Legislature(2001 - 2002)

02/12/2001 09:07 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     SENATE BILL NO. 16                                                                                                         
     "An  Act  regarding   oil  discharge  prevention   and  cleanup                                                            
     involving  self-propelled nontank  vessels exceeding  400 gross                                                            
     registered   tonnage  and  railroad   tank  cars  and   related                                                            
     facilities   and  operations  and  requiring  preparation   and                                                            
     implementation  of oil  discharge contingency  plans for  those                                                            
     nontank   vessels  and   railroad  tank   cars;  amending   the                                                            
     definition  of 'response  action' that  relates to releases  or                                                            
     threatened releases  of oil and thereby amending the duties and                                                            
     liabilities  of response  action contractors;  and authorizing                                                             
     compliance verification  for nontank vessels and for trains and                                                            
     related  facilities   and  operations;  and  providing  for  an                                                            
     effective date."                                                                                                           
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Kelly   indicated  that   Co-Chair  Donley  had   formally                                                            
submitted some questions  and wondered if those were answered to his                                                            
satisfaction.                                                                                                                   
                                                                                                                                
Co-Chair  Donley answered no.   He explained  that they first  asked                                                            
them to clarify  the funding source,  because on the fiscal  note it                                                            
just  refers to  "1052-OHSRPRF-Prevention  Account"  as the  funding                                                            
source.  He  indicated that they gave  him a list of codes  used for                                                            
the Alaska  budgeting system and "1052-OHSRPRF-Prevention   Account"                                                            
was one of  15 codes that stands for  "response fund."  He  believes                                                            
that it should be amended so that it is not an obscure code.                                                                    
                                                                                                                                
Co-Chair Kelly  affirmed that the discussion would  be on the fiscal                                                            
note.                                                                                                                           
                                                                                                                                
Co-Chair  Donley   made  a  motion   to  amend  the  Department   of                                                            
Transportation    and   Public   Facilities   and   Department    of                                                            
Environmental  Conservation fiscal  notes.  This amendment  replaces                                                            
"1052-OHSRPRF-Prevention  Account"  with "oil spill response  fund".                                                            
Second,  he wondered  why the Task  Force recommended  against  user                                                            
fees.   Third, he pointed  out that the  department did not  explain                                                            
why they  felt that the  response fund would  be a preferred  source                                                            
rather than  user fees.  He indicated  that he had hoped  that there                                                            
would  be a better  explanation  of the  different  sections of  the                                                            
response fund.                                                                                                                  
                                                                                                                                
Co-Chair Kelly explained  that it was the general consensus with the                                                            
people  working on  the Task  Force that  industry did  not see  the                                                            
fairness  in having  them pay  for it  when they  have the  response                                                            
fund, which, by statute, would be an appropriate use for it.                                                                    
                                                                                                                                
LARRY  DIETRICK,   Director,  Division   of  Spill  Prevention   and                                                            
Response, Department  of Environmental Conservation,  indicated that                                                            
Senator Kelly's explanation  was a fair characterization of the Task                                                            
Force discussion.                                                                                                               
                                                                                                                                
BRIAN ROGERS,  Information  Insights, explained  that the issue  was                                                            
that the  users in  this case are  businesses that  are going  to be                                                            
paying  for the cost  of acquiring  response  equipment;  therefore,                                                            
since  they  were already  going  to  face  some  costs due  to  the                                                            
legislation  passed  last  year  and the  oil  spill  response  fund                                                            
appeared to the  Task Force to include the prevention  of oil spills                                                            
it seemed an appropriate use of that fund.                                                                                      
                                                                                                                                
Co-Chair  Donley wondered  if  any of the  people  required to  take                                                            
action  under the new  legislation  were paying  into the oil  spill                                                            
response fund.                                                                                                                  
                                                                                                                                
Mr. Rogers explained  that there were two companies,  BP Exploration                                                            
and Tesoro Alaska, who paid into the fund.                                                                                      
                                                                                                                                
Co-Chair Donley voiced  concerned that the people who would be using                                                            
the  money from  the response  fund  would not  be  paying into  it;                                                            
therefore,  it would be really easy  for them to recommend  that the                                                            
money be taken from the response fund.                                                                                          
                                                                                                                                
Co-Chair Kelly  indicated that he  looks at it a different  way.  He                                                            
pointed out  that when they asked  last week if there was  a Federal                                                            
statute hanging  over their heads forcing the state  into these sets                                                            
of regulations  the answer  was no.  He said  that he could  see how                                                            
the  Task Force  would  gravitate  toward  the  response  fund.   He                                                            
indicated that  he was most displeased  with the fact that  in light                                                            
of  declining  production   any  withdrawal  from   the  fund  would                                                            
ultimately deplete it.   He noted that the answer given on the sheet                                                            
does not necessarily  address that  and it does in fact deplete  the                                                            
fund.                                                                                                                           
                                                                                                                                
Mr. Dietrick said that  they did look at the out years on the fiscal                                                            
note in order  to do some long-term assessment on  the health of the                                                            
fund.   He  indicated  that  they  used the  Department  of  Revenue                                                            
forecast as the  official state forecast for the revenue  that would                                                            
be generated  by the three-cent surcharge.   He said that  when they                                                            
looked at the out years  the three-cent surcharge roughly brought in                                                            
$9 to 10  million as the  continued level  of revenue that  would be                                                            
produced by  the current production  forecast.  The $141,000  fiscal                                                            
note, which  is the long-term permanent  cost, was about  one to two                                                            
percent of  the three-cent  surcharge revenue,  which they  felt was                                                            
sustainable.                                                                                                                    
                                                                                                                                
Co-Chair Donley  wondered if they  have done any analysis  on what a                                                            
fee-based system would look like.                                                                                               
                                                                                                                                
Mr. Dietrick indicated  that the Task Force did do  some research on                                                            
a  fee-based  system  from  an  incentive  standpoint  in  order  to                                                            
determine  if there were  some ways to provide  incentive.   For the                                                            
most  part   they  turned  them  down   in  the  end  in   favor  of                                                            
Recommendation 31.                                                                                                              
                                                                                                                                
Co-Chair Donley said that he does not see fees as an incentive.                                                                 
                                                                                                                                
Mr. Dietrick  explained that one part  of the Task Force  report was                                                            
to come up  with incentives for encouraging  the industry  to pursue                                                            
prevention measures.  He  noted that in almost all cases there was a                                                            
lot of effort  to try to encourage  industry to prevent the  spills,                                                            
because in the long run  that was the cheaper way to go.  He pointed                                                            
out that a number  of incentive systems were looked  at, as ways for                                                            
the  industry  to accomplish  prevention  measures  as  part of  the                                                            
effort.  He added that  tax incentives were one of the things looked                                                            
at  as  a  way to  encourage   the industry   to pursue   prevention                                                            
measures.                                                                                                                       
                                                                                                                                
Co-Chair Donley  reiterated his original question  whether there was                                                            
any analysis of a fee-based system to pay for this.                                                                             
                                                                                                                                
Mr. Dietrick  indicated that the thing  the Task Force relied  upon,                                                            
beyond the  tax incentives that were  discussed for the prevention,                                                             
were to  use the private  sector to the  maximum extent possible  to                                                            
implement  the  legislation.    He explained  that  the  package  is                                                            
dependent  on the  use of existing  oil spill  response cooperates,                                                             
stevedoring  operations  and ship  agents;  those were  felt by  the                                                            
Committee  as the best  way to keep  the cost down.   He added  that                                                            
there was not  a cost benefit done, because before  the cooperatives                                                            
could lock  in a certain rate they  had to know the pool  of vessels                                                            
that  were going  to participate  and  they  felt that  it would  be                                                            
worked out in time.                                                                                                             
                                                                                                                                
Co-Chair  Donley  requested  clarification   on  whether  they  were                                                            
hesitant  to do an  assessment of  fees, because  they did not  know                                                            
what vehicles would be subject to this.                                                                                         
                                                                                                                                
Mr. Dietrick  responded  that  is correct.   He  explained that  the                                                            
total  pool of  vessels is  approximately  900.   The percentage  of                                                            
those  vessels  that  want  to share  in  a  single  cooperative  is                                                            
something  that will not  be worked out until  they engage  in those                                                            
negotiations  with the cooperatives.   In other words if  one vessel                                                            
were to meet all the requirements  that single vessel operator would                                                            
have to bear the  full cost of meeting that compliance;  however, if                                                            
500 vessels bear  in that single response capability  than that cost                                                            
is shared  amongst those  500 vessels.   He  indicated that  knowing                                                            
those  arrangements and  whether vessel  groups will  want to  build                                                            
their own capabilities  or join the  same cooperative or  form a new                                                            
cooperative  or  pursue  other  business  arrangements   with  other                                                            
partners is something  that the legislation depends  on, but was not                                                            
worked out ahead of time.                                                                                                       
                                                                                                                                
Co-Chair  Donley commented  that the  answer should  have been  that                                                            
there was difficulty  in assessing fees because of  the complexities                                                            
of the systems that were involved.                                                                                              
                                                                                                                                
PAUL FUHS,  Marine Technical  Advisor, explained  that they  did not                                                            
look at what  the fees would be if  they charged in addition  to the                                                            
fees of complying  with it and paying  the cooperatives and  getting                                                            
the certificate  of  financial responsibility.    He indicated  that                                                            
when they  looked at it  they realized that  the three-cent  fund or                                                            
response fund was designed  for purposes such as this one.  He noted                                                            
that the historical  compromise that was reached years  ago was that                                                            
the two-cents  would lead  up to  $50 million  and the industry  new                                                            
that they would have the  three-cents forever.  He said that they do                                                            
not mind if the money is spent on things such as prevention.                                                                    
                                                                                                                                
Mr. Dietrick noted that  the industry's thinking behind this is that                                                            
there would be  additional vessels participating in  the safety net;                                                            
therefore,  there would  be a  potential  decrease in  cost for  the                                                            
payer of the three-cents.                                                                                                       
                                                                                                                                
Co-Chair Donley  wondered if there was a cap or if  this was just an                                                            
estimate  of what was going  to be assessed  against the  three-cent                                                            
fund.  He  pointed out that  if they develop  a system of  virtually                                                            
unlimited revenue there  might not be a guarantee that the costs are                                                            
going to be restrained.                                                                                                         
                                                                                                                                
Mr. Fuhs  responded  that their guarantee  is the  Senate and  House                                                            
Finance Committees,  since they are  in charge of appropriating  the                                                            
budget every year.                                                                                                              
                                                                                                                                
Mr. Dietrick augmented  that they changed the two  positions back to                                                            
temporary to accommodate  the peak load in FY03 and FY04 in response                                                            
to the concerns  that permanent positions would be  on the books and                                                            
carried on.                                                                                                                     
                                                                                                                                
Senator Leman  wondered how the production  level decline  from last                                                            
year's estimate  of a million barrels a day affects  their estimates                                                            
of the balance.                                                                                                                 
                                                                                                                                
Mr. Dietrick  responded that the production  estimates are  from the                                                            
Department  of  Revenue  tax  division  in the  "Fall  2000  Revenue                                                            
Sources Book;"  this is the document  the agencies use for  planning                                                            
their fiscal budget.  He  explained that the budget planning for the                                                            
response  fund  is  done  on  an  annual  fiscal  year  basis.    He                                                            
formulated that  what they do is at the end of the  fiscal year they                                                            
take the balance  and add to it the projected revenue  over the next                                                            
fiscal  year,  in this  case  it would  be  FY02, and  subtract  the                                                            
expenditures that  are planned for that year in the  budget and that                                                            
would determine  the balance  for the end of  FY02.  He pointed  out                                                            
that  during  that year,  in  answer  to the  question,  the  actual                                                            
production  does  fluctuate  from the  number  that they  select  to                                                            
prepare  the budget.   He noted  that they use  the spring  forecast                                                            
number and  then update it  in the fall.   He believes that  they do                                                            
have an advantage,  because the fluctuations  in production  are not                                                            
anywhere  near  the  fluctuations  in  the  price per  barrel.    He                                                            
asserted that even though  there is some fluctuation over the course                                                            
of the year  it usually balances out  by the end of the fiscal  year                                                            
and they do not think there  will be any substantial negative impact                                                            
on the flow.                                                                                                                    
                                                                                                                                
Senator Leman asked if that was even for the out years.                                                                         
                                                                                                                                
Mr. Dietrick  responded that  the farther they  get out in  FY04 and                                                            
FY05 certainly  the more speculative it becomes.   He explained that                                                            
BP just  announced that  they want  to go for  an increase as  their                                                            
goal by FY05  and that kind of information  is not reflected  in the                                                            
revenue forecast, but an  upside potential target that the companies                                                            
hit will enhance the fund and drive it the other way.                                                                           
                                                                                                                                
Senator  Leman wondered  if  they concur  with the  fiscal  analysts                                                            
assessment  of  the amount  available  for  appropriation  of  $27.7                                                            
million.                                                                                                                        
                                                                                                                                
Mr.  Dietrick responded  that  they did  work with  the Legislative                                                             
Finance  Division and  the fiscal  analysts  and that  is a  correct                                                            
starting number that they used for their FY02 forecast.                                                                         
                                                                                                                                
Senator  Leman  wondered  if  the response  monies  that  are  RSA'd                                                            
(Reimbursable  Services Agreement) to other departments  included in                                                            
the operating budget total approximately $22 million.                                                                           
                                                                                                                                
Mr. Dietrick responded yes.                                                                                                     
                                                                                                                                
Senator Leman wondered  whether the 20 staff currently reviewing the                                                            
140 c-plans were  in one division and asked Mr. Dietrick  to explain                                                            
the rational for  the additional positions.  He further  inquired as                                                            
to  whether  there were  additional  workloads  to  accommodate  the                                                            
additional positions.                                                                                                           
                                                                                                                                
Mr.  Dietrick  explained  that all  of  the positions  were  in  the                                                            
Division  of  Spill Prevention  and  Response.    He noted  that  by                                                            
comparison the  staff now currently reviews, for the  crude and non-                                                            
crude industry,  approximately 140  plans and the number  of vessels                                                            
that will be  brought in by SB 16  is approximately 900 vessels  and                                                            
500 plans.  He  explained that they are only counting  on two people                                                            
to do that in the long  run, because they are relying heavily on the                                                            
streamline plan and further  that the existing marine infrastructure                                                            
will carry the load.                                                                                                            
                                                                                                                                
Senator  Leman  asked whether  they  were  fairly confident  in  the                                                            
projections that the department  would not be coming back asking for                                                            
additional funds.                                                                                                               
                                                                                                                                
Mr. Dietrick asserted  that was what they had been  driven toward in                                                            
trying to prepare the fiscal  note and they understand the long-term                                                            
fiscal situation and they  have tried to throttle it back so they do                                                            
not have to come back in future years.                                                                                          
                                                                                                                                
Senator Leman  wondered how many of the staff are  currently working                                                            
on and reviewing c-plans.                                                                                                       
                                                                                                                                
Mr. Dietrick  indicated that there  were approximately 20  that were                                                            
currently  managing  the c-plans  for the  crude  and non-crude  oil                                                            
industries.                                                                                                                     
                                                                                                                                
Senator Leman  further inquired as  to whether they were  working on                                                            
testing as well.                                                                                                                
                                                                                                                                
Mr. Dietrick responded correct.                                                                                                 
                                                                                                                                
Senator Leman  asked if the c-plans were updated every  three years.                                                            
                                                                                                                                
Mr. Dietrick responded correct.                                                                                                 
                                                                                                                                
Senator Leman wondered  how long the department has been involved in                                                            
reviewing c-plans.                                                                                                              
                                                                                                                                
Mr. Dietrick said  that it started in the 80s and  they actually had                                                            
legislation  on the books prior to  the 1989 event that required  c-                                                            
plans.  He added  that they took a significant new  direction in the                                                            
passage of HB 567 following the 1989 event.                                                                                     
                                                                                                                                
Senator Leman  wondered since HB 567  passed if they have  worked on                                                            
models for streamlining the plans.                                                                                              
                                                                                                                                
Mr.  Dietrick  indicated  that  they  have  been  working  with  the                                                            
industry  on how to  do that and  they now have  plans in place  for                                                            
what they call "umbrella  plans."  For example, for the spot charter                                                            
industry  in  Cook Inlet  they  will  have one  operator  that  will                                                            
prepare the  plan and have  the plan and as  they bring in  new spot                                                            
charters  they can add those  vessels to the  c-plan in as  short as                                                            
five days.   He added  that they  were doing the  same thing  on the                                                            
North Slope.                                                                                                                    
                                                                                                                                
Co-Chair  Kelly referred to  the amendment  to the fiscal note  that                                                            
had been offered by Senator Donley.                                                                                             
                                                                                                                                
AT EASE 9:33 AM / 9:49 AM                                                                                                       
                                                                                                                                
Co-Chair  Donley asked the  department to submit  a new fiscal  note                                                            
that  accurately  reflected  the  sponsor  and the  request  to  the                                                            
legislation.                                                                                                                    
                                                                                                                                
[It was established  that such a fiscal  note had been prepared  and                                                            
Senator Donley's staff would submit it to the Committee.]                                                                       
                                                                                                                                
Co-Chair Kelly announced that SB 16 would be HELD in Committee.                                                                 
                                                                                                                                
AT EASE 9:52 AM / 9:53 AM                                                                                                       
                                                                                                                                
Co-Chair Kelly  announced that SB 2 would roll to  the bottom of the                                                            
calendar and SB 21 would be HELD in Committee.                                                                                  
                                                                                                                                
                                                                                                                                

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