mr. Atkinson  answered that  the committee  had contemplated                                                                    
covering  other items;  however,  the structure  in law  was                                                                    
much more complex with overlapping federal jurisdictions.                                                                       
                                                                                                                                
Representative Kawasaki  argued that  the state  should have                                                                    
information to be  able to respond to a crude  oil spill. He                                                                    
wondered  why a  contingency plan  requirement would  not be                                                                    
extended to other items.                                                                                                        
                                                                                                                                
Representative Josephson deferred to Ms. Ryan.                                                                                  
                                                                                                                                
Ms. Ryan answered that the  department's largest concern was                                                                    
with crude  oil spills. The department  considered crude oil                                                                    
to be  more damaging to  the environment than  refined fuel,                                                                    
which  was   why  it  was   most  interested   in  receiving                                                                    
contingency plans for its transport.  Transport of crude oil                                                                    
was  a  rare  occurrence,  and  there  was  a  company  that                                                                    
transported across  sensitive habitat in Alaska.  There were                                                                    
concerns   that  existing   statutory   authority  did   not                                                                    
contemplate crude  oil being moved  by truck. The  fact that                                                                    
there  were  more refined-fuel  truck  rollovers  was not  a                                                                    
reflection  of the  industry, but  rather, volume.  Most but                                                                    
not  all were  transporting to  the North  Slope. There  was                                                                    
much less of  an impact with refined fuel  spills. Since the                                                                    
department was aware that  trucking companies moving refined                                                                    
fuel were required  to have contingency plans,  it was happy                                                                    
to  participate  in drills  to  execute  response plans  and                                                                    
would be working with federal partners.                                                                                         
                                                                                                                                
3:05:06 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  asked about page  9, lines 7-9  and whether                                                                    
to add the word "electronically."                                                                                               
                                                                                                                                
Ms. Ryan  did not  anticipate having to  add language  - she                                                                    
anticipated  that  electronic  copies   of  plans  would  be                                                                    
available.                                                                                                                      
                                                                                                                                
Co-Chair   Seaton   thought   availability   of   electronic                                                                    
contingency plans would aid in spill response.                                                                                  
                                                                                                                                
Representative Guttenberg asked if  the intent was to access                                                                    
the  contingency  plans through  a  trucker  or through  the                                                                    
government. He asked about the  effects of the bill on those                                                                    
that did not spill fuel.                                                                                                        
                                                                                                                                
Ms.  Ryan specified  that the  United  States Department  of                                                                    
Transportation  office of  Pipeline and  Hazardous Materials                                                                    
Safety Administration  (PHMSA) was the agency  that required                                                                    
the contingency plans for the  trucking of oil, refined fuel                                                                    
and hazardous  substances. There  was not a  requirement for                                                                    
the plans  to be  submitted. She  thought a  requirement for                                                                    
the state to receive copies of  the plans would add value as                                                                    
they would exist  in a public arena. She did  not foresee an                                                                    
additional burden on a company  that did not spill. The bill                                                                    
did  not impact  the responsibilities  of companies  and did                                                                    
not  change federal  requirements.  The  bill would  require                                                                    
those  transporting oil  to submit  the contingency  plan to                                                                    
the state.  She reiterated  that she was  aware of  only two                                                                    
companies engaged in hauling oil.                                                                                               
                                                                                                                                
3:08:50 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster  asked members to  hold questions  until the                                                                    
end  of  the  meeting.   He  would  announce  an  amendments                                                                    
deadline at the next meeting.                                                                                                   
                                                                                                                                
Mr. Atkinson reviewed the sectional  analysis in the form of                                                                    
a slide show (copy on file):                                                                                                    
                                                                                                                                
     Section 1Findings                                                                                                          
                                                                                                                                
     Acknowledges that a penalty may be punitive. Applies                                                                       
     findings to non-judicial penalties.                                                                                        
                                                                                                                                
     Section 2Civil penalties for discharges of oil                                                                             
                                                                                                                                
     Increases penalties (in regulations) for non-crude oil                                                                     
     spills over 18,000 gallons into aquatic environments                                                                       
     and onto public land.                                                                                                      
                                                                                                                                
Mr. Atkinson  explained that  the bill  added administrative                                                                    
penalties that  did not  exist in law.  He pointed  out that                                                                    
the  bottom  of page  2  showed  more severe  penalties  for                                                                    
spills  in anadromous  environments and  high value  aquatic                                                                    
environments.  Penalties  were  less severe  for  spills  in                                                                    
intertidal  or confined  salt water  environments; and  even                                                                    
less severe  for spills on land.  He gave an example  of the                                                                    
increase  for  a spill  penalty  in  anadromous waters,  and                                                                    
noted that the penalties had not been raised since 1977.                                                                        
                                                                                                                                
Representative Josephson informed  members that the previous                                                                    
committee had considered a couple  of amendments relating to                                                                    
increasing the penalties to the  full rate of inflation. The                                                                    
amendments had not passed.                                                                                                      
                                                                                                                                
3:11:46 PM                                                                                                                    
                                                                                                                                
Mr. Atkinson continued to address the sectional analysis:                                                                       
                                                                                                                                
     Section 3Inflation proofing                                                                                                
                                                                                                                                
     Directs  the Department  of Environmental  Conservation                                                                    
     (DEC)  to increase  civil penalties  annually for  non-                                                                    
     crude  discharges into  aquatic  environments and  onto                                                                    
     public land.                                                                                                               
                                                                                                                                
     Section 4Civil penalties for discharges of crude oil                                                                       
                                                                                                                                
     Updates  penalties for  crude  oil  spills over  18,000                                                                    
     gallons.  Existing  penalties  adjusted  for  inflation                                                                    
     roughly equal the proposed new penalties.                                                                                  
                                                                                                                                
Mr. Atkinson pointed  to the chart on the  slide for Section                                                                    
4. He noted  that the existing civil penalties  had not been                                                                    
updated since 1989.                                                                                                             
                                                                                                                                
Mr. Atkinson turned back to  Section 2 to address a previous                                                                    
question from Vice-Chair Gara  relating to penalties imposed                                                                    
following the Exxon-Valdez oil spill.                                                                                           
                                                                                                                                
Vice-Chair Gara  asked for clarification. He  asked if spill                                                                    
penalties had been adjusted in 1989 or 1990.                                                                                    
                                                                                                                                
Mr. Atkinson  responded that  the Section  2 of  statute had                                                                    
not been updated.                                                                                                               
                                                                                                                                
3:14:25 PM                                                                                                                    
                                                                                                                                
Mr. Atkinson continued to address the sectional analysis:                                                                       
                                                                                                                                
     Section 5Civil penalties for discharges of crude oil                                                                       
                                                                                                                                
     Calculates penalty  amounts by counting  produced water                                                                    
     mixed  with crude  oil  as crude  oil.  Directs DEC  to                                                                    
     increase  civil   penalties  annually  for   crude  oil                                                                    
     discharges.                                                                                                                
                                                                                                                                
     Section 6Civil action for pollution; damages                                                                               
                                                                                                                                
     Doubles the  minimum penalty, established in  1976, for                                                                    
     illegal  discharges under  18,000  gallons  of oil  and                                                                    
     crude  oil,  and  discharges of  any  amount  of  other                                                                    
     hazardous   substances   (such    as   ballast   water,                                                                    
     pesticides and paints,  and discharges from underground                                                                    
     storage tanks,  cruise ships  and illegal  drug sites).                                                                    
     Doubles the  maximum penalty, established in  1976, for                                                                    
     an  initial violation.  The  1976  minimum and  maximum                                                                    
     penalties,  adjusted for  inflation, would  equal twice                                                                    
     the amount of the proposed  new minimum and maximum. In                                                                    
     other words,  to keep pace with  inflation, the minimum                                                                    
    and maximum penalties would have to be quadrupled.                                                                          
                                                                                                                                
     Quintuples  the   maximum  penalty  for   a  continuing                                                                    
     violation.                                                                                                                 
                                                                                                                                
     Allows a  court calculating a penalty  to increase that                                                                    
     penalty to deter future spills.                                                                                            
                                                                                                                                
Mr. Atkinson  explained that Section  6 was  another section                                                                    
where the  penalties were  not proposed  to be  adjusted for                                                                    
inflation,  but   the  amount  had  been   doubled.  In  his                                                                    
conversations with DEC, he understood  that when the penalty                                                                    
was low it considered (by spillers)  to be just the price of                                                                    
doing business rather than acting as a deterrent.                                                                               
                                                                                                                                
Mr. Atkinson continued to address the sectional analysis:                                                                       
                                                                                                                                
     Section 7Civil action for pollution; damages                                                                               
                                                                                                                                
     Allows  a civil  court  to  impose punitive  penalties.                                                                    
     Conforms to the repeal in Section 14.                                                                                      
                                                                                                                                
     Section 8Civil action for pollution; damages                                                                               
                                                                                                                                
     Doubles   the  minimum   penalty   for  discharges   of                                                                    
     hazardous  wastes.  The  proposed  new  $1,000  minimum                                                                    
     roughly  equals  the   existing  penalty  adjusted  for                                                                    
     inflation.                                                                                                                 
                                                                                                                                
     Doubles the  maximum penalty for an  initial violation,                                                                    
     which roughly equals the  existing penalty adjusted for                                                                    
     inflation.                                                                                                                 
                                                                                                                                
     Multiplies  the   maximum  penalty  for   a  continuing                                                                    
     violation by a factor of  2.5, which roughly equals the                                                                    
     existing penalty adjusted for inflation.                                                                                   
                                                                                                                                
Mr. Atkinson highlighted that none of the penalties                                                                             
proposed to be raised in the bill had been raised since                                                                         
they were originally enacted.                                                                                                   
                                                                                                                                
3:17:27 PM                                                                                                                    
                                                                                                                                
Mr. Atkinson continued to address the sectional analysis:                                                                       
                                                                                                                                
     Section 9Civil action for pollution; damages                                                                               
                                                                                                                                
     Doubles  the  minimum   penalty  for  discharges  under                                                                    
     18,000  gallons from  cruise  ships.  The proposed  new                                                                    
     $10,000 minimum  exceeds the existing  penalty adjusted                                                                    
     for inflation, which would be approximately $6,000.                                                                        
                                                                                                                                
     Doubles the  maximum penalty for an  initial violation.                                                                    
     The proposed new $200,000  maximum exceeds the existing                                                                    
     penalty   adjusted  for   inflation,  which   would  be                                                                    
     approximately $112,000.                                                                                                    
                                                                                                                                
     Multiplies  the   maximum  penalty  for   a  continuing                                                                    
     violation by a factor of  2.5. The proposed new $25,000                                                                    
     daily  maximum  exceeds   the  existing  daily  maximum                                                                    
     adjusted  for inflation,  which would  be approximately                                                                    
     $12,216.                                                                                                                   
                                                                                                                                
Mr. Atkinson elaborated that the proposed new penalties                                                                         
were somewhat ahead of inflation.                                                                                               
                                                                                                                                
Mr. Atkinson continued to address the sectional analysis:                                                                       
                                                                                                                                
     Section 10Civil action for pollution; damages                                                                              
                                                                                                                                
     Describes  the  factors  a   court  may  consider  when                                                                    
    determining the economic benefit of non-compliance.                                                                         
                                                                                                                                
     Section 11Civil action for pollution; damages                                                                              
                                                                                                                                
     Describes  the  factors  a   court  may  consider  when                                                                    
     determining the  need for an enhanced  civil penalty to                                                                    
     deter future non-compliance.                                                                                               
                                                                                                                                
     Directs  the Department  of Environmental  Conservation                                                                    
     (DEC)  to annually  increase  the  daily civil  penalty                                                                    
    caps described in Sections 6, 8 and 9 of the bill.                                                                          
                                                                                                                                
     Section 12Administrative   penalties for  discharges of                                                                    
     oil and crude oil                                                                                                          
                                                                                                                                
     Authorizes DEC  to assess new  administrative penalties                                                                    
     (in addition to  civil penalties a court  may levy) for                                                                    
     serious  or  repeated  illegal  discharges.  DEC  could                                                                    
     penalize the  responsible party no  less than  $500, no                                                                    
     more than $10,000 for each violation.                                                                                      
                                                                                                                                
     Describes the factors DEC  must consider when assessing                                                                    
     administrative penalties.                                                                                                  
                                                                                                                                
     Allows DEC to  sue a responsible party  who doesn't pay                                                                    
     an administrative  penalty. The court could  not adjust                                                                    
     the administrative  penalty, must award  the prevailing                                                                    
     party  attorney fees  and  collection  costs, and  must                                                                    
     subtract the  administrative penalty from  any eventual                                                                    
     civil penalty.                                                                                                             
                                                                                                                                
     Directs DEC to  count produced water mixed  with oil as                                                                    
     oil  when  determining  spill volume.  Directs  DEC  to                                                                    
     inflation proof administrative  penalties by increasing                                                                    
     them annually.                                                                                                             
                                                                                                                                
     Defines  "oil,"  in  this section,  to  include  crude,                                                                    
     petroleum and any substance refined from oil.                                                                              
                                                                                                                                
Mr. Atkinson elaborated that DEC could impose an                                                                                
administrative penalty before going to court and to                                                                             
encourage the responsible party to address a spill.                                                                             
                                                                                                                                
Mr. Atkinson continued to address the sectional analysis:                                                                       
                                                                                                                                
     Section  13Oil   spill  response plans  for  commercial                                                                    
     motor vehicles.                                                                                                            
                                                                                                                                
     Requires a  trucking company transporting crude  oil to                                                                    
     submit to DEC any  spill response plan they're required                                                                    
     to submit to a federal  agency. Requires such a company                                                                    
     to comply with their plan.                                                                                                 
                                                                                                                                
     Section 14Repealers                                                                                                        
                                                                                                                                
     Repeals   legislative    disapproval   of   regulations                                                                    
     regarding civil  penalties for oil  discharges. Repeals                                                                    
     prohibition  against  punitive  penalties  for  illegal                                                                    
     discharges  of ballast  water,  pesticides and  paints,                                                                    
     and discharges from underground storage tanks, cruise                                                                      
     ships and illegal drug sites. Conforms to Section 7.                                                                       
                                                                                                                                
     Sections 15-17Regulations and effective dates                                                                              
                                                                                                                                
     Allows DEC time to adopt regulations before this bill,                                                                     
     if enacted, takes effect January 1, 2019.                                                                                  
                                                                                                                                
3:22:47 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster OPENED public testimony.                                                                                        
                                                                                                                                
3:23:11 PM                                                                                                                    
                                                                                                                                
DOUG   MERTZ,  PRINCE   WILLIAM  SOUND   REGIONAL  CITIZENS'                                                                    
ADVISORY  COUNCIL, indicated  that  he  fully supported  the                                                                    
bill. He noted that the  Prince   William   Sound   Regional                                                                    
Citizens'  Advisor Council  (RCAC) was  created by  Congress                                                                    
after  the  Exxon-Valdez  oil  spill,  and  represented  the                                                                    
interests of  fisherman, business, tribes,  governments, and                                                                    
the general  population in  the oil  transport areas  of the                                                                    
sound. The  council thought it  made sense that  the effects                                                                    
of inflation were counteracted by  raising the penalties, so                                                                    
they  were effectively  the same.  He thought  the penalties                                                                    
had become  so small that  businesses could find  it cheaper                                                                    
to pay  penalties as  a regular  matter rather  than prevent                                                                    
and  preparing for  a  spill. He  stated  he had  experience                                                                    
working  with   spills  since  1975.   He  had   observed  a                                                                    
continuing pattern  of great public and  government interest                                                                    
after  a spill  that wanted  over the  following months.  He                                                                    
thought there needed  to be an effective  set of inducements                                                                    
to  prevent  spills over  time.  He  supported an  automatic                                                                    
inflation adjustment  for penalties. He thought  the federal                                                                    
government was  being consciously less stringent  in the way                                                                    
it enforced  spill and transportation  rules on land  and at                                                                    
sea.  He thought  it was  important  for the  state to  keep                                                                    
constant  pressure on  the industry  to do  things right  to                                                                    
prevent and minimize spills.                                                                                                    
                                                                                                                                
3:26:51 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  thanked Mr. Mertz  for his  public service.                                                                    
He  recalled  a  spill  in   Glacier  Bay.  He  believed  an                                                                    
adjustment to  penalties was needed. He  mentioned a damages                                                                    
provision for oil  spills. He thought it would be  more of a                                                                    
deterrent to not leave the  penalties as they had been since                                                                    
1977.                                                                                                                           
                                                                                                                                
Mr. Mertz  thought it was  important to note  that penalties                                                                    
were   not   automatically   assessed  in   every   instance                                                                    
regardless who  was at  fault. The  largest spill  ever from                                                                    
the pipeline occurred outside North  Pole in 1978. The spill                                                                    
of 658,000 gallons was a result  of an act of sabotage. Much                                                                    
oil had come out, but no  penalties had occurred - there had                                                                    
been hardly any environmental  damage. It was still possible                                                                    
and expected that DEC and  DOL would apply some common sense                                                                    
when administering the laws.                                                                                                    
                                                                                                                                
3:29:00 PM                                                                                                                    
                                                                                                                                
PATTI   SAUNDERS,  ALASKA   COMMUNITY   ACTION  ON   TOXICS,                                                                    
ANCHORAGE (via teleconference), testified  in support of the                                                                    
bill. She  shared that she  was one of the  original members                                                                    
of  the Prince  William  Sound  Regional Citizens'  Advisory                                                                    
Committee.  She  had  been a  fisherman  in  Prince  William                                                                    
Sound. She  spoke about determining  ways to ensure  a spill                                                                    
like  the Exxon-Valdez  never happened  again. The  advisory                                                                    
committee  had worked  on improving  the  state's oil  spill                                                                    
laws and ability  to respond. She emphasized the  need for a                                                                    
quick response in  order to minimize damage  to wildlife and                                                                    
environment.  She thought  the state  had a  good system  in                                                                    
place.  There  had  been  a   comprehensive  review  of  the                                                                    
Alaska's  oil spill  system. She  thought contingency  plans                                                                    
were one of the best ways  to prevent spills. She thought it                                                                    
would be no  burden on the industry to provide  the plans to                                                                    
the state.  She discussed  the revision of  penalty amounts,                                                                    
and thought  penalties acted as  a deterrent.  She discussed                                                                    
the  importance  of  the  amount  of  penalties  being  high                                                                    
enough. It  was not surprising that  industry would complain                                                                    
about  increasing  penalties.   She  was  disappointed  that                                                                    
elected   officials  were   making  the   argument  on   the                                                                    
industry's behalf rather than protecting citizens.                                                                              
                                                                                                                                
Ms. Saunders  thought Section  4 through  Section 9  met the                                                                    
stated goal.  She thought  Section 2 and  Section 6  did not                                                                    
meet the goal of accounting  for inflation. She believed the                                                                    
sections should  be amended to reflect  inflation rates. She                                                                    
believed the bill was a step in the right direction.                                                                            
                                                                                                                                
Representative  Wilson did  not  appreciate the  testifier's                                                                    
implication that because the  committee was asking questions                                                                    
they were not respecting the public or the environment.                                                                         
                                                                                                                                
3:34:42 PM                                                                                                                    
                                                                                                                                
KARA MORIARTY, PRESIDENT AND CEO, ALASKA OIL AND GAS                                                                            
ASSOCIATION (via teleconference), read from a prepared                                                                          
statement:                                                                                                                      
                                                                                                                                
     Co-Chair  Foster,  Co-Chair   Seaton,  members  of  the                                                                    
     Committee, thank you for the  opportunity to testify on                                                                    
     and share our concerns with  HB 322. For the record, my                                                                    
     name is  Kara Moriarty  and I  am the  President/CEO of                                                                    
     the Alaska Oil &  Gas Association, commonly referred to                                                                    
     as  "AOGA." AOGA  is a  private trade  association that                                                                    
     represents  the  majority  of oil  and  gas  producers,                                                                    
     explorers, refiners,  and transporters of  Alaska's oil                                                                    
     and  gas. This  testimony reflects  the opinion  of our                                                                    
     membership.                                                                                                                
                                                                                                                                
     First,  thank you  for allowing  us additional  time to                                                                    
     analyze  this  legislation.   Second,  we  welcome  the                                                                    
     opportunity  to  share  with you  and  the  public  our                                                                    
     commitment to  safety and our diligence  to prevent and                                                                    
     prepare for  the unfortunate incident  of a  spill, and                                                                    
     to  discuss our  procedures and  responsibilities if  a                                                                    
     spill occurs.                                                                                                              
                                                                                                                                
     We all agree  that the State of Alaska  must be prudent                                                                    
     and prepare for hazardous spills  of all kinds. But I'm                                                                    
     sure you  all recognize that  the oil and  gas industry                                                                    
     is already  prepared with a robust  response capability                                                                    
     in   the  event   an  industry-related   spill  occurs.                                                                    
     Companies  that engage  in or  intend to  undertake oil                                                                    
     and  gas   exploration,  development,   production,  or                                                                    
     transport  activities are  required to  by federal  and                                                                    
     state regulators  to have current contingency  plans in                                                                    
     place,  sufficient spill  response equipment  available                                                                    
     at  a  moment's  notice,  and exercise  both  plan  and                                                                    
     equipment regularly. The annual  cost for each operator                                                                    
     to purchase  and maintain equipment  and carry  out oil                                                                    
     spill response  drills ranges from  $1.8 to  $8 million                                                                    
     annually.                                                                                                                  
                                                                                                                                
     Further,  oil  and  gas companies  belong  to  not-for-                                                                    
     profit spill response cooperatives,  such as Cook Inlet                                                                    
     Spill  Prevention  and   Response,  Inc.  (CISPRI)  and                                                                    
     Alaska  Clean  Seas   (ACS).  These  are  full-response                                                                    
     organizations  that provide  the personnel,  materials,                                                                    
     equipment, and  training to  members for  responding to                                                                    
     an  oil spill.  Membership fees  start at  $500,000 for                                                                    
     producers  and  $100,000   for  non-producers,  with  a                                                                    
     $20,000     $50,000  annual   fee.  Daily  exercise  or                                                                    
     development fees range from $1,250  $2,500.                                                                                
                                                                                                                                
     More  specifically,  Alyeska Pipeline  Service  Company                                                                    
     conducted over  200 total drills and  exercises between                                                                    
     the  pipeline  and  their Ship  Escort/Response  Vessel                                                                    
     System,  commonly referred  to as  "SERVS." As  you may                                                                    
     know,  SERVS  exists  for prevention  and  response  in                                                                    
     Prince William Sound and Alyeska  spends more than $100                                                                    
     million annually on  prevention and response readiness.                                                                    
     Drills and  exercises along  the 800-mile  pipeline are                                                                    
     additional investments.                                                                                                    
                                                                                                                                
     In  the  event  that   the  Department  of  Environment                                                                    
     Conservation  (DEC)   Spill  Prevention   and  Response                                                                    
     Division (SPAR)  responds to an  oil spill,  DEC almost                                                                    
     always  recovers the  full cost  of  the response.  The                                                                    
     same cannot be said for non-oil industry facilities.                                                                       
                                                                                                                                
     Before we  discuss the legislation before  us, I'd like                                                                    
     to  remind  the   committee  of  important  statistical                                                                    
     trends  in  the number  and  volume  of oil  spills  in                                                                    
     Alaska,  especially  as  it related  to  oil  and  gas.                                                                    
     According to  most recent DEC  SPAR Annual  Report, you                                                                    
     can see  the 22-year  average for  the number  of total                                                                    
     spills and the  volume of the spills  across the state.                                                                    
     You can see  the trend is going in  the right direction                                                                    
     for both categories.                                                                                                       
                                                                                                                                
     Then  if  you  look   at  the  spills  specifically  by                                                                    
     facility type, you  will see that oil  and gas industry                                                                    
     related  facilities for  the  last  three fiscal  years                                                                    
     averaged  only about  a quarter  of the  spills. I  say                                                                    
     roughly only  because DEC reported facility  types in a                                                                    
     different manner for the last  three years. However, if                                                                    
     you look at the period from  FY 10   14, you would find                                                                    
     that oil  and gas exploration and  production accounted                                                                    
     for 29% of the spill volume by facility.                                                                                   
                                                                                                                                
     Getting  even more  granular  when  thinking about  the                                                                    
     industry I  represent, crude  oil spills  from FY  15                                                                      
     FY17 accounted  for under  2 percent  of all  spills in                                                                    
     Alaska by volume.  Of course, we would  all prefer that                                                                    
     figure to be zero, and  we strive for zero spills every                                                                    
     day.                                                                                                                       
                                                                                                                                
     3:39:50 PM                                                                                                               
                                                                                                                                
     Section  5  of  HB  322  would  force  DEC  to  include                                                                    
     produced water  in the calculations  of a  spill. There                                                                    
     is often a  very small amount of crude  in the produced                                                                    
     water,  but  again,  the  trend line  is  the  same  as                                                                    
     before, the volume and number  of produced water spills                                                                    
     is also trending downward.                                                                                                 
                                                                                                                                
     So,  this begs  the question,  what is  the purpose  of                                                                    
     this bill? If the purpose of  the bill is to set higher                                                                    
     fines  and penalties  to deter  spills, I  would argue,                                                                    
     for the oil and gas industry,  we do not need fines and                                                                    
     penalties to encourage us to  be diligent. Why do I say                                                                    
     that?                                                                                                                      
                                                                                                                                
     We  are Alaskans.  We are  environmentalists by  choice                                                                    
     and  by regulation.  We want  to protect  the beautiful                                                                    
     lands and  wildlife that many subsist  from or recreate                                                                    
     within. We  are raising our  families here and  we care                                                                    
     about our  backyard. In addition  to the  intrinsic and                                                                    
     environmental  reasons, companies  also  have a  direct                                                                    
     economic incentive  not to have  a spill  incident. Our                                                                    
     companies  strive   for  the  safest,   most  efficient                                                                    
     operations  possible, and  any  spill is  treated as  a                                                                    
     serious event  that takes away time  and resources from                                                                    
     our    main   purpose-    producing,   refining,    and                                                                    
     transporting oil.                                                                                                          
                                                                                                                                
     The cost  of prevention,  clean-up, and  restoration is                                                                    
     already a tremendous deterrent for  our industry. It is                                                                    
     not unreasonable  to expect the  costs for clean  up to                                                                    
     exceed what any  fine or penalty that  may be assessed.                                                                    
     So, for the oil and gas  industry it is hard to imagine                                                                    
     a  scenario  when the  fine  is  less than  compliance,                                                                    
     thereby requiring the need to  double, or in some cases                                                                    
     triple the fines and penalties  that are proposed in HB                                                                    
     322.                                                                                                                       
                                                                                                                                
     If  the intent  of the  bill is  to incentivize  better                                                                    
     behavior  by potential  repeat offenders,  it would  be                                                                    
     helpful  to know  what specific  examples  lead to  the                                                                    
     assertion  that  HB  322 will  reduce  the  number  and                                                                    
     volume  of spills.  Ultimately, we  believe that  fewer                                                                    
     spills is the goal of  all Alaskans, but we struggle to                                                                    
     understand  how  HB  322   will  accomplish  this  goal                                                                    
    without specific examples justifying its necessity.                                                                         
     There  is  also  the  potential for  this  bill  to  be                                                                    
     perceived as a  revenue generator for SPAR.  As a brief                                                                    
     reminder  to  the  committee,  the  SPAR  division  was                                                                    
     funded entirely by  the oil and gas  industry until the                                                                    
     passage of  a bill that  assesses just under  one penny                                                                    
     per  gallon of  wholesale refined  fuel products,  with                                                                    
     several products excluded.                                                                                                 
                                                                                                                                
     As  you  know,  the  state has  an  Oil  and  Hazardous                                                                    
     Substance Release  Response Fund, commonly  referred to                                                                    
     as the  "470 fund." The  fund is the primary  source of                                                                    
     revenue for the SPAR division  to ensure that Alaska is                                                                    
     prepared and capable of responding  to spills and other                                                                    
     hazardous materials.  This fund allows SPAR  to conduct                                                                    
     three  main  activities; prevention,  initial  response                                                                    
     and   contaminated   site   cleanup,   which   includes                                                                    
     reviewing discharge  prevention and  contingency plans;                                                                    
     conducting training, response  drills, inspections, and                                                                    
     tests; and verify an  organization's proof of financial                                                                    
     responsibility to clean up spills.                                                                                         
                                                                                                                                
     Despite  the   stated  purpose   of  cleaning   up  and                                                                    
     preventing  spills,  the  fund  has  historically  been                                                                    
     appropriated    to   non-spill    projects   such    as                                                                    
     campgrounds,  state  airports, tank  farm  remediation,                                                                    
     privately   owned   greenhouses,   and   new   ferries.                                                                    
     Fortunately,  under  the  current  leadership  of  DEC,                                                                    
     these types  of expenditures are no  longer being made,                                                                    
     but the corpus of the  fund may have been unnecessarily                                                                    
     reduced during  years when these types  of expenditures                                                                    
     were  authorized.  Additionally,  AOGA  has  identified                                                                    
     efficiencies for  SPAR to  consider internally  that to                                                                    
     our   knowledge  have   yet   to   be  adopted.   These                                                                    
     efficiencies  could  potentially  save the  state  more                                                                    
     than the  projected fiscal note.  We also  believe that                                                                    
     if  DEC is  looking  for additional  revenue for  SPAR,                                                                    
     those  revenues should  be collected  from all  parties                                                                    
     that utilize functions of the Division.                                                                                    
                                                                                                                                
     In  addition to  the  questions we  have already  asked                                                                    
     above,  I'd like  to highlight  a few  portions of  the                                                                    
     bill that cause us the most concern.                                                                                       
                                                                                                                                
     There  has been  an  argument made  that  this bill  is                                                                    
     needed because  penalties have  not increased  for some                                                                    
     time and  that there  should be  an adjustment  tied to                                                                    
     inflation.  Again, we  struggle with  understanding why                                                                    
     increasing  fines  or  making them  subject  to  change                                                                    
     based  on inflation  will change  behavior, given  that                                                                    
     the  cost  of  cleanup  and remediation  is  already  a                                                                    
     powerful  deterrent. And  while  it's certainly  within                                                                    
     your  purview  to  instill an  automatic  tax  increase                                                                    
     every  year,  we  hope  you  will  fully  consider  the                                                                    
     implications of such a policy.                                                                                             
                                                                                                                                
     At  the very  beginning  of the  bill,  it states  that                                                                    
     based on  information gathered this bill  is necessary.                                                                    
     We would  ask the  committee to identify  what specific                                                                    
     information drew them to this conclusion.                                                                                  
                                                                                                                                
     As   previously  mentioned,   Section  5   expands  the                                                                    
     definition  of oil  spills to  include produced  water.                                                                    
     Claims have  been made that  produced water is  just as                                                                    
     damaging  to the  environment  as  straight crude  oil.                                                                    
     While  produced  water  typically  does  contain  small                                                                    
     amounts of  crude   which  the percentage of  crude oil                                                                    
     can  be determined    produced  water clearly  does not                                                                    
     cause the  same level of  damage as pure crude,  and we                                                                    
     do not  agree they should  be treated the same  for the                                                                    
     purposes of this bill.                                                                                                     
                                                                                                                                
     Section  10 is  also  a concern  as we  see  this as  a                                                                    
     subjective and  ambiguous section that could  lead to a                                                                    
     series  of  issues,  not  the least  of  which  is  the                                                                    
     intrusive nature as  to how this could  be implied, and                                                                    
     the   eventual  request   for  confidential   financial                                                                    
     records   to   determine   the  economic   benefit   of                                                                    
     noncompliance.                                                                                                             
                                                                                                                                
     The  new administrative  penalties  in  Section 12  are                                                                    
     extremely unclear and  another subjective section which                                                                    
     gives   the   department   the  potential   for   broad                                                                    
     enforcement  and  penalty assessment  discretion.  This                                                                    
     additional  authority  granted  to  DEC  to  issue  new                                                                    
     administrative penalties  without clear  parameters for                                                                    
     how  that is  administered leaves  us questioning  how,                                                                    
     when, or why these penalties would be assessed.                                                                            
                                                                                                                                
     Sections 13    15 expand the need  for commercial motor                                                                    
     vehicles to  obtain contingency  plans approved  by DEC                                                                    
     if they  are transporting crude oil.  Because this bill                                                                    
     expands  the definition  of  oil  to include  processed                                                                    
     water, such as drilling  water or wastewater, this bill                                                                    
     will  apply to  vehicles on  the North  Slope and  Cook                                                                    
     Inlet as  their tankage contents include  small amounts                                                                    
     of  crude oil.  These  sections  provide no  additional                                                                    
     protection, since companies who  operate these types of                                                                    
     vehicles  already must  comply with  federal Department                                                                    
     of Transportation regulations  requiring response plans                                                                    
     found in 49 CFR 130.31.                                                                                                    
                                                                                                                                
     Further,  the bill  could increase  the duties  of SPAR                                                                    
     division  staff  by  requiring  additional  contingency                                                                    
     plan reviews, which makes us  concerned that the fiscal                                                                    
     note does  not include additional staff  to accommodate                                                                    
     the added  workload. It has been  the recent experience                                                                    
     of some of  my member companies that  the current staff                                                                    
     are  struggling  to  meet  the  timelines  for  current                                                                    
     levels  of contingency  plan renewals  and applications                                                                    
     for   facilities   and  regular   operations.   Because                                                                    
     contingency plans  are already required by  the federal                                                                    
     DOT and  this section  would require  duplicative plans                                                                    
     to   be  filed   and  reviewed   with  the   State,  we                                                                    
     respectfully ask that this section  be removed from the                                                                    
     bill. Finally,  if this section  were to remain  in the                                                                    
     bill, we  would ask for clarifying  language explicitly                                                                    
     stating that  if DEC does  not approve  the contingency                                                                    
     plans   for   commercial   vehicles   on   time,   then                                                                    
     transportation   can   continue   under   federal   DOT                                                                    
     mandates.                                                                                                                  
                                                                                                                                
     In closing, AOGA  is opposed to this bill.  We urge you                                                                    
     to  reconsider moving  this bill  forward  and to  work                                                                    
     with the industry  and DEC to find  alternative ways to                                                                    
     meaningfully  incentivize  compliance of  environmental                                                                    
     safety provisions in Alaska.                                                                                               
                                                                                                                                
     Thank you for the opportunity  to testify and I welcome                                                                    
     questions from the committee.                                                                                              
                                                                                                                                
3:45:26 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton indicated written testimony could be                                                                            
submitted to the committee.                                                                                                     
                                                                                                                                
Co-Chair Seaton CLOSED public testimony.                                                                                        
                                                                                                                                
Co-Chair Seaton reported that there was not a deadline set                                                                      
for proposed amendments. He asked the department to respond                                                                     
to the committee with a definition for "produced water."                                                                        
                                                                                                                                
HB  322  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                

Document Name Date/Time Subjects
CSHB 322 (RES) Sectional PPT_TA.pdf HFIN 3/29/2018 1:30:00 PM
HB 322