Legislature(1993 - 1994)
02/15/1994 03:00 PM House RES
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE RESOURCES STANDING COMMITTEE
February 15, 1994
3:00 p.m.
MEMBERS PRESENT
Representative Bill Williams, Chairman
Representative Bill Hudson, Vice Chairman
Representative Con Bunde
Representative Pat Carney
Representative Joe Green
MEMBERS ABSENT
Representative John Davies
Representative David Finkelstein
Representative Jeannette James
Representative Eldon Mulder
COMMITTEE CALENDAR
Meeting with officials from federal Minerals Management
Service for presentation and discussion regarding
development of regulations under the Oil Pollution Act of
1990 (OPA '90).
WITNESS REGISTER
JEFF ZIPPEN, Chief
Inspection, Compliance, and Training Division
Minerals Management Service
United States Department of the Interior
Washington, D.C. 20240
Phone: (703) 787-1576
POSITION STATEMENT: Gave briefing and update on Oil
Pollution Act 1990 regulations
MEAD TREADWELL, Deputy Commissioner
Department of Environmental Conservation
410 Willoughby Avenue, Suite 105
Juneau, Alaska 99801
Phone: 465-5050
POSITION STATEMENT: Discussed DEC's position on OPA
`90
ACTION NARRATIVE
TAPE 94-15, SIDE A
Number 000
The House Resources Committee was called to order by
Chairman Bill Williams at 3:20 p.m. Members present at the
call to order were Representatives Williams, Hudson, Carney
and Green. Members absent were Representatives Bunde,
Davies, Finkelstein, James and Mulder.
CHAIRMAN WILLIAMS noted the legislature has been considering
HJR 49, and SJR 40 over the past few weeks, relating to
efforts by the Minerals Management Service (MMS) to draft
regulations implementing the financial responsibility
section of the Oil Pollution Act of 1990 (OPA `90). While
discussing the resolutions, legislators became increasingly
concerned about potential impacts of the regulations on many
sectors of the Alaskan economy. Although the MMS had
scheduled a hearing in Anchorage for February 16, most
legislators would not have the opportunity to participate,
because of session. Therefore, the House Resources
Committee decided to ask the MMS to send a representative to
Juneau to discuss OPA `90 regulations and the issues and
concerns surrounding them.
CHAIRMAN WILLIAMS stated Jeff Zippen agreed to make the trip
from Washington, D.C., to meet with the committee. He added
that two representatives from the Anchorage MMS office were
also present at the meeting: Brunhilda O'Brien, a
regulatory analyst and Tom Murrell, a supervisory petroleum
engineer. Chairman Williams advised those present that the
meeting would be informal. The goal is to get a better
understanding of OPA `90 and the regulatory process the MMS
has underway, and for the MMS to get a better understanding
of committee members' concerns about potential effects of
OPA `90 implementation.
Number 050
JEFF ZIPPEN, CHIEF, INSPECTION, COMPLIANCE, AND TRAINING
DIVISION, MINERALS MANAGEMENT SERVICE, explained that MMS is
the agency which has responsibility for leasing and
regulation on the outer continental shelf of the United
States. Another MMS responsibility is collecting mineral
royalties from all federal lands. Under the OPA `90, MMS
has two primary responsibilities; one is for oil spill
prevention and contingency planning, and the other is for
offshore financial responsibility.
MR. ZIPPEN thanked the committee for the two resolutions
which have been passed, and felt they will be of great
benefit to MMS as they continue the rulemaking process on
OPA `90. He stressed that what MMS currently has out is an
advanced notice of proposed rulemaking, not a proposal. It
is a step which precedes a proposal in the rulemaking
process, and is a way for MMS to get information out to the
public. Included in the document are preliminary
interpretations of the financial responsibility section. He
said MMS has taken a very broad view so that all the
potentially affected people might understand how they are
affected and can comment to MMS on that.
Number 081
MR. ZIPPEN stated after MMS began work on the advanced
notice, they wanted to have meetings in different parts of
the country and the first two places they came to were
Anchorage and Juneau. They learned ways that OPA `90 could
affect Alaska.
MR. ZIPPEN referring to slides, stated OPA `90 is a new
responsibility for MMS. When MMS saw the Act, they realized
how broad and encompassing it might be and instead of going
out with proposed rules, they decided there was a need to
have an advanced notice of proposed rulemaking. There have
been meetings, workshops, etc., around the country and they
are still seeking comments and recommendations on OPA `90,
on MMS preliminary interpretations, how rules should be
structured, what kind of economic impacts there will be,
etc. It is important that MMS get the perspective of the
regulated community.
Number 140
MR. ZIPPEN said the key purposes of the OPA `90 were to
increase the liability for spills, ensure there is someone
to pay if a spill occurs and improve oil spill prevention,
clean up and response mechanisms which now exist.
MR. ZIPPEN explained in regard to offshore facilities
liability, under OPA `90, the liability is unlimited for
clean up costs, regardless of what the costs are, and costs
must be paid by the polluter. Damages can be paid up to $75
million, although it is an adjustable limit which MMS can
make recommendations on to Congress. If a spill results
from negligence or a violation, there is unlimited
liability. He pointed out that even though there are no
regulations in place for offshore facility financial
responsibility currently, the liability created in OPA `90
became effective when the Act was passed.
Number 156
MR. ZIPPEN stated the purposes of financial responsibility
include ensuring there is money available to pay for an oil
spill when it occurs. He stressed it is an important
concern for the MMS. Their traditional constituency is the
offshore oil and gas community. There is an increasing
number of companies leaving the U.S. and more smaller,
independent operators moving onto the outer continental
shelf. Many are not as well capitalized as the majors are.
The financial responsibility requirement guarantees there
will be money available to pay for the cleanup process.
MR. ZIPPEN explained another purpose of financial
responsibility is to provide direct access to any
guarantors, including bondsmen, insurance companies,
protection and indemnity clubs. This means that anyone who
has a claim against the spiller can go directly to the third
parties and collect.
MR. ZIPPEN said the final purpose of financial
responsibility is as a fiscal deterrent to oil spills. If
an entity is responsible for a spill, they have a tremendous
liability and will do a better job ensuring spills do not
happen.
Number 177
MR. ZIPPEN noted a few of the key dates of MMS include:
August 18, 1990, the statute was enacted; October 18, 1991,
an Executive Order was issued by the Department of Interior
for offshore facilities, which was then redelegated to the
MMS on January 30, 1992; October 1, 1992, an existing
program from the Coast Guard was transferred to MMS. He
said under the Outer Continental Shelf Lands Act, there is a
financial responsibility requirement for facilities on the
outer continental shelf. It is an ongoing program and was
allowed to continue under OPA `90 until new regulations are
written. On April 16, 1993, MMS gave notice to their
lessees that MMS was now administering the existing program
(formerly with the Coast Guard); August 25, 1993, MMS
published the advanced notice. He mentioned originally the
notice was out for a sixty day comment period and has been
extended twice, with the comment period closing date now on
February 28, 1994. The target date for the proposed notice
of rulemaking is sometime during 1994, but added that he is
not sure that deadline can be met. Hopefully, there will be
a final rule one year from that date.
MR. ZIPPEN explained the definition of "facility" in OPA `90
means any structure, group of structures, equipment, or
device (other than a vessel) which is used for one or more
of the following purposes: exploring for, drilling for,
producing, storing, handling, transferring, processing, or
transporting oil. This term includes any motor vehicle,
rolling stock, or pipeline used for one or more of these
purposes.
MR. ZIPPEN stated the definition of "offshore facility"
means any facility of any kind located in, on, or under any
of the navigable waters of the United States, and any
facility of any kind which is subject to the jurisdiction of
the U.S. and is located in, on, or under any other waters,
other than a vessel or public vessel. He said basically if
it is wet and it meets the facility definition, it is an
offshore facility. He emphasized he is familiar with the
fact that the navigable waters issue is important to the
state because of the wetlands in Alaska. He advised MMS has
been asked if there is any flexibility in defining navigable
waters differently under OPA `90 and according to their
attorneys, the navigable waters definition is referencing
the Federal Water Pollution Control Act which set up the 404
requirements originally. Another confining statement in the
definition is "under any other waters" as MMS is not sure
what other waters means.
Number 244
MR. ZIPPEN explained "onshore facility" means any facility
(including, but not limited to, motor vehicles and rolling
stock) of any kind located in, on, or under, any land within
the U.S. other than submerged land. He said in the
conference committee report, managers are saying that any
portions of a facility which are located in navigable waters
such as pipelines, marinas, etc., if connected to an onshore
facility or is a part of the onshore facility, in accordance
with the Federal Water Pollution Control Act, are subject to
the financial requirement. MMS attorneys have reviewed the
Federal Water Pollution Control Act, have talked to both the
Environmental Conservation Agency and the Coast Guard, and
have determined there is no differentiation between onshore
and offshore. All references are between transportation
related and nontransportation related facilities. While it
appears there was Congressional intent given, the reference
which was given may not be able to be supported.
Number 268
MR. ZIPPEN stated the existing requirements under the Outer
Continental Shelf Lands Act (OCSLA) apply only to the outer
continental shelf. The existing evidence requirement is $35
million and the civil penalty provision is $10,000 per
incident. OPA `90 will replace that scheme and increase
financial responsibility to $150 million. He said people
have asked where the $150 million figure comes from and no
one seems to know. Another change is the types and classes
of facilities, which then creates a jurisdictional issue.
What is an offshore facility? The OPA `90 also expands the
jurisdiction to territorial sea, inland waters and wetlands.
Finally, the Act provides a civil penalty up to $25,000 per
day.
Number 303
MR. ZIPPEN remarked under the OCSLA, existing companies can
self-insure for $35 million and an asset test is performed.
They can either have insurance or they can use surety bonds.
Also, in existing law, insurance must provide for direct
access to any guarantor.
MR. ZIPPEN pointed out that OPA `90 gave flexibility to look
at potentially innovative ways to show financial
responsibility, which many times posed problems. Liquid
asset pools have been looked at, including the protection
and indemnity clubs (P&I clubs) which have been used by the
tanker industry. MMS has also talked to people from the
United Kingdom who are involved in marine insurance. They
are looking at possibly setting up a P & I club which would
deal with offshore facilities. However, there are tax
implications for where they might be located. The places
they want to locate the P & I clubs to get the best tax
advantages are places which the U.S. Government has no
access to, if there is a claim.
MR. ZIPPEN continued that insurance as an asset, is where an
entity does not have to provide direct action but can have a
policy which protects them from pollution up to $150
million, and that entity wants the policy to be considered
as an asset. There is concern that insurance as an asset
might contravene the direct access provision which was
written in the statute. With surety bonds and letters of
credit, there can be two problems at the $150 million level.
Some states have restrictive rules which prohibit it and in
most cases, the bonds or letters of credit must be fully
collateralized.
Number 339
MR. ZIPPEN stated with the advanced notice, MMS has
identified a number of major issues. What are the types and
locations of "offshore facilities"? What methods are
available to evidence financial responsibility? Another
issue is protections/defenses for responsible parties and
guarantors. Very important also is the economic impact on
people, companies, and local economies. He said there is an
Executive Order which requires that all rulemaking have an
economic impact analysis prepared, and a lot of the
information people have provided MMS through the advanced
notice process will be used if a proposed rule is prepared.
Finally, interaction with states and territories is an
issue. OPA `90 allows states to administer OPA `90
financial requirements in state waters and it is not clear
what that means.
Number 370
MR. ZIPPEN reviewed MMS activities. MMS has continued to
issue certificates of financial responsibility at $35
million covering the outer shelf only. MMS decided to go
with an advanced notice of proposed rulemaking rather than a
notice of proposed rulemaking. MMS has had meetings with a
number of different groups and communities and has held
numerous public workshops. MMS has compiled and made
available the public record which exists on OPA `90 and back
in October, the Director of MMS testified before a
Congressional hearing.
MR. ZIPPEN said thus far, the issues which have been
identified to MMS include the offshore definition;
geographic jurisdiction, including the determination of
navigable water; people not being able to get insurance and
insurers not accepting the direct access provision; limited
insurance capacity; the $150 million limit does not take
risk into effect; and finally the economic impacts. He
emphasized in closing that this is not a proposal and MMS
does not have an official administration position yet.
Number 480
REPRESENTATIVE BILL HUDSON stated Alaska is unique because
of the vast distances between the isolated and small
communities. Any extreme interpretation may cause the
delivery, storage, or handling of petroleum to be life
threatening. He said Alaska is very different and he hoped
that MMS will analyze that fact and react accordingly. He
stressed the definition of navigable waters is a serious
problem, particularly if it includes wetlands, inland
waters, territorial sea, etc. He urged MMS to draw upon the
expertise of the Coast Guard when trying to differentiate
between different watercraft, things that navigate on
navigable waters, etc.
Number 520
REPRESENTATIVE JOE GREEN said one of the reasons the two
resolutions referred to earlier got unanimous backing is an
indication that the broadest possible interpretation will be
made, and that incensed most Alaskans. Many of Alaska's
coastal communities are small, yet they have diesel storage
for generating power and unless they are going to violate
OPA `90, they will be in violation because they cannot
possibly show $150 million financial responsibility. He
said the legislature feels like Alaska has been looked upon
as the conscience of the lower 48. With almost everything
that happens, it is to an extreme and affects Alaska. He
urged MMS to use discretion.
Number 590
REPRESENTATIVE PAT CARNEY asked if MMS will be going back to
Congress with recommendations to amend OPA `90.
MR. ZIPPEN responded that if MMS is asked by Congress what
is needed to fix OPA `90, they will be happy to make
recommendations. He said the Administration has not made a
decision on whether it will propose its own technical fix to
the Act itself. Once the comment period closes and
information is compiled, deliberations will move up within
the department for consideration.
REPRESENTATIVE CARNEY wondered if there is any way to
implement regulations which will make OPA `90 a workable
Act.
MR. ZIPPEN said he could conceive of what they would be.
The difficulty is whether the Solicitors General office will
approve them, as they may not meet the test of the law.
Number 630
CHAIRMAN WILLIAMS remarked that Congress intended to have a
definition of onshore and offshore facilities. He asked Mr.
Zippen to again review and expand on the definitions.
MR. ZIPPEN responded that a marina, or a pipeline which runs
from a refinery across a creek, etc., may be subject to the
financial requirement, as it can carry oil and is located in
water. In the conference manager's report, there is
language which refers to "any of pertinence" (pipelines,
piers, etc.,) which are directly connected to onshore
facilities, and saying they should be considered part of the
onshore facility. It goes on to say the difference between
onshore and offshore facility is contained in the Federal
Water Pollution Control Act. The concern is, while it seems
to be straightforward in its intent, in going back to the
Federal Water Pollution Control Act, there is no reference
or split between onshore and offshore. The split is only
between transportation related facilities and
nontransportation related facilities.
Number 688
REPRESENTATIVE HUDSON asked where MMS will acquire the
interpretation for "other waters."
MR. ZIPPEN responded the Department of Solicitors General is
looking at existing statute to make interpretations.
REPRESENTATIVE HUDSON stressed the committee will be
available to assist as a resource in the deliberating
process. When the process is completed, the committee wants
to make sure the state is protected.
TAPE #94-15, SIDE B
Number 000
REPRESENTATIVE GREEN gave a hypothetical situation and asked
if each of the entities mentioned would have to show $150
million worth of financial responsibility. He felt the
requirement will shut down everything in the state except
one or two major oil companies. He said legislators keep
looking for what was intended by Congress and no one seems
to know. Representative Green asked if it is the intent of
Congress to have so many lawbreakers in the country. He
felt it will be worthwhile to go back to Congress and take
another look at OPA `90.
MR. ZIPPEN agreed, and said the scope of the issue is very
large. He said MMS has Congressional staff members who have
been talking with members of Congress and committees. He
noted that the facilities definition proceeded through six
different committees of jurisdiction, three in the House and
three in the Senate. In some cases, committees were
considering language which said an offshore facility is a
facility which is on the outer continental shelf and
produces oil and gas, all the way to the facility definition
presented, which has the potential to be very far reaching.
Given what passed in OPA `90, it is clear that some people
in Congress did not think that is what the facility
definition should be, because their committees did not
report that definition out. Some members of Congress have
said the language is not what they intended, and MMS is
still struggling with the language, seeking Congressional
assistance in making interpretations.
Number 060
CHAIRMAN WILLIAMS said many of the villages throughout
Alaska will be very hard pressed to be able to live up to
the standards proposed.
MR. ZIPPEN reiterated that what MMS has done so far is not a
proposal and they are not saying this is what the
regulations should be. After reading the law, MMS has said
this is what the regulations could be and based on that,
they want to hear comments from people. They want to have
something that is fair, equitable, does not pose an
unreasonable burden for the risk at stake, is supportable
and carries out the intent of Congress.
CHAIRMAN WILLIAMS asked how likely it is that Congress will
agree to open OPA `90 for amending it.
MR. ZIPPEN replied he did not know what the willingness of
Congress will be to open the Act in its entirety. He said
there has already been one technical correction made in the
form of a rider attached to the Act.
Number 117
CHAIRMAN WILLIAMS asked what type of reaction is being
received from other states.
MR. ZIPPEN responded there is incredulousness at what is
being suggested. He said MMS has dealt mostly with coastal
states, and those who have ongoing oil and gas operations
are the states who will immediately be affected. Many
people are concerned and are asking MMS to very carefully
consider what is done when proposing regulations.
CHAIRMAN WILLIAMS asked Mr. Zippen if he is aware of the
laws which the state of Alaska has in effect.
MR. ZIPPEN stated that MMS had met with the Department of
Government Coordination and the Department of Environmental
Conservation (DEC) and compared requirements.
Number 147
REPRESENTATIVE HUDSON said MMS is going through what Alaska
did when they established financial responsibility a few
years ago. The world market does not have that type of
insurance and it surely does not have it for many of the
small communities and facilities which will be affected.
Any insurance information and options which MMS receives
will also be helpful to Alaska.
MR. ZIPPEN stated MMS is working with DEC on a letter of
agreement on the spill response contingency planning and the
spill response planning portion of OPA `90.
REPRESENTATIVE HUDSON remarked that typically when Congress
passes an act, there are provisions where states can assume
responsibility. One of the comments Mr. Zippen made earlier
is that states may administer the financial responsibility,
providing they can come to a common understanding. He felt
it will be better for all of the people dealing with
petroleum products of any sort to have one place to go to
try to satisfy financial and response elements.
Number 188
CHAIRMAN WILLIAMS noted that Alaska does have very stringent
rules and regulations in the oil industry and encouraged MMS
to look at the state's rules and regulations and follow
those.
MR. ZIPPEN agreed that MMS can learn from the state's
experience and its ongoing program.
MEAD TREADWELL, DEPUTY COMMISSIONER, DEPARTMENT OF
ENVIRONMENTAL CONSERVATION, stated the department's position
is that the $150 million financial requirement will not work
and is not necessary. The legislature has given DEC a set
of financial responsibility laws to enforce. He said it is
the one law in the state that DEC is in 100 percent
compliance. He stressed it is one of the best run programs
and added it is run by one person. He stated DEC is
interested in working with MMS as they pattern their
regulations. If MMS can delegate authority to the state, so
the person having to go through the process only has one
stop to shop, DEC will be happy to look at it.
MR. ZIPPEN stated he is especially interested in the comment
that the $150 million financial requirement is excessive.
MMS has tried to gather information on spill history and
cleanup costs and asked that if DEC has information on costs
of spill clean up in Alaska, they will be interested in
seeing the information.
CHAIRMAN WILLIAMS thanked everyone for participating. He
hoped that OPA `90 can be amended, at least up to Alaska's
standards.
ANNOUNCEMENTS
CHAIRMAN WILLIAMS announced the committee will meet on
Wednesday, February 16 at 8:15 a.m. to hear SB 77 and SJR
13.
ADJOURNMENT
There being no further business to come before the House
Resources Committee, Chairman Williams adjourned the meeting
at 3:20 p.m.
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