Legislature(2013 - 2014)BARNES 124

04/14/2014 01:00 PM RESOURCES

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01:34:39 PM Start
01:34:58 PM HB325
02:34:35 PM Adjourn
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= bill was previously heard/scheduled
--Delayed to 1:30 p.m. Today--
Heard & Held
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                     ALASKA STATE LEGISLATURE                                                                                 
                HOUSE RESOURCES STANDING COMMITTEE                                                                            
                          April 14, 2014                                                                                        
                             1:34 p.m.                                                                                          
MEMBERS PRESENT                                                                                                               
Representative Eric Feige, Co-Chair                                                                                             
Representative Dan Saddler, Co-Chair                                                                                            
Representative Peggy Wilson, Vice Chair                                                                                         
Representative Mike Hawker                                                                                                      
Representative Craig Johnson                                                                                                    
Representative Kurt Olson                                                                                                       
Representative Paul Seaton                                                                                                      
Representative Scott Kawasaki                                                                                                   
Representative Geran Tarr                                                                                                       
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 325                                                                                                              
"An  Act   increasing  the   balance  of   the  oil  and   hazardous                                                            
substance   release  prevention  and   response  fund  required   to                                                            
suspend  the  surcharge  levied   on  oil  produced  in  the  state;                                                            
increasing  the amount of  the surcharge levied  on oil produced  in                                                            
the  state  that  may be  appropriated  to  the  oil  and  hazardous                                                            
substance   release  prevention  account;   and  providing   for  an                                                            
effective date."                                                                                                                
     - HEARD & HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 325                                                                                                                  
SHORT TITLE: OIL SPILL PREVENTION FUND                                                                                          
SPONSOR(s): REPRESENTATIVE(s) MUNOZ                                                                                             
02/21/14        (H)       READ THE FIRST TIME - REFERRALS                                                                       
02/21/14        (H)       RES, FIN                                                                                              
03/17/14        (H)       RES AT 1:00 PM BARNES 124                                                                             
03/17/14        (H)       Heard & Held                                                                                          
03/17/14        (H)       MINUTE(RES)                                                                                           
04/14/14        (H)       RES AT 1:00 PM BARNES 124                                                                             
WITNESS REGISTER                                                                                                              
REPRESENTATIVE CATHY MUNOZ                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION   STATEMENT:     As  co-prime   sponsor,   introduced   the                                                          
proposed committee substitute, Version U, for HB 325.                                                                           
KRISTIN RYAN, Director                                                                                                          
Division of Spill Prevention and Response                                                                                       
Department of Environmental Conservation (DEC)                                                                                  
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:     Answered  questions  related   to  HB  325,                                                          
Version U.                                                                                                                      
KARA MORIARTY, President/CEO                                                                                                    
Alaska Oil and Gas Association (AOGA)                                                                                           
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Testified  in  opposition  to HB  325 and  in                                                          
opposition to Version U of HB 325.                                                                                              
ACTION NARRATIVE                                                                                                              
1:34:39 PM                                                                                                                    
CO-CHAIR   DAN  SADDLER   called   the  House   Resources   Standing                                                          
Committee  meeting to  order at  1:34 p.m.   Representatives  Olson,                                                            
Seaton,  Tarr,  Saddler,  and Feige  were  present  at the  call  to                                                            
order.   Representatives Kawasaki,  Hawker,  Johnson, and P.  Wilson                                                            
arrived as the meeting was in progress.                                                                                         
                 HB 325-OIL SPILL PREVENTION FUND                                                                           
1:34:58 PM                                                                                                                    
CO-CHAIR  SADDLER  announced  that the  only  order of  business  is                                                            
HOUSE  BILL NO.  325, "An  Act  increasing the  balance  of the  oil                                                            
and  hazardous  substance  release  prevention   and  response  fund                                                            
required  to suspend  the surcharge  levied on oil  produced  in the                                                            
state;  increasing  the  amount  of  the  surcharge  levied  on  oil                                                            
produced  in the  state  that may  be appropriated  to  the oil  and                                                            
hazardous  substance  release  prevention   account;  and  providing                                                            
for an effective date."                                                                                                         
1:35:27 PM                                                                                                                    
CO-CHAIR  FEIGE moved  to adopt  the proposed  committee  substitute                                                            
(CS),  Version   28-LS1486\U,  Nauman,   4/13/14,  as  the   working                                                            
document.   There  being  no objection,  Version  U  was before  the                                                            
1:35:56 PM                                                                                                                    
REPRESENTATIVE  CATHY  MUNOZ,   Alaska  State  Legislature,  as  co-                                                            
prime  sponsor,  explained the  changes  made by  Version  U to  the                                                            
original  bill.    She  reminded  members  that  the  idea  for  the                                                            
legislation   came  out  of  the   "budget  subcommittee"   for  the                                                            
Department  of Environmental  Conservation  (DEC) operating  budget.                                                            
Over  the  past  two  years,  the  spill  prevention   and  response                                                            
(SPAR)  funds and  the health  of those  funds have  been a  central                                                            
topic  of discussion  and presentations.   The  original bill  began                                                            
to address  the funding  issues with  the "SPAR  account."   Version                                                            
U adds  new language  to the title  on page, 1,  lines 3-7,  as well                                                            
as new language  to Sec.  3 on page 2, lines  24-28.  Additionally,                                                             
Version  U  adds  new  sections  4-10,  which  are  amendments  from                                                            
Representative  Seaton, beginning  at the bottom  of page 2  through                                                            
line 4 of page 4.                                                                                                               
1:37:25 PM                                                                                                                    
REPRESENTATIVE  SEATON,  a co-sponsor  of  the bill,  explained  the                                                            
changes made  in Version U  address things  that were brought  up by                                                            
the committee.    A new provision  allows  DEC to  collect fees  for                                                            
contingency  plans  (C-Plans) as  a way  to make  this sustainable.                                                             
A  great   amount  of  time   is  spent   on  analyzing  oil   spill                                                            
contingency  plans  and  currently  there  is no  charge  for  that.                                                            
Version U,  Sec. [8], says  that the user  submitting a plan  should                                                            
pay  for  that  evaluation.    This  more  broadly  distributes  the                                                            
costs  and the  financing  that is  necessary for  spill  prevention                                                            
and response.   There  has been a  lot of questioning  that  all the                                                            
revenue  to support  spill response  has come from  only one  thing,                                                            
the production  of  crude oil,  which this  addresses.   Version  U,                                                            
Sec.   7,  requires   that   C-Plans  be   submitted   in  [a   word                                                            
searchable]  electronic  format,  which makes  it available  to  the                                                            
department  for review  of  the plan  as well  as  available to  the                                                            
public.   The  public  does not  just  mean "mom  and  pop in  North                                                            
Pole  or  Glennallen."    It  also  means  mariners   and  captains.                                                            
Right now  if someone from  a pilots association  wants to  review a                                                            
plan for  adequacy and  for comment,  he/she would  have to  go into                                                            
the main office and sit down with a paper copy.                                                                                 
1:40:36 PM                                                                                                                    
REPRESENTATIVE  SEATON explained  Version U,  Sec. 9, is a  deletion                                                            
of  authority   for  the   funding  of   local  emergency   planning                                                            
committees.    Version  U,  Sec.  10,  is  the  elimination  of  two                                                            
programs  that authorize  payment  from the  spill fund  -- one  for                                                            
the committees  and the other  for bulk fuel  tank repairs,  both of                                                            
which   are  no  longer   considered   to  be   targets  for   spill                                                            
prevention and response.                                                                                                        
REPRESENTATIVE   SEATON  noted   Version  U,   Sec.  5,  [adds   the                                                            
language]:   "a refiner  of crude  oil or an  importer of  petroleum                                                        
products  refined  from  crude  oil  for  resale  shall  report  the                                                        
volume   of  refined   crude  oil   imported  or   refined  to   the                                                        
department".   He said  this sets  up the charge  that is found  [on                                                        
page  2,  Sec.  3,   lines  24-25],  which  sets   up  a  system  to                                                            
accomplish  broadening  of the base  of the  tax so  it is not  only                                                            
on crude  oil.  A  refiner of crude  oil or an  importer of  refined                                                            
products  would pay a tax  of one-half cent  per gallon.  Since  the                                                            
tax  would be  on  products  refined within  the  state  as well  as                                                            
imported  there  would  be no  competitive  advantage  of  importing                                                            
fuel over refining it in-state.                                                                                                 
1:43:34 PM                                                                                                                    
CO-CHAIR   SADDLER  inquired   whether   there   are  any   products                                                            
produced  in Alaska  refineries that  would not  be covered by  Sec.                                                            
3.   He  said  he wants  to  ensure  that this  section  covers  all                                                            
refinery products.                                                                                                              
REPRESENTATIVE  SEATON  answered  this section  would  apply to  all                                                            
refined  products   as  currently   written.    However,   exclusion                                                            
mechanisms  could  be  looked  at, he  offered,  such  as  excluding                                                            
motor fuel taxes.                                                                                                               
1:44:05 PM                                                                                                                    
CO-CHAIR  FEIGE drew  attention to  the pie chart  titled "FY  2009-                                                            
2013   Number  of   Spills  by   Product  Type,"   provided  as   an                                                            
attachment  to the  3/26/14  letter to  the committee  from  Kristin                                                            
Ryan  of  DEC.    He   said  his  intent  would  be   to  match  the                                                            
percentage  of income  collected  to fund  this operation  with  the                                                            
way the  money is  distributed  for spills.   He  inquired what  the                                                            
ratio  of revenue  would  be  between  the refiners  and  crude  oil                                                            
producers  that would be  generated under  Version U for  supporting                                                            
the Division of Spill Prevention and Response.                                                                                  
REPRESENTATIVE SEATON deferred to DEC to provide an answer.                                                                     
KRISTIN   RYAN,  Director,   Division   of  Spill   Prevention   and                                                            
Response,   Department   of   Environmental   Conservation    (DEC),                                                            
understood  Co-Chair Feige  to be asking  whether Version U  spreads                                                            
the  income  sources  out  more  similar   to  how  the  spills  are                                                            
occurring,  by type of product.   She said  Version U would  add the                                                            
fee  for  C-Plan work,  which  is  mainly  done  on crude  and  non-                                                            
crude.   She  said  she could  not give  a  specific  number of  how                                                            
that would  be spread  out, but  both would be  captured under  that                                                            
new fee  authority.   Also  under Version  U, the  refined fuel  tax                                                            
would  capture non-crude,  but  the majority  of  the response  fund                                                            
would still  be funded by  the crude oil per  barrel surcharge.   It                                                            
would be  more equitable than  it is now,  which is the entire  fund                                                            
being based on crude oil, but it would not be matched exactly.                                                                  
1:48:15 PM                                                                                                                    
CO-CHAIR  FEIGE asked whether  the division  has a breakdown  of how                                                            
much  of the  revenue  is  projected  to come  from  the  seven-cent                                                            
provision and the half-cent provision.                                                                                          
MS.  RYAN   replied  she  does  not,   at  this  point,   have  that                                                            
information.    Increasing  the  surcharge  on crude  oil  to  seven                                                            
cents  would  add  $4.6  million   and  the  new  fee  on  petroleum                                                            
refined  products   is  as  yet  unknown.    She  deferred   to  the                                                            
Department  of Revenue (DOR)  to provide an  answer, but  understood                                                            
that  in a  letter to  Representative  Seaton,  DOR  states a  range                                                            
between $3.2 million and $11.16 million.                                                                                        
1:49:36 PM                                                                                                                    
REPRESENTATIVE  SEATON  added to Ms.  Ryan's  response, saying  that                                                            
it depends  on how  broadly [the  new fee] is  spread; for  example,                                                            
if  it is  spread  to  all  refined  fuels  or if  motor  fuels  are                                                            
eliminated.   He  read  from the  last two  paragraphs  of a  letter                                                            
written to him by DOR on 3/7/14, which state:                                                                                   
     The  2009 DNR  Annual Report  reported annual  fuel  sales                                                                 
     volumes    between    1995-2008,    including   gasoline,                                                                  
     aviation  gasoline,   kerosene  type  jet fuel,  propane,                                                                  
     No.  1  Distillate,  No. 2  Fuel  Oil, and  No.  2 Diesel                                                                  
     Fuel.    On  average,  DNR  estimated  that  1.5  billion                                                                  
     gallons  of  fuel were  sold  in Alaska  per  year,  which                                                                 
     would generate $7.3 million in revenues on average.                                                                        
     Finally,  if  the  surcharge  was  only  placed  on  motor                                                                 
     fuel  subject  to the  motor  fuel tax,  it  may generate                                                                  
     about  $3.2  million  per  year.   This  is  based  on  an                                                                 
     average   of  600,000   total   gallons  of   motor   fuel                                                                 
     reported  on  tax returns  each  year according  to  DOR's                                                                 
     Annual Reports from FY 2005 to FY 2013.                                                                                    
1:51:22 PM                                                                                                                    
REPRESENTATIVE   SEATON   calculated   that   if  motor   fuel   was                                                            
excluded,  the  total would  be  $7.3 million  minus  $3.2  million,                                                            
for about  $4 million  per year.   He  said the  purpose of  looking                                                            
at this  was to address  concerns expressed  by the committee  about                                                            
other  people who  have  spills, such  as spills  at  mines.   Mines                                                            
are generally  fuel intensive,  so this half-cent  [tax] would  also                                                            
capture  that.    Bulk  fuel  storage  for  electric  generation  is                                                            
another --  bulk fuel tanks  have been a subject  of spills,  so the                                                            
half  cent  per gallon  would  also  bring those  players  into  the                                                            
funding  stream for  spill prevention  and response.   Limiting  the                                                            
tax to importers  and refiners  of distillate  fuels is an  easy way                                                            
to  broaden  the base  of  the tax  and  make  all people  that  are                                                            
subject  to spills  contribute without  getting into  a very  costly                                                            
collection  mechanism.   He  offered that  the committee  could  cut                                                            
down or cut out certain segments if it wishes.                                                                                  
1:52:14 PM                                                                                                                    
[Co-Chair Saddler turned the gavel over to Co-Chair Feige.]                                                                     
1:52:51 PM                                                                                                                    
CO-CHAIR  FEIGE understood  the  Division  of Spill  Prevention  and                                                            
Response expects a significant shortfall starting next year.                                                                    
MS.  RYAN  answered  the expected  shortfall  for  the  division  is                                                            
approximately $6 million a year.                                                                                                
REPRESENTATIVE  SEATON  reiterated  that  two elements  were  really                                                            
questioned.    First,  what things  can  be  cut  out of  the  spill                                                            
prevention  response  funding   that  should  no  longer  be  there?                                                            
Version  U  eliminates  two.    Second,  can  the  revenue  base  be                                                            
broadened?     That   is  accomplished   by   the  distillate   fuel                                                            
provision.   He requested  the committee  provide other suggestions                                                             
for  ways it  would like  to approach  this.   He  pointed out  that                                                            
letting  the general  fund pay for  it means  taking the  shortfalls                                                            
out of savings.                                                                                                                 
1:54:50 PM                                                                                                                    
REPRESENTATIVE  HAWKER  opined that  it is  still a  bill that  says                                                            
"tax one  industry segment  more to  pay for  every other  segment."                                                            
There  is no analysis  that  matches costs  and  expenses, which  is                                                            
something  that should be  done.  This is  an approach that  says to                                                            
tax the  guys  with the  deepest pockets  without  taking a  serious                                                            
look  at reducing  the  state's  administrative  burden.   There  is                                                            
nothing  for better  management.   Before  taxes are  raised to  pay                                                            
for an  inefficient  operation, more  information  is needed by  the                                                            
committee.    There  must be  internal  changes  in  management  and                                                            
operations before taxes are increased.                                                                                          
1:57:10 PM                                                                                                                    
REPRESENTATIVE   P.  WILSON  pointed   out  that  the  division   is                                                            
mandated  to take care of  many things for  which there are  no ways                                                            
to  receive  funds.     For  example,  things  are   washing  up  on                                                            
Alaska's  shores   from  the  recent   Japanese  tsunami   that  the                                                            
division  must deal with and  expend funds  for.  She requested  Ms.                                                            
Ryan to address this issue.                                                                                                     
MS. RYAN  first related  that the administration  is not  supportive                                                            
of  an increased  tax  on the  petroleum  refineries  in the  state.                                                            
However,  in  reply to  Representative  P.  Wilson's  question,  she                                                            
said  the  division  is  not  responding  to  the  Japanese  tsunami                                                            
debris   unless   a  hazardous   substance   is  involved;   it   is                                                            
considered  garbage that  does not  need to  be responded  to as  an                                                            
emergency  situation.   An  emergency  situation that  triggers  the                                                            
division's  response  would be  something that  is a  threat to  the                                                            
environment  or  human  or  animal  health.     However,  there  are                                                            
plenty  of activities  to which the  division must  respond and  for                                                            
which the  division is unable  to recover  its costs.  The  division                                                            
bills  out about  $3.5 million  every year  to try  to recover  some                                                            
of  its response  costs,  but only  about half  of  that comes  back                                                            
in.   As a new director,  she has  taken it upon  herself to  try to                                                            
find  ways   to  be  more   efficient  with   the  division's   cost                                                            
recovery.   For  example, this  weekend a  vandal took  the cap  off                                                            
an oil  tank at the  Prospector  Hotel in Juneau,  spilling  the oil                                                            
into  the  sewer  drain  and  out  into  Gastineau   Channel.    The                                                            
division  will  recover  some  of its  costs  assuming  the  hotel's                                                            
insurance  company decides  to pay.  However,  there are many  times                                                            
when the  division is unable  to find the  responsible party  for an                                                            
oil  slick, yet  the  division  must do  something  about  it.   She                                                            
further   noted that foreign  flagged vessels  are not regulated  by                                                            
the  division   and  are   not  required   to  have  the   financial                                                            
assurance  to clean up, so  if the division  has to respond  to them                                                            
it is  very expensive.    She further  explained  that the  division                                                            
does  many prevention  activities  and  some of  the administrative                                                             
costs  that  Representative   Hawker  is  concerned   about  can  be                                                            
clearly  tied  to  improving   response  and  are  worthwhile;   for                                                            
example,  the division requires  industry to  participate in  drills                                                            
to prove  that  they can  respond.   Other administrative  costs  in                                                            
the department  are more  related to leases  and keeping the  lights                                                            
on, so there are different kinds of administrative costs.                                                                       
2:01:43 PM                                                                                                                    
REPRESENTATIVE  OLSON inquired  how much the  division has  spent on                                                            
the  Flint Hills  pollution  cleanup.  He  understood  a charge  was                                                            
paid to the division.                                                                                                           
MS.  RYAN confirmed  the  division  is using  the  response  account                                                            
for Flint  Hills.   She believed  $2.9 million  has been charged  to                                                            
the response  account to  oversee and assess  the different  aspects                                                            
of  that contamination  plume.   Flint  Hills  has repaid  about  $1                                                            
million  and has  refused to  pay any  further, so  the division  is                                                            
in court with them.                                                                                                             
REPRESENTATIVE  OLSON asked  what Flint  Hills was  paying into  the                                                            
fund when it was in full operation.                                                                                             
MS. RYAN answered [$1 million] is the total generated.                                                                          
2:02:52 PM                                                                                                                    
CO-CHAIR  FEIGE  returned  to the  pie chart  titled  "FY  2009-2013                                                            
Number  of Spills  by Product  Type" and  observed  that 74  percent                                                            
of  spills  were noncrude  oil,  3  percent were  process  water,  3                                                            
percent  crude  oil,  and  20  percent  hazardous  substances.    He                                                            
inquired  whether  these  hazardous   substances  are  from  a  wide                                                            
variety of industry or concentrated in a particular industry.                                                                   
MS.   RYAN  responded   the  hazardous   substance   responses   are                                                            
primarily   related   to  the   seafood   and   mining  industries.                                                             
However,  she continued,  to  have a true  sense  of the  division's                                                            
costs  the time  that the  division  spends  on spills  needs to  be                                                            
seen.   Many releases  and spills  require very  little time  on the                                                            
division's  part;  for example,  process  waters cannot  be  cleaned                                                            
up,  so there  is  no  five-year-long  cleanup  process  for  those,                                                            
whereas  there  is  for oil.    In  particular,  solvents  like  dry                                                            
cleaning  chemicals  are very  expensive  to clean  up.   So,  while                                                            
this  is a  good  snapshot of  the  numbers,  it is  not  completely                                                            
representative  of the  money spent  by the division  responding  to                                                            
those  spills.   She  said she  is  calculating  that  data now  but                                                            
does not have it available for today.                                                                                           
CO-CHAIR  FEIGE  requested  this  information  be  provided  to  the                                                            
committee  as soon  as available  because  the crux of  all of  this                                                            
is really  how the money  from the response  and prevention  fund is                                                            
expended and matching that up with the revenue sources.                                                                         
2:04:49 PM                                                                                                                    
REPRESENTATIVE  SEATON  allowed there  is the  question of  matching                                                            
up  the  people  being  taxed  with  where   the  spills  are  being                                                            
generated.   Regarding DOR's  3/7/14 letter  to him, Representative                                                             
Seaton   clarified  the   letter  was   a  response   to  him;   the                                                            
administration  did  not ask  for this  legislation  and is  opposed                                                            
to  any tax  increases  on crude  oil,  refined products,  or  other                                                            
things.    He pointed  out  that  if  the  state was  looking  at  a                                                            
shortfall  of  $6  million,  and  the  committee  did  not  want  to                                                            
increase  the  crude  oil  tax, adopting  only  the  half  cent  per                                                            
gallon  tax would  bring in  $7.3 million.   He said  he has  worked                                                            
for a  while trying  to eliminate  [pollution] sources.   Last  year                                                            
derelict  vessel legislation  was  passed outlawing  the storing  of                                                            
vessels  and  barges  in  state waters.    When  such  vessels  sink                                                            
within  the  three-mile  limit the  state  becomes  responsible  and                                                            
half the  time it is a  non-responsible party  and the state  cannot                                                            
recover any  of its expenditures  [for cleanup],  so the bill  was a                                                            
preventative  measure.   He expressed  his hope  that the  committee                                                            
will consider  the  several different  mechanisms  in this bill  and                                                            
think  about  how  to  spread  the  revenue  collections   from  the                                                            
people  or industry  that  are causing  spills  and  how to  collect                                                            
that revenue.                                                                                                                   
2:07:45 PM                                                                                                                    
REPRESENTATIVE  SEATON  continued, pointing  out  that collecting  a                                                            
C-Plan  fee  is easiest  for  the  department  and does  not  create                                                            
some  of  the  expenses  talked  about  by  Representative   Hawker.                                                            
There is  a lot  of expense reviewing  these  contingency oil  spill                                                            
plans,  which are  necessary,  but the  state does  not collect  any                                                            
money  for.  The  first  thing is  to stop  digging a  hole and  one                                                            
way   to   stop   digging   this   hole   is   by   having   C-Plans                                                            
[electronically]   submitted   to  make  analysis   easier   and  to                                                            
collect  a fee  for the  administration  required to  look at  them.                                                            
This bill  puts forth  a number  of mechanisms  for the legislature                                                             
to look  at for solving the  problem.  The  sponsors are not  saying                                                            
that  all  of  the  proposals  must  be  in  the  bill.    Community                                                            
emergency  responses  and  bulk  fuel  replacements   are  two  good                                                            
things  to  remove  from the  spill  prevention  and  response  fund                                                            
because  they   should  be  done   through  a  capital  improvement                                                             
project.   People with  cars are  also liable  for spills, so  there                                                            
probably  has  to be  some  contribution  there,  too.   It  is  not                                                            
being  said that  this  bill is  the ultimate;  rather,  it gives  a                                                            
range  of things  the  sponsors  see as  feasible.   This  bill  can                                                            
stimulate  conversation about  how to solve  this problem by  having                                                            
people view it on BASIS during the interim and think about it.                                                                  
2:10:06 PM                                                                                                                    
REPRESENTATIVE  TARR  said  she likes  the  range of  options  under                                                            
consideration  in the  bill.  She  concurred that  user groups  such                                                            
as  motorists  are  not  currently  contributing.     There  may  be                                                            
concern  about  whether   a half   cent  per  gallon  is  the  right                                                            
amount,  but  the  forthcoming  information   from  Ms.  Ryan  about                                                            
costs  associated  by  user  group   will  provide  direction.    If                                                            
something  is  not  done this  year  there  will  be  a cost  of  $6                                                            
million  next  year that  will  have to  be  paid from  the  general                                                            
fund,  which  may  cause  other  priorities  to  not be  met.    She                                                            
supported  the  concept  of  the  motor  fuel  tax if  it  could  be                                                            
accomplished  this year,  even  if it is  a reduced  amount  because                                                            
every little bit will help to fill next year's gap.                                                                             
2:12:02 PM                                                                                                                    
CO-CHAIR FEIGE opened public testimony on HB 325.                                                                               
[Co-Chair Feige returned the gavel to Co-Chair Saddler.]                                                                        
2:12:46 PM                                                                                                                    
KARA  MORIARTY,  President/CEO,   Alaska  Oil  and  Gas  Association                                                            
(AOGA),  stated AOGA  does not  support HB  325 or  Version U  of HB
325.   She noted  AOGA  is the professional  trade  association  for                                                            
the majority  of  oil and gas  exploration,  production,  marketing,                                                            
transportation,  and  refining  activities  in  Alaska.    She  said                                                            
AOGA  has been  engaged  in the  policy  decisions  surrounding  the                                                            
oil and  hazardous release  response fund,  referred to as  the "470                                                            
Fund,"  since its  inception  and AOGA  supported  modifications  in                                                            
1994  and 2006  to  determine  how the  surcharge  was distributed.                                                             
For the  last 25 years  the oil and gas  industry has been  the only                                                            
industry to  make any contributions  to this fund and  both versions                                                            
of  this bill  only  continue that  policy.   The  bill proposes  to                                                            
increase the surcharge  to seven cents [per barrel]  and attempts to                                                            
add  a  surcharge  for in-state  refineries  and  importing  refined                                                            
products, but  AOGA does not see  that as noncrude, AOGA  still sees                                                            
it  as crude.    It is  already  challenging at  best  to operate  a                                                            
refinery in Alaska and AOGA does  not see an additional surcharge as                                                            
improving the  business climate for  refining.  Regarding  fees  for                                                            
C-Plans,  Ms.  Moriarty   noted  the  language  states   "may",  not                                                            
"shall",  and  the fee  is undefined  so  it  is unknown  what  that                                                            
means.    All   industries  in  Alaska   submit  several   plans  to                                                            
different   agencies  for  review   -  whether  C-Plans,   plans  of                                                            
operation,  plans of  development,  permits to  drill  - and she  is                                                            
unsure  AOGA  could support  a  policy  that  has a  fee  associated                                                            
with  all  these individual   plans.   While  AOGA  appreciates  the                                                            
work  to tighten  up what  this fund  is used  for,  because it  has                                                            
been  abused in  the  past, the  majority  of the  volumes  reported                                                            
are  outside of  the  oil and  gas  industry.   However,  in  AOGA's                                                            
view,  this  policy  continues  to  look to  only  one  solution  by                                                            
continually adding additional taxes on the oil and gas industry.                                                                
2:15:48 PM                                                                                                                    
REPRESENTATIVE  TARR  asked whether  AOGA  has taken  a position  on                                                            
the  provision  for  a motor  fuel  tax,  which  would  be  consumer                                                            
driven revenue  that consumers  are not currently  paying and  which                                                            
would expand the base of people paying into the fund.                                                                           
MS. MORIARTY  replied  AOGA cannot  support this  provision  because                                                            
it would  still be  adding a tax  on a refined  product.   Consumers                                                            
may or  may not recognize  what that  is going for.   She said  AOGA                                                            
would  have to  evaluate how  it is  administered,  but AOGA  cannot                                                            
support it as currently written.                                                                                                
2:16:59 PM                                                                                                                    
REPRESENTATIVE  P.  WILSON  understood  Ms. Moriarty  to  be  saying                                                            
AOGA wants  it to be more  fair and more  user based, but  disagrees                                                            
with having private people [also pay the surcharge].                                                                            
MS.  MORIARTY responded  that  as currently  written  the  surcharge                                                            
is not  on private,  a refinery  would be paying  the surcharge  for                                                            
each  gallon of  refined product  or imported  product.   So, it  is                                                            
not a  consumer  tax, it  is an  oil and  gas industry  tax that  is                                                            
being put on the refineries in addition to the producers.                                                                       
2:18:04 PM                                                                                                                    
REPRESENTATIVE  SEATON  inquired  whether  AOGA  has a  position  on                                                            
the bill's  provision to  eliminate expenditures  from the  fund for                                                            
emergency planning communities and bulk fuel tank repairs.                                                                      
MS. MORIARTY  answered AOGA  does not have  a position specifically                                                             
on  those two  things,  but applauds  tightening  the  reins.   Over                                                            
the past  25 years  the fund  has been  used for  a wide variety  of                                                            
things that  may not necessarily  be related  to oil spill  response                                                            
and preparedness.   Any  effort to continue  tightening the  purpose                                                            
and expenditures would be supported by AOGA.                                                                                    
REPRESENTATIVE  SEATON  requested that  over the  interim AOGA  look                                                            
at  the  fund's   expenditures  and   specifically  tell   committee                                                            
members which of those should not have been spent.                                                                              
MS. MORIARTY  agreed to look  at that and  to work with Ms.  Ryan on                                                            
her report on user group categories.                                                                                            
2:21:12 PM                                                                                                                    
CO-CHAIR  SADDLER  kept  public testimony  open  and  requested  the                                                            
departments  to provide  the  committee  with updated  fiscal  notes                                                            
over the interim.                                                                                                               
2:21:47 PM                                                                                                                    
REPRESENTATIVE   TARR   requested  Ms.   Ryan's   thoughts  on   the                                                            
challenge  of  determining  a per-barrel  equivalent  on  the  other                                                            
categories,  given  that is  how the  surcharge  is  levied on  oil.                                                            
She  further asked  whether  members should  be thinking  about  gas                                                            
development  and the  inclusion of  a surcharge  when rewriting  the                                                            
statutes related to gas development.                                                                                            
MS.  RYAN   qualified  she   may  not  completely   understand   the                                                            
question,  but said  if there  was only  the surcharge  on oil,  the                                                            
division  estimates  that approximately  9  cents per  barrel  would                                                            
be needed  to fill  the gap in  the prevention  account.  There  may                                                            
be  other  industries  that need  to  be  considered,  she  allowed.                                                            
Regarding  all the  costs in  the division,  she does  not yet  have                                                            
very  good statistics  to go  on, but  is getting  there.   However,                                                            
the division  spends a lot  on contaminated  sites.  The  division's                                                            
budget  includes all  the  work to  oversee contaminated  sites  and                                                            
many  of those  sites  do not  have owners  and  can cost  a lot  to                                                            
clean up;  it is always a  debate about what  industry would  be the                                                            
responsible  party  in such  cases.   In  regard to  equalizing  the                                                            
fund  sources with  a  spill, it  is usually  a  petroleum  product,                                                            
which  is the  reason  for  focus  on a  petroleum  product  format.                                                            
Other states also use that as a source of revenue for this work.                                                                
REPRESENTATIVE  TARR observed  that the pie  charts include  mining.                                                            
Given  there is  not  a per-barrel  equivalent,  she  asked  whether                                                            
the division  has thought  about an  annual fee  as a mechanism  for                                                            
other industries to be contributing toward the fund.                                                                            
MS. RYAN  replied most  spills are  fuel, whether  they happen  in a                                                            
village,  mine site,  or boat.   The  division has  never looked  at                                                            
going  after specific  subgroups,  but if  such a thing  were to  be                                                            
implemented,  the  most economical  way  would be  to do  it at  the                                                            
wholesale  level because  it  is the same  product,  but just  being                                                            
spilled  by  different  industries.   The  assumption  is  that  the                                                            
cost would be passed on to the spiller.                                                                                         
2:24:55 PM                                                                                                                    
REPRESENTATIVE  MUNOZ  thanked  the  committee  for  continuing  the                                                            
conversation  on this issue.   She said she  has enjoyed working  on                                                            
the  DEC  budget  subcommittee  and  she  appreciates  the  work  of                                                            
committee  members  in trying  to  find a  solution  to this  issue.                                                            
"For two  years now," she  said, "we've put  intent language  in the                                                            
operating   budget  asking   the  department   to  come  back   with                                                            
solutions  on  how to  deal  with  the long-term  viability  of  the                                                            
spill response  division."   The bill is really  the beginning  of a                                                            
conversation that will continue over the interim.                                                                               
2:25:50 PM                                                                                                                    
REPRESENTATIVE  SEATON,  addressing  AOGA's comment  regarding  fees                                                            
"may"  rather  than  "shall"  be collected  for  approving  a  plan,                                                            
said  he wants  people to  know their  comments  are being  listened                                                            
to.   He requested  that next year  DEC provide  an analysis  to the                                                            
committee  for  a   fee  schedule  that  would  be  appropriate   to                                                            
propose.   Since some C-Plans  may be on marine  waters and  some on                                                            
land, the  fee will not be  the same for  every C-Plan.  He  further                                                            
requested  that DEC  provide a recommendation  to  the committee  on                                                            
whether the language should be "shall" or "may".                                                                                
MS.  RYAN explained  that  C-Plan  work is  done by  the  division's                                                            
[Industry  Preparedness  & Pipeline  Program], which  has an  annual                                                            
budget  of  about  $5  million.    She  guessed   that  about  60-65                                                            
percent  of this section's  work is  based on  C-Plans, so about  $3                                                            
million  is being  spent  out of  the prevention  account  to do  C-                                                            
Plan  work.   These  contingency  plans  are  very  time  consuming,                                                            
with  some  way  more  time  consuming  than  others;  for  example,                                                            
there is  full-time staff  whose work is only  on the Valdez  Marine                                                            
Terminal.   So, she said,  there would have  to be a graduated  rate                                                            
depending  on how  complicated  the  plan is.   However,  there  are                                                            
only  137 C-Plans,  so fees  would not  solve the  problem but  they                                                            
would generate some revenue.                                                                                                    
2:28:37 PM                                                                                                                    
REPRESENTATIVE  TARR,  regarding contaminated  sites  and sites  for                                                            
which  it  is difficult   to locate  the  owners  for  billing  cost                                                            
recovery,  asked  whether  it  would  be  appropriate   to  separate                                                            
cleanup costs  such that  costs for contaminated  sites for  which a                                                            
responsible  party  cannot  be found  would  come from  the  general                                                            
fund  and a  date  could  be determined  for  when  this  separation                                                            
would begin.                                                                                                                    
MS. RYAN  concurred there  would be  some mechanisms  to look  at in                                                            
this regard.   The point  has been brought  up before that  the fund                                                            
should  not be used  and especially  for state  contaminated  sites.                                                            
Many  state contaminated   sites were  cleaned  up using  the  fund,                                                            
but  that  is  not done  anymore  and  now  the  division  asks  for                                                            
capital  appropriations   to  handle  state  sites.    The  division                                                            
spends  several million  dollars  a year  overseeing  federal  sites                                                            
and other  sites and  there might  be another  mechanism that  could                                                            
be used for these sites.                                                                                                        
2:30:13 PM                                                                                                                    
REPRESENTATIVE  SEATON  related  it has  been said  that  throughput                                                            
in  the  Trans-Alaska   Pipeline  System  (TAPS)   is  going  to  be                                                            
increasing  and so everything  will take care  of itself.   When the                                                            
departments  next address  the  committee,  he would  like for  them                                                            
to  base  it  on  the  10-year  forecast  from   the  Department  of                                                            
Revenue.   Currently,  the spring forecast  is for  an oil price  in                                                            
2014  of  $106,  rising  to  $131  in  2023;  yet  the unrestricted                                                             
petroleum  revenue is  forecast to  drop from $4.6  billion in  2014                                                            
to $3.4  billion in 2023.   Despite a rising  price, this is  due to                                                            
the  volume decrease.    Since the  current  structure  is based  on                                                            
cents  per barrel,  it is  going downhill  fast.   He requested  the                                                            
Department  of Natural Resources  and the  Department of Revenue  to                                                            
provide  data  that  coincides  with  the  scenario   of  increasing                                                            
throughput,  saying that  right now  the departments  are showing  a                                                            
declining production with a slowing of the decline.                                                                             
2:32:36 PM                                                                                                                    
REPRESENTATIVE  P. WILSON  queried  whether there  is any  mechanism                                                            
for  getting reimbursement  from  the  federal government  when  the                                                            
state cleans up federally contaminated sites.                                                                                   
MS.  RYAN responded  the division  cost  recovers  from the  federal                                                            
government  in a lot of  cases.  In the  contaminated sites  program                                                            
alone, about  $4 million  per year is generated  in federal  receipt                                                            
authority.    However,  the  division  probably  spends  another  $3                                                            
million that  the federal  government will  not pay for.   Sometimes                                                            
a lot  of pre-work has  to go into  a site.   Recently a  settlement                                                            
was reached  for a site  in Aniak  that was a  federal mistake.   It                                                            
took  the  division  eight years  to  get  to the  point  where  the                                                            
federal  government  agreed  it  is the  responsible  party  and  is                                                            
going  to pay.   During  that  whole time,  the  prevention  account                                                            
had to pay those costs plus the legal costs of the negotiations.                                                                
2:33:59 PM                                                                                                                    
CO-CHAIR  SADDLER confirmed  no one else wished  to testify  at this                                                            
time, but held open public testimony.                                                                                           
CO-CHAIR  SADDLER held  over HB 325  for continued  work during  the                                                            
2:34:35 PM                                                                                                                    
There  being no further  business  before the  committee, the  House                                                            
Resources Standing Committee meeting was adjourned at 2:34 p.m.                                                                 

Document Name Date/Time Subjects
HB325 DEC Response 3.26.14, Doc 1.pdf HRES 4/14/2014 1:00:00 PM
HB 325
HB325 DEC Response 3.26.14, Doc 2.pdf HRES 4/14/2014 1:00:00 PM
HB 325
HB325 DEC Response 3.26.14, Doc 3.pdf HRES 4/14/2014 1:00:00 PM
HB 325
HB325 DEC Response 3.17.14.pdf HRES 4/14/2014 1:00:00 PM
HB 325
HB325 Work Draft (Version U).pdf HRES 4/14/2014 1:00:00 PM
HB 325
HB325 AOGA Letter.pdf HRES 4/14/2014 1:00:00 PM
HB 325
HB325 DOR Response to Rep. Seaton 3.7.14.pdf HRES 4/14/2014 1:00:00 PM
HB 325
HB325 PWSK Letter.pdf HRES 4/14/2014 1:00:00 PM
HB 325