Legislature(1997 - 1998)

03/13/1997 10:07 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
SENATE BILL NO. 41                                                           
                                                                               
     "An Act relating to environmental audits and health and                   
     safety audits to determine compliance with certain laws,                  
     permits, and regulations."                                                
                                                                               
Co-Chair Sharp communicated that SB  41 had previously been heard              
by the committee and that public testimony had been opened.                    
                                                                               
MARIE  SANSONE,  ASSISTANT  ATTORNEY GENERAL,  NATURAL  RESOURCES              
SECTION,  DEPARTMENT OF  LAW (DOL),  relayed that  the department              
had successfully worked with the  bill sponsor on amendments, but              
it  had  several  remaining concerns.  A  principal  concern  was              
related to pipeline  tariff rates. Additionally, the  bill used a              
number of  terms to  refer to  state, regulatory,  and government              
agencies with  enforcement jurisdiction; the term  department was              
defined  by   the  bill  as   the  Department   of  Environmental              
Conservation. She elaborated that  the bill additionally appeared              
to relate to  municipalities; therefore, DOL wanted  to work with              
the  sponsor  to  achieve   terminology  consistency  within  the              
legislation. She believed consistency  would offer a considerable              
improvement to the bill; there  were instances that warranted the              
specification of a particular agency;  whereas, some areas needed              
a broader  term. She  elaborated that  "the privilege  applies in              
more context than the immunity  provisions," which was the reason              
for the department's concern.                                                  
                                                                               
Ms. Sansone shared that DOL  was concerned with the definition of              
the terms  audit and privileged information  (called confidential              
self-evaluation). The  department was also interested  in who was              
responsible for  proving exceptions  to the privilege  related to              
the burden  of proof and  whether the privilege should  extend to              
underlying  or objective  facts. She  shared that  the department              
had  discussed all  of its  concerns with  the sponsor  and would              
continue  to do  so  moving forward.  She  shared that  Assistant              
Attorney General Beth Kerttula would  address the bill provisions              
relating to pipeline tariffs.                                                  
                                                                               
Senator Phillips observed that the  committee was responsible for              
dealing with  issues related  to money.  He wondered  whether DOL              
had worked  with the sponsor  on its  concerns when the  bill had              
been in the Senate Judiciary  Committee. Ms. Sansone responded in              
the affirmative.                                                               
                                                                               
Senator  Phillips asked  whether the  department and  the sponsor              
had philosophical differences pertaining  to the legislation. Ms.              
Sansone replied that amendments had  also been made in the Senate              
Labor and Commerce Committee. She  relayed that some of the basic              
issues  had been  addressed in  prior committees;  however, there              
were some  issues that  had not  been resolved  that were  not as              
high  on  the priority  list.  She  explained  that some  of  the              
remaining  concerns  were of  a  housecleaning  nature, but  were              
important.                                                                     
                                                                               
Senator   Phillips   repeated   his   question   related   to   a              
philosophical  difference  between  the  administration  and  the              
sponsor.                                                                       
                                                                               
Ms. Sansone deferred the question  to Janice Adair, Department of              
Environmental Conservation (DEC).                                              
                                                                               
Co-Chair   Sharp  wondered   whether  the   administration  would              
continue  to  oppose the  bill  if  the  concerns listed  by  Ms.              
Sansone were addressed.                                                        
                                                                               
JANICE  ADAIR,   DIRECTOR,  DIVISION  OF   ENVIRONMENTAL  HEALTH,              
DEPARTMENT OF ENVIRONMENTAL CONSERVATION,  replied that there was              
not   a  philosophical   difference  on   the  legislation.   She              
communicated  that DEC  had been  working cooperatively  with the              
sponsor  to reach  agreements. She  relayed that  discussions had              
been productive, but  as the bill changed, new  issues arose. She              
explained  that when  the bill  had  been amended  in the  Senate              
Judiciary  Committee to  apply only  to DEC,  terms referring  to              
agency,   department,  and   regulatory  agency   needed  to   be              
clarified. She  added that  some issues  had taken  priority over              
others based on importance.                                                    
                                                                               
Senator  Phillips  wanted  to  ensure that  both  sides  were  in              
agreement on working  toward a common goal of  a successful piece              
of legislation.  He believed there  had been  numerous amendments              
that had been offered in various committees.                                   
                                                                               
BETH KERTTULA,  ASSISTANT ATTORNEY GENERAL, OIL  AND GAS SECTION,              
DEPARTMENT  OF LAW,  communicated that  the DOL  fiscal note  had              
changed  due  to  actions  affecting  the  pipeline  tariff.  She              
discussed  that the  bill  had been  before  the legislature  the              
prior year and  had been amended by the  Senate Finance Committee              
to remove  any impact  on pipeline  tariffs; however,  because of              
the  way tariff  cases were  brought, the  bill had  impacted the              
tariff that  was removed.  She furthered  that language  added to              
the bill  in the  Senate Judiciary  Committee during  the current              
session  also impacted  the pipeline  tariff. She  explained that              
under Alaska's royalty  and production taxes, the  state paid for              
one-quarter of  the tariff,  which included all  of the  costs of              
running  the   pipeline  in   its  calculation   through  reduced              
revenues;  the state  had the  right  to challenge  the costs  of              
running  the  pipeline  with the  Trans  Alaska  Pipeline  System              
(TAPS) settlement  agreement between the state  and the carriers.              
For example, in the 1995  tariff case, the costs being challenged              
as imprudent and not properly  included in the tariff amounted to              
approximately $300  million (the state's share  was approximately              
$75 million).  She detailed that  much of the information  in the              
1995  case was  from audits;  DOL  estimated that  it would  cost              
approximately $25 million if the  state had to duplicate the same              
information.                                                                   
                                                                               
Ms. Kerttula  shared that under  the bill's current  language DOL              
believed  that   the  state  could  be   stopped  from  obtaining              
information needed to bring tariff  cases. She pointed to page 6,              
lines 23  through 26 of  the CS  (she believed Amendment  6 would              
address  the problem)  and stated  that the  bill restricted  the              
state's  access  to information  to  the  parts of  environmental              
self-audit  reports that  consisted of  information necessary  to              
determine pipeline  tariffs. She explained that  previously there              
had been a flat exemption  for audit information in tariff cases.              
She continued that  because of the way tariff  cases were brought              
all of  the information concerning  pipeline management  would be              
necessary (the  costs of running  the pipeline were  figured into              
the rates).  She relayed  that the primary  concern was  that the              
bill's  language could  be  interpreted to  mean  that the  state              
could  only  obtain  information   using  the  carrier's  initial              
calculation or  it could  be read  to be  a determination  of the              
rates (the  upfront rates the  carriers filed before  the Federal              
Energy  Regulatory Commission);  the problem  was that  the state              
only challenged  rates and did  not determine them.  She stressed              
that DOL  and carrier attorneys  could have  strong disagreements              
related to  the language  and she  did not  believe it  was worth              
jeopardizing the tariff.                                                       
                                                                               
Ms. Kerttula did  not believe the sponsor felt  a language change              
was  necessary, but  she  believed  the sponsor  did  not have  a              
strong  objection  to the  language  either.  The department  had              
worked with the  Alaska Oil and Gas Association  on the language;              
she did  not believe it  meant to  impact the tariff.  She stated              
that typically work in "arcane"  areas presented problems such as              
the ones  listed. The department's  final concern was  related to              
the immunity section of the bill;  the second part of Amendment 6              
would address the issue by  adding an amendment to the definition              
of penalty  that would clarify  that any administrative  or civil              
sanctions in tariff proceedings were  not subject to the immunity              
created under  the legislation  (page 13,  line 1).  She detailed              
that  once  pipeline  tariffs were  not  excluded  from  immunity              
tariffs  an argument  could  take place  that  the carriers  were              
immune  from having  to reimburse  the state  under tariff  cases              
because it  was a civil penalty  in some cases in  addition to an              
administrative penalty  before the APUC [Alaska  Public Utilities              
Commission].  She  communicated  that the  amendment  was  fairly              
small and the state was  definitely impacted. She relayed that it              
was  difficult to  determine  what  the impact  would  be in  the              
department's fiscal note;  DOL had reduced the  note by one-third              
to account  for changes that were  made in the removal  of health              
and  safety audits;  however, it  had been  increased by  $75,000              
annually to provide DOL with  an expert witness for tariff cases.              
She communicated that Amendment 6  would make the department feel              
much more secure about its cases.                                              
                                                                               
Co-Chair  Sharp  asked whether  the  proposed  Amendment 6  would              
address  the  pipeline  tariff. Ms.  Kerttula  responded  in  the              
affirmative.                                                                   
                                                                               
Senator Adams  was satisfied that  Amendment 6 would  address the              
concern.                                                                       
                                                                               
Co-Chair  Sharp   remarked  that  Co-Chair  Pearce   and  Senator              
Torgerson had joined the meeting at an earlier time.                           
                                                                               
Senator Adams MOVED to ADOPT Amendment 6.                                      
                                                                               
Senator Parnell  OBJECTED for discussion.  He asked to  hear from              
the bill sponsor.                                                              
                                                                               
Senator  Phillips  asked  whether   Co-Chair  Sharp  intended  to              
address the bill markup at present.                                            
                                                                               
Co-Chair Sharp replied that his  intent was to "wade" through the              
amendments with patience.                                                      
                                                                               
Senator Adams hoped to address  amendments at present; he planned              
to offer Amendment 8 related to  burden of proof and Amendment 9,              
which  was a  housekeeping measure.  Additionally, he  would like              
the  sponsor to  have an  opportunity  to see  the amendments  as              
well.                                                                          
                                                                               
Co-Chair  Sharp   expressed  his  desire  to   discuss  the  most              
important  amendments  and to  hear  related  agency and  sponsor              
testimony.  He asked  members to  work with  the departments  and              
sponsor for  incorporation into  a CS  related to  amendments the              
committee would not have time to hear.                                         
                                                                               
Senator Parnell communicated that  he intended to move Amendments              
1  through 3  for the  bill sponsor  and for  explanation by  the              
sponsor. He believed Amendments 4 and 5 would not be offered.                  
                                                                               
MIKE POLLEY, STAFF, SENATOR LOREN  LEMAN, shared that the sponsor              
did not  see a  problem with the  existing bill  language despite              
conversations with DOL.  The sponsor did not  believe the current              
language  would  prevent  the state  from  acquiring  the  needed              
portions  of  audit  reports to  determine  correct  tariffs.  He              
furthered that the  language clearly stated that the  parts of an              
audit report  necessary to determine  pipeline rates  and tariffs              
were not  privileged. However,  the sponsor  had no  objection to              
Amendment 6, given his belief that  it would not do any damage to              
the bill.                                                                      
                                                                               
Ms.   Kerttula  believed   one  change   would  help   companies;              
previously  the bill  did not  contain language  that would  have              
required  confidentiality  in  tariff cases.  Amendment  6  would              
implement  a  protective order  in  the  proceeding, which  would              
prevent   the  department   and   its   experts  from   releasing              
confidential information.                                                      
                                                                               
Mr.  Polley  did  not  believe  AOGA had  any  objection  to  the              
amendment.                                                                     
                                                                               
Senator  Parnell WITHDREW  his  OBJECTION to  Amendment 6.  There              
being NO further OBJECTION, Amendment 6 was ADOPTED.                           
                                                                               
Senator  Parnell MOVED  to ADOPT  Amendment  1 and  asked for  an              
explanation from the sponsor.                                                  
                                                                               
Senator Adams OBJECTED for discussion.                                         
                                                                               
Senator Parnell clarified that Amendment  1 had been redrafted as              
Amendment 7; therefore,  he WITHDREW Amendment 1.  There being NO              
OBJECTION, it was so ordered.                                                  
                                                                               
Senator Parnell MOVED to ADOPT Amendment 7.                                    
                                                                               
Senator Adams OBJECTED for discussion.                                         
                                                                               
Co-Chair Sharp asked for the  sponsor's reaction to the amendment              
to be followed by the department's view.                                       
                                                                               
Mr. Polley communicated that the  amendment had been suggested by              
some  of   the  industries   that  would   be  affected   by  the              
legislation. He explained that under the  law if an entity made a              
disclosure  there  was a  significant  amount  of conditions  and              
caveats on the  immunity; there were a number of  items an entity              
needed  to  qualify for  in  order  to  be granted  immunity.  He              
furthered  that   when  an  agency   made  a  disclosure   of  an              
inadvertent violation  discovered through an audit,  it would not              
necessarily know whether it would  be eligible for immunity under              
the  legislation.  He added  that  an  agency  may think  it  was              
eligible,  but DEC  could have  a  different interpretation.  The              
concern  had been  expressed by  industry attorneys  that it  was              
unclear whether a disclosure would  have to include a guilty plea              
that  a regulation  had been  violated or  whether a  mere report              
that the  situation had been  discovered was  sufficient (leaving              
the decision to  the agency about whether a violation  of the law              
had  occurred). He  pointed to  Texas as  an example  of a  state              
where agencies  did not say  that they had  violated regulations,              
but  instead  included  the  language  "we  found  the  following              
circumstances, which may  constitute a violation of  the law." He              
expounded   that  Amendment   7  clarified   that  circumstances,              
conditions, or  occurrences could  be reported in  the disclosure              
that constituted or may constitute a violation.                                
                                                                               
Ms. Adair shared  that DEC believed the bill  addressed the issue              
and that  the amendment  was not  necessary; however,  the agency              
had no objection to the amendment.                                             
                                                                               
Senator Adams WITHDREW his OBJECTION  to Amendment 7. There being              
NO further OBJECTION, Amendment 7 was ADOPTED.                                 
                                                                               
Co-Chair Sharp noted  that Senator Donley had  joined the meeting              
at an earlier time.                                                            
                                                                               
Senator Parnell MOVED to ADOPT Amendment 2.                                    
                                                                               
Senator Adams OBJECTED for discussion.                                         
                                                                               
Mr. Polley  relayed that Amendment 2  applied to the area  of the              
bill where  the conditions under  which an audit report  could be              
disclosed to  another party. He  explained that because  the bill              
created  a privilege  for  audit reports  it  became critical  to              
define  who  the reports  could  be  disclosed to;  traditionally              
privileged information  was supposed to be  kept confidential. He              
elaborated that  industry had expressed concern  that the current              
language did not adequately provide  for some of the transfers of              
the privileged report  that may be necessary.  For example, there              
was  concern that  the  bill  would not  allow  a contractor  who              
conducted an  audit to disclose  the document to its  client; the              
amendment was designed to address the problem.                                 
                                                                               
Co-Chair  Sharp   asked  for  verification  that   the  amendment              
addressed  the multi-intermingling  of operator  responsibilities              
on the  same job site.  Mr. Polley responded in  the affirmative.              
He expounded that  a contractor should have the  ability to share              
any  environmental problems  it discovered  during an  audit with              
the owner.                                                                     
                                                                               
Senator  Adams WITHDREW  his OBJECTION.  There  being NO  further              
OBJECTION, Amendment 2 was ADOPTED.                                            
                                                                               
Senator Parnell MOVED to ADOPT Amendment 3.                                    
                                                                               
Senator Adams OBJECTED for discussion.                                         
                                                                               
Mr.   Polley  communicated   that   Amendment   3  impacted   the              
definitions section of the bill on  page 12, lines 28 through 29.              
He  explained  that the  amendment  broadened  the definition  of              
owner  operator; the  amendment  clarified that  if a  contractor              
conducted an  audit that  it was eligible  for the  privilege and              
immunities  granted under  the bill.  There was  a representative              
from  the  Alaska chapter  of  the  International Association  of              
Drilling Contractors available for questions.                                  
                                                                               
Co-Chair Sharp asked for comments from the administration.                     
                                                                               
Ms. Adair  replied that  DEC had concerns  with Amendment  3. She              
detailed that  current laws  that would be  impacted by  the bill              
looked to two  kinds of people to hold  responsible for reporting              
actions:  the  owner  (usually the  permitee)  and  the  facility              
operator (with  some type  of legal  obligation). The  terms were              
defined  in  statute  and other  provisions  and  were  typically              
defined  separately;   owner  was  defined  as   someone  with  a              
proprietary or possessory interest in  a facility and an operator              
was someone  who directed, managed,  or supervised  the facility.              
She stated that  it was unclear to her how  an operator would not              
be an operator  of a facility. She elaborated  that if definition              
of owner  or operator was  expanded to include some  other entity              
(due to  a private contractual  arrangement between  parties that              
could  change  any   time)  DEC  was  concerned   about  who  the              
responsible party would be. She  furthered that the bill set some              
parameters  on  when the  privilege  was  available; it  was  not              
available for items  that were required to be  reported under the              
law. She  continued that only  owners or operators had  the legal              
responsibility,  but  those  with the  privilege  could  preclude              
someone else  from disclosing the  information. If an  entity was              
given the  privilege but  was not  legally responsible  to report              
things, they  could preclude someone who  was legally responsible              
from  reporting  because  the bill  said  specifically  that  the              
person with  the privilege could preclude  someone from reporting              
the information to the department.                                             
                                                                               
Ms. Adair  shared that the  department would prefer to  see owner              
and operator  split out and  properly defined. The  definition of              
operator could then be looked  at to determine how the definition              
would not work for drilling contractors.                                       
                                                                               
Senator Parnell  remarked that the department  had identified the              
issue as  a problem, but had  then stated that an  operator could              
be covered  under operator of a  facility. Ms. Adair did  not see              
how operators would not be covered.                                            
                                                                               
Senator Parnell asked what the  department thought was wrong with              
the amendment. Ms.  Adair replied that the  amendment could apply              
to people who were not operators.                                              
                                                                               
Senator Phillips  asked to  hear from  a representative  from the              
International Association of Drilling Contractors.                             
                                                                               
KYLE PARKER, INTERNATIONAL ASSOCIATION  OF DRILLING CONTRACTORS -              
ALASKA CHAPTER,  communicated that  the association  had proposed              
Amendments 2 and  3. He voiced the association's  support for the              
legislation and noted  that the concept had been  adopted in most              
other  oil producing  states. He  furthered that  the association              
had been concerned  that the bill had not  originally covered the              
relationships  of the  drilling contractors  on the  North Slope;              
therefore,  the association  had  drafted an  amendment that  had              
initially  combined  components  of  Amendments 2  and  3.  After              
working  with  the  sponsor, the  amendments  had  been  divided.              
Amendment  2 allowed  drilling contractors  to share  their audit              
reports  with operators  and  vice versa.  He  detailed that  the              
provision   would  allow   the   association   to  analyze   when              
relationships were and were not working.                                       
                                                                               
Mr. Parker  pointed to Amendment  3 and explained that  the terms              
owner  and operator  had a  "very  definite" meaning  in the  oil              
field.  The drilling  contractors  were not  owners or  operators              
(e.g.  Nabors and  Doyon); the  owners or  operators were  BP and              
Arco.  He stated  that Amendment  3 had  been drafted  to clarify              
that  owners, operators,  and  independent contractors  including              
other oil  field service contractors  (e.g. VECO  Corporation and              
other)  were covered  by  the  legislation. Drilling  contractors              
were responsible  to the state  for complying  with environmental              
laws.  He discussed  that the  definition as  originally proposed              
read "who  owns or operates  a regulated facility,  operation, or              
property." The  association believed it was  necessary to clarify              
that independent contractors were not  owners or operators in the              
oil field.  He elaborated  that Senator  Leman had  developed the              
second  half of  the definition  that read  "however, within  the              
context of  this definition independent  contractor shall  not be              
construed  to  include somebody  who  is  retained for  the  sole              
purpose of coming in and  conducting the audit." He believed that              
the language  may address DEC's  concern about someone  trying to              
assert the privilege that they  were not entitled to. He detailed              
that  Mr. Polley  had  also  raised the  concern  earlier in  the              
process;  therefore,  the exclusion  in  the  amendment had  been              
developed.                                                                     
                                                                               
Senator  Adams  asked  whether  the  owner  definition  could  be              
expanded to read  that the owner or operator  was responsible for              
the actions of the independent contractor.                                     
                                                                               
Mr. Parker suspected that North  Slope owners and operators would              
have a  difficult time  taking on the  responsibility for  all of              
their independent contractors.                                                 
                                                                               
Senator Adams  replied that  Mr. Parker had  stated that  two oil              
companies were the owners on the  North Slope. He opined that the              
companies should be responsible for  the actions of the contracts              
they delegated to independent contractors.                                     
                                                                               
Mr.  Parker replied  that under  current law  there were  ways in              
which   owners  and   operators   were   responsible  for   their              
contractors'   actions;  however,   in   contracts,  owners   and              
operators tried  to ensure  that contractors  took responsibility              
for their own actions.                                                         
                                                                               
Senator  Adams believed  that it  should be  clearly stated  that              
contractors took responsibility for their own actions.                         
                                                                               
Ms. Adair  communicated that her  concern with the  amendment was              
related to  expanding owner  and operator  to include  people who              
were not owners and operators under AS Title 46.                               
                                                                               
Co-Chair  Sharp   asked  what   incentive  a   major  independent              
contractor  (e.g.  a driller)  would  have  to conduct  voluntary              
compliance. Ms.  Adair responded that DEC  considered contractors              
as operators.                                                                  
                                                                               
Co-Chair  Sharp  surmised  that  DEC  considered  contractors  as              
operators; however,  the contractors did not  view themselves the              
same  way.  Ms.  Adair  expressed   concern  about  changing  the              
definition  in order  to satisfy  private contracts,  which could              
subsequently be changed whenever the  need arose. She stated that              
privilege was unusual  and the department was  working to balance              
it  with  its  trust  responsibilities  to  the  legislature  and              
public. The  department believed it  needed to be very  clear who              
could  take advantage  of privilege  and  immunity; DEC  believed              
that  eligible parties  needed  to  be those  that  the law  held              
responsible.                                                                   
                                                                               
Senator   Parnell  remarked   that  DEC   required  environmental              
compliance  from contractors  in  addition to  the operators.  He              
explained  that  the  bill  would  give  owners,  operators,  and              
contractors  a reason  to audit.  He did  not understand  why the              
provision wouldn't be as applicable  to an independent contractor              
as it would to an owner or operator.                                           
                                                                               
Ms.  Adair pointed  to an  exclusion that  pertained to  required              
reporting under  a permit or  statute. She stated  that reporting              
requirements related to owners and  operators as defined in Title              
46;  they may  not be  operators  as defined  in the  contractual              
arrangement  between  drilling  contractors  and  the  oil  field              
owners;  however, by  including them  in the  bill they  would be              
given a  "blanket" privilege without  the sideboards  included in              
the  bill for  owners and  operators because  they would  have no              
legal mandate to report to DEC.                                                
                                                                               
Senator  Torgerson  pointed  to  Section 9,  page  4  related  to              
privilege  and waivers.  He  referred  to page  5,  line 10  that              
listed "independent  contractors retained" and surmised  that the              
intent of  the bill  covered the  issue. He  did not  believe the              
department would want  all of the provisions in  the bill related              
to owner and operator to apply to contractors.                                 
                                                                               
Mr.  Parker  explained  that Section  9  dealt  with  disclosures              
between  two   parties,  which  applied  to   the  privilege.  He              
elaborated  that  a separate  section  related  to immunity.  The              
association  believed  the definition  needed  to  be changed  in              
order  to "reflect  the  reality."  He opined  that  part of  the              
problem related to  the fact that relationships on  the oil field              
had changed  significantly over  the past 15  years and  that the              
statutory definition  of owner and  operator may be out  of date.              
The association  believed that  the legislation's  definition for              
owner  and  operator   was  not  broad  enough   to  include  the              
independent  contractors that  were doing  business on  the North              
Slope.                                                                         
                                                                               
Senator Torgerson  asked whether the section  related to immunity              
could be  amended to include independent  contractors. He thought              
amending the section would accomplish  the goal and would be more              
proper than including independent contractors in Amendment 3.                  
                                                                               
Senator Adams added that the  amendment language was too broad as              
it  referred  to  independent contractors  and  did  not  specify              
independent contractors in the oil field services.                             
                                                                               
Co-Chair Sharp informed  the committee that Amendment  3 would be              
taken up at  a subsequent meeting. He discussed  the schedule for              
the following day.                                                             
                                                                               
Senator Pearce noted that the  schedule for the following day was              
relatively light and that the committee  may have time to hear SB
41 as well.                                                                    
                                                                               
Co-Chair  Sharp stated  that the  committee would  return to  the              
bill the following day if time permitted.                                      
                                                                               

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