Legislature(1995 - 1996)
02/20/1996 10:07 AM House O&G
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
February 20, 1996
10:07 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chair
Representative Scott Ogan, Vice Chair
Representative Gary Davis
Representative Bill Williams
Representative Tom Brice
Representative Bettye Davis
Representative David Finkelstein
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
Briefing by Department of Law, Mr. Bob Loeffler - TAPS Tariff Cases
Before Federal Energy Regulatory Commission (FERC) and Alaska
Public Utilities Commission (APUC)
* HOUSE BILL NO. 342
"An Act relating to water quality."
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 342
SHORT TITLE: WATER QUALITY STANDARDS
SPONSOR(S): REPRESENTATIVE(S) ROKEBERG
JRN-DATE JRN-PG ACTION
05/09/95 2042 (H) READ THE FIRST TIME - REFERRAL(S)
05/09/95 2042 (H) O&G, RESOURCES
10/17/95 (H) O&G AT 01:00 PM ANCHORAGE LIO
10/17/95 (H) MINUTE(O&G)
02/13/96 (H) O&G AT 10:00 AM CAPITOL 124
02/20/96 (H) O&G AT 10:00 AM CAPITOL 124
WITNESS REGISTER
ROBERT H. LOEFFLER, Partner
Morrison and Foerster
2000 Pennsylvania Avenue NW
Washington, D.C. 20006
Telephone: (202) 887-1506
POSITION STATEMENT: Presentation on TAPS Tariffs before FERC and
APUC
NANCY HILLSTRAND
Pioneer Alaska Fisheries
P.O. Box 170
Homer, Alaska 99603
Telephone: (907) 235-3877
POSITION STATEMENT: Testified on HB 342
SARAH HANNAN, Executive Director
Alaska Environmental Lobby
P.O. Box 22151
Juneau, Alaska 99801
Telephone: (907) 463-3366
POSITION STATEMENT: Testified on HB 342
SHIRLEY BUCKHOLZ, Lobbyist
Alaska Environmental Lobby
P.O. BOX 22151
Juneau, Alaska 99801
Telephone: (907) 463-3366
POSITION STATEMENT: Testified against HB 342
ALICE BULLINGTON
UNOCAL
909 West 9th Avenue
Anchorage, Alaska 99501
Telephone: (907) 263-7832
POSITION STATEMENT: Testified on HB 342
SUSAN BRALEY, Chief
Technical Services and Program Development
Division of Air and Water Quality
Department of Environmental Conservation
410 Willoughby Avenue, Suite 105
Juneau, Alaska 99801-1795
Telephone: (907) 465-5308
POSITION STATEMENT: Testified on HB 342
ACTION NARRATIVE
TAPE 96-11, SIDE A
Number 000
The House Oil & Gas Special Committee was called to order by
Chairman Norman Rokeberg at 10:07 a.m. Members present at the call
to order were Representatives Rokeberg, Ogan, G. Davis, Williams,
Brice, and B. Davis. A quorum was present. This meeting was
teleconferenced to Anchorage and Homer.
CHAIRMAN NORMAN ROKEBERG announced the agenda was a presentation by
Robert Loeffler followed by HB 342. He said the Thursday, February
22, 1996, meeting was cancelled.
Representative Finkelstein joined the committee meeting at 10:08
a.m.
Number 145
ROBERT H. LOEFFLER, Partner, Morrison and Foerster, discussed his
work with the state of Alaska. He said in 1975, he began to work
on the proposed natural gas pipeline. His work involved years of
federal proceedings up to proceedings in the White House involving
that pipeline. He said he worked on that project, until he was
asked by the Department of Law (DOL), in the 1980s, to work on oil
pipeline issues, his involvement in this area began in the 1980s.
He played a role, both in the litigation and settlement of all the
pipeline cases including the TransAlaskan Pipeline System (TAPS),
Kuparuk, Endicott, and Milne Point.
Number 240
MR. LOEFFLER gave background on the context of the pipeline issues
and what difference it makes to the state of Alaska. He said the
state is heavily dependent on petroleum revenue. Pipeline rates,
if they are high, depress the amount of revenue that the state
receives. Therefore any reduction in pipeline rates, spills back
to the state in terms of increased royalties, on royalty oil, and
increased production taxes. The short formula, is that any
decrease in tariffs will bring a 25 percent gain to the state. So,
a dollar reduction in tariffs, will bring 25 cents back to the
state treasury. He said, it is for this reason that the state got
involved in pipeline issues in the 1970s and that why the state
remains involved.
MR. LOEFFLER said the rates are set by something called the Federal
Energy Regulatory Commission (FERC) for interstate traffic, meaning
oil that ends up outside of Alaska. This rate is also set by the
Alaska Public Utilities Commission (APUC) for oil that ends up
inside the state of Alaska. He said, after years of litigation in
the mid-1980s, a general settlement was reached which established
a formula for pipeline rates, but only for a ceiling on those
rates. He said if competition ensued, the rates could drop below
the ceiling. No one is required to peg the rate at the ceiling,
although the seven owners of the pipeline, all of whom set their
own rate for their own space in the pipeline, have all set their
tariff at that ceiling rate.
MR. LOEFFLER said the settlement was aimed at reducing the tariffs
in the future. In the mid-1980s, the intention was to reduce the
tariffs. In the 1990s, that intention was met. Tariffs have
dropped from $6 per barrel to, on a weighted average, $2.83 per
barrel as of 1996. He said measured against the $6.00 point, the
settlement has reached about $4 billion in revenues to the state to
date. So, the reduction in tariffs has worked as designed.
Number 413
MR. LOEFFLER said the settlement allowed the state to challenge
certain provisions of certain future rates. If rates weren't
calculated in accordance with the settlement or if there were
imprudent wasteful expenditures, the state could challenge them,
and that is what has happened. He said, in a somewhat surprising
sense to the state, new and unanticipated expenditures of hundreds
of millions of dollars have shown up on the pipeline cost side.
The first set of these expenditures was for corrosion repairs,
which was a multi-hundred million dollar item. Recently, as has
been seen in the press, the owners of the pipeline have been forced
to spend around $300 million, today's number, on repairs to the
electric system and on preparing drawings showing how everything is
wired on the electric system, which is very important in regards to
repairs and other possible disasters. He said these expenditures
have been imprudent, and rate cases have been started at the
regulatory agencies to challenge these expenditures.
Number 520
MR. LOEFFLER said the largest of these rate cases, is called the
electric code case which involving the wiring, diagrams and
drawings of the electric system on TAPS. This was discovered by a
number of audits by the TAPS owners, the Bureau of Land Management
(BLM) and by the state. "We believe the state should not be
responsible and that those costs should not be in the tariffs, so
the state started a case challenging those expenditures as
impudent." So far, these costs represent $300 million, with a
state gain, if the case is won, of 25 percent or $75 million. This
case is set for an administrative three week trial in September,
although some alternative methods were proposed to resolve the
dispute sooner. The judges promised to issue a decision by the end
of 1996, after which it would go on appeal to the five
commissioners of the FERC. This case is occupying a lot of
resources at the moment.
Number 603
MR. LOEFFLER said the next case is called the oil spill case.
Alyeska was sued as part of the litigation involving the Exxon
Valdez oil spill. Alyeska settled the case in terms of their
potential liability for around $98 million, having spent $30
million to $50 million in legal fees. Alyeska tried to put those
expenditures in the 1994 rates. The state tried this case,
received an unfavorable decision at the trial level, but this
decision was reversed at the level of the FERC. He added that
further proceedings might ensue in a court case, because no one is
going to give up $100 million plus very easily. He said there are
also some minor issues involving public relations costs, and
whether they belong in the tariff.
Number 672
MR. LOEFFLER said the third case that is brewing is the capacity
litigation. This is a case that was started among the owners, they
are suing each other. However this action affects the interest of
the state. The reason for this is that when the state looked at
the pipeline in the mid-1970s, it was noted that someday the oil
coming out of Prudhoe Bay would decline and at that point there
might be more pipeline space then there would be oil to fill it.
He said to think of this in terms of seven airlines serving Alaska.
If there are not enough passengers to fill all the seats, someone
is going to cut their costs to fill those seats. If that happens
on the pipeline, people who own pipeline space, but do not have
enough oil to fill it up, are going to have an incentive to lower
their rates, and the state will benefit as a result of this
competition. The owners have started a fight amongst themselves.
Some owners want to have a legal interpretation which would prevent
that space from existing, others don't, and the state is perusing
its interest in seeing that competition exists.
Number 766
MR. LOEFFLER said there are a number of smaller cases involving the
Milne Point field, where the owners of the pipeline just raised
their tariff from 48 cents to 76 cents with some impact on state
revenues. He said there are some issues about the different kind
of oil that you put into the pipeline and how the tariffs should
differ according to the types of oil. He said in a large overview,
that is what is going on in the oil pipeline world for the state of
Alaska. He said the state does not enjoy spending lots of money on
expensive litigation, but it does have a pocket book interest in
making sure tariffs are not too high, both to get money into the
treasury right away, and also because lower tariffs are thought to
encourage development of new fields. The lower tariffs give more
of an incentive, more of a profit at the wellhead for people
seeking to produce and develop new fields. All of these cases are
managed by the DOL, with the majority handled directly by the DOL.
Number 848
MR. LOEFFLER concluded that he had raced through a lot of material
and then said he was available to answer any questions.
Number 859
REPRESENTATIVE BRICE asked, in relation to the imprudent
expenditure suit, what is the size of the suit.
Number 884
MR. LOEFFLER said in the electric code case, it is in the order of
$300 million, but the expenditures are continuing to grow. He
mentioned the drawings, as-built drawings, on which $35 million
have been spent, but only 10 percent of the drawings have been
redone. He said, recently, the owners have expressed that they are
not satisfied with those drawing in terms of accuracy. The
expenditure for these drawings could balloon out of control.
Number 917
REPRESENTATIVE BRICE asked about capital construction.
MR. LOEFFLER said most of the expenses are listed as operating
expenses, not as capital items. He said this is not always true,
and cited the corrosion context which some of those expenditures
related to the capital side of the pipeline. He said on the
operating side they just recover the cost of those expenses,
without receiving profit on those expenses.
Number 947
CHAIRMAN ROKEBERG asked how normal repairs and operations are
handled as compared to major expenditures that have been raised by
the Joint Pipeline Office and the BLM.
MR. LOEFFLER said the owners classify whether the expenditure lies
in capital or operating expenses. The state, to make sure this is
done properly, periodically audits through an accounting firm. He
said there is currently an audit going on that started a year and
a half ago, checking the books and making sure that things go in
the right account rather than the wrong account, in terms of
capital versus operating expenses.
Number 997
CHAIRMAN ROKEBERG asked if there was a rule of thumb that the state
used to allow for a certain amount of repair and maintenance.
Number 1006
MR. LOEFFLER said there is no rule of thumb except for standing
accounting practice and what is learned in terms of good pipeline
practice from consultants and the Joint Pipeline Office. He said
the audit looks for things that appear extraordinary in size and
cost. He said at the beginning of the pipeline construction, the
pipeline owners said this would be a corrosion-free pipeline,
utilizing state of the art technology for the life of the pipeline.
So, when 15 years later, the owners are suddenly spending hundreds
of millions of dollars to fix the corrosion system, the state asked
for an explanation as it was contrary to the representations made
to get the lease right-of-way from both the state and federal
governments. A corrosion consultant was then employed, to see
whether those corrosion practices they found were the proper ones
and whether or not it was good or bad management, this is an area
where outside consultants are needed to make judgements.
MR. LOEFFLER said these corrosion cases have all been settled. He
said you need to ask, in all litigation cases, what is the state
objective. He said the state policy makers thought it was very
important to have a corrosion free pipeline to guarantee that flow
of petroleum without any disruptions. This decision led to a
cooperative program to discover the problems that caused the
corrosion as well as the remedies. Part of the settlement, won by
the state, achieved an expenditure of upwards of $30 million on
corrosion prevention measures that the owners did not want to
undertake, but that the consultants told the state, that it needed
to be done in order to cure corrosion on the pipeline.
Number 1140
REPRESENTATIVE BRICE referred back to $300 million in the electric
code corrections, he asked if that was in any way connected with
the recommendations by the Congressional Oversight Committee.
Number 1150
MR. LOEFFLER said absolutely, he added that two things happened in
that case. Congressman Dingle had hearings and his own
investigators look into this case. This case was also investigated
by Owen Thurrow (ph.) of Quality Technology, hired by the BLM.
These investigations caused a large crash program of expenditures,
and concluded that yes, it came out of that controversy.
Number 1183
CHAIRMAN ROKEBERG referred to the decline in oil production, he
asked if the tariff rate would be increasing as a result.
Number 1200
MR. LOEFFLER said at some point there are not enough barrels to
divide the fixed cost into and mentioned a number of pipeline
expenditures needed to run it. The operating expenses run, today,
between $5 million and $6 million a year. He said if you divide
those expenses by a million and a half barrels, you get a lower
number than if you divide the expenses by a million barrels. The
mathematics mean that you get a higher pipeline tariff when fuel
levels fall, because you don't have enough barrels left over to
divide the expenses over.
MR. LOEFFLER said production decline and increased tariffs were an
expected result. He added that oil production has stayed higher
than expected through the mid-1980s, but in 1996 it will be near
1.4 million barrels per day as compared to a high of over 2 million
barrels per day. He said this will continue to decline.
Number 1270
REPRESENTATIVE OGAN asked how the tariff adjustment affects state
revenues. He then asked whether or not the tariff directly relates
to the amount of royalties that the state receives.
Number 1308
MR. LOEFFLER said it is an indirect affect, but that it is roughly
25 percent. He said a dollar per barrel increase in the tariff,
would mean the state would lose 25 cents per barrel of oil due to
combination effect on royalties and production taxes. He said on
the other side if the tariff is reduced by one dollar, then the
state gains 25 cents a barrel. He said if tariffs can be kept as
low as possible, the state is in the best possible condition.
MR. LOEFFLER said the pipeline owners are owed something under
regulatory law to operate the pipeline to cover their expenses and
make some profit.
Number 1367
REPRESENTATIVE OGAN stated that it would be advantageous to
maintain as much oil as possible flowing in that pipeline, in terms
of increasing revenues and the rate of return.
Number 1398
MR. LOEFFLER said from the states perspective more oil through the
pipeline means more revenue to the state. Whereas from the owners
perspective, more oil means more revenue to the owners. He said to
create an incentive for the owners, when the settlement was
constructed, a provision was inserted that the owners profit was
fixed per barrel at 35 cent per barrel with some escalations. The
owners will earn more dollars if they pump more barrels through,
because they have more 35 cent units. He said this would not have
been the scheme under standard regulatory law, but it was created
to provide an incentive for everyone's benefit to get more barrels
through the line.
Number 1447
CHAIRMAN ROKEBERG clarified that the owners return is based on this
35 cent, plus adjustments.
MR. LOEFFLER said this is the case today, and added that up until
1990 it was not. It used to be that a more traditional return on
investment was calculated through return on investment formulas for
utilities. He said this formula has two components including
interest on debt and the order of a 6 percent real mean without
regard to inflation on the rate base. He said this amount looks
fair in retrospect.
Number 1498
CHAIRMAN ROKEBERG clarified that if the state litigates these
cases, it increases the state revenue and decreases the profit of
the pipeline owners because they must pay the disputed amounts out
of the 35 cents. He then asked how differences between the state
interest in running a safe pipeline and reinvesting in it and the
state interest in generating more revenue.
Number 1531
MR. LOEFFLER said there is tension involved, the state tries to
look at, with expert help, to determine what the proper measures
are for running the pipeline and to not contest those. He said the
state recognizes that a zero tariff would create little incentive
to maintain a well managed and safe pipeline.
Number 1577
CHAIRMAN ROKEBERG asked how profits are split between the seven
owners of the pipeline.
Number 1590
MR. LOEFFLER used an analogy to describe this situation as used by
a judge from Washington, D.C. The judge said the pipeline is one
legal entity with seven virtual soda straws. Each owner has a
different size soda straw. BP or Standard has 50 percent, ARCO and
Exxon both have 20 percent and Mobile is next. Each of these
companies charge their rate for their space with each oil company
trying to keep their oil in their soda straw. In reality, the oil
companies each have different interests in the oil than they do in
the pipeline. ARCO, in the future or maybe today, has more oil
than it has soda straw and maybe Exxon has less oil than it has
soda straw. This scenario creates competition to fill up the soda
straw. He said the ceiling for this price is set at 35 cents per
barrel, or whatever the formula sets for that space, but you are
not required to set it at that price. He said the state hopes that
competition will reduce this price on barrels going through the
pipeline, although this has not happened yet.
Number 1650
CHAIRMAN ROKEBERG asked for information regarding development and
promotion of a gas pipeline in the state of Alaska.
Number 1691
MR. LOEFFLER said the problem with the gas pipeline was the
location of its resource in regards to where the market was
located. He said, to bring the gas to the continental United
States the cost was up to $40 billion to $50 billion, way above the
market price for that gas. He referred to the TransAlaska Gas
System (TAGS) project and its attempts to get the pipeline cost
down. He said it is a competitive market, and mentioned the gas
needs of the Far East market. He said the owners of the gas, as
well as the state, have tried to reduce the cost and he mentioned
the geographical disadvantages Alaska faces. He said the owners of
the gas would have to forego some profit, in the short term, to
make the gas competitive in those Asian markets over the long term,
with profit being earned in the later stages of the project. He
said there is not much that can be done at the federal government
level as all of the proceedings are completed as far as they can
be, leaving the problem as one of finding the market.
Number 1770
REPRESENTATIVE OGAN asked for information regarding the corrosion
of the pipeline, specifically in regards to the buried sections.
Number 1787
MR. LOEFFLER said the problems related to the main pipeline,
although there were also problems at the Valdez marine terminal.
He said the state believes that the cathodic (ph.) protection
system that was installed to protect the pipe, was not installed
correctly. He said the depth of the corrosion varied according to
where it was measured, but the state was confident that the system
was not working. He said, essentially, corrosion is the turning of
iron back to its natural state of ore. He said this process can be
reversed with the flow of electric current and that system was not
working properly. He said there were other problems having to do
with improper wrapping of the pipe with coating. He said there was
also a problem with the PIG technology. He explained that the PIG
technology is the electronic devices that are sent down the
pipeline to take ultrasonic readings of the inside of the pipe. He
said this technology improved over the years, but this technology
could not catch specific things and it was a major concern.
MR. LOEFFLER said part of the settlement required expenditures for
enhanced cathodic (ph.) protection, but it is a lot of pipe and it
was the underground pipe that had the particular problem.
Number 1877
REPRESENTATIVE OGAN asked if the corrosion problem was an
electrolysis problem basically.
MR. LOEFFLER deferred to the Assistant Attorney General, Tina
Kobayashi. Ms Kobayashi did not have a comment on this point.
Number 1904
HB 342 - WATER QUALITY STANDARDS
CHAIRMAN ROKEBERG announced that next on the agenda was HB 342 an
act relating to water quality. Chairman Rokeberg, sponsor of HB
342, said he introduced this bill last session as an attempt to
reduce the controversy around regulations issued by the last
Administration. During the last interim, meetings were held
between representatives of the Administration, industry, and
environmental agencies resulting in a number of resolutions and
changes in regulations. He said the issues of mixing zones and
sediment were not addressed and it is those areas that he wished to
address in HB 342.
CHAIRMAN ROKEBERG added that he has an amendment which he will
bring forth later in the meeting.
Number 1975
NANCY HILLSTRAND, Pioneer Alaska Fisheries, testified via
teleconference from Homer. She had hoped there would have been a
short explanation of HB 342. She said water quality is her main
concern as she is in the fisheries processing business. She hoped
that the water in Alaska would stay at the highest quality. She
stated that it was not good to enhance businesses at the risk of
degrading the water supply. She added that her business seeks to
maintain good water standards, and she would hope other businesses
would strive to do so also. She said we will pay for the water
quality in the long run and hoped that the legislature would honor
the water quality that we deserve here in Alaska.
Number 2065
SARAH HANNAN, Executive Director, Alaska Environmental Lobby,
Incorporated, was next to testify. She said her organization is a
coalition of 20 environmental groups across the state of Alaska.
She said the organization has been incorporated for 15 years in
Alaska working with the legislature and has a two-fold mission.
She said this mission is to work not only on behalf of the
coalition but to work with members of the coalition to give them
skills in dealing with the legislature. She said they have month
long lobbyist who come down from various parts of Alaska to learn
about the process. She then introduced Shirley Buckholz, as one of
their newest volunteers and said Ms. Buckholz has been working on
the water quality issue.
SHIRLEY BUCKHOLZ, Lobbyist, Alaska Environmental Lobby,
Incorporated, read from a sponsor statement. "The Alaska
Environmental Lobby, Incorporated, opposes HB 342, `An act relating
to water quality.' Water that has been impaired by humans and
their activity needs to be cleaned back up. An increase in the
loading of the pollutants will move those pollutants further into
other waters. We need to clean these waters up by starting at the
original source and discharging higher quality water back into
waters that we have previously damaged.
HB 342 violates the intent of the Federal Clean Water Act to keep
all waters fishable and swimable.
HB 342 ignores the fact that additional dirty discharge will cause
greater downstream impact, while treated water could improve
downstream conditions.
For example the Red Dog Mine background streams are not capable of
supporting aquatic life in their natural state. The Alaska Clean
Water Alliance (ACWA) is now working with the Department of
Environmental Conservation (DEC) and Cominco to help facilitate new
permits for the mine recognizing the fact they will not require the
mine to discharge at pristine conditions. The Red Dog Creek didn't
support aquatic life due to the natural metal content there, not
prior human disruption.
The current Alaska water quality standards allow the use of site
specific criteria. This specifically deals with natural conditions
and problems. Our current standards work. HB 342 allows our
streams and rivers to be polluted. Please oppose it."
MS. BUCKHOLZ then read from her own statement, "This language, `may
not require a higher discharge water quality standard for water
used than water received for use,' to me this means something like
the Sitka Mill, which has been closed for a couple of years, would,
if it had not been closed down, be able to dump dirty water.
Originally when the mill started the water was clean but after
years of dumping this is not the case. If this bill were in place,
as written at the time the mill was closed, they would have been
able to continue to operate while dumping poor quality water even
though the water they were dumping into was clean when the mill
originally opened. Since the water is now of poor quality they
could continue dumping in water of poor quality. This would apply
be it oil and gas, logging mills, placer mining or whatever.
Mother Earth can only sustain so much of this. Doing away with
laws requiring clean-up of water you have previously mucked up and
allowing the poor quality dumping to continue is no better than
having no laws regarding clean-up."
Number 2228
REPRESENTATIVE OGAN clarified that Ms. Buckholz was his constituent
and invited her to discuss issues of concern to her with him. He
said it is of benefit to the state that citizens get involved with
the legislative process.
Number 2253
REPRESENTATIVE BRICE asked for background on the connection
mentioned between the Red Dog Mine and the Alaska Alliance for
Clean Water (ACWA) in their attempt to establish clean water
standards.
Number 2277
MS. HANNAN said the ACWA is one of the 20 member groups. She said
the arrangement has come about through a suit placed against
Cominco. The alliance is now in the settlement process, and is
participating in facilitating their additional permits to operate.
She said she would get the contact name and phone number of Gershon
Cohen of the ACWA.
Number 2317
ALICE BULLINGTON, UNOCAL, testified via teleconference from
Anchorage. She read a statement into the record, "UNOCAL supports
the goal of HB 342 which would establish state water quality
standards that are no more stringent than the federal standards
unless, on a case by case basis, scientific and economic evidence
justifies more stringent state regulations.
UNOCAL feels that the state water quality standards should be
consistent with federal requirements, regulations should require
only EPA approved measurement methods, and allowances should be
made for discharge waters to match the quality of receiving waters.
The state is required to amend its regulations only when changes to
federal regulations result in more restrictive standards. The
state should also be required to change its standards when the
federal regulations become less stringent. UNOCAL encourages
agencies to develop efficient methods of modifying existing
regulations to reflect changes in federal standards.
And finally, UNOCAL feels that there should be established review
criteria for evaluating the merit of the argument for having state
regulations that would be more stringent than federal requirements.
Thank you for the opportunity to provide testimony on the proposed
bill."
Number 2390
REPRESENTATIVE GARY DAVIS asked if Ms. Bullington would elaborate
on her company's utilization of mixing zones and the studies of
producing downstream sediment.
Number 2404
MS. BULLINGTON said recently UNOCAL has gone through a rigorous
process to determine what the impact of our mixing zones are in the
Cook Inlet, including permanent mixing zone studies. She said they
have found that there has not been an impact on the water of Cook
Inlet from their continuing operations. She added that UNOCAL has
done the most rigorous studies in the state of Alaska. She said
these studies have incorporated over 800 modeling runs in an effort
to determine what the worst case scenario would be in the Cook
Inlet.
TAPE 96-11, SIDE B
Number 000
CHAIRMAN ROKEBERG asked if she had any comments about the language
of HB 342 involving the water quality criteria and standards.
Number 015
MS. BULLINGTON said the initial draft of HB 342 is very good. She
said she was aware of the discussions on how to change the language
and expressed her willingness to help form a final draft of HB 342.
Number 045
SUSAN BRALEY, Chief, Technical Services and Program Development,
Division of Air and Water Quality, Department of Environmental
Conservation, was next to testify. She read a statement into the
record, "among other things, our section is responsible for
managing and administering the Alaska Water Quality Standards,
which are regulations designed to protect the water quality of the
state of Alaska.
I am here today to testify on behalf of the department on HB 342,
an act relating to water quality. The department has concerns with
this legislation because the statutory changes it proposes are
difficult to interpret and would unduly limit the flexibility of
establishing water quality criteria or permiting limits for the
measurement of sediment, and also for waters already polluted or
impaired.
Some of our concerns include: just overall the language in HB 342
appears to incorrectly using the terms for water quality criteria,
water quality standards, and effluent limit discharges." She said
she would be willing to explain how those terms are used and why
the legislation is confusing. "This leads to difficulty in
interpreting the legislation and how it relates to the existing
Alaska Water Quality Standards regulations.
As read, it is not clear what the intent of HB 342 is. For example
in Section 3(a), it appears to be to limit the measurement of
sediment to determine water quality in the water quality standards,
but this change would also affect other regulations that the
department has, for example, in our waste water regulations the
efficiency of some treatment processes such as classical sewage
treatment are historically described in terms of suspended solids.
Because this bill would require that you could only measure in
terms of settleable solids, it would prohibit the ability to use
suspended solids as a monitoring tool or a measurement tool.
Subsection (b) is also difficult to interpret. In the instance
where it appears to say that the department cannot apply an
effluent limit that is more restrictive than federal water quality
standards. The language also suggests that the effluent limit can
not be more strict than the quality of the intake water, although
it may also be interpreted to mean the upstream water or receiving
water.
The bill does not recognize that some waters are already polluted.
This bill would limit the ability to clean the waters back up to
their original condition, since the language suggests that an
effluent limit cannot be more strict than the quality of the intake
water.
I would like to note that the department already has the
flexibility in existing statutes and regulations to deal with
situations where the natural quality of the receiving water is
above applicable receiving water quality.
As a final note, there has been some interest at the Department of
Environmental Conservation (DEC) to assume the federal National
Pollutant Discharge Elimination System (NPDES) permitting program,
since it appears the DEC could implement the program with more
flexibility that the Environmental Protection Agency (EPA) is
willing to use. If language in HB 342 were included in the DEC
statutes, the department would not be able to assume the NPDES
program, since it would prohibit application of EPA effluent
limitation guidelines for suspended solids effluent limits and
therefore EPA would not agree to allow DEC to take over the NPDES
program.
The department appreciates the opportunity to testify on HB 342."
MS. BRALEY said she would be available to answer any questions and
would be happy to work with the legislators on HB 342.
Number 177
REPRESENTATIVE OGAN said the intent of HB 342 is to bring some
common sense into the regulatory schemes. He said several of his
constituents, miners in particular, have had problems with needing
to have water that was cleaner than the water upstream. He asked
if DEC reviews situations on a case by case basis. He again
referred to the case of water that goes through a heavy metal area
before it reaches the mining area, but that the miners are required
to clean up the water at a cost prohibitive rate.
Number 228
MS. BRALEY said the situation faced is that miners are required to
get a federal NPDES permit, which creates limitations are outside
the DEC's ability to do anything. She said on review of HB 342, it
appeared that this was one of the things that the legislation was
trying to correct by the bill's description of taking sediment and
describing it as settleable solids rather than suspended solids.
She didn't believe that HB 342 would correct the situation with the
NPDES permits because DEC does not have primacy, therefore EPA is
the agency that determines what the discharge limitations should
be. She said DEC has been working with both the industry and EPA
to reach a common sense approach.
Number 285
MS. BRALEY referred back to Representative Brice's question
regarding the Red Dog Creek where the intake water doesn't support
any life, and it is actually being cleaned up to the point where
fish are going up farther in the stream then they have ever gone up
before. She said DEC is working with Red Dog and the EPA to go
through the reclassification as well as using site specific
criteria for the Red Dog Creek so that the miners won't ever have
to go through this situation again by removing the strictest and
highest use of water quality of that stream, which is drinking
water. She said DEC has a section in their regulations which
allows them to look at natural background quality and set site
specific criteria that would apply to that specific water.
MS. BRALEY said that the Red Dog Creek issue is a complicated issue
and the DEC is trying to use a couple of mechanisms to create a
situation that will last a long time.
Number 344
REPRESENTATIVE FINKELSTEIN asked if the DEC had discretion to
consider the issues in HB 342 in regards to intake water.
Number 355
MS. BRALEY said DEC does for state permits. She said DEC does have
the ability to deal with natural background conditions in setting
discharge limitations already, so HB 342 would increase their
ability. She said, what HB 342 does not do, is resolve the issue
of the NPDES permit and how it is applied.
REPRESENTATIVE FINKELSTEIN asked if DEC has the ability to consider
settleable solids where it is biologically appropriate.
Number 394
MS. BRALEY said yes they do. She said DEC revised the Water
Quality Standards in January of 1995. She said sediment is listed
as a criteria and at that time there was a lot of discussion about
this issue. She said this discussion included whether you used the
Imhoff Cone which measures what settles out versus the total
suspended solids. She said the DEC clarified in the January 1995
regulations, that for purposes of measuring sediment, it was
specified that it is would use the settleable solid method. She
reiterated the problem of HB 342, referring to only using
settleable solids as discharges. She said this takes it out of the
criteria description and puts it into another description. It is
common with NPDES and state permits to require that a Total
Suspended Solids (TSS) be used as a measurement to see how you are
doing. She referred to her experience of using this method when
she worked at a seafood processing plant in Kodiak. She said TSS
would not be able to be used as a monitoring tool under HB 342, a
tool commonly used by industry.
Number 468
REPRESENTATIVE FINKELSTEIN asked if the most critical factor, from
a fishery perspective, was suspended rather the settle solids.
Number 489
MS. BRALEY said she was not a fish biologist, but she said she
would assume that would be where you would want to know what the
TSS was. She said DEC is doing a lot with water quality standards
at this time and referred to mixing zone language up for public
review.
Number 512
CHAIRMAN ROKEBERG referred to a document sent from the Governor's
office, contained in the committee packet, which is an update of
what DEC is doing. He encouraged any committee members to submit
any written questions to Ms. Braley.
Number 559
REPRESENTATIVE OGAN made a motion to set forth Amendment 1 on the
table for discussion.
REPRESENTATIVE FINKELSTEIN asked if the committee could wait on
adopting the Amendment until the committee acted on HB 342.
CHAIRMAN ROKEBERG said a CSHB 342 would be brought forth at a later
meeting. He said Amendment 1 requires the commissioner to adjust
the Alaskan regulations to meet any changes in EPA regulations
whether they increase or decrease in severity.
ADJOURNMENT
There being no further business to come before the House Oil & Gas
Special Committee, Chairman Rokeberg adjourned the meeting at 11:10
a.m.
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