Legislature(1997 - 1998)
03/13/1997 10:07 AM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 41
"An Act relating to environmental audits and health and
safety audits to determine compliance with certain laws,
permits, and regulations."
Co-Chair Sharp communicated that SB 41 had previously been heard
by the committee and that public testimony had been opened.
MARIE SANSONE, ASSISTANT ATTORNEY GENERAL, NATURAL RESOURCES
SECTION, DEPARTMENT OF LAW (DOL), relayed that the department
had successfully worked with the bill sponsor on amendments, but
it had several remaining concerns. A principal concern was
related to pipeline tariff rates. Additionally, the bill used a
number of terms to refer to state, regulatory, and government
agencies with enforcement jurisdiction; the term department was
defined by the bill as the Department of Environmental
Conservation. She elaborated that the bill additionally appeared
to relate to municipalities; therefore, DOL wanted to work with
the sponsor to achieve terminology consistency within the
legislation. She believed consistency would offer a considerable
improvement to the bill; there were instances that warranted the
specification of a particular agency; whereas, some areas needed
a broader term. She elaborated that "the privilege applies in
more context than the immunity provisions," which was the reason
for the department's concern.
Ms. Sansone shared that DOL was concerned with the definition of
the terms audit and privileged information (called confidential
self-evaluation). The department was also interested in who was
responsible for proving exceptions to the privilege related to
the burden of proof and whether the privilege should extend to
underlying or objective facts. She shared that the department
had discussed all of its concerns with the sponsor and would
continue to do so moving forward. She shared that Assistant
Attorney General Beth Kerttula would address the bill provisions
relating to pipeline tariffs.
Senator Phillips observed that the committee was responsible for
dealing with issues related to money. He wondered whether DOL
had worked with the sponsor on its concerns when the bill had
been in the Senate Judiciary Committee. Ms. Sansone responded in
the affirmative.
Senator Phillips asked whether the department and the sponsor
had philosophical differences pertaining to the legislation. Ms.
Sansone replied that amendments had also been made in the Senate
Labor and Commerce Committee. She relayed that some of the basic
issues had been addressed in prior committees; however, there
were some issues that had not been resolved that were not as
high on the priority list. She explained that some of the
remaining concerns were of a housecleaning nature, but were
important.
Senator Phillips repeated his question related to a
philosophical difference between the administration and the
sponsor.
Ms. Sansone deferred the question to Janice Adair, Department of
Environmental Conservation (DEC).
Co-Chair Sharp wondered whether the administration would
continue to oppose the bill if the concerns listed by Ms.
Sansone were addressed.
JANICE ADAIR, DIRECTOR, DIVISION OF ENVIRONMENTAL HEALTH,
DEPARTMENT OF ENVIRONMENTAL CONSERVATION, replied that there was
not a philosophical difference on the legislation. She
communicated that DEC had been working cooperatively with the
sponsor to reach agreements. She relayed that discussions had
been productive, but as the bill changed, new issues arose. She
explained that when the bill had been amended in the Senate
Judiciary Committee to apply only to DEC, terms referring to
agency, department, and regulatory agency needed to be
clarified. She added that some issues had taken priority over
others based on importance.
Senator Phillips wanted to ensure that both sides were in
agreement on working toward a common goal of a successful piece
of legislation. He believed there had been numerous amendments
that had been offered in various committees.
BETH KERTTULA, ASSISTANT ATTORNEY GENERAL, OIL AND GAS SECTION,
DEPARTMENT OF LAW, communicated that the DOL fiscal note had
changed due to actions affecting the pipeline tariff. She
discussed that the bill had been before the legislature the
prior year and had been amended by the Senate Finance Committee
to remove any impact on pipeline tariffs; however, because of
the way tariff cases were brought, the bill had impacted the
tariff that was removed. She furthered that language added to
the bill in the Senate Judiciary Committee during the current
session also impacted the pipeline tariff. She explained that
under Alaska's royalty and production taxes, the state paid for
one-quarter of the tariff, which included all of the costs of
running the pipeline in its calculation through reduced
revenues; the state had the right to challenge the costs of
running the pipeline with the Trans Alaska Pipeline System
(TAPS) settlement agreement between the state and the carriers.
For example, in the 1995 tariff case, the costs being challenged
as imprudent and not properly included in the tariff amounted to
approximately $300 million (the state's share was approximately
$75 million). She detailed that much of the information in the
1995 case was from audits; DOL estimated that it would cost
approximately $25 million if the state had to duplicate the same
information.
Ms. Kerttula shared that under the bill's current language DOL
believed that the state could be stopped from obtaining
information needed to bring tariff cases. She pointed to page 6,
lines 23 through 26 of the CS (she believed Amendment 6 would
address the problem) and stated that the bill restricted the
state's access to information to the parts of environmental
self-audit reports that consisted of information necessary to
determine pipeline tariffs. She explained that previously there
had been a flat exemption for audit information in tariff cases.
She continued that because of the way tariff cases were brought
all of the information concerning pipeline management would be
necessary (the costs of running the pipeline were figured into
the rates). She relayed that the primary concern was that the
bill's language could be interpreted to mean that the state
could only obtain information using the carrier's initial
calculation or it could be read to be a determination of the
rates (the upfront rates the carriers filed before the Federal
Energy Regulatory Commission); the problem was that the state
only challenged rates and did not determine them. She stressed
that DOL and carrier attorneys could have strong disagreements
related to the language and she did not believe it was worth
jeopardizing the tariff.
Ms. Kerttula did not believe the sponsor felt a language change
was necessary, but she believed the sponsor did not have a
strong objection to the language either. The department had
worked with the Alaska Oil and Gas Association on the language;
she did not believe it meant to impact the tariff. She stated
that typically work in "arcane" areas presented problems such as
the ones listed. The department's final concern was related to
the immunity section of the bill; the second part of Amendment 6
would address the issue by adding an amendment to the definition
of penalty that would clarify that any administrative or civil
sanctions in tariff proceedings were not subject to the immunity
created under the legislation (page 13, line 1). She detailed
that once pipeline tariffs were not excluded from immunity
tariffs an argument could take place that the carriers were
immune from having to reimburse the state under tariff cases
because it was a civil penalty in some cases in addition to an
administrative penalty before the APUC [Alaska Public Utilities
Commission]. She communicated that the amendment was fairly
small and the state was definitely impacted. She relayed that it
was difficult to determine what the impact would be in the
department's fiscal note; DOL had reduced the note by one-third
to account for changes that were made in the removal of health
and safety audits; however, it had been increased by $75,000
annually to provide DOL with an expert witness for tariff cases.
She communicated that Amendment 6 would make the department feel
much more secure about its cases.
Co-Chair Sharp asked whether the proposed Amendment 6 would
address the pipeline tariff. Ms. Kerttula responded in the
affirmative.
Senator Adams was satisfied that Amendment 6 would address the
concern.
Co-Chair Sharp remarked that Co-Chair Pearce and Senator
Torgerson had joined the meeting at an earlier time.
Senator Adams MOVED to ADOPT Amendment 6.
Senator Parnell OBJECTED for discussion. He asked to hear from
the bill sponsor.
Senator Phillips asked whether Co-Chair Sharp intended to
address the bill markup at present.
Co-Chair Sharp replied that his intent was to "wade" through the
amendments with patience.
Senator Adams hoped to address amendments at present; he planned
to offer Amendment 8 related to burden of proof and Amendment 9,
which was a housekeeping measure. Additionally, he would like
the sponsor to have an opportunity to see the amendments as
well.
Co-Chair Sharp expressed his desire to discuss the most
important amendments and to hear related agency and sponsor
testimony. He asked members to work with the departments and
sponsor for incorporation into a CS related to amendments the
committee would not have time to hear.
Senator Parnell communicated that he intended to move Amendments
1 through 3 for the bill sponsor and for explanation by the
sponsor. He believed Amendments 4 and 5 would not be offered.
MIKE POLLEY, STAFF, SENATOR LOREN LEMAN, shared that the sponsor
did not see a problem with the existing bill language despite
conversations with DOL. The sponsor did not believe the current
language would prevent the state from acquiring the needed
portions of audit reports to determine correct tariffs. He
furthered that the language clearly stated that the parts of an
audit report necessary to determine pipeline rates and tariffs
were not privileged. However, the sponsor had no objection to
Amendment 6, given his belief that it would not do any damage to
the bill.
Ms. Kerttula believed one change would help companies;
previously the bill did not contain language that would have
required confidentiality in tariff cases. Amendment 6 would
implement a protective order in the proceeding, which would
prevent the department and its experts from releasing
confidential information.
Mr. Polley did not believe AOGA had any objection to the
amendment.
Senator Parnell WITHDREW his OBJECTION to Amendment 6. There
being NO further OBJECTION, Amendment 6 was ADOPTED.
Senator Parnell MOVED to ADOPT Amendment 1 and asked for an
explanation from the sponsor.
Senator Adams OBJECTED for discussion.
Senator Parnell clarified that Amendment 1 had been redrafted as
Amendment 7; therefore, he WITHDREW Amendment 1. There being NO
OBJECTION, it was so ordered.
Senator Parnell MOVED to ADOPT Amendment 7.
Senator Adams OBJECTED for discussion.
Co-Chair Sharp asked for the sponsor's reaction to the amendment
to be followed by the department's view.
Mr. Polley communicated that the amendment had been suggested by
some of the industries that would be affected by the
legislation. He explained that under the law if an entity made a
disclosure there was a significant amount of conditions and
caveats on the immunity; there were a number of items an entity
needed to qualify for in order to be granted immunity. He
furthered that when an agency made a disclosure of an
inadvertent violation discovered through an audit, it would not
necessarily know whether it would be eligible for immunity under
the legislation. He added that an agency may think it was
eligible, but DEC could have a different interpretation. The
concern had been expressed by industry attorneys that it was
unclear whether a disclosure would have to include a guilty plea
that a regulation had been violated or whether a mere report
that the situation had been discovered was sufficient (leaving
the decision to the agency about whether a violation of the law
had occurred). He pointed to Texas as an example of a state
where agencies did not say that they had violated regulations,
but instead included the language "we found the following
circumstances, which may constitute a violation of the law." He
expounded that Amendment 7 clarified that circumstances,
conditions, or occurrences could be reported in the disclosure
that constituted or may constitute a violation.
Ms. Adair shared that DEC believed the bill addressed the issue
and that the amendment was not necessary; however, the agency
had no objection to the amendment.
Senator Adams WITHDREW his OBJECTION to Amendment 7. There being
NO further OBJECTION, Amendment 7 was ADOPTED.
Co-Chair Sharp noted that Senator Donley had joined the meeting
at an earlier time.
Senator Parnell MOVED to ADOPT Amendment 2.
Senator Adams OBJECTED for discussion.
Mr. Polley relayed that Amendment 2 applied to the area of the
bill where the conditions under which an audit report could be
disclosed to another party. He explained that because the bill
created a privilege for audit reports it became critical to
define who the reports could be disclosed to; traditionally
privileged information was supposed to be kept confidential. He
elaborated that industry had expressed concern that the current
language did not adequately provide for some of the transfers of
the privileged report that may be necessary. For example, there
was concern that the bill would not allow a contractor who
conducted an audit to disclose the document to its client; the
amendment was designed to address the problem.
Co-Chair Sharp asked for verification that the amendment
addressed the multi-intermingling of operator responsibilities
on the same job site. Mr. Polley responded in the affirmative.
He expounded that a contractor should have the ability to share
any environmental problems it discovered during an audit with
the owner.
Senator Adams WITHDREW his OBJECTION. There being NO further
OBJECTION, Amendment 2 was ADOPTED.
Senator Parnell MOVED to ADOPT Amendment 3.
Senator Adams OBJECTED for discussion.
Mr. Polley communicated that Amendment 3 impacted the
definitions section of the bill on page 12, lines 28 through 29.
He explained that the amendment broadened the definition of
owner operator; the amendment clarified that if a contractor
conducted an audit that it was eligible for the privilege and
immunities granted under the bill. There was a representative
from the Alaska chapter of the International Association of
Drilling Contractors available for questions.
Co-Chair Sharp asked for comments from the administration.
Ms. Adair replied that DEC had concerns with Amendment 3. She
detailed that current laws that would be impacted by the bill
looked to two kinds of people to hold responsible for reporting
actions: the owner (usually the permitee) and the facility
operator (with some type of legal obligation). The terms were
defined in statute and other provisions and were typically
defined separately; owner was defined as someone with a
proprietary or possessory interest in a facility and an operator
was someone who directed, managed, or supervised the facility.
She stated that it was unclear to her how an operator would not
be an operator of a facility. She elaborated that if definition
of owner or operator was expanded to include some other entity
(due to a private contractual arrangement between parties that
could change any time) DEC was concerned about who the
responsible party would be. She furthered that the bill set some
parameters on when the privilege was available; it was not
available for items that were required to be reported under the
law. She continued that only owners or operators had the legal
responsibility, but those with the privilege could preclude
someone else from disclosing the information. If an entity was
given the privilege but was not legally responsible to report
things, they could preclude someone who was legally responsible
from reporting because the bill said specifically that the
person with the privilege could preclude someone from reporting
the information to the department.
Ms. Adair shared that the department would prefer to see owner
and operator split out and properly defined. The definition of
operator could then be looked at to determine how the definition
would not work for drilling contractors.
Senator Parnell remarked that the department had identified the
issue as a problem, but had then stated that an operator could
be covered under operator of a facility. Ms. Adair did not see
how operators would not be covered.
Senator Parnell asked what the department thought was wrong with
the amendment. Ms. Adair replied that the amendment could apply
to people who were not operators.
Senator Phillips asked to hear from a representative from the
International Association of Drilling Contractors.
KYLE PARKER, INTERNATIONAL ASSOCIATION OF DRILLING CONTRACTORS -
ALASKA CHAPTER, communicated that the association had proposed
Amendments 2 and 3. He voiced the association's support for the
legislation and noted that the concept had been adopted in most
other oil producing states. He furthered that the association
had been concerned that the bill had not originally covered the
relationships of the drilling contractors on the North Slope;
therefore, the association had drafted an amendment that had
initially combined components of Amendments 2 and 3. After
working with the sponsor, the amendments had been divided.
Amendment 2 allowed drilling contractors to share their audit
reports with operators and vice versa. He detailed that the
provision would allow the association to analyze when
relationships were and were not working.
Mr. Parker pointed to Amendment 3 and explained that the terms
owner and operator had a "very definite" meaning in the oil
field. The drilling contractors were not owners or operators
(e.g. Nabors and Doyon); the owners or operators were BP and
Arco. He stated that Amendment 3 had been drafted to clarify
that owners, operators, and independent contractors including
other oil field service contractors (e.g. VECO Corporation and
other) were covered by the legislation. Drilling contractors
were responsible to the state for complying with environmental
laws. He discussed that the definition as originally proposed
read "who owns or operates a regulated facility, operation, or
property." The association believed it was necessary to clarify
that independent contractors were not owners or operators in the
oil field. He elaborated that Senator Leman had developed the
second half of the definition that read "however, within the
context of this definition independent contractor shall not be
construed to include somebody who is retained for the sole
purpose of coming in and conducting the audit." He believed that
the language may address DEC's concern about someone trying to
assert the privilege that they were not entitled to. He detailed
that Mr. Polley had also raised the concern earlier in the
process; therefore, the exclusion in the amendment had been
developed.
Senator Adams asked whether the owner definition could be
expanded to read that the owner or operator was responsible for
the actions of the independent contractor.
Mr. Parker suspected that North Slope owners and operators would
have a difficult time taking on the responsibility for all of
their independent contractors.
Senator Adams replied that Mr. Parker had stated that two oil
companies were the owners on the North Slope. He opined that the
companies should be responsible for the actions of the contracts
they delegated to independent contractors.
Mr. Parker replied that under current law there were ways in
which owners and operators were responsible for their
contractors' actions; however, in contracts, owners and
operators tried to ensure that contractors took responsibility
for their own actions.
Senator Adams believed that it should be clearly stated that
contractors took responsibility for their own actions.
Ms. Adair communicated that her concern with the amendment was
related to expanding owner and operator to include people who
were not owners and operators under AS Title 46.
Co-Chair Sharp asked what incentive a major independent
contractor (e.g. a driller) would have to conduct voluntary
compliance. Ms. Adair responded that DEC considered contractors
as operators.
Co-Chair Sharp surmised that DEC considered contractors as
operators; however, the contractors did not view themselves the
same way. Ms. Adair expressed concern about changing the
definition in order to satisfy private contracts, which could
subsequently be changed whenever the need arose. She stated that
privilege was unusual and the department was working to balance
it with its trust responsibilities to the legislature and
public. The department believed it needed to be very clear who
could take advantage of privilege and immunity; DEC believed
that eligible parties needed to be those that the law held
responsible.
Senator Parnell remarked that DEC required environmental
compliance from contractors in addition to the operators. He
explained that the bill would give owners, operators, and
contractors a reason to audit. He did not understand why the
provision wouldn't be as applicable to an independent contractor
as it would to an owner or operator.
Ms. Adair pointed to an exclusion that pertained to required
reporting under a permit or statute. She stated that reporting
requirements related to owners and operators as defined in Title
46; they may not be operators as defined in the contractual
arrangement between drilling contractors and the oil field
owners; however, by including them in the bill they would be
given a "blanket" privilege without the sideboards included in
the bill for owners and operators because they would have no
legal mandate to report to DEC.
Senator Torgerson pointed to Section 9, page 4 related to
privilege and waivers. He referred to page 5, line 10 that
listed "independent contractors retained" and surmised that the
intent of the bill covered the issue. He did not believe the
department would want all of the provisions in the bill related
to owner and operator to apply to contractors.
Mr. Parker explained that Section 9 dealt with disclosures
between two parties, which applied to the privilege. He
elaborated that a separate section related to immunity. The
association believed the definition needed to be changed in
order to "reflect the reality." He opined that part of the
problem related to the fact that relationships on the oil field
had changed significantly over the past 15 years and that the
statutory definition of owner and operator may be out of date.
The association believed that the legislation's definition for
owner and operator was not broad enough to include the
independent contractors that were doing business on the North
Slope.
Senator Torgerson asked whether the section related to immunity
could be amended to include independent contractors. He thought
amending the section would accomplish the goal and would be more
proper than including independent contractors in Amendment 3.
Senator Adams added that the amendment language was too broad as
it referred to independent contractors and did not specify
independent contractors in the oil field services.
Co-Chair Sharp informed the committee that Amendment 3 would be
taken up at a subsequent meeting. He discussed the schedule for
the following day.
Senator Pearce noted that the schedule for the following day was
relatively light and that the committee may have time to hear SB
41 as well.
Co-Chair Sharp stated that the committee would return to the
bill the following day if time permitted.
| Document Name | Date/Time | Subjects |
|---|