Legislature(1993 - 1994)
11/12/1993 01:45 PM House RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 238 - OIL/HAZARDOUS SUBS. RELEASE RESPONSE FUND CHAIRMAN BILL WILLIAMS announced that the meeting was on teleconference for listen only in Juneau, Soldotna, Ketchikan and Fairbanks. He stated the committee had several hearings on HB 238 last session and that it was a complex and controversial bill which generated a lot of public comment. CHAIRMAN WILLIAMS stated that HB 238 was introduced by Representative Joe Green's Oil and Gas Committee regarding the Oil and Hazardous Substance Release Response fund, the so-called "470 Fund." He said the purpose of the meeting was to give the committee an opportunity to look at the latest draft of the bill, hear from the sponsor and the affected departments about what is being proposed, determine how the present version differs from previous versions, and how the administration feels about the bill. CHAIRMAN WILLIAMS stated no public testimony would be heard and that no action would be taken on HB 238. He requested that members of the committee, the public and industry interest groups review the ideas discussed in the meeting and think about the direction the committee should take on the bill. CHAIRMAN WILLIAMS explained the folders contained only new information; that is, a new proposed version M of the bill, a sectional analysis of that version, and information and comments that had been submitted since the last hearing in April. Number 070 REPRESENTATIVE JOE GREEN explained that the original intent of HB 238 was fiscal responsibility and accountability. He stated that the earlier version was too severe because it attempted to confine all the expenditures made from the 470 Fund. He explained the 470 Fund was established in 1989 and imposed an assessment of five cents per barrel on the oil industry to generate the fund. REPRESENTATIVE GREEN stated that HB 238 was revised to provide for a reasonable oversight for oil spill contingency by taking three cents from the five cents assessment to fill the original objective of generating a reserve of $50 million. He said when the reserve is full, the three cent charge will be deleted similar to the elimination of the five cents charge under the original HB 470. REPRESENTATIVE GREEN advised there is a significant problem in the way the fund is administered and explained the intent of the revised version of HB 238 is to give guidelines to the legislature, confine expenditures to those which the fund was intended--to prevent, if possible, clean up if needed and curtail expenditures which do not directly affect crude oil spills. Number 135 JEFF LOGAN, LEGISLATIVE ASSISTANT, HOUSE OIL & GAS COMMITTEE, informed the committee that after the initial version of HB 238 was introduced, there was a significant amount of input both from the Department of Environmental Conservation (DEC) and the Department of Law, initiating a process of meetings where a list of revisions needed to the bill was generated, resulting in version M. MR. LOGAN explained that version M splits the five cents assessment into two funds, hopefully a more equitable solution. He said version M funds DEC oversight operations and fills a $50 million fund. MEAD TREADWELL, DEPUTY COMMISSIONER, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, said he would attempt to state the facts as they are and work to build a consensus on the issue. He explained DEC has met with public interest groups and representatives of companies who are primary taxpayers of the tax and in both cases, it was agreed that continued discussions toward a consensus were necessary. Mr. Treadwell would be making his comments from a talking paper (available from House Resources). MR. TREADWELL pointed out that spill prevention response programs are vital to the public's health, safety, environment and economic future and the size of DEC programs to meet those ends is one debate. He told the committee that today's perception of secure but unequitable funding is another debate. He said finding secure, equitable and appropriate funding for needed spill prevention response programs is an achievable goal. MR. TREADWELL relayed that the general goal is to maintain a strong, state led spill prevention and response program. He noted that Representative Green mentioned the nickels collected were for crude oil prevention response. Mr. Treadwell reminded everyone that most of the spills in the state are non-crude spills. MR. TREADWELL gave examples of various spill sites around the state where DEC was the sole responder. He said DEC feels it very important to build and maintain a $50 million spill reserve and agrees that an attempt should be made to achieve a greater equity in funding sources for the non- crude and hazardous substance prevention and response. He remarked an argument has been made that the source of funding is all nickels coming from crude oil and reiterated that there are large spill risks from non-crude oil, gas clouds and other substances that pose a threat which the fund is paying for now. MR. TREADWELL stated that the first strategy is to expand response fund sources including cost recovery, using recovered spill costs to ensure that the fund is replenished. He said the second strategy is to simplify the accounting mechanism, to impose or suspend the crude oil surcharge. He explained that originally when the nickel tax was assessed, a spill prevention response program was initiated, a spill reserve was established, and when the reserve reached $50 million, the tax would be eliminated until it is needed again, at which time a tax would be assessed only for the amount needed to run an appropriate spill program. He noted that as the law was written, there can be an excess of $50 million in the spill reserve, with the tax still collected at the full amount and it was agreed that there is an appropriate change needed in the way the surcharge is imposed and suspended. MR. TREADWELL maintained that the response fund's capability to fund the necessary programs should not be diminished until other sources are in place for non-crude or hazardous substance prevention response. He said that in discussions with various interest groups, specific concerns were addressed regarding the application of the strategy, the first being that even though the spill reserve today approaches $37 million and thus only $13 million would be necessary to reach a reserve figure of $50 million, the current law's formula for suspending the tax requires at least $65 million more to be collected, above additional expenditures, before the tax is suspended. He felt that was not what the legislature meant to do. MR. TREADWELL stated there currently are no built-in incentives for the legislature to credit repayments to the state from fund expenditures back to the fund. He said a third concern is the perception that some authorized fund expenditures should be unauthorized or further limited. He explained the checks and balances built into the department before the spill reserve can be accessed. He further stated there are numerous examples where people have asked for funds and the department has declined, as there are no expenditures out of the spill reserve greater than $25,000 without the commissioner or acting commissioner's permission. Number 251 MR. TREADWELL said there is a perception that the size of the spill prevention and response program seems to grow to match funds available from the tax, and should instead be set to meet needs for the environment and safety and funded from an equitable series of sources on the "polluter pays". He gave numerous examples of contaminated sites around the state with many responsible parties cleaning up their own contamination. MR. TREADWELL said many cleanups are not part of the response fund activities but often have come out of the mitigation account. He said DEC feels it appropriate for the legislature to look at alternate funding for these problems, when the state needs to get involved in funding, and not put them in the response fund. MR. TREADWELL reviewed four other possible funding sources for the fund: First, receipts from cost recovery or reimbursement; second, mitigation including damages, fines, etc.; third, fees including fees for contingency plan review by non-crude facilities, financial responsibility submissions and loading fees; finally, substitution of general funds such as interest on the spill reserve, use of other tax revenues, etc. Number 294 MR. TREADWELL said suggested methods to suspend the tax and involve other sources, include amend the tax law to state, simply, that the tax is collected when the balance of the fund, less the obligations appropriated by the legislature or spent from the spill reserves provided by law, is less than $50 million. He added that another consideration is an incentive clause stating the tax will not be collected in a year unless other named sources are also appropriated to the fund. MR. TREADWELL reviewed methods which would further limit fund expenditures including the removal of full funding for the State Emergency Response Commission (SERC) by making an all-hazards SERC; repeal the provision that allows ferries to be built with the fund; further checks and balances, such as requiring review of capital and operating expenditures by a body such as the SERC in case of spill prevention and response plan, and the Hazardous Substance Spill Technology Review Council (HSSTRC) in case of research. Number 310 MR. TREADWELL noted that projected trends in current cost components for the program are likely to change. He said if the fiscal 1994 program is reviewed, the response fund projected expenditures are approximately $18 million and the amount expected to remain in the spill reserve at the end of the year is approximately $37 million. He observed that with the change in policy, it is possible that the legislature could appropriate $14 million from this point forward, a $4 million change above and beyond a policy that would put the funding for the tanks program out of the mitigation account and would in effect, accomplish the goal of building a spill reserve faster. Number 348 MR. TREADWELL said that DEC has looked at an alternative proposal which does not split the five cents but tries to accomplish the same goals. Referring to page 12 of his talking paper, Mr. Treadwell reviewed the response fund summary including the calculation of the fund based on the current law. He also reviewed the actual response fund based on the appropriation. He said the calculation for suspending the tax under the current law shows there is a deficit of $15.1 million but in reality, there is $37 million and the amount needed to get to $50 million is very small. He mentioned that the way the law is written, it takes into account expenditures that may not have come from the fund. Number 381 CHAIRMAN WILLIAMS acknowledged Representative Pat Carney was on teleconference in Mat-Su. Number 394 SHELBY STASTNY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, referred to page 12 of the talking paper, and said the response fund summary was prepared to show a simple calculation on how the law specifies to calculate the report that is required quarterly from the Department of Administration, what is currently available and the real amount in the response fund. He explained that the law includes all expenditures but in considering the income, the law only includes the income which has been generated from the five cents a barrel tax. MR. STASTNY stated there has been a significant amount of money spent out of the fund from sources other than the nickel a barrel tax; therefore when all the expenditures are considered against just the nickel a barrel, a negative number will result. He said in order for the figure in the left column (calculation) to reach $50 million, the number in the right column (response fund) has to be approximately $125 million. Mr. Stastny pointed out that in the right column, there are $75 million in general fund contributions and program receipts which are large amounts not used in the calculation currently required by law. MR. STASTNY noted the $30 million is the amount reimbursed to the state by Exxon and the $44 million is also prepayments from Exxon before the actual expenditures had been incurred. He stated that the balance of $37 million has increased during the current administration from $9 million, therefore it is incorrect to state there is a deficit. Mr. Stastny said the fund is increasing but if it is to reach $50 million and eliminate the tax, the law needs to be changed. Number 449 VICE-CHAIRMAN BILL HUDSON asked what the amount of the annual collection is. Number 451 MR. STASTNY replied $ (inaudible). Number 452 VICE-CHAIRMAN HUDSON asked the amount outstanding in reimbursements. MR. TREADWELL replied (referring to page 7 of the talking paper), that approximately $5.3 million to be paid by Exxon will be available for fiscal 1995 expenditures, climbing to $9 million in fiscal year 1999. He said the figures also include approximately $l million per year in cost recovery. VICE-CHAIRMAN HUDSON questioned whether the current law provides for those funds to flow into the same income stream or do the funds go into the general fund. MR. TREADWELL stated the funds go into the mitigation account wherein the legislature can and has appropriated money into the response fund. MR. TREADWELL said receipts from Exxon are dependent on an agreement made on an annual basis between the state of Alaska and the federal government, negotiated by the attorney general and the Department of Justice. Number 535 REPRESENTATIVE GREEN asked what the current total DEC budget is. MR. TREADWELL stated the $14.1 million is DEC's estimate of the oil and hazardous substance prevention and response fund program needs for future years. He said the entire DEC budget including all the divisions, without the capital appropriations, is approximately $45 million. REPRESENTATIVE GREEN inquired if the $45 million budget includes the $14.1 million. MR. TREADWELL replied that it does and also includes federal funds and various program receipts. Number 568 VICE-CHAIRMAN HUDSON stated that prior to the grounding of the Exxon Valdez, most of the spill prevention monies came from the general fund. He inquired since the spill, whether the need has shifted from the general fund to the general fund. MR. TREADWELL replied that was correct and stated there have also been several major pieces of legislation since the spill which have created many new tasks for the department. REPRESENTATIVE JEANNETTE JAMES asked for a clarification on other tax revenues. MR. TREADWELL said that many other states fund this type of prevention and response activity through fees, taxes, etc. He acknowledged that was not being proposed presently but other options should be looked at. REPRESENTATIVE JAMES inquired if a tax on refineries was being considered and stated that many of the non-crude spills would be occurring even if the oil industry was not present in the state. MR. TREADWELL responded if the oil industry was not present in Alaska, many of the contaminated sites and non-crude spills would in fact be there and further stated that the royalty portion of the state's oil, which is the source for much of the state's refining, does not pay into the response fund directly. Number 650 MR. TREADWELL said DEC reviewed what would be available if the surcharge was split and reviewed projections of oil through the pipeline, which are used in other revenue projections. He stated that revenue estimates for this year and future years were also reviewed. He advised that by the end of December, $26 million will have been collected and available to the legislature for appropriation next fiscal year, to be distributed as they wish. MR. TREADWELL explained that in future years, the amount of through put the pipeline will likely go down and thus the number of nickels collected will go down. Therefore, he asserted that if the five cents per barrel is split and the two cents in the nickel goes to pay for prevention and response programs and the three cents is used to pay for a spill reserve, a situation will occur where the amount in the two cent fund does not cover the $14 million collected presently. MR. TREADWELL said if what is needed to reach the $50 million level is reviewed, and assume $1 million is spent annually out of the spill reserve on small emergencies, the three cents would not be collected for a large portion of the year. He said that if a $14 million per year spill program is to be funded and the two cent fund is the only source, other funding sources are required immediately. Number 722 MR. TREADWELL said that a point made was that as crude oil through put falls, maybe spill risk falls and stressed that just as the oil industry has fixed and variable costs, government has fixed and variable costs as well. He said variable costs do not go down if the amount of oil goes down and those costs are based on the number of facilities overseen. MR. TREADWELL pointed out that as the department moves further down the production curve, cost cutting does take place and often cost cutting in the spill prevention area means properly using the department's role as a regulator to make sure that certain things are done. MR. TREADWELL stated that not only does the program cover crude and non-crude, it also covers exploration and in his position as a deputy commissioner, there have been several instances of intense negotiations with various groups to determine what spill prevention measures are necessary during an offshore exploration program. TAPE 93-53, SIDE B Number 000 MR. TREADWELL stated that the two cent/three cent option will not work on its own. He said DEC suggests that the nickel be calculated by looking at what is needed to build the spill reserve to $50 million and then collect an amount necessary each year to cover the cost of the program and if the program is $14 million, less taxes would be collected in the early years of the Exxon receipts and in later years, perhaps after the year 2000, the tax would be $13 million. The question becomes, how can we ensure that the legislature is only going to appropriate the $14 million and not look at the fact that the nickel is available. MR. TREADWELL stated DEC suggests an incentive clause that states do not go back and reimpose the tax unless other funding sources are available and added that DEC is uncomfortable with splitting the nickel until there is an understanding with the legislature that the basic needs have a good funding source presently. Number 025 REPRESENTATIVE GREEN said after four years of operation, there should be $56 million in the fund, yet over $100 million has been collected. He asked if $14 million is a just charge to people who produce and ship crude and cited that going beyond the year 2000, the fund will eventually not have $14 million and the question becomes, do you increase the fund by charging the crude oil producers to continue something that is predominantly non-crude oil related. REPRESENTATIVE GREEN felt that the purpose is to keep the fund full of dollars if there is a crude oil spill emergency but many years would be needed to achieve that under DEC's proposal. He stated the intent of his proposal is to get the fund full and then utilize the other portion to cover tasks performed by DEC which are crude oil or hazardous related but not cover all necessary evils from one source. He further stated there is no guarantee that the $14 million could be curtailed if DEC's program was used and observed that point could never be reached and that $50 million would be available when needed. Number 063 MR. TREADWELL responded over $100 million has been collected in the past four years and reminded everyone of the large expenditure on the Exxon Valdez cleanup, plus the $30 million expenditure attaining a settlement of $1 billion. He reminded everyone there have been two years of a liberal legislature and now in the second year of a conservative one and an abuse of large amounts of money has not occurred. MR. TREADWELL continued regarding the question of one fund or two. He said the kinds of training needed, the types of financial responsibility analysis needed, the kinds of drills done, the kinds of "how clean is clean" questions asked at cleanups are all are very similar whether they are crude or non-crude. If two funds were set up, the two cents would not cover costs for non-crude issues. He said the $50 million reserve is also a deterrent and gave examples of people taking responsibility in cases where they would not have a few years ago. He declared that if the spill reserve can only be used for a major crude oil catastrophe, the state would be losing much. Number 130 REPRESENTATIVE GREEN stated that the starting point was approximately $160 million and with a reduction of $80 million, $80 million remains, which means a lot of ferries, etc. He noted that without the five cents a barrel assessment that would not be possible. He added that other states seem not to continually tax the crude oil business and felt in this state particularly, it is not proper because much of the state's other income is dependent on the oil industry. REPRESENTATIVE GREEN remarked that all but five major companies have left the state because of excessive taxing but also added that what is being done with 470 fund dollars is not solely responsible for the downturn of the oil industry in Alaska but is one of many issues. Number 135 REPRESENTATIVE GREEN suggested that in ten years, there will not be enough dollars even if the five cents a barrel assessment continues because if it is $14 million presently it will probably be $20 million in ten years. He remarked that the nickel assessment will not fund all the programs desired by DEC and suggested that other funding sources need to be looked at rather than continue to take funds from a fund which was designed to clean up oil spills. Number 143 MR. TREADWELL responded that DEC is doing what is mandated and doing the best job possible to protect the environment and public health with the funds available and agreed that the issue of equity and other funding sources need to be addressed. He noted that there is a secure source of funding in place for one of the best oil spill prevention response programs in the country and if that secure source of funding is eliminated, alternative sources need to be determined. Number 160 REPRESENTATIVE GREEN said he is still concerned that under DEC's proposal, there would be an erratic condition within a year which is not a desirable situation. He continued that if HB 238 were to pass, with an effective date of one year, the amount of funds needed to get to $50 million would be reached and then the two cents/three cents split would go into effect and everyone would be satisfied. Number 200 MR. TREADWELL referred to the spreadsheet on page 8 of the talking paper, line 3, "five cents surcharge necessary to maintain spill reserve" and stated that it takes into account the presumption that the $14 million program would be funded in future years. It shows a tax necessary in fiscal year 1996 of 0 because it assumes that the Exxon receipts are put back into the fund; fiscal year 1997 it will be $7.7 million; fiscal year 1998 it will be $5.2 million; and in the year 2000 $13 million. He added that if there were other funding sources available such as interest, etc. then perhaps the tax would be $4 million. He said the proposal is a talking proposal and there actually may be less tax collected than the three cents/two cents taxes but the equity would be there. Number 237 REPRESENTATIVE JAMES commented that what she heard was that in a few years, the $14 million need could be greater and felt that there should be some sort of prevention program where the cost would go down instead of up. She also wondered if it was possible that many expenditures would be in a catch up situation resulting in less need. Number 245 MR. TREADWELL replied that scenario would be best and pointed out that great strides have been made in prevention and stressed DEC has tried to enforce the law requiring every facility to have a contingency plan. He added there are facilities with less than 10,000 barrels without contingency plans and DEC feels it important to do prevention work in those areas. MR. TREADWELL said that DEC was told by the legislature, upon reviewing the budget last year not to do prevention work in some areas. He added that the democratic process and the legislature will waste money just because it is there to spend. Number 282 CRAIG TILLERY, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, stated he would comment on possible legal concerns on specific sections of version M. He stated that in Section 5 of HB 238, there is no definition of what a catastrophic oil release is which becomes a bigger problem because in HB 238, there is a definition of catastrophic oil release under 46.04 and 43.55 and the two definitions are not the same. He added that in 46.08 there is also no definition of catastrophic oil release. Number 300 MR. TILLERY stated that in regard to the Exxon Valdez reimbursements, HB 238 would credit the amounts which came from the response fund into the newly created oil and hazardous substance release contingency and abatement account. He said that account is available for expenditures and felt a dedicated fund had been created because something had been moved without appropriation. He suggested using the contingency and abatement mitigation account from which funds could be appropriated into that account. Number 328 VICE-CHAIRMAN HUDSON asked what specific part of the language dedicates the funds. MR. TILLERY replied under Section 8, part B, lines 14-17. He stated it previously provided that the percentage be credited to the mitigation account; then other statutory language provided that the legislature could appropriate from the mitigation account to reach the response fund, which is fine. He further said version M credits it directly to the abatement account which still needs an appropriation to something. REPRESENTATIVE GREEN asked if every time catastrophic spill is used in the proposal whether it should be redefined. Number 380 MR. TILLERY said the problem is if you compare the definition in Section 15 with the definition in Section 26, they are not the same and each of the definitions are limited to use in the chapter; therefore neither would fit AS.26 or AS.46.08 MR. TILLERY stated in Section 12 regarding the lifting of the surcharge; the surcharge would be suspended on a cumulative basis, where items subject to deposit were not deposited would result in a situation where even if the fund was filled and the surcharge was not being collected and a cost recovery went into the fund, and it was not felt the money needed to be put into the fund because the fund had sufficient money, the fund would still operate. He felt that would be a problem because it still would be credited against the surcharge and the amount may eventually be depleted. MR. TILLERY continued in Section 13, the language implies a cut into the $50 million because it would include amounts in the abatement account. MR. TILLERY stated in Sections 17 and 18, line 28 "has access to sufficient resources to protect environmentally sensitive areas", now reads "and to contain, clean up, and mitigate" which makes three distinct actions that can be taken. He felt the change would mean taking containment, clean up and other necessary actions to mitigate which could be read to say that containment, clean up and other necessary actions all modify and mitigate, substantially cutting back clean up, as once the discharge is mitigated, nothing else happens. He remarked that it might be a language problem needing review so there are no misunderstandings as to its intent. Number 498 MR. TILLERY said language in Section 23 basically deletes the provision for public review of the preparation of statewide plans, which may be acceptable if all plans to be prepared have been completed. MR. TILLERY continued that the language in Section 26, lines 13 and 14, "and for which the Governor has issued a proclamation declaring a condition of disaster emergency", means the Governor's proclamation is a trigger. He felt that people may argue in the future that the catastrophic discharge lasts only as long as that emergency lasts, which is only 30 days. Number 551 JEFF LOGAN clarified that the committee was in favor of setting a trigger in which the Governor did have to make a declaration thinking that if there was such a disaster after 30 days the legislature would be in session and could appropriate the money. Number 564 MR. TILLERY noted that in Section 27, the legislature is changing the current finding in 46.08.005 from "that the release of hazardous substance presents a real and substantial threat to public health and welfare, to the environment, and to the economy of the state" to one where only a catastrophic release presents that threat. He said that is not the legal position his department takes. He stated there is a lot less than a catastrophic release creating threats. MR. TILLERY continued that Section 33 appears to delete the ability to use the funds for restoration purposes but on the other hand it can be used to take containment, cleanup and other necessary actions of those which are defined as including restoration activities. He said the ability to use the fund for restoration purposes is not affected but the fact that it is deleted could be used to argue that the ability to use the fund for restoration is eliminated. Number 640 REPRESENTATIVE GREEN suggested that Mr. Tillery talk to the drafting attorney to ensure that the language avoids the conflicts pointed out. MR. TILLERY noted in all the sections he commented on, the words containing clean up are a problem. Number 669 REPRESENTATIVE JAMES stated restoration is a nebulous term and if that word can be avoided there is an advantage. She said if it cannot be avoided the definition needs to be more specific because restoration can go on forever by whose definition restoration is needed. Number 717 MR. TILLERY stated Section 37, line 11 reads "an oil or hazardous substance spill" and the suggested change would add the words "release or spill". He said spill is included within the definition of release and therefore a better change might be to substitute release for the word spill. He noted that the change made does make another change, as the word release contains an exception for acts of nature, etc. and as it is written now, a lien for a release which would have an exception and a spill which would not be subject to that exception would be allowed. MR. TILLERY said Section 44 strengthens the law and pointed out that the one fault it has (tape ended) TAPE 93-54, SIDE A Number 00 MR. TILLERY said in looking at the history of HB 238, the spill reserve account began in 1980 as a $1 million oil spill reserve account for specific oil spill related expenses and six years later, the legislature in HB 470 changed it to an oil and hazardous substance release fund, they supplemented the account and provided the response funding for both oil and non-oil hazardous substance cleanups. MR. TILLERY continued that in 1989, following the Exxon Valdez spill, there were a number of pieces of legislation introduced including the five cents a barrel surcharge which was specifically included in the statutory scheme allowing both oil and non-oil to be funded out of it. In addition, he said that most of the programs funded out of the surcharge fund were included. MR. TILLERY stressed there is no doubt that the legislature which enacted the statutes, intended for non-oil hazardous substance problems as well as oil spills be funded from the surcharge. Number 022 MR. TREADWELL said in regard to catastrophic versus non- catastrophic spill, the proposal sets up a fund which is funded from two cents of the nickel for non-catastrophic spills and for operating programs and three cents from the nickel for catastrophic spills. He gave an example of a crude oil spill that was less than 100,000 barrels which involved a department response. Mr. Treadwell stressed that the response took longer than 30 days, the legal effort which was initiated and paid for out of the response fund took far longer than 30 days; restoration efforts took longer than 30 days and he doubted it would have been necessary to call the legislature back into session because of the spill. MR. TREADWELL said the spill is an example of why DEC feels it not necessary to divide the nickel but rather, have other funding sources to address the equity issues raised. He stressed that the practical application of the law is going to be a lot easier, and more sensible the way it is running now. Number 056 JEFF LOGAN stated that every nickel goes into the general fund and to say the nickel is being split is a mental and accounting convenience. Number 073 CHAIRMAN WILLIAMS pointed out that the reason for the meeting is to gather information and no decision will be made. Number 079 MICHAEL CONWAY, DIRECTOR, DIVISION OF SPILL, PREVENTION AND RESPONSE, DEC, commented that currently managers make determinations if the use of the spill reserve is proper and it starts with state on-scene coordinators, adding that currently there is no distinction on what kind of spills. He felt there is a philosophical problem of splitting the fund and having two different accounts for responding to spills and creating a political process creating situations where people will be second guessing and may not respond to spills they should. MR. CONWAY stated the department's daily work is done in less than catastrophic spills. He stated strategically, $1 million annually is used out of the spill reserve for the less than catastrophic spills. MR. CONWAY noted that in the proposed HB 238, costs will come from an amount of money also available for operating the program, so depending on the uncertainty of the number of non-catastrophic spills responded to, programs would have to be cut back and an unknown amount would be appropriated each year, making it difficult to determine the number of employees needed, etc. MR. CONWAY said the language regarding the imminent substantial threat determination makes him uncomfortable as again it sets up the state's on scene coordinators for second guessing. He asked that the fund not be split. MR. CONWAY clarified that most sites presenting a threat to public health are from crude oil related industries and attempts are made to recover the cost from the responsible parties, so if all of the costs are recovered, there should be no cost; however, up front money is needed to start an operation. MR. CONWAY stressed the non-crude oil industry is not represented at the meeting and the department is having problems with that industry getting in compliance with existing programs. He stated if the non-crude oil industry is faced with increased costs that are phenomenal with no catch all or safety net, there may be parts of the state which may be cut off from non-crude oil. Number 177 VICE-CHAIRMAN HUDSON asked for a clarification on non-crude activities. MR. CONWAY said in Alaska there is a requirement for contingency plans and non-crude industry has been able to meet those requirements but open 90 increased the pressure on that industry. Number 190 REPRESENTATIVE GREEN questioned if a non-crude activity could lead to pollution but because it is a shallow pocket the costs are born by the crude oil producers. MR. CONWAY said he could not answer for the non-crude industry and does not know how shallow their pockets are. Number 201 VICE-CHAIRMAN HUDSON stated he was present when the five cents a barrel assessment was established and the intent was to tax the crude oil industry for catastrophic spills primarily. He said later when the money was flowing and there were not many (inaudible) on it, legislators began to see it as a source of funds for leaking underground storage tanks, helping smaller communities draw up their plans to fund agencies, etc. VICE-CHAIRMAN HUDSON further stated in order to get the accounting to the responsible party correct, there needs to be a recognition that needs are not going to be fully funded by the three cents or two cents a barrel, etc. He said as policy-makers, they need to be aware there are additional costs which need to come from somewhere else. Number 240 REPRESENTATIVE GREEN stated that under the two cents/three cents split, the lion's share of what is needed to take care of non-crude oil spills is still borne by the crude oil producers and it is gradually phasing out as the crude oil phases out. He said DEC is doing a wonderful job but they are charging the wrong place and by not having a split, not giving a guideline, it is expedient to continue to charge against the nickel. Number 293 VICE-CHAIRMAN HUDSON stated he did not disagree with the concept of splitting the nickel but suggested that as policy-makers, they have to be aware that if the source is cut off, they either have to fund it out of the general fund, elsewhere or create a new two cent gasoline (inaudible). Number 301 REPRESENTATIVE JAMES agreed that the oil producers should not be charged and what is needed is some kind of provision to replace that funding source. She felt what needs to be discussed is how to cover the other side and stressed there needs to be a more fair policy. Number 328 CHAIRMAN WILLIAMS said that DEC is aware of the nickel split and they are trying to develop a plan which satisfies both industry and the problem being discussed. Number 335 MR. TREADWELL replied that was correct and as DEC runs the program, they would like to see the convenience of having one fund. He added that if different funding sources are looked at, DEC would cooperate in trying to address the issues and determine the plan. He said in terms of the operating issues, DEC asks they not be in a situation where a special session of the legislature is needed to clean up an oil spill. Number 371 REPRESENTATIVE GREEN said one of the reasons for splitting the nickel was to ensure fiscal responsibility, and he is concerned about funding under existing conditions if it is not done. To look and say that $14 million is necessary may not in fact be true, and whether it is crude or non-crude oil (inaudible) mindset. He added there may be a lot of things in the $14 million which are not necessary. Number 420 MR. TREADWELL reiterated that DEC wants to spend money where it is needed and DEC wants to ensure that needs are met. VICE-CHAIRMAN HUDSON asked if the nickel a barrel part of the expenses of the transport of the pipeline itself. MR. CONWAY replied it is deducted as a transportation expense. (Inaudible) VICE-CHAIRMAN HUDSON reaffirmed that it is not a part of the transportation cost or part of the off set of the oil head value. MR. TREADWELL replied no. MR. LOGAN stated the first version of the bill did include some fees and perhaps those fees should be reinstated in the next version. Number 455 REPRESENTATIVE JAMES requested to be included in discussions on possible fees. CHAIRMAN WILLIAMS stated the committee needs to decide what direction to take. VICE-CHAIRMAN HUDSON said it would be helpful if plain language graphs were developed showing the nickel split and the amounts available and the shortfalls in the various areas being discussed. Number 526 REPRESENTATIVE JOHN DAVIES stated he agreed with Vice Chairman Hudson on the need to clarify how the program will continue and how the funding will be accounted for. Number 543 REPRESENTATIVE PAT CARNEY asked to be sent a new version of the bill. CHAIRMAN WILLIAMS thanked everyone for participating in the meeting. ADJOURNMENT There being no further business to come before the House Resources Committee, Chairman Williams adjourned the meeting at 3:30 p.m.
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