Legislature(1999 - 2000)
02/21/2000 03:12 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE RESOURCES COMMITTEE February 21, 2000 3:12 p.m. MEMBERS PRESENT Senator Rick Halford, Chairman Senator Robin Taylor, Vice Chairman Senator Pete Kelly Senator Lyda Green Senator Georgianna Lincoln MEMBERS ABSENT Senator Sean Parnell Senator Jerry Mackie COMMITTEE CALENDAR SENATE BILL NO. 175 "An Act relating to state mining law, to methods of locating mining claims, to the granting of larger mining claims using a legal subdivision based on rectangular survey descriptions, and to mandatory rental payments for prospecting rights." -MOVED SB 175 OUT OF COMMITTEE SENATE BILL NO. 226 "An Act relating to stranded gas pipeline carriers and to the intrastate regulation by the Regulatory Commission of Alaska of pipelines and pipeline facilities of stranded gas pipeline carriers." -HEARD AND HELD CS FOR HOUSE CONCURRENT RESOLUTION NO. 9(RES) am Relating to Take a Young Person Hunting Week. -MOVED CSHCR 9(RES)am OUT OF COMMITTEE SENATE BILL NO. 273 "An Act requiring oil discharge prevention and contingency plans and proof of financial responsibility for non-tank vessels and railroad tank cars; authorizing inspection of non-tank vessels and trains; and providing for an effective date." -HEARD AND HELD PREVIOUS SENATE COMMITTEE ACTION SB 175 - No previous action to record. SB 226 - No previous action to record. HCR 9 - No previous action to record. SB 273 - No previous action to record. WITNESS REGISTER Mr. Steve Borell, Executive Director Alaska Miners Association 3305 Arctic #202 Anchorage, AK 99503 POSITION STATEMENT: Supported SB 175. Mr. Bob Loeffler, Director Division of Mining and Water Management Department of Natural Resources 3601 C Street, Ste 800 Anchorage, AK 99503 POSITION STATEMENT: Supported SB 175. Mr. Michael Hurley ARCO Alaska Inc. Alaska North Slope LNG Sponsor Group 700 G Street Anchorage, AK 99501 POSITION STATEMENT: Supported SB 226. Mr. Mike Barnhill, Assistant Attorney General Department of Law P.O. Box 110300 Juneau, AK 99811 POSITION STATEMENT: Commented on SB 226. Mr. Scott Petsel Aide to Representative Gail Phillips State Capitol Bldg. Juneau, AK 99811 POSITION STATEMENT: Testified for the sponsor of HCR 9. Senator Drue Pearce Alaska State Capitol Juneau, AK 99811-1182 POSITION STATEMENT: Sponsor of SB 273. Mr. Pat Carter Aide to Senator Drue Pearce Alaska State Capitol Juneau, AK 99811 POSITION STATEMENT: Commented on SB 273. Ms. Wendy Lindskoog, Director External Affairs Alaska Railroad Corporation P.O. Box 107500 Anchorage, AK 99510 POSITION STATEMENT: Supported SB 273. Mr. Ernie Piper, Assistant Vice President Health, Safety, and Environmental Compliance Alaska Railroad Corporation P.O. Box 107500 Anchorage, AK 99510 POSITION STATEMENT: Supported SB 273. Mr. Bob Doll, General Manager Alaska Marine Highway System Department of Transportation 12175 Glacier Hwy. Juneau, AK 99801 POSITION STATEMENT: Supported SB 273. ACTION NARRATIVE TAPE 00-03, SIDE A Number 001 CHAIRMAN HALFORD called the Senate Resources Committee meeting to order at 3:12 p.m. Present were Senators Lincoln, Pete Kelly, Green, Taylor and Halford. The first order of business to come before the committee was SB 175. SB 175-STATE MINING LAW MR. STEVE BORELL, Executive Director of the Alaska Miners Association, said that SB 175 is the result of several years of work between the mining industry and the Department of Natural Resources (DNR). The changes in it only affect the process required to locate and stake mining claims. They do not increase or decrease the rights that are established by the claims. The primary catalyst for the review was the on-going state budget challenge combined with technological advances regarding land records, Internet access to land records, and global positioning systems (GPS). The advances make it easier to post the data in a timely and efficient manner, which was the primary issue for DNR. Mining claims will be put into a format that can be electronically entered on the state land status plats, which should improve accuracy, accessibility, and timeliness of the data. From the standpoint of the mining industry, the changes will simplify the claim staking process and reduce errors. They will also make it possible to use global positioning systems to establish claim corners in the field. SB 175 will also allow the use of a larger size of mining claim, which will decrease the amount of "pick work" for both the miner and DNR. The existing claim location system will continue to be available for situations in which the new positioning method is not practical. The bill also establishes rent for prospecting sites which do not have a rental rate on them now. It also adds some restrictions on using the new system: Meridian, Township, Range, Section, and Claim, (MTRSC). If that system is used, it must be done in a way that will facilitate the process for DNR. Mr. Borell said the mining industry believes SB 175 makes appropriate changes. Number 115 CHAIRMAN HALFORD asked if the bill allows for claim locations that are not posted on the ground. MR. BORELL answered no, the post in the ground is the essential starting point according to the state mining law. SB 175 does not change that. SENATOR TAYLOR asked, if it doesn't change the requirement to post on the ground, what savings are involved and how SB 175 will improve the system. MR. BORELL explained that an aliquot grid, based on meridian, township, range and section, covers the entire state. If a miner goes out and establishes claim corners and tells DNR the location defined by MTRSC, DNR's cost is significantly less because a draftsman will no longer have to enter it onto the land status plats. The claim can be highlighted on the appropriate plat with a computer cursor. DNR staff would confirm the data and hit the enter button; the claim would then be on the land status plat and almost instantaneously available anywhere in the state or world. SENATOR TAYLOR commented that DNR is willing to use aliquot parts and GPS with mining claims but it has been totally resistant to do anything like that when it comes to land sales in the state. SENATOR LINCOLN requested a fiscal note. MR. BOB LOEFFLER, Division of Mining, DNR, stated support for SB 175. The Division has a problem providing the services the mining industry relies upon. This bill is a partial solution to that problem. In the early '90s, the Division did about 3,000 mining claim stakings per year. In FY99, there were 15,000 and in the late '90s there have been 10,000 to 11,000. The Division expects that number to continue. The Division is pleased with that level but when it receives more than 10,000 applications per year, the Division can't turn them around fast enough. It has a four to six month back log in terms of creating a record for each mining claim. This bill solves the problem in two ways: it allows for larger mining claims, which will require fewer to be processed and it allows the miners to stake the claims in a way that helps the division automate the system. MR. LOEFFLER said the fiscal note is a bit odd and he doesn't want to mislead the committee. SB 175 applies rents to prospecting sites. The Division believes it will generate new revenue of about $150,000; half would go to the treasury and half to the Permanent Fund. At the same time, the Division isn't able to provide the services to make use of this information. To reduce the backlog, the Division will need approximately $75,000 to process the claims. The Division attempted to demonstrate in the fiscal note that the bill will create a new revenue source but it will need to capture some of those funds to provide the services to generate the funds. He said DNR would support the bill in any form. Number 598 SENATOR TAYLOR asked Mr. Loeffler if he ever talked to anyone in the Division of Lands regarding the sale of land, because the allowance to stake a claim is a conveyance of an interest in state real property. He thought there should be some coordination between the Division of Land and the Division of Mining. He applauded Mr. Loeffler for the changes he worked out with the miners and for using technology to locate these points. He questioned why the Division of Lands couldn't use the same method of aliquot parts and location by GPS for land sales. MR. LOEFFLER answered that the Division of Mining, Land, and Water is now one division. He explained that when a claim is staked on aliquot parts, the record will reflect aliquot parts; however, the on-the-ground post prevails. Therefore, if the post is off the aliquot parts by 100 feet, the location on the ground may not be the aliquot parts. The mining industry was willing to say that the record may reflect the aliquot parts, but the actual on-the-ground location is, in fact, whatever the post says it is. Therefore, if you want to know exactly where that mining claim is on the ground, you have to survey it. The aliquot part reflection is just a paper location. The same is true of land sales. While the use of GPS is very helpful, the physical location on-the-ground prevails. SENATOR TAYLOR said he understands that, but the land sales section has not been willing to even talk about GPS or aliquot parts. They are insisting on on-site surveys before anything is actually noticed. He thought the same system could be applied to land sales. He encouraged Mr. Loeffler to work with them to utilize the aliquot parts and GPS to provide notification to the public of lands available for sale and then require the land to be surveyed before any transaction takes place. CHAIRMAN HALFORD said, based on the way DNR handled the unallocated cuts in its last budget, he isn't sure he would encourage the Finance Committee to give it any more money, but he said this does look like a proposal that could work. CHAIRMAN HALFORD noted one section of the bill deletes the requirement that boundaries of the claim remain clearly marked. He asked how sections 7 and 8 work, as well as the prohibition on the prior locator, and how that applies to both prospecting sites and claim locations. He said he was wondering how it would apply to a person who did not submit all of the paperwork and can no longer locate on that prospecting site, while anyone else can. MR. LOEFFLER responded if a person does not complete the work required to keep a prospecting site in good order, he may not stake the prospecting site for a year but the person can stake a claim. That is consistent with existing law and was designed to prevent people from staking prospecting sites or claims on speculation. Number 1959 MR. BORELL explained that under current law, a person can stake a prospecting site and not pay rent and, at the end of one year, automatically extend it for a second year. At the end of the second year, if the individual was unable to get the work done because of extenuating circumstances, the law allows the person to request another extension from DNR. The fact of the matter is that every time DNR receives such a request, it involves quite a bit work of work to decide if an extension appropriate. During the discussions between DNR and the industry, they decided to set the life of a prospecting site at two years and to prohibit any extensions. At the end of the two-year period, the owner of the prospecting site can stake a mining claim or a lease hold location on top of that prospecting site and convert the site into a mining claim. That conversion must occur prior to the expiration of the prospecting site's two-year life. Anyone holding a prospecting site who fails to convert to a mining claim would be prohibited from staking another prospecting site. They could stake a mining claim, but not a prospecting site. They could stake a mining claim, however. The idea behind it is that there is a two-year period in which you have to follow the rules for a prospecting site and, after that, if you don't convert, you are out of luck for a year. If no one else has staked it after a year, the person can come back and stake it. CHAIRMAN HALFORD asked if they could do anything to provide a valid discovery on a piece of property on which one doesn't have a prospecting site. MR. BORELL answered yes. You can do work on any ground that is not restricted. The prospecting site provides legal protection against someone else who would come along and stake the claim, which does happen. Number 2198 SENATOR TAYLOR moved to pass SB 175 from committee with individual recommendations. There were no objections and it was so ordered. SB 226-STRANDED GAS PIPELINE CARRIERS CHAIRMAN HALFORD announced SB 226 to be up for consideration. MR. MIKE HURLEY, ARCO Alaska ANS Gas Commercialization Group, said he has been assigned to manage the commercial regulatory efforts of the Alaska North Slope Sponsor Group, which supports SB 226. For the last year and a half, the sponsor group, comprised of ARCO Alaska, BP Amoco, Foothills Pipelines, Ltd., Phillips Petroleum, and Marubeni Corporation, has been actively pursuing the development of a new design for a market viable LNG export project. It will include a commercial regulatory regime to provide long term customers with regulatory certainty and, at the same time, it will meet state and federal regulators' needs for adequate access and commercial oversight. SB 226 strikes the balance that provides the Regulatory Commission of Alaska (RCA) with clear and unambiguous oversight of intrastate gas transportation. MR. HURLEY explained the provisions of SB 226 as follows. Section 1 clarifies that the current Right-of-way Leasing Act common carriage requirements apply only to the intrastate gas shipments. Sections 2 and 3 clarify that a stranded gas pipeline system's intrastate shipments would be regulated under the Pipeline Act (AS 42.06) rather than under the Utilities Act (AS 42.05). Section 4 adds a new subsection to the Pipeline Act that creates a process in RCA's existing certification procedures to determine the amount of pipeline capacity that should initially be set aside for intrastate transportation. That process sets out distinct criteria for capacity for local distribution companies that must submit their gas purchase contracts to the RCA under the current regulations. It contains a different set of procedures for industrial gas users who must provide written commitments to transport intrastate gas volumes that are supported by take-or-pay purchase commitments with stranded gas producers. Under Section 5, an expansion of the stranded gas pipeline may be ordered by the RCA, only if such requests for additional intrastate capacity are supported by firm contractual commitments. Section 6 allows the RCA to consider and approve a reservation or similar charge in the intrastate tariff for firm intrastate transportation. Finally, section 7 contains the definitions of terms referred to in other sections of the bill in an effort to increase clarity and understanding. In closing, MR. HURLEY said the companion bill, HB 290, was recently amended in its first committee of referral in the other body. He offered to answer questions about the bill or the amendments. CHAIRMAN HALFORD asked him to review the amendments. MR. HURLEY stated the first amendment that the Oil and Gas Committee took up changed the reference to "stranded gas" to "North Slope natural gas (NS gas)" throughout the bill. There was concern about the use of the term "stranded gas" as it applied to HB 393 (the stranded gas development act, which was discussed a couple of years ago. Number 2504 The second amendment that was adopted made a change to Section 4. It was based on discussions with the RCA about the standards for building capacity in the initial build of the pipeline system. The concern was that the standards for small communities along the line were too high to meet. The amendment changed the standards so that there are no take-or-pay commitments for communities, but there would still be a fairly high standard for large industrial consumers. CHAIRMAN HALFORD asked if it was a rewrite of the entire section and it limits take-or-pay to large customers. MR. HURLEY said that is correct. He explained that the definition was set at 20 million standard cubic feet per day. Anything larger than that still has a high bar to it. Only two facilities in Alaska use more than 20 million cubic feet a day of gas; the Beluga Power Plant and ML&P's main plant. They were interested in making sure that any large industrial usage would have some kind of commitment in place before space for it is built in the system. Amendment 2(b) added a new section to the bill at the request of the chairman. It changes the determinations that need to be made under the AS 38.05 royalty statutes. It changes the requirements for the commissioner of the Department of Natural Resources (DNR) when determining whether to take royalty in kind or in value. It then provides for legislative approval before the commissioner can take action with regard to taking royalty in value. CHAIRMAN HALFORD commented that was a significant rewrite, too. MR. HURLEY responded it was and it required a change in the title. MR. HURLEY stated that Amendment three was written with the RCA. It addresses section five of the bill. The RCA was concerned that some language in the bill created a hybrid that was not under AS 42.06 or AS 42.05. The amendment stripped out some of the language in 310.(d)1(A) and revised (B), so that it is clearly under the Pipeline Act. A fourth amendment was proposed, but did not pass. It referenced the changes in AS 38.35. The fifth amendment, which did pass, was the addition of a new section to the bill that changes the rate structure, such that tariffs for the North Slope natural gas pipeline would be calculated as if it was a public utility. SENATOR LINCOLN referenced Mr. Ross Coen's letter dated February 21, 1000, which asks for the removal of language on line 9, page 8, which excludes marine terminal facilities, including pollution control equipment. She asked Mr. Hurley to comment on that request. MR. HURLEY explained that the intent behind changing the definition of a pipeline to exclude those facilities was that the sponsor group recognized that gas will be transported for intrastate use all along the pipeline system. The actual plant that makes LNG is expected to be dedicated to the export market. The existing intrastate usage, under the proposed regulatory regime, is a regular common carriage system. If the entire system was kept common carriage, the plant, which is dedicated to export, would be accessible to people who want to use LNG instate. That would impinge on the export volumes and they wouldn't be able to satisfy contracts for export of LNG overseas. It doesn't prevent anyone from building another LNG plant next door and barging LNG around the state. The group wanted to keep the plant and the marine terminal out of a common carriage situation so they defined the system subject to common carriage so that it included only the pipeline and the upstream pieces. The State Pipeline Coordinator's Office (SPCO) has become concerned that this definition will eliminate the SPCO's oversight of that plant. The group's intent was never to change SPCO's regulatory authority one way or the other. They are working with the Department of Law and the SPCO to find some other language to take care of that. Number 2909 MR. MIKE BARNHILL, Department of Law, said he is also testifying for Roger Marks, Department of Revenue, who is the Administration's lead on the bill. He circulated Mr. Marks' written comments. MR. BARNHILL said the Administration applauds the efforts of the sponsor group and others to bring the commercialization of North Slope natural gas closer to reality. The Administration supports that intent. Nevertheless, the Administration has certain concerns that he hoped could be resolved. He read the comments of Roger Marks: This represents a preliminary analysis by the Administration, including the Departments of Law, Revenue, and Natural Resources, and the Regulatory Commission of Alaska, and the State Pipeline Coordinator's Office. Instate use of natural gas would be a very valuable benefit of an Alaska North Slope liquefied natural gas project. However, if the gas is commercialized, most of the volume will be for export. The financing of this multi-billion dollar project will require establishment of long term contracts with buyers. The set amount of pipeline capacity will need to be reserved for contractual obligations. At the same time, the economics of the proposed export projects appear to be financially marginal. They could not afford to take the North slope gas to market if they have to bear the cost of pre-investing to provide substantial excess capacity if there were a risk the instate excess capacity would not be used. To do so would affect the economics such that there would be no project and no one would get gas. MR. BARNHILL said the desire of the Administration is to maximize the instate access to natural gas without jeopardizing the export economics of the project. He thought the goal of this bill should be to strike that balance. He continued reading Mr. Marks' comments. Whereas it is straightforward to arrange for pipeline capacity and gas supplies for intrastate use before construction starts, attaining pipeline capacity after operation begins may be difficult and expensive. Consequently, the question of how to allocate space and gas needs to be addressed before the line is built. TAPE 00-03, SIDE B MR. BARNHILL continued. What this bill does is provide a possible way to reduce the potential gas supply risks perceived by the foreign market, facilitating the marketing of the gas, while providing a mechanism for communities to procure gas. The Administration supports this broad intent. This said, the bill raises complex issues that could have significant long-term impacts. Some of these issues include: 1. Local jurisdictions committing in advance to secure pipeline capacity without knowing what the cost will be, especially if the gas purchase contracts are also not in place. (There may, however, be mechanisms available to reduce risks to buyers without unduly harming the pipeline sponsors.) He said that an attempt was made in the House Oil and Gas Committee to address the Administration's concerns in amendment two. Although it was a step in the right direction, there is more to be done to protect the interests of instate users. He continued reading Mr. Mark's comments. 2. Allocation of capacity between intrastate and export use in the event of shortages or excesses of capacity. 3. Exclusion of the pipeline from the Alaska Public Utilities Regulatory Act and subjection to the Pipeline Act. The Administration is analyzing the extent to which the differences between these two statutory regimes may be material. 4. Finally - exclusion of marine terminal facilities from the Right-of-Way-Leasing Act. This may affect the ability of the State Pipeline Coordinator's Office to oversee land management of marine terminal facilities. MR. BARNHILL noted the Administration, the pipeline sponsor group, and Yukon Pacific have been working together over the past few days to come up with satisfactory language. Making the marine facilities and LNG common carriers is a principal concern of the pipeline sponsor group. He continued reading. In conclusion, the Administration is not yet sufficiently comfortable with the measures in SB 226 to endorse them at this time. The multi-agency team will continue to analyze the bill and provide recommendations to the legislature. CHAIRMAN HALFORD noted that there wasn't anyone else signed up to testify on SB 226 and announced that the committee would continue to work on it. HCR 9-TAKE A KID HUNTING WEEK CHAIRMAN HALFORD announced HCR 9 to be up for consideration. MR. SCOTT PETSEL, aide to Representative Phillips, said HCR 9 as amended seeks to name the second week in September each year as Take A Young Person Hunting Week. Such an event would greatly assist in preserving our hunting heritage and encourage Alaskan hunters to become knowledgeable in the areas of sport fishing and hunting. Naming a special week would greatly complement the hunter education and shooting sports program funded last year by the legislature. MR. PETSEL noted there were letters of support in their packet. Ten percent or less of the U.S. population now hunts, and that number is declining. This resolution may not only help to teach hunting heritage and the importance of wildlife conservation, but also increase the number of hunters in the state. SENATOR TAYLOR said he totally supports this concept, but he questioned where he could take a young person hunting if subsistence passes, which the sponsor supports. MR. PETSEL said he couldn't respond, but would pass Senator Taylor's comments on to Representative Phillips. SENATOR LINCOLN said she understands the concept, but she has difficulty with it. She read the proclamation by the Governor, which talked about gun safety, hunting skills and that people make smart and safe decisions when choosing to hunt. Her difficulty with the resolution is that it says that we have an obligation to teach our children hunting skills, that we need to have opportunities to hunt, and that we urge our schools to ensure the continuation of hunting. She doesn't have a problem with the percentage of people who are hunting or with the people who don't want to go out and kill. When people depend on hunting for food, she doesn't have a problem with that. She thought people are teaching their children about that. This resolution is not written the same as the proclamation, which talks about gun safety and when one chooses to hunt. It talks about how hunters are declining and, "By golly, get those young kids out there armed with guns and bows and arrows and go out and show them how to kill animals." That gives her heartburn - especially when they talk about taking that into the schools. She believes many programs should be taught in the schools, but this is not one of them. It is the reverse of removing guns from schools and the school yard. The resolution applies to a yearly event, unlike the Governor's proclamation, which concentrates on one year. MR. PETSEL said he didn't think it was Representative Phillips' intention to teach children to go out and kill; it was designed to address wildlife conservation issues, gun safety, and heritage. SENATOR LINCOLN asked where it talks about wildlife conservation. SENATOR TAYLOR and MR. PETSEL pointed to page 1, lines 8 and 14, and page 2, line 1. SENATOR GREEN said she supports this resolution and finds the language in it to be very tactful. She said resolutions are meant to bring attention to the issue. She noted the resolution speaks to the harvest, which many Alaskans partake in regularly. She believes it is important that students and children grow up with good information about it. SENATOR GREEN moved to pass HCR 9 from committee with individual recommendations. There were no objections and it was so ordered. SB 273-OIL SPILL RESPONSE; NONTANK VESSELS & RR CHAIRMAN HALFORD announced SB 273 to be up for consideration. SENATOR PEARCE, sponsor, said we are too often brought together as a legislature to react to events beyond its control and often times beyond the control of the individuals who have been a part of the events. That is what brings SB 273 before them today. SENATOR PEARCE said that Alaska has the best oil spill prevention and response program for crude oil, heavy crude carrying vessels, and the pipeline because it provides 20 percent of the oil produced in the United States. However, most of the oil spills occurring in the waters of Alaska today come from carriers that are not required to prepare for spill response by state law. Since 1995, 93 spills from regulated vessels and facilities occurred; a total of 5,286 gallons of oil were spilled. During that same period, 945 separate spills from non-regulated carriers occurred; over a quarter of a million gallons of oil was spilled. SB 273 would expand the prevention and response program to include larger non-tank vessels and the Alaska Railroad Corporation (ARRC), which transports oil products in bulk. SENATOR PEARCE stated the bill does a few simple things. It requires non-tank vessels and ARRC to provide an oil discharge prevention and contingency plan to the Department of Environmental Conservation (DEC), as is presently required of the oil industry and the tanker vessels that carry crude oil. It requires proof of financial responsibility for those vessels that are operating in our waters and it requires that the vessels be subject to inspections by the State along with whatever Coast Guard inspections are required under federal law. This is because we have had 945 spills since 1995 that totaled over a quarter million gallons of product. While that may sound like a much smaller number than the 11 million gallons of crude spilled by the Exxon Valdez, the non-crude petroleum products are often more toxic than the heavy crude, which goes to the bottom and doesn't intermix with the water column. Also, these vessels frequently carry a larger volume than those carrying fuel-less cargo, like the barges. One of the newest cruise ships coming into Alaskan waters for the first time this year carries 18,000 barrels of fuel - over three quarters of a million gallons of fuel. The cruise ships, many of the cargo ships, and state ferries, may have double hulls or bottoms that protect the cargo, but the fuel tanks are in the area between the second hull and the first hull, so the actual fuel of these ships, as much as 18,000 barrels, sits right next to the hull - only one hull away from the rocks. Clearly, the entire 18,000 barrels would not be spilled because the ships have separated tanks and baffling but they do carry a very large amount of fuel. They are not currently required to have a response system or equipment in place to prevent or respond to spills. They are not required to have the ability to finance the clean up effort and damages resulting from a spill. We don't have in place the process by which we would require the individual owners of the ships to respond. She expressed concern that if we have an event, it would the same kind of situation that occurred in Dutch Harbor in 1997 when the Kiroshima spilled 39,000 gallons of heavy bunker oil. Everyone spent a lot of time pointing in different directions and no one went to clean up the spill in the early days. Granted, the weather was bad and the site was hard to get to, but that marine environment is important and it was an important time period. SENATOR PEARCE thought that any ships that ply our waters should be required to have response plans. The ARRC is included in this bill; it has had three derailments since 1992 and three spills in the last four months. The largest spill was 167,000 gallons. Two recent spills equaled approximately 125,000 gallons of jet fuel that spilled out of tanker cars coming to Anchorage from Fairbanks. The spill of 12,450 gallons was the actual diesel fuel that was in the locomotive. That may have been caused by human error and perhaps human negligence in that a valve was jerry-rigged open. In 1999, 28,000 railroad cars carried an average of 22,500 gallons of fuel per car, meaning that the railroad carried 630 million gallons of fuel up and down that corridor with no contingency plan. They have proof of financial responsibility, which is probably the state. They have not had clean up response in place and ready to go. Non-tank vessels and the railroad would be covered by submitting oil discharge prevention contingency plans to DEC consistent with current requirements of tankers and oil facilities. The contingency plan (C-plan) requires the prevention and response equipment, personnel, and resources needed to respond to an oil spill. It requires proof of financial responsibility based on the maximum oil carrying capacity of the individual vessels and it would require spill drills and inspections of the equipment. SENATOR PEARCE explained that SB 273 allows DEC to adopt alternative ways to achieve equivalent levels of spill prevention and response in place of some C-plan requirements. Alternative compliance would be determined through the negotiated rule making process, so that a working group of representatives from industry, agencies, and other parties to assist in development of the regulations could be established. The vessel owner and/or the railroad would be required to demonstrate proof of financial ability to respond and clean up a major spill: $300 per barrel for persistent oil; $100 per barrel for non-persistent oil. Persistent oil is defined as heavy refined oil and fuel such as bunker, crude, and lube oil. Non-persistent are the lighter refined oils and fuels such as gasoline, diesel, kerosene, and jet fuel, which are more toxic to both the fisheries resources and the flora and fauna. The law would take effect September 1, 2000, and the proof of financial responsibility and the inspection requirement would kick in. The actual C-plan requirement would not kick in until June 1, 2001, to provide time to do the regulations and to give the entities the opportunity to get their responses in place. SENATOR PEARCE said she is pleased with the number of entities that agree they should have prevention and contingency plans in place, as well as a way to respond to a spill. The industries in question have indicated that this bill is not a surprise. She has reason to believe the small cruise ships want to voluntarily comply, although they don't come under the 300 gross ton requirement. The least receptive people who have contacted her office are the representatives of the large fishing vessels that maneuver in Alaska's most dangerous water during the worst times of the year. The experience with fishing vessels, like the Kiroshima, indicate to her that Alaska should have some sort of requirements in place that aren't there now. Number 1949 SENATOR GREEN asked if there has been some reluctance to further empower DEC and give it more oversight authority. SENATOR PEARCE admitted there are people in the State who don't like the DEC, but she doubted any of them would disagree that these groups should have contingency plans and the financial ability to respond. DEC has its Spill Prevention and Response (SPAR) group and while there have been a number of negotiations over the finalization of contingency plans for the large tankers, part of the problem was created by vagueness in the bill that passed in 1990. The bill required best available technology, which is an ever changing standard. She believes the system is working quite well at the moment and that DEC has developed a great deal of expertise during the last 10 years. She is comfortable with giving oversight responsibility to the SPAR folks. Someone has to have that authority and DEC has a lot of regulations and knowledge in that area. SENATOR GREEN asked, based on the initial newspaper article about the ability of various owners to respond, whether companies will have to have big pieces of equipment available onsite and whether companies will have to own duplicate pieces of equipment. SENATOR PEARCE said, taking the railroad for example, she would expect that some response equipment would be stored on every train to be used for an initial response. The trains travel north and south, so the same train is probably making daily trips. That would require two sets of equipment: one for the northbound train and one for the southbound. Spill response contractors are already in place throughout the state because of current law. Seapro is in Southeast Alaska. It is the consortium put in place by the Southeast vessels that come under the present law because of all the fuel barged to every community in Southeast Alaska. There is no reason the new entities couldn't become part of those consortiums. The same thing is true in Southwest Alaska; Cook Inlet has three consortiums. SENATOR PEARCE clarified that not every vessel will have to have its own set of equipment. However, she suspects that there is not enough equipment in Seward today to respond to an accident should a cruise ship go aground. She suspects there would have to be a build-up of one of the coops in that area. SENATOR TAYLOR said the unfortunate part is that those people who have equipment are under contract to respond to the people who have paid for that equipment. He stated, regarding the Kiroshima incident, that equipment wasn't very far away on a barge. He explained that Campbell Towing, located out of Wrangell, had a tug and barge in the area for other purposes. It was willing to move equipment to respond to the troubled vessel and start off- loading oil so it wouldn't go in the water. Unfortunately, the onsite DEC personnel did not have sufficient authority to allow the movement of the equipment out of the area it was designated to protect. Had anything occurred in the area where that equipment was supposed to be available, everyone would have been strictly liable under OPA '90. The incident occurred on a Saturday night. Eventually, Commissioner Brown was located to give the authorization to move the equipment so that it could be moved to pump the oil. Everyone involved was very cooperative and professional. He assumed that DEC has fixed that problem so that a person who can give the contractors the right to respond can be reached at all times. SENATOR TAYLOR said he has spent a lot of time working on contingency plans and he was shocked to find that every Navy and Coast Guard vessel that moves up and down the coast has to have, onboard, the spill response plan for each of the counties and communities along the Pacific Coast. That requires a large library of materials, most of which is outdated. In addition, they don't know who to contact. All of the spill response plans are different and they are not even indexed the same way. He said he understands Senator Pearce's concerns and supports the effort to provide a meaningful response when a spill occurs, but he believes there should be some practical way of making sense of it all when the oil hits the water. He said he was present when Seapro was formed and it was created only because there was no way that individual companies could afford to respond. They collectively brought their money and equipment together. It took years to get DEC to approve the level of equipment, where it would be based, and how it would all work. He said he does not want to see an overlay that creates another 18 member committee in each community to solve a problem. SENATOR TAYLOR said he is still waiting for DEC to show him how it spent the two cents per barrel. He would like to know what equipment it purchased and how much booming material is available in Southeast. He also asked about the three cents per barrel that went to DEC all of this time. SENATOR PEARCE said the two cents per barrel was not to buy anything; it goes into the $50 million contingency fund account. The three cents per barrel was supposed to do several things. She knows that DEC has purchased equipment around the state. One of the reasons we don't have the same requirements in Alaska as other states have is that Alaska did its first. Second, there was a move made by California, Washington, and Oregon to create an interstate compact with Alaska to decide what spill responses would be up and down the entire West Coast. The Alaska Legislature chose not join the compact, which she thought was a good choice, because Alaska's requirements are not as onerous as California's. On the other hand, she believes the ships that are coming to Alaska should be prepared for an accident. SENATOR PEARCE said the experience in Dutch Harbor was the first of that kind in that area and everyone learns from each and every incident. There were those same sorts of questions in Prince William Sound, but after DEC has gone through all of the table- top exercises over the years most of Senator Taylor's concerns have been resolved. SENATOR PEARCE said she believes that one non-profit spill response organization writes all of the plans in the state of Washington. Every vessel that sails into Washington's waters gets a bill for $160 every time it enters. Because so many ships come into those waters, the fee is only $160 per transit. She thought that in Southeast, for instance, as more entities have to join, the cost of that equipment will be spread out and, over the long term, it will be better for everybody economically. She noted she understands the frustrations in the past but she has found that people in Southeast Alaska are glad there is a spill response capability that wasn't here in 1989. SENATOR TAYLOR said he would help her any way he could. Number 1000 CHAIRMAN HALFORD asked who exempted public vessels. SENATOR PEARCE said public vessels that are commercial are not exempted so the ferries are not exempted, but she didn't know of any other state vessels that fit. She noted that federal vessels are exempt. CHAIRMAN HALFORD asked about the biggest of the ADF&G boats. SENATOR PEARCE replied that they are not 300 gross tons. CHAIRMAN HALFORD asked what 300 gross tons equal in terms of size. He noted the tonnage is fairly large, but the gallon capacity is fairly low; it looks like a vessel has to be 300 gross tons or more and carry 6,000 gallons. SENATOR PEARCE explained that those numbers were chosen because that is what is in all the other states on the West Coast. She did not want to bring in an entirely new group of vessels. There is some question about whether gross tonnage should be the measure; perhaps it should be displacement. The 300 gross tonnage picks up the largest of the processing ships, but it does not bring in any vessels that have limited entry permits. That was a threshold that DEC was trying to get above. CHAIRMAN HALFORD asked if a 150 foot Bering Sea crab boat weighs less than 300 tons. MR. PAT CARTER, aide to Senator Pearce, said that generally speaking, a 150 foot vessel would fall under this but the gross tonnage is based on cargo capacity and, depending on how the ship is constructed, the tonnage can be calculated differently. TAPE 00-04, SIDE A Number 001 MR. CARTER explained that the intent was to exclude barges that don't transport fuel - barges that transport containers, for example. He noted a vessel could weigh 300 gross tons as a barge, that is carrying fuel for dredging equipment or a crane onboard. CHAIRMAN HALFORD noted that most tenders in the fisheries may be barges but they carry a lot more than 6,000 gallons of fuel. MR. CARTER added that some of the tenders, especially those that work the salmon fleet, will fall under that because they are fuel barges that sell fuel to the fishermen. Part of their commerce is generated by transporting fuel for cargo, so they are already under the law now (as a tanker barge). SENATOR TAYLOR asked what amount of equipment the railroad carries now. MS. WENDY LINDSKOOG, Alaska Railroad Corporation, said the ARRC is currently revising its emergency response plan to meet contingency plan requirements that currently do not apply to it. ARRC believes, that as a state-owned entity, it should meet or beat the standards the state requires of similar carriers. ARRC believes that legislation to place this type of planning in statute and regulation is prudent and will ensure consistency in response planning and prevention over time. ARRC is especially encouraged by provisions in this and other legislation that will allow the railroad to craft regulatory standards with state regulators to fit the railroad's unique operational situation rather than simply impose a one-size fits all response planning standard. ARRC will work actively with the legislature, DEC, other state agencies, and the public to produce effective regulations and response plans. She concluded saying ARRC supports the legislation. SENATOR TAYLOR asked what equipment is on the train now. MR. ERNIE PIPER, Alaska Railroad Corporation, replied that every locomotive has a three-man train crew and some spill response equipment. It's really designed to respond to the most likely scenario that three people could deal with, which might be a small hole in the fuel tank of the locomotive, a leak from a belly cap on a tanker or some kind of valve damage. They don't carry equipment to do a major response. SENATOR TAYLOR asked what equipment they carry. MR. PIPER replied that pumps and other types of equipment used for larger responses are staged at strategic locations along the route. For example, some equipment is cached at the Hurricane section just above Gold Creek and Canyon. Equipment is also cached in Fairbanks and Anchorage. SENATOR TAYLOR asked what kind of crew is available to respond. MR. PIPER said the practical way for most carriers to deal with a spill is to have independent contractors, which is what the Railroad has. SENATOR TAYLOR asked if ARRC's independent contractors were ready, capable, and able to respond to the last couple of spills. He heard a lot of criticism about the ability of the railroad to respond to the spills. MR. PIPER answered that ARRC has good contractors. The same contractors are used by Alyeska Pipeline and others. The real problem in each of the spills was that the locations were particularly remote. In addition, the Gold Creek spill happened during the middle of a storm that had Southcentral Alaska shut down. He tells people that response is never clean and it doesn't work very well; prevention is the key. He assured them that there were ways to improve the response time and capability and ARRC will do that. SB 273 will help. SENATOR TAYLOR asked how the bill will help when nothing prevented ARRC from going in that direction before the bill was filed. He asked what ARRC's real plans are for the future, how the bill will affect its overall economics, and whether SB 273 will work from a practical standpoint. MR. PIPER answered that contingency planning in Alaska statute and regulation actively involves two parts of the equation that aren't normally involved - both the public and the regulatory agencies. When everyone has a clear picture of what the likely scenarios are, what dedicated equipment is available, and what the response strategies are going to be in particular areas, it makes things go a lot more smoothly. This bill is one of the ways to actively involve more people to see what could be done to do a response. It keeps the communications strong among all the parties involved. MR. BOB DOLL, Department of Transportation and Public Facilities (DOTPF), stated support for SB 273. He pointed out that the Marine Highway already has a written agreement with the DEC to operate its vessels in support of an oil spill clean-up effort and its ships have additional capabilities on board. His principal purpose for testifying today is to point out DOTPF's fiscal note, which indicates a source to pay the costs of DOTPF's participation. That is one of DOTPF's main concerns. SENATOR TAYLOR said his concern is that DOTPF has announced a transition to a high speed fleet in Southeast, which will travel in excess of 32 knots. He assumes that when one of those vessels hits a rock, it will spray oil all over the place. MR. DOLL replied that DOTPF doesn't expect that to happen. The ferry system has a 37-year record of operating at 16 knots in some very difficult waters and through challenging channels. DOTPF expects to apply the same safety standards to the high- speed fleet. SENATOR TAYLOR said that traveling at half that speed, 18 knots, the Taku ran directly into an island in the middle of the bay at Prince Rupert on a clear night. Other vessels were run on to rocks in Sergius Narrows and the bottoms were ripped out. Those vessels do carry a significant amount of fuel. He said, "In fact, we always were very happy that we had the oil tank on the bottom of the vessel because when we ripped a hole in the bottom of the boat, all we lost was fuel, we didn't lose a vessel." Senator Taylor stated he wants to make certain that in going through this process, the bill will not add one more layer of cost and inefficiency to a system that certainly isn't operating to the level of service he would like to see it. MR. DOLL responded that DOTPF's costs are indicated in the fiscal note. He noted that, "Anytime we talk about additional costs for the Marine Highway operation we need to be cautious about that and certainly I will continue to sound that note at every opportunity." He did not believe this bill will affect the marine highway service level. DOTPF already has contingency plans in place. It does expect additional costs associated with SB 273 and would like to target those expenses as much as possible. CHAIRMAN HALFORD noted that Senator Taylor volunteered to work on this issue and he would look for two more volunteers to work with the sponsor. CHAIRMAN HALFORD adjourned the meeting at 4:20 p.m.