Legislature(2013 - 2014)BARNES 124
04/14/2014 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB325 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 325 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 325-OIL SPILL PREVENTION FUND
1:34:58 PM
CO-CHAIR SADDLER announced that the only order of business is
HOUSE BILL NO. 325, "An Act increasing the balance of the oil
and hazardous substance release prevention and response fund
required to suspend the surcharge levied on oil produced in the
state; increasing the amount of the surcharge levied on oil
produced in the state that may be appropriated to the oil and
hazardous substance release prevention account; and providing
for an effective date."
1:35:27 PM
CO-CHAIR FEIGE moved to adopt the proposed committee substitute
(CS), Version 28-LS1486\U, Nauman, 4/13/14, as the working
document. There being no objection, Version U was before the
committee.
1:35:56 PM
REPRESENTATIVE CATHY MUNOZ, Alaska State Legislature, as co-
prime sponsor, explained the changes made by Version U to the
original bill. She reminded members that the idea for the
legislation came out of the "budget subcommittee" for the
Department of Environmental Conservation (DEC) operating budget.
Over the past two years, the spill prevention and response
(SPAR) funds and the health of those funds have been a central
topic of discussion and presentations. The original bill began
to address the funding issues with the "SPAR account." Version
U adds new language to the title on page, 1, lines 3-7, as well
as new language to Sec. 3 on page 2, lines 24-28. Additionally,
Version U adds new sections 4-10, which are amendments from
Representative Seaton, beginning at the bottom of page 2 through
line 4 of page 4.
1:37:25 PM
REPRESENTATIVE SEATON, a co-sponsor of the bill, explained the
changes made in Version U address things that were brought up by
the committee. A new provision allows DEC to collect fees for
contingency plans (C-Plans) as a way to make this sustainable.
A great amount of time is spent on analyzing oil spill
contingency plans and currently there is no charge for that.
Version U, Sec. [8], says that the user submitting a plan should
pay for that evaluation. This more broadly distributes the
costs and the financing that is necessary for spill prevention
and response. There has been a lot of questioning that all the
revenue to support spill response has come from only one thing,
the production of crude oil, which this addresses. Version U,
Sec. 7, requires that C-Plans be submitted in [a word
searchable] electronic format, which makes it available to the
department for review of the plan as well as available to the
public. The public does not just mean "mom and pop in North
Pole or Glennallen." It also means mariners and captains.
Right now if someone from a pilots association wants to review a
plan for adequacy and for comment, he/she would have to go into
the main office and sit down with a paper copy.
1:40:36 PM
REPRESENTATIVE SEATON explained Version U, Sec. 9, is a deletion
of authority for the funding of local emergency planning
committees. Version U, Sec. 10, is the elimination of two
programs that authorize payment from the spill fund -- one for
the committees and the other for bulk fuel tank repairs, both of
which are no longer considered to be targets for spill
prevention and response.
REPRESENTATIVE SEATON noted Version U, Sec. 5, [adds the
language]: "a refiner of crude oil or an importer of petroleum
products refined from crude oil for resale shall report the
volume of refined crude oil imported or refined to the
department". He said this sets up the charge that is found [on
page 2, Sec. 3, lines 24-25], which sets up a system to
accomplish broadening of the base of the tax so it is not only
on crude oil. A refiner of crude oil or an importer of refined
products would pay a tax of one-half cent per gallon. Since the
tax would be on products refined within the state as well as
imported there would be no competitive advantage of importing
fuel over refining it in-state.
1:43:34 PM
CO-CHAIR SADDLER inquired whether there are any products
produced in Alaska refineries that would not be covered by Sec.
3. He said he wants to ensure that this section covers all
refinery products.
REPRESENTATIVE SEATON answered this section would apply to all
refined products as currently written. However, exclusion
mechanisms could be looked at, he offered, such as excluding
motor fuel taxes.
1:44:05 PM
CO-CHAIR FEIGE drew attention to the pie chart titled "FY 2009-
2013 Number of Spills by Product Type," provided as an
attachment to the 3/26/14 letter to the committee from Kristin
Ryan of DEC. He said his intent would be to match the
percentage of income collected to fund this operation with the
way the money is distributed for spills. He inquired what the
ratio of revenue would be between the refiners and crude oil
producers that would be generated under Version U for supporting
the Division of Spill Prevention and Response.
REPRESENTATIVE SEATON deferred to DEC to provide an answer.
KRISTIN RYAN, Director, Division of Spill Prevention and
Response, Department of Environmental Conservation (DEC),
understood Co-Chair Feige to be asking whether Version U spreads
the income sources out more similar to how the spills are
occurring, by type of product. She said Version U would add the
fee for C-Plan work, which is mainly done on crude and non-
crude. She said she could not give a specific number of how
that would be spread out, but both would be captured under that
new fee authority. Also under Version U, the refined fuel tax
would capture non-crude, but the majority of the response fund
would still be funded by the crude oil per barrel surcharge. It
would be more equitable than it is now, which is the entire fund
being based on crude oil, but it would not be matched exactly.
1:48:15 PM
CO-CHAIR FEIGE asked whether the division has a breakdown of how
much of the revenue is projected to come from the seven-cent
provision and the half-cent provision.
MS. RYAN replied she does not, at this point, have that
information. Increasing the surcharge on crude oil to seven
cents would add $4.6 million and the new fee on petroleum
refined products is as yet unknown. She deferred to the
Department of Revenue (DOR) to provide an answer, but understood
that in a letter to Representative Seaton, DOR states a range
between $3.2 million and $11.16 million.
1:49:36 PM
REPRESENTATIVE SEATON added to Ms. Ryan's response, saying that
it depends on how broadly [the new fee] is spread; for example,
if it is spread to all refined fuels or if motor fuels are
eliminated. He read from the last two paragraphs of a letter
written to him by DOR on 3/7/14, which state:
The 2009 DNR Annual Report reported annual fuel sales
volumes between 1995-2008, including gasoline,
aviation gasoline, kerosene type jet fuel, propane,
No. 1 Distillate, No. 2 Fuel Oil, and No. 2 Diesel
Fuel. On average, DNR estimated that 1.5 billion
gallons of fuel were sold in Alaska per year, which
would generate $7.3 million in revenues on average.
Finally, if the surcharge was only placed on motor
fuel subject to the motor fuel tax, it may generate
about $3.2 million per year. This is based on an
average of 600,000 total gallons of motor fuel
reported on tax returns each year according to DOR's
Annual Reports from FY 2005 to FY 2013.
1:51:22 PM
REPRESENTATIVE SEATON calculated that if motor fuel was
excluded, the total would be $7.3 million minus $3.2 million,
for about $4 million per year. He said the purpose of looking
at this was to address concerns expressed by the committee about
other people who have spills, such as spills at mines. Mines
are generally fuel intensive, so this half-cent [tax] would also
capture that. Bulk fuel storage for electric generation is
another -- bulk fuel tanks have been a subject of spills, so the
half cent per gallon would also bring those players into the
funding stream for spill prevention and response. Limiting the
tax to importers and refiners of distillate fuels is an easy way
to broaden the base of the tax and make all people that are
subject to spills contribute without getting into a very costly
collection mechanism. He offered that the committee could cut
down or cut out certain segments if it wishes.
1:52:14 PM
[Co-Chair Saddler turned the gavel over to Co-Chair Feige.]
1:52:51 PM
CO-CHAIR FEIGE understood the Division of Spill Prevention and
Response expects a significant shortfall starting next year.
MS. RYAN answered the expected shortfall for the division is
approximately $6 million a year.
REPRESENTATIVE SEATON reiterated that two elements were really
questioned. First, what things can be cut out of the spill
prevention response funding that should no longer be there?
Version U eliminates two. Second, can the revenue base be
broadened? That is accomplished by the distillate fuel
provision. He requested the committee provide other suggestions
for ways it would like to approach this. He pointed out that
letting the general fund pay for it means taking the shortfalls
out of savings.
1:54:50 PM
REPRESENTATIVE HAWKER opined that it is still a bill that says
"tax one industry segment more to pay for every other segment."
There is no analysis that matches costs and expenses, which is
something that should be done. This is an approach that says to
tax the guys with the deepest pockets without taking a serious
look at reducing the state's administrative burden. There is
nothing for better management. Before taxes are raised to pay
for an inefficient operation, more information is needed by the
committee. There must be internal changes in management and
operations before taxes are increased.
1:57:10 PM
REPRESENTATIVE P. WILSON pointed out that the division is
mandated to take care of many things for which there are no ways
to receive funds. For example, things are washing up on
Alaska's shores from the recent Japanese tsunami that the
division must deal with and expend funds for. She requested Ms.
Ryan to address this issue.
MS. RYAN first related that the administration is not supportive
of an increased tax on the petroleum refineries in the state.
However, in reply to Representative P. Wilson's question, she
said the division is not responding to the Japanese tsunami
debris unless a hazardous substance is involved; it is
considered garbage that does not need to be responded to as an
emergency situation. An emergency situation that triggers the
division's response would be something that is a threat to the
environment or human or animal health. However, there are
plenty of activities to which the division must respond and for
which the division is unable to recover its costs. The division
bills out about $3.5 million every year to try to recover some
of its response costs, but only about half of that comes back
in. As a new director, she has taken it upon herself to try to
find ways to be more efficient with the division's cost
recovery. For example, this weekend a vandal took the cap off
an oil tank at the Prospector Hotel in Juneau, spilling the oil
into the sewer drain and out into Gastineau Channel. The
division will recover some of its costs assuming the hotel's
insurance company decides to pay. However, there are many times
when the division is unable to find the responsible party for an
oil slick, yet the division must do something about it. She
further noted that foreign flagged vessels are not regulated by
the division and are not required to have the financial
assurance to clean up, so if the division has to respond to them
it is very expensive. She further explained that the division
does many prevention activities and some of the administrative
costs that Representative Hawker is concerned about can be
clearly tied to improving response and are worthwhile; for
example, the division requires industry to participate in drills
to prove that they can respond. Other administrative costs in
the department are more related to leases and keeping the lights
on, so there are different kinds of administrative costs.
2:01:43 PM
REPRESENTATIVE OLSON inquired how much the division has spent on
the Flint Hills pollution cleanup. He understood a charge was
paid to the division.
MS. RYAN confirmed the division is using the response account
for Flint Hills. She believed $2.9 million has been charged to
the response account to oversee and assess the different aspects
of that contamination plume. Flint Hills has repaid about $1
million and has refused to pay any further, so the division is
in court with them.
REPRESENTATIVE OLSON asked what Flint Hills was paying into the
fund when it was in full operation.
MS. RYAN answered [$1 million] is the total generated.
2:02:52 PM
CO-CHAIR FEIGE returned to the pie chart titled "FY 2009-2013
Number of Spills by Product Type" and observed that 74 percent
of spills were noncrude oil, 3 percent were process water, 3
percent crude oil, and 20 percent hazardous substances. He
inquired whether these hazardous substances are from a wide
variety of industry or concentrated in a particular industry.
MS. RYAN responded the hazardous substance responses are
primarily related to the seafood and mining industries.
However, she continued, to have a true sense of the division's
costs the time that the division spends on spills needs to be
seen. Many releases and spills require very little time on the
division's part; for example, process waters cannot be cleaned
up, so there is no five-year-long cleanup process for those,
whereas there is for oil. In particular, solvents like dry
cleaning chemicals are very expensive to clean up. So, while
this is a good snapshot of the numbers, it is not completely
representative of the money spent by the division responding to
those spills. She said she is calculating that data now but
does not have it available for today.
CO-CHAIR FEIGE requested this information be provided to the
committee as soon as available because the crux of all of this
is really how the money from the response and prevention fund is
expended and matching that up with the revenue sources.
2:04:49 PM
REPRESENTATIVE SEATON allowed there is the question of matching
up the people being taxed with where the spills are being
generated. Regarding DOR's 3/7/14 letter to him, Representative
Seaton clarified the letter was a response to him; the
administration did not ask for this legislation and is opposed
to any tax increases on crude oil, refined products, or other
things. He pointed out that if the state was looking at a
shortfall of $6 million, and the committee did not want to
increase the crude oil tax, adopting only the half cent per
gallon tax would bring in $7.3 million. He said he has worked
for a while trying to eliminate [pollution] sources. Last year
derelict vessel legislation was passed outlawing the storing of
vessels and barges in state waters. When such vessels sink
within the three-mile limit the state becomes responsible and
half the time it is a non-responsible party and the state cannot
recover any of its expenditures [for cleanup], so the bill was a
preventative measure. He expressed his hope that the committee
will consider the several different mechanisms in this bill and
think about how to spread the revenue collections from the
people or industry that are causing spills and how to collect
that revenue.
2:07:45 PM
REPRESENTATIVE SEATON continued, pointing out that collecting a
C-Plan fee is easiest for the department and does not create
some of the expenses talked about by Representative Hawker.
There is a lot of expense reviewing these contingency oil spill
plans, which are necessary, but the state does not collect any
money for. The first thing is to stop digging a hole and one
way to stop digging this hole is by having C-Plans
[electronically] submitted to make analysis easier and to
collect a fee for the administration required to look at them.
This bill puts forth a number of mechanisms for the legislature
to look at for solving the problem. The sponsors are not saying
that all of the proposals must be in the bill. Community
emergency responses and bulk fuel replacements are two good
things to remove from the spill prevention and response fund
because they should be done through a capital improvement
project. People with cars are also liable for spills, so there
probably has to be some contribution there, too. It is not
being said that this bill is the ultimate; rather, it gives a
range of things the sponsors see as feasible. This bill can
stimulate conversation about how to solve this problem by having
people view it on BASIS during the interim and think about it.
2:10:06 PM
REPRESENTATIVE TARR said she likes the range of options under
consideration in the bill. She concurred that user groups such
as motorists are not currently contributing. There may be
concern about whether a half cent per gallon is the right
amount, but the forthcoming information from Ms. Ryan about
costs associated by user group will provide direction. If
something is not done this year there will be a cost of $6
million next year that will have to be paid from the general
fund, which may cause other priorities to not be met. She
supported the concept of the motor fuel tax if it could be
accomplished this year, even if it is a reduced amount because
every little bit will help to fill next year's gap.
2:12:02 PM
CO-CHAIR FEIGE opened public testimony on HB 325.
[Co-Chair Feige returned the gavel to Co-Chair Saddler.]
2:12:46 PM
KARA MORIARTY, President/CEO, Alaska Oil and Gas Association
(AOGA), stated AOGA does not support HB 325 or Version U of HB
325. She noted AOGA is the professional trade association for
the majority of oil and gas exploration, production, marketing,
transportation, and refining activities in Alaska. She said
AOGA has been engaged in the policy decisions surrounding the
oil and hazardous release response fund, referred to as the "470
Fund," since its inception and AOGA supported modifications in
1994 and 2006 to determine how the surcharge was distributed.
For the last 25 years the oil and gas industry has been the only
industry to make any contributions to this fund and both versions
of this bill only continue that policy. The bill proposes to
increase the surcharge to seven cents [per barrel] and attempts to
add a surcharge for in-state refineries and importing refined
products, but AOGA does not see that as noncrude, AOGA still sees
it as crude. It is already challenging at best to operate a
refinery in Alaska and AOGA does not see an additional surcharge as
improving the business climate for refining. Regarding fees for
C-Plans, Ms. Moriarty noted the language states "may", not
"shall", and the fee is undefined so it is unknown what that
means. All industries in Alaska submit several plans to
different agencies for review - whether C-Plans, plans of
operation, plans of development, permits to drill - and she is
unsure AOGA could support a policy that has a fee associated
with all these individual plans. While AOGA appreciates the
work to tighten up what this fund is used for, because it has
been abused in the past, the majority of the volumes reported
are outside of the oil and gas industry. However, in AOGA's
view, this policy continues to look to only one solution by
continually adding additional taxes on the oil and gas industry.
2:15:48 PM
REPRESENTATIVE TARR asked whether AOGA has taken a position on
the provision for a motor fuel tax, which would be consumer
driven revenue that consumers are not currently paying and which
would expand the base of people paying into the fund.
MS. MORIARTY replied AOGA cannot support this provision because
it would still be adding a tax on a refined product. Consumers
may or may not recognize what that is going for. She said AOGA
would have to evaluate how it is administered, but AOGA cannot
support it as currently written.
2:16:59 PM
REPRESENTATIVE P. WILSON understood Ms. Moriarty to be saying
AOGA wants it to be more fair and more user based, but disagrees
with having private people [also pay the surcharge].
MS. MORIARTY responded that as currently written the surcharge
is not on private, a refinery would be paying the surcharge for
each gallon of refined product or imported product. So, it is
not a consumer tax, it is an oil and gas industry tax that is
being put on the refineries in addition to the producers.
2:18:04 PM
REPRESENTATIVE SEATON inquired whether AOGA has a position on
the bill's provision to eliminate expenditures from the fund for
emergency planning communities and bulk fuel tank repairs.
MS. MORIARTY answered AOGA does not have a position specifically
on those two things, but applauds tightening the reins. Over
the past 25 years the fund has been used for a wide variety of
things that may not necessarily be related to oil spill response
and preparedness. Any effort to continue tightening the purpose
and expenditures would be supported by AOGA.
REPRESENTATIVE SEATON requested that over the interim AOGA look
at the fund's expenditures and specifically tell committee
members which of those should not have been spent.
MS. MORIARTY agreed to look at that and to work with Ms. Ryan on
her report on user group categories.
2:21:12 PM
CO-CHAIR SADDLER kept public testimony open and requested the
departments to provide the committee with updated fiscal notes
over the interim.
2:21:47 PM
REPRESENTATIVE TARR requested Ms. Ryan's thoughts on the
challenge of determining a per-barrel equivalent on the other
categories, given that is how the surcharge is levied on oil.
She further asked whether members should be thinking about gas
development and the inclusion of a surcharge when rewriting the
statutes related to gas development.
MS. RYAN qualified she may not completely understand the
question, but said if there was only the surcharge on oil, the
division estimates that approximately 9 cents per barrel would
be needed to fill the gap in the prevention account. There may
be other industries that need to be considered, she allowed.
Regarding all the costs in the division, she does not yet have
very good statistics to go on, but is getting there. However,
the division spends a lot on contaminated sites. The division's
budget includes all the work to oversee contaminated sites and
many of those sites do not have owners and can cost a lot to
clean up; it is always a debate about what industry would be the
responsible party in such cases. In regard to equalizing the
fund sources with a spill, it is usually a petroleum product,
which is the reason for focus on a petroleum product format.
Other states also use that as a source of revenue for this work.
REPRESENTATIVE TARR observed that the pie charts include mining.
Given there is not a per-barrel equivalent, she asked whether
the division has thought about an annual fee as a mechanism for
other industries to be contributing toward the fund.
MS. RYAN replied most spills are fuel, whether they happen in a
village, mine site, or boat. The division has never looked at
going after specific subgroups, but if such a thing were to be
implemented, the most economical way would be to do it at the
wholesale level because it is the same product, but just being
spilled by different industries. The assumption is that the
cost would be passed on to the spiller.
2:24:55 PM
REPRESENTATIVE MUNOZ thanked the committee for continuing the
conversation on this issue. She said she has enjoyed working on
the DEC budget subcommittee and she appreciates the work of
committee members in trying to find a solution to this issue.
"For two years now," she said, "we've put intent language in the
operating budget asking the department to come back with
solutions on how to deal with the long-term viability of the
spill response division." The bill is really the beginning of a
conversation that will continue over the interim.
2:25:50 PM
REPRESENTATIVE SEATON, addressing AOGA's comment regarding fees
"may" rather than "shall" be collected for approving a plan,
said he wants people to know their comments are being listened
to. He requested that next year DEC provide an analysis to the
committee for a fee schedule that would be appropriate to
propose. Since some C-Plans may be on marine waters and some on
land, the fee will not be the same for every C-Plan. He further
requested that DEC provide a recommendation to the committee on
whether the language should be "shall" or "may".
MS. RYAN explained that C-Plan work is done by the division's
[Industry Preparedness & Pipeline Program], which has an annual
budget of about $5 million. She guessed that about 60-65
percent of this section's work is based on C-Plans, so about $3
million is being spent out of the prevention account to do C-
Plan work. These contingency plans are very time consuming,
with some way more time consuming than others; for example,
there is full-time staff whose work is only on the Valdez Marine
Terminal. So, she said, there would have to be a graduated rate
depending on how complicated the plan is. However, there are
only 137 C-Plans, so fees would not solve the problem but they
would generate some revenue.
2:28:37 PM
REPRESENTATIVE TARR, regarding contaminated sites and sites for
which it is difficult to locate the owners for billing cost
recovery, asked whether it would be appropriate to separate
cleanup costs such that costs for contaminated sites for which a
responsible party cannot be found would come from the general
fund and a date could be determined for when this separation
would begin.
MS. RYAN concurred there would be some mechanisms to look at in
this regard. The point has been brought up before that the fund
should not be used and especially for state contaminated sites.
Many state contaminated sites were cleaned up using the fund,
but that is not done anymore and now the division asks for
capital appropriations to handle state sites. The division
spends several million dollars a year overseeing federal sites
and other sites and there might be another mechanism that could
be used for these sites.
2:30:13 PM
REPRESENTATIVE SEATON related it has been said that throughput
in the Trans-Alaska Pipeline System (TAPS) is going to be
increasing and so everything will take care of itself. When the
departments next address the committee, he would like for them
to base it on the 10-year forecast from the Department of
Revenue. Currently, the spring forecast is for an oil price in
2014 of $106, rising to $131 in 2023; yet the unrestricted
petroleum revenue is forecast to drop from $4.6 billion in 2014
to $3.4 billion in 2023. Despite a rising price, this is due to
the volume decrease. Since the current structure is based on
cents per barrel, it is going downhill fast. He requested the
Department of Natural Resources and the Department of Revenue to
provide data that coincides with the scenario of increasing
throughput, saying that right now the departments are showing a
declining production with a slowing of the decline.
2:32:36 PM
REPRESENTATIVE P. WILSON queried whether there is any mechanism
for getting reimbursement from the federal government when the
state cleans up federally contaminated sites.
MS. RYAN responded the division cost recovers from the federal
government in a lot of cases. In the contaminated sites program
alone, about $4 million per year is generated in federal receipt
authority. However, the division probably spends another $3
million that the federal government will not pay for. Sometimes
a lot of pre-work has to go into a site. Recently a settlement
was reached for a site in Aniak that was a federal mistake. It
took the division eight years to get to the point where the
federal government agreed it is the responsible party and is
going to pay. During that whole time, the prevention account
had to pay those costs plus the legal costs of the negotiations.
2:33:59 PM
CO-CHAIR SADDLER confirmed no one else wished to testify at this
time, but held open public testimony.
CO-CHAIR SADDLER held over HB 325 for continued work during the
interim.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB325 DEC Response 3.26.14, Doc 1.pdf |
HRES 4/14/2014 1:00:00 PM |
HB 325 |
| HB325 DEC Response 3.26.14, Doc 2.pdf |
HRES 4/14/2014 1:00:00 PM |
HB 325 |
| HB325 DEC Response 3.26.14, Doc 3.pdf |
HRES 4/14/2014 1:00:00 PM |
HB 325 |
| HB325 DEC Response 3.17.14.pdf |
HRES 4/14/2014 1:00:00 PM |
HB 325 |
| HB325 Work Draft (Version U).pdf |
HRES 4/14/2014 1:00:00 PM |
HB 325 |
| HB325 AOGA Letter.pdf |
HRES 4/14/2014 1:00:00 PM |
HB 325 |
| HB325 DOR Response to Rep. Seaton 3.7.14.pdf |
HRES 4/14/2014 1:00:00 PM |
HB 325 |
| HB325 PWSK Letter.pdf |
HRES 4/14/2014 1:00:00 PM |
HB 325 |