HOUSE BILL NO. 322 "An Act relating to penalties for discharges of oil and other pollution violations; relating to oil discharge prevention and contingency plans for commercial motor vehicles transporting crude oil; and providing for an effective date." 2:09:06 PM Co-Chair Foster indicated that the bill had been heard on March 29, 2018. He asked the sponsor of the bill if he had any comments before taking up amendments. 2:09:41 PM REPRESENTATIVE ANDY JOSEPHSON, SPONSOR, referenced prior committee discussion about the bill's purpose. He shared the department's [Department of Environmental Conservation (DEC)] belief it was important to update penalty authority at present in case it was needed; it was not possible to "retroactively work our way out of that and look to 1977 and 1989 penalty schedules." Additionally, it was expensive and time consuming for the department to deal with small penalties without going through the legal system (under current law). The bill would allow administrative penalties. He continued it was easier for the department to obtain cost recovery if the option was available. He elaborated that the department noted, and the law reflected, that penalties of an administrative nature were available for food safety, public drinking water, and monitoring of contaminates. The Environmental Protection Agency required administrative penalty authority for all programs where the state had taken primacy. He stated that the idea was not novel. Relative to the types of spills, he agreed with the Alaska Oil and Gas Association's (AOGA) position that it was generally not the main offender. About 90 percent of the spills requiring DEC's intervention were not related to the oil industry, but were related to fishing boats, abandoned mines, and other incidences. The bill was not designed to come after any one industry. 2:12:15 PM Vice-Chair Gara thought it was an open question on whether the state could retroactively adopt penalties. Co-Chair Foster MOVED to ADOPT Amendment 1, 30-LS1015\U.2 (Nauman, 3/16/18) (copy on file) sponsored by Representative Ortiz: Page 2, line 27: Delete "$20" Insert "$40" Page 2, line 30: Delete "$5" Insert "$10" Page 3, line 1: Delete "$2" Insert "$4" Representative Wilson OBJECTED. Representative Ortiz explained that the amendment aligned with the spirit of HB 322 in the sense it would update penalties last changed in 1989. He did not believe the increase fully accounted for inflation. The amendment's purpose was to update the penalties. Representative Wilson directed a question to DEC. She stated the department had raised the penalties from $10 to $20 and $2.50 per gallon to $5.00 per gallon. She asked why the department had selected the numbers in the original bill. KRISTIN RYAN, DIRECTOR, DIVISION OF OIL SPILL PREVENTION AND RESPONSE, DEPARTMENT OF ENVIRONMENTAL CONSERVATION (via teleconference), explained that the numbers included in the bill by Representative Josephson accounted for the cost of inflation. She deferred to Representative Josephson for further detail. Representative Josephson replied that with exception to Amendments 1 and 2 the bill contained an update reflecting inflation. The figures in Section 2 of the bill (Amendment 1) doubled the existing out-of-date figures. The amendment was to be consistent with other parts of the legislation that increased to inflation. Representative Wilson observed that the updated penalties appeared to be four times the amount of the existing penalties. Representative Josephson responded that he would have to check to see if the proposed numbers were four times the existing amounts. The changes in Amendments 1 and 2 were designed to be consistent with the increases in the rest of the legislation. 2:16:12 PM Representative Kawasaki referenced a presentation [by the sponsor] from a previous bill hearing ["HB 322: The Spill Bill" provided on March 29, 2018 (copy on file)]. He pointed to Section 2, which specified the 2018 equivalent value would be closer to $39.70. He asked why the sponsor had decided to set the penalties at half of what inflation would have been in Sections 2 and 3 of the bill. Representative Josephson replied that the figures in the bill reflected the will of the House Resources Committee. He elaborated that the committee had chosen to update the figures for inflation with the exception of the figures included in Amendments 1 and 2. The amendments would give the House Finance Committee an opportunity to weigh in. Representative Wilson looked at page 5, lines 8 and 9 of the bill. She noted the bill updated various penalty thresholds from $500 to $1,000, $100,000 to $200,000, and $10,000 to $25,000. She turned to page 6, lines 5 and 6 and observed the same thing was happening. She believed the initial numbers in the bill had to be close to inflation if pages 5 and 6 reflected it. Representative Josephson deferred to his staff. TOM ATKINSON, STAFF, REPRESENTATIVE ADAM WOOL, replied that the numbers had been adjusted for inflation in most of the bill sections. He stated that often it had worked out to be approximately double the current penalty. In some cases, the daily penalty had been multiplied by 5. How the penalties had been set throughout the bill varied. He referenced Section 2 where the number veered from inflation. He elaborated that the Section 2 penalties had been set in December 1977; if the penalties were changed to reflect inflation they would be four times the existing numbers, which seemed extreme. The reasoning had been it seemed more acceptable to double those penalties. Representative Wilson remarked on a statement made that all of the other penalties had been increased to reflect inflation. She thought the numbers would be closer to four times their existing amounts if the goal was to keep everything the same [increase levels equally]. Representative Josephson answered that the penalties had not all been created at the same time, meaning there were different inflation rates. 2:19:54 PM Representative Kawasaki pointed out that the presentation previously given by the sponsor showed that original penalties in Section 2 were adopted in 1977, the penalties in Section 4 were adopted in 1989, the penalties in Section 6 were adopted in 1976, and the penalties in Section 8 were adopted in 1984. He believed keeping things consistent by inflation proofing the entire bill was accurate. Vice-Chair Gara requested to be added as a cosponsor to the amendment. Representative Wilson MAINTAINED her OBJECTION. A roll call vote was taken on the motion to adopt Amendment 1. IN FAVOR: Gara, Guttenberg, Kawasaki, Ortiz, Foster, Seaton OPPOSED: Wilson, Grenn, Pruitt, Thompson, Tilton The MOTION PASSED (6/5). There being NO further OBJECTION, Amendment 1 was ADOPTED. Co-Chair Foster MOVED to ADOPT Amendment 2, 30-LS1015\U.3 (Nauman, 3/16/18) (copy on file) sponsored by Representative Ortiz: Page 4, line 7: Delete "$1,000" Insert "$2,000" Delete "$200,000" Insert $400.000" Representative Wilson OBJECTED for discussion. 2:21:47 PM Representative Ortiz explained the amendment was the same as Amendment 1 but applied to a different section of the bill. Representative Wilson MAINTAINED her OBJECTION. A roll call vote was taken on the motion. IN FAVOR: Guttenberg, Kawasaki, Ortiz, Gara, Seaton, Foster OPPOSED: Grenn, Pruitt, Thompson, Tilton, Wilson The MOTION PASSED (6/5). There being NO further OBJECTION, Amendment 2 was ADOPTED. Co-Chair Seaton MOVED to ADOPT Amendment 3, 30-LS1015\U.5 (Nauman, 4/2/18) (copy on file): Page 3, line 10: Delete "annually" Insert ", every three years," Page 3, line 28: Delete "annually" Insert", every three years," Page 7, line 17: Delete "annually" Insert", every three years," Page 8, line 24: Delete "annually" Insert ",every three years," Representative Wilson OBJECTED for discussion. Co-Chair Seaton explained the amendment aimed to increase administrative efficiency and would mean the consumer price index calculation would be computed every three years instead of annually. He elaborated the change would mean the number would not have to be updated annually in publications. He believed a three-year inflation adjustment was adequate. Representative Wilson asked for verification the amendment would still inflation proof for the years between the three-year period. She surmised it would not necessarily mean inflation proofing once. Co-Chair Seaton confirmed the inflation would be cumulative. The amendment merely removed administrative burden. Representative Wilson WITHDREW her OBJECTION. There being NO further OBJECTION, Amendment 3 was ADOPTED. 2:22:44 PM Co-Chair Seaton MOVED to ADOPT Amendment 4, 30-LS1015\U.6 (Nauman, 4/3/18) (copy on file): Page 9, following line 2: Insert a new bill section to read: "*Sec. 13. AS 46.03.900 is amended by adding a new paragraph to read: (38) "produced water" means water that is the byproduct of the exploration, extraction, development, production, refining, processing, or disposal of energy-related products;" Renumber the following bill sections accordingly. Page 9, line 29: Delete "Section 15" Insert "Section 16" Page 9, line 30: Delete "sec. 16" insert "sec. 17" Representative Wilson OBJECTED for discussion. Co-Chair Seaton explained the amendment. He stated that the bill addressed penalties. Produced water volume was included in the bill, but the term was not defined in statute. He had worked with DEC, the Department of Natural Resources (DNR), and Legislative Legal Services to craft a definition for produced water. He read the definition the amendment proposed to include: "produced water" means water that is the byproduct of the exploration, extraction, development, production, refining, processing, or disposal of energy-related products Co-Chair Foster asked to hear from DEC. KRISTIN RYAN, DIRECTOR, DIVISION OF OIL SPILL PREVENTION AND RESPONSE, DEPARTMENT OF ENVIRONMENTAL CONSERVATION (via teleconference), shared that the committee had discussed concerns about how produced water would be defined by the department if the bill passed. Produced water was associated with the exploration and production of oil. The division found cleaning up produced water spills to be very difficult and damage to the environment was significant; therefore, DEC requested produced water to be a factor when calculating penalties associated with spills. Representative Pruitt stated they had discussed the issue at a previous bill hearing. He asked for verification that DEC had not taken into account penalties related to produced water. Ms. Ryan answered in the affirmative. The current statue limited the department's ability to only calculate oil when it considered the volume of a spill, for the sake of a penalty. Representative Pruitt asked how often Ms. Ryan anticipated the issue would come into play. He asked how many produced water spills the division knew about, but did not have the ability to do anything about. He remarked that DEC made the offender clean up produced water spills, but was unable to issue a fine. He asked how many cases there would be where the department missed out on being able to fine for the offense. Ms. Ryan answered that it was not possible to clean up a produced water spill. Typically, the water was saline and when it ran into tundra, plants were killed quickly. She elaborated that the spills occurred in older fields on the North Slope where more and more water came up as the oil was pumped down. She noted when spills occurred it was becoming more common for the volume to be more water than oil. From DEC's perspective, the damage was as significant to the environment. The fact that the spill could not be cleaned up and that spills could occur in large volumes, was the reason DEC proposed to include produced water in its volume calculation for penalties. She added the request was not unusual. She detailed that Oklahoma and Texas included produced water in their penalty calculations. She explained it was difficult for the spiller to calculate and prove what portion of the spill was water and what portion was oil. The amendment would simplify the calculation process. 2:29:19 PM Representative Pruitt did not believe there was a unanimous agreement between the department and partners about the damage from produced water. He asked for verification that DEC's position was the water caused immediate damage and killed tundra, while some industry individuals felt the damage was not at the same level. Ms. Ryan believed there were many opinions about the effects of produced water versus oil. From the department's perspective, it was easier to clean up oil than it was to clean up salt water. She elaborated that salt water was absorbed and oil tended to sit on the surface. The department's view was the water damaged the environment. Representative Pruitt stated there was a substantial amount of wind on the North Slope and the wind pushed the salt onto the tundra. He asked about the difference. Ms. Ryan answered that salt water spray from the ocean impacted a small amount of land near the shore. A spill of produced water was inland and in the thousands of gallons in an area of tundra that was not typically impacted by ocean spray. She added that produced water salinity could be much higher than ocean water salinity. Representative Pruitt asked how many spills happened annually and how many were off-pad. Ms. Ryan would have to follow up with the information. Representative Pruitt asked if a spill on-pad in a contained environment was considered damaging to tundra. Ms. Ryan responded that DEC was focused on spills that caused damage to the environment. A spill on a pad was captured in gravel and was not impacting the environment. There were many spills on-pad, which the department did not issue penalties for. Penalty language would apply for spills off the pad. Representative Pruitt highlighted Ms. Ryan's testimony about thousands of gallons [of produced water]. He thought there would be significantly more reporting of the spills [if spills were at that level]. He thought Ms. Ryan was making it sound like the problem was frequent. He was trying to determine the frequency of the spills. He wondered if there were bad actors. He thought the discussion from the previous bill hearing was that people would rather do something inappropriate because the penalties were so low. He asked if the problem was happening without abandon, which was the reason the amendment was necessary. 2:34:10 PM Ms. Ryan did not have the numbers on hand, but there were several [produced water] spills per year (not more than 10). The spills were semi-frequent. Vice-Chair Gara was comfortable with the amendment. He believed the point of the legislation was to deter individuals from taking less care. There was a history of companies that had acted very responsibly and those that had acted irresponsibly at times. He cited the Exxon Valdez oil spill and Deepwater Horizon as spill examples in the past. He reasoned that everyone did not always act as desired, which was the reason for penalties. Representative Kawasaki stated that the scope of Amendment 3 was limited to adding a definition of produced water. He asked if the definition included in the amendment was typical when defining produced water. He wondered if it was inclusive or exclusive. Co-Chair Seaton answered that a couple of different suggestions had been provided including "water that is brought to the surface as a byproduct of extraction and hydrocarbons" and "produced water means extracted in the development, extraction or disposal of energy related products." He elaborated that Legislative Legal Services had developed the definition as there was not one in statute. The goal was to avoid confusion as to what constituted produced water. His objective was to have the ability to solve a problem and to avoid going to court to determine what the definition of produced water was. The amendment was limited to defining produced water and made no changes to fines or fees. 2:36:35 PM Ms. Ryan confirmed that the definition in the amendment was consistent with what she had seen in other states. The definition was an explanation that produced water was related to the development, exploration, and production of oil or other oil related products. Representative Kawasaki surmised the definition was a general concept of produced water that was inclusive and similar to definitions in other states. He was trying to ensure the definition was accurate. He added the amendment was in context to Section 5 dealing with fines associated with produced water. He believed it was appropriate for the public, industry, legislators, and courts to understand what was meant when the term produced water was used. Representative Wilson WITHDREW her OBJECTION. There being NO further OBJECTION, Amendment 4 was ADOPTED. 2:38:12 PM Co-Chair Seaton MOVED to ADOPT Amendment 5, 30-LS1015\U.4 (Nauman, 4/2/18) (copy on file): Page 9, line 9, following "law.": Insert "The person shall submit the oil spill response plan to the department electronically." Representative Pruitt OBJECTED for discussion. Co-Chair Seaton explained the amendment would require oil spill response plans to be submitted electronically. The idea was for plans to be viewable by people in more than one location. He elaborated that the process would be much more efficient for responders and could save time in cleanups when people knew exactly what the response plan was including items that would be available on scene or on board. For example, what a truck was hauling and who was designated in their response plan as the responder in order to avoid confusion. Representative Wilson clarified that the oil spill response plans were submitted to DEC for the record and were approved by a separate entity. She surmised the purpose was to let people know what would take place in the event of a spill. Co-Chair Seaton answered in the affirmative. The intent was for plans required of companies to be available for cleanup. The amendment did not require anything else to be done. Updating plans would also be much more convenient and everyone would be apprised of the current plan. Representative Pruitt WITHDREW his OBJECTION. He did not believe DEC needed all of the plans; however, he believed if the state was going to make companies submit plans it was better to have them submitted electronically. He noted his concern there would be numerous documents that were not needed. He elaborated that the department had not known of the federal requirement until recently. He thought it showed either the failure of the department or that the issue had been managed in the past without needing [the spill plan]. He thought the documents would sit in an electronic file that may not be needed. There being NO further OBJECTION, Amendment 5 was ADOPTED. 2:42:13 PM Vice-Chair Gara reviewed the fiscal note from DEC. The amendment reflected a cost of $10,800 in FY 19 and an ongoing expense of $2,700 in outyears from the Oil and Hazardous Substance Release Prevention and Response Fund. The note also reflected the gain in revenue of $74,700 in FY 20 up to $80,100 in FY 24. Representative Wilson asked if the inflation calculation would cost $2,700. Ms. Ryan replied in the negative. The only cost associated with doing the inflation adjustments was the publishing of the regulations, which would be on a three-year cycle (based on an amendment that passed). Representative Wilson asked for verification it would cost $2,700 to update for inflation every three years. The note included language that regulations would need to be reviewed annually, which would be changed to every three years based on an amendment that passed. She did not understand the cost. Ms. Ryan answered that it would not cost that much to do the inflation regulations. She believed the language implied the overall cost of doing regulation changes for updating penalties over several cycles. Representative Wilson assumed the $10,800 was for the initial regulation in FY 19. She wondered if other regulations had to be done annually because of a federal government requirement. She asked if the cost was associated with something the department already did that had nothing to do with the legislation. 2:44:45 PM Ms. Ryan answered that the bill assumed DEC would update regulations every year, but it had been changed to every three years. She believed the cost in the fiscal note would be slightly reduced due to the change. Representative Wilson stated the only thing the bill required every three years was inflation. She asked if there was some other regulation update requirement the department would have to update every three years. Ms. Ryan answered in the negative. Representative Wilson remarked that calculators were pretty inexpensive. Co-Chair Foster relayed there may be a new fiscal note forthcoming with more revenue. Vice-Chair Gara clarified that the cost reflected in the fiscal note was not for someone using a calculator, but for the RSA [Reimbursable Services Agreement] with the Department of Law to address the regulations. There was also a cost when regulations went to public notice. He did not see anything in the fiscal note attributing the cost to someone calculating the inflationary effect. Representative Wilson pointed to language on page 2 of the fiscal note specifying that regulations would need to be reviewed annually to reflect inflation. 2:46:17 PM Vice-Chair Gara countered that it was not what the full sentence said. Representative Wilson read the sentence on page 2 of the fiscal note: Contractual costs reflect estimated RSA with the Department of Law for consultation and legal review during the development of new regulations as well as required public notice in Anchorage, Juneau, and Fairbanks. Regulations would need to be reviewed annually to reflect inflation. Representative Wilson stated the fiscal note included $2,700 in FY 20 through FY 24 associated with the work. Co-Chair Foster asked Ms. Ryan to provide a written response with clarification. Ms. Ryan agreed. Co-Chair Seaton MOVED to REPORT CSHB 322(FIN) out of committee with individual recommendations and the accompanying fiscal note. Representative Wilson OBJECTED. Stated there was opposition to the bill from the Alaska Trucking Association and AOGA. She did not believe the committee had addressed the entities' concerns. Conversely, she thought the bill added additional things for the trucking industry to do. Representative Thompson corrected the motion to move the bill. Co-Chair Seaton restated his motion. Representative Wilson OBJECTED. 2:49:09 PM Representative Kawasaki supported the updates dealing with inflation. He remarked there had been myriad inflation changes since 1976, 1984, and 1989. He had concern about the policy dealing with resource issues. He appreciated clarity on the definition of produced water. He had a bit of trouble with some of the other policy issues dealing with punitive administration fees in Sections 1 and 6. Additionally, he had overriding concerns about how a penalty deters or changes bad behavior. He did not know that it had proven to be the case. He appreciated the sponsor bringing the bill forward and wanted to see it move forward. He believed the bill was ready for a more thorough debate on the House floor. Vice-Chair Gara stated that he had worked with some of the penalties when he had worked on the Exxon Valdez oil spill. There had been a debate at the time on whether to just use the penalties, which had been inadequate. He elaborated that the state would not have received the $1 billion settlement if it had merely imposed the per gallon penalty. Additionally, in a big case there were resources to try to prove damages, but in a smaller case, trying to assess the value of a bird, 100 pink salmon, or other, was very difficult. He stated that the penalties were especially important in those cases, meaning someone did not have to go through the vast expense of measuring the value of the harm. He believed penalties were important. He reasoned the state might as well throw out the penalties in criminal and administrative law and driving violations if the belief was they were ineffective. He stressed there would be a cost if the state was not careful, especially at the expense of fishing streams and waters, which were a hallmark of the state. He noted the state had always bragged to the federal government that Alaska did things right - that oil was produced in a way that protected those things. He believed the bill was important. Representative Pruitt opposed the legislation. He thought the bill seemed to try to force certain actions as if they were not already being done. He referenced a letter from AOGA (copy on file) indicating the millions of dollars per year put into ensuring industry did everything possible to prevent spills. He pointed to the Alyeska Pipeline Service Company with over 200 drills and $100 million annually spent on prevention and readiness. He recalled Alaska Clean Seas had specific equipment on the North Slope costing hundreds of thousands of dollars. He stressed that industry was already doing the things the bill aimed to force industry to do. He pointed to a report from the Division of Spill Prevention and Response showing the number of spills and volume had declined. He emphasized that many people working in the oil industry did not want to see damage done to the environment and were doing everything they could to prevent it. He was concerned the bill was aiming to attack a group of people as if they were bad actors. He did not believe the group was filled with bad actors. Alternatively, he believed the group was trying to put the investment, time, and energy into protecting the environment. Representative Pruitt understood a conversation about penalty fees, but he did not support multiplying them by four. He discussed that the state had been going after the cruise ship industry - the penalties had been added in 2006 and would be increased beyond inflation under the bill. He believed the bill was wrapped in punitive policy as opposed to considering what the state was doing to partner with industry to protect the environment. He believed the focus should be on partnering with industry/groups instead of pitting people against each other. 2:55:41 PM Representative Guttenberg highlighted a recent occurrence as an example. He elaborated that someone had not checked their [truck] load and had taken out a bridge. He recalled that one woman waiting in traffic had a baby. He questioned how all of the people waiting in traffic felt about the company not following procedures. He supported the bill and was happy there had not been a recent accident that would single out one company in Alaska. He referenced Ms. Ryan's testimony there was an Alyeska issue that was basically sabotage that Alyeska had nothing to do with - the company was not fined, and it participated in the cleanup. However, there had been instances where companies were bad actors. He noted the incidents occurred much less than in the past. When considering the punitive aspect, he asked members to consider how the individuals waiting in traffic for hours felt about the situation. He continued that if the truck had not taken out a bridge there would not have been a problem; however, one bad apple could cause significant damage that could hurt many people. Co-Chair Seaton made it clear that he did not believe they were being overly burdensome on industry by adjusting for inflation. The goal from 1977 to present was not to continually reduce the penalties. He believed it was prudent to adjust for inflation. The passed amendments merely brought penalties up to account for inflation because the years the given penalties were established were 15 years earlier than the penalties in other bill sections (1977 versus 1985 and 1989). He did not believe prior legislatures that had set the penalties had been overburdensome at the time. He reiterated his belief that adjusting the fines for inflation was the right thing to do. 2:58:54 PM Representative Wilson MAINTAINED her OBJECTION. A roll call vote was taken on the motion. IN FAVOR: Guttenberg, Kawasaki, Gara, Grenn, Foster, Seaton OPPOSED: Pruitt, Thompson, Tilton, Wilson Representative Ortiz was absent from the vote. The MOTION PASSED (6/4). There being NO further OBJECTION, CSHB 322(FIN) was REPORTED out of committee with four "do pass" recommendations, four "do not pass" recommendations, and two "amend" recommendations; and with one new fiscal impact note from the Department of Environmental Conservation. 3:00:26 PM AT EASE 3:01:07 PM RECONVENED