Legislature(2023 - 2024)BUTROVICH 205
05/05/2023 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| SB68 | |
| SB137 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 137 | TELECONFERENCED | |
| += | SB 68 | TELECONFERENCED | |
| += | HB 104 | TELECONFERENCED | |
SB 137-REFINED FUEL SURCHARGE
3:35:15 PM
CO-CHAIR BISHOP reconvened the meeting and announced the
consideration of SENATE BILL NO. 137 "An Act relating to the
refined fuel surcharge; and providing for an effective date."
He invited the sponsor to introduce the legislation.
3:35:25 PM
CO-CHAIR GIESSEL introduced SB 137 speaking to the sponsor
statement.
In 1990, the Alaska State Legislature passed the Oil
and Hazardous Substance Release Prevention and
Response Act, which established the Department of
Environmental Conservation's Spill, Prevention, and
Response (SPAR) division. The Act requires the oil and
gas industry operating in Alaska to pay a tax on oil
and gas production to fund the program's spill
prevention and response activities.
SPAR is responsible for developing and enforcing
regulations related to the prevention, preparedness,
and response to oil spills and other hazardous
substance releases in Alaska's waters. The program
also provides training and technical assistance to
local communities, businesses, and agencies to help
them prepare for and respond to spills.
SPAR has two primary funding accounts: the Prevention
Account and the Response Account. The funds from the
Response Account are used to respond to spills or
threats of spills that pose an imminent and
substantial threat. The Prevention Account is used to
respond, contain, clean up, and monitor spills;
address existing contamination; and pay for the
operating costs of the division. Unfortunately, the
Prevention Account has a revenue shortfall.
The Prevention Account is funded by $0.04 per barrel
of crude oil produced and $0.0095 per gallon of
refined fuel. The refined fuel surcharge was
implemented in 2015 but since then the annual
expenditures exceed the annual revenue. The balance
has been decreasing for years and its solvency has
been extended by the addition of General Funds.
Currently, the Prevention Account is projected to run
a deficit.
In hopes of keeping the Prevention Account solvent, SB
137 would increase the refined fuel surcharge from
$0.0095 to $0.015. Keeping the account solvent will
help SPAR's ability to carry out its mission of
protecting Alaska's waters from oil spills and other
hazardous substance releases. SPAR plays a critical
role in ensuring that the state's oil and gas industry
operates safely and responsibly.
CO-CHAIR BISHOP asked if there were questions.
3:38:50 PM
SENATOR KAWASAKI asked how successful the department had been in
recouping the costs associated with cleaning up spills.
SENATOR DUNBAR joined the committee.
3:39:46 PM
TIFFANY LARSON, Director, Spill Prevention & Response, DEC,
Fairbanks, Alaska, stated that the department recovered about 85
percent of the costs incurred last year to clean up spills. She
noted that this information was in the department's annual
report to the legislature and was on the DEC website.
SENATOR KAWASAKI asked if the money that's recouped goes back to
the general fund.
MS. LARSON directed attention to the chart in the bill packets
that shows that revenue relating to spill prevention and
response goes into the general fund (GF), passes to the oil and
hazardous substance release prevention and response fund, and is
then distributed to DEC operating appropriations.
SENATOR KAWASAKI asked whether the 85 percent cost recovery was
net revenue.
MS. LARSON responded that the legal and other associated costs
of a spill cleanup are also recoverable. She acknowledged that
the department typically does not recover all the costs
associated with a spill. It depends on who is responsible for
the spill, but private citizens typically do not have as many
liquid funds as large industries.
CO-CHAIR BISHOP asked Ms. Larson if she had anything to add as
an invited testifier.
3:43:00 PM
MS. LARSON again directed attention to the chart, "How the Oil
and Hazardous Substance Release Prevention and Response Fund
Works" and mentioned that the red boxes represent the response
account which is generally for emergency responses. The green
boxes represent the prevention account, which provides 70
percent of SPAR's operating budget. She agreed with the sponsor
that declining oil production has resulted in less revenue from
the $0.04/barrel surcharge. The $0.0095/gallon refined fuel
surcharge brings in about $1 million, which is less than was
anticipated. She noted that there were other miscellaneous fund
sources.
MS. LARSON explained the salient reason for increasing the
refined fuel surcharge from $0.0095 to $0.015 is that the
majority of spills and contaminated sites requiring long-term
monitoring are associated with refined fuels. These fuels
represent 70-75 percent of the total oil and hazardous
substances released in the calendar years 2021 and 2022.
3:45:00 PM
SENATOR WIELECHOWSKI recalled that in 2015 when an increase was
proposed to the per barrel tax, the oil industry said taxes
deter investment and that the oil tax reform that passed the
previous year provided the opportunity for Alaska to realize
more oil production than ever before. The legislature responded
by passing the tax on to the people of Alaska in the form of
increased gas taxes. He said the prediction of increased
production hasn't happened and he wonders why the legislature
shouldn't increase the per barrel surcharge to the oil industry.
MS. LARSON said that's a policy call for the legislature. She
added that the refined fuel surcharge collects the spiller fee
at the point of sale.
CO-CHAIR BISHOP talked about his experience with midnight
dumpers and then posed a hypothetical example of somebody
spilling 20 gallons of fuel when they're filling their vehicle.
The spill wasn't noticed immediately so nobody knew the identity
of the responsible party. He asked whether SPAR would use funds
from the emergency response account to pay for the cleanup.
MS. LARSON replied that every attempt is made to identify the
responsible party and recover the costs. In Alaska that includes
not just the person who spilled the fuel but also the person who
owns the land where the spill occurred and the owner of a
business where the spill occurred. If this fails and the spill
poses an imminent risk to human health and the environment, that
is the threshold for accessing the emergency response account.
3:49:18 PM
SENATOR KAWASAKI asked if she was familiar with the sulfolane
spill in Fairbanks on property formerly owned by Williams Alaska
Petroleum, Inc.
MS. LARSON said yes, she lives in Fairbanks.
SENATOR KAWASAKI asked who eventually paid for that response.
MS. LARSON replied that it was Flint Hills that paid, but the
department was awaiting the Alaska Supreme Court decision for
the ultimate disposition of funding.
3:50:20 PM
CO-CHAIR GIESSEL described a former homestead in Anchorage that
had buried fuel tanks that leaked. The property owner was
deceased. She asked whether the emergency response fund would
have been used for that cleanup.
MS. LARSON said yes; the state picks up the cost when the
responsible party can't be found. That's the reason for taking
the fee at the point of sale.
CO-CHAIR BISHOP invited Donna Schantz to provide her testimony.
3:51:57 PM
DONNA SCHANTZ, Executive Director, Prince William Sound Regional
Citizens Advisory Council, Valdez, Alaska, stated that the
council is a nonprofit that was created following the Exxon
Valdez oil spill. It has a congressional mandate to involve
citizens in decisions that impact the safe transportation and
storage of oil at the Valdez terminal and onto the tankers that
call there. She stated strong support for increasing the refined
fuel surcharge as proposed in SB 137. She said this additional
revenue is necessary to close the revenue gap. The reduced
revenue that has been discussed has resulted in a continued
shortfall within the prevention account within the oil hazardous
and substance release prevention and response fund. This greatly
diminishes the ability of the state to prevent oil spills and
hazardous substance releases, maintain adequate readiness, and
respond rapidly should a spill occur. The Council believes the
division is beyond doing more with less; it has had to make
difficult choices about how to do less with less and continue to
meet its statutory responsibilities. She emphasized the
importance of being able to adequately engage in prevention and
response activities to protect the environment, economy, and the
health safety and well-being of Alaskans. Without legislative
action, the existing funding sources will remain inadequate to
maintain preparedness. The state cannot afford to further
diminish the important mission of preventing another Exxon
Valdez type of oil spill disaster. She clarified that the
Council receives no funds from the prevention account. Their
support for SB 137 is solely to ensure that SPAR has access to
adequate financial resources.
3:54:54 PM
CO-CHAIR GIESSEL asked her to comment on the report on the
Alyeska facility in Valdez that highlighted potential risks at
the facility.
MS. SCHANTZ said the Council commissioned that report. She
continued that the refined fuel surcharge funds the SPAR
division, which is the agency primarily responsible for
overseeing oil spill prevention measures for the Trans Alaska
Pipeline and the Valdez Marine Terminal. She described the plans
for the facility as the most complex in the state, and said the
increase in the refined fuel charge will help ensure that the
state is fit, willing, and able to oversee that facility.
CO-CHAIR GIESSEL offered her understanding that Alyeska would be
responsible for an uncontained leak at the Valdez terminal but
the SPAR fund would provide resources for an immediate and
perhaps ongoing response. She asked if that was an accurate
portrayal.
MS. SCHANTZ said that's correct; the SPAR division requires
resources to maintain preparedness to respond rapidly when
there's a need. Recovering those costs comes later.
CO-CHAIR BISHOP referenced the hypothetical spill at the Valdez
tank farm and clarified that by having adequate funds, DEC will
have the manpower and expertise to hopefully eliminate problems
on the front end so you don't get to problems on the back end.
MS. SCHANTZ responded that SB 137 increases revenue for the
prevention account. The goal is to prevent accidents from
happening, but it's necessary to have an adequate response
mechanism in case the prevention measures fail.
CO-CHAIR BISHOP agreed; prevention and emergency response are
both needed.
3:58:56 PM
SENATOR DUNBAR referenced Senator Wielechowski's point about
prevention and response and said he wonders whether it might be
beneficial to increase both the refined fuel surcharge and the
per barrel surcharge. He said it seems that the majority of the
expense for prevention is more directly attributable to the
efforts in Prince William Sound or other places that have oil
industry infrastructure. He asked if that was correct.
CO-CHAIR BISHOP suggested the director of the SPAR division
respond.
MS. LARSON responded that the prevention account funds 70
percent of the operational costs of the entire division, which
is comprised of administrative staff, contaminated site staff,
and prevention preparedness and response staff. The activities
include all the oversight required for successful prevention
activities in the state, attending drills, visiting contaminated
sites, assessing sites, and cooperating with the responsible
parties to figure out the best way to help them solve the issue.
She said most of the response and response funding is the red
side of the chart and the bill is generally about funding the
prevention account which is the green side of the chart.
SENATOR DUNBAR asked if there has been any growth in the costs
for the traditional prevention activities that are closely
related to the pipeline and activities on the North Slope,
particularly Prince William Sound and the Valdez terminal,
MS. LARSON said she didn't know whether there had been growth in
those costs but recovery is generally high from the oil
industry. She noted that her phone a friend lifeline just texted
that cost recovery for crude oil last year was 99 percent.
4:02:49 PM
SENATOR WIELECHOWSKI referenced the 2015 Alaska Oil and Gas
Conservation Commission (AOGCC) position paper in the bill
packet that shows that 29 percent of the spill volume was from
oil and gas exploration and production and 33 percent was from
all other facilities. He asked what was included in "other
facilities" and whether she had an updated breakdown of spill
volume by facility.
MS. LARSON said she'd be happy to provide that information.
CO-CHAIR BISHOP asked her to send the information to the
committee and he'd see that it was distributed. He continued
that he'd like to invite her back next year to give a
comprehensive overview of what SPAR does in different scenarios.
SENATOR WIELECHOWSKI said his reading of the fiscal note is that
the bill will generate $3.6 million. He asked how much the per-
barrel surcharge would need to be increased to generate a
similar amount.
4:04:54 PM
BRANDON SPANOS, Deputy Director, Tax Division, Department of
Revenue, Anchorage, Alaska, stated that he would do that
analysis and provide the information to the committee.
CO-CHAIR BISHOP asked him to send the information to the
committee and he'd distribute it.
4:05:24 PM
CO-CHAIR BISHOP opened public testimony on SB 137.
4:05:41 PM
JASON WERNER, CFO, Petro Marine Services, Anchorage, Alaska,
stated that Petro Marine has no position on the increase to the
refined fuel tax proposed in SB 137, but he wanted to call
attention to the wording in the current fuel surcharge exemption
and how it impacts his company. He explained that Petro Marine
operates a US flagged tug and barge that brings fuel from US
refineries in Puget Sound into Skagway where it's then trucked
into the Yukon and distributed. He said this fuel currently is
subject to the fuel surcharge because the fuel is refined in the
US, not Canada. By comparison, a Canadian flagged tug and barge
could bring fuel from Vancouver refineries into Skagway and
truck it into the Yukon and not be subject to the fuel
surcharge.
MR. WERNER explained that the fuel that Petro Marine delivers
into Skagway that goes into the Yukon is competing with fuel
that is trucked from Edmonton, Alberta into the Yukon. The
current fuel surcharge and proposed increase puts Petro Marine's
export business at a competitive disadvantage with Canadian
companies. He said Petro Marine would like to level the playing
field with a wording change in the exemption that aligns with
the motor fuel tax exemption for fuel consigned to foreign
countries.
4:07:33 PM
CO-CHAIR GIESSEL asked who would pay for the cleanup if a Petro
Marine barge were to spill fuel into the water or on land while
in Skagway.
MR. WERNER answered that Petro Marine would pay and they have
insurance to cover that.
CO-CHAIR GIESSEL asked what trucking firm takes the fuel from
the Skagway harbor into the Yukon.
MR. WERNER said it's a sister company called North 60 Petro,
which is an Alaska corporation that does business in the Yukon
CO-CHAIR GIESSEL asked if North 60 Petro would be responsible
for the cleanup if they were to have a spill while in transit to
the Yukon.
MR.WERNER said that's correct.
4:08:58 PM
SENATOR DUNBAR asked if he said the Canadian firm is not subject
to the fuel surcharge because the fuel stays in Canada the
entire time or if it was that the fuel passes through Skagway
enroute to the Yukon but isn't subject to the charge.
MR. WERNER said a US flagged vessel can't export Canadian fuel
into Canada; it has to be US fuel so the company has to pay the
surcharge.
SENATOR DUNBAR asked whether the fuel surcharge could be imposed
on a Canadian tug and barge.
MR. WERNER said he wasn't aware of anybody currently bringing
Canadian fuel through Skagway, but it was a possibility.
4:11:14 PM
CO-CHAIR BISHOP closed public testimony on SB 137 and held the
bill in committee.