Legislature(1993 - 1994)

03/24/1993 08:00 AM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
  HB 238:  OIL/HAZARDOUS SUBS. RELEASE RESPONSE FUND                           
                                                                               
  CHAIRMAN WILLIAMS explained that there had been a large                      
  number of persons who responded to the announcement of a                     
  teleconference hearing on HB 238.  Because of the complexity                 
  and public interest in the bill, he announced that the                       
  committee would take as much time as needed to hear all                      
  public testimony, and that the bill would not be moved at                    
  this meeting.  He explained that the bill had been sponsored                 
  by the House Special Committee on Oil and Gas, and would be                  
  summarized by the chair of that committee, Representative                    
  Joe Green.  He noted for the record that Representative                      
  Cliff Davidson was in attendance at the meeting, as well.                    
                                                                               
  Number 438                                                                   
                                                                               
  REPRESENTATIVE JOE GREEN, spoke as the CHAIRMAN OF THE                       
  SPONSORING COMMITTEE, THE HOUSE SPECIAL COMMITTEE ON OIL AND                 
  GAS.  He stated that HB 238 was not about the oil industry,                  
  but rather was about fiscal responsibility and                               
  accountability.  He noted that the date of this meeting was                  
  the fourth anniversary of the Exxon Valdez oil spill.  He                    
  called the response to the spill a series of bureaucratic                    
  bumbling, indecision and lack of coordination.  He said                      
  there had been no cohesive plan backed up by equipment,                      
  technology and personnel to carry it out.  Also lacking was                  
  a readily available, accessible fund that could be used by                   
  the Department of Environmental Conservation (DEC) to                        
  respond to a spill.                                                          
                                                                               
  Number 460                                                                   
                                                                               
  REPRESENTATIVE GREEN said the spill had sparked legislation                  
  in 1989 that initiated a spill response fund.  One of the                    
  bills imposed an assessment of five cents per barrel on the                  
  oil industry to generate a fund.  He explained that at the                   
  time the fund was established, it was to have a cap of $50                   
  million.  However, he said that the oil industry had already                 
  paid in excess of $80 million into the fund, which had also                  
  been added to by general funds in almost the same amount.                    
  He referred to a House Research report in members' packets                   
  that showed the amount currently in the fund could be almost                 
  as high as $23 million, or as low as $100,000, depending                     
  upon how the figures are interpreted.                                        
                                                                               
  REPRESENTATIVE GREEN questioned how the money had been                       
  spent, and said that the DEC's records are insufficient to                   
  account for expenditures from the fund.  He acknowledged                     
  that some of the funds had been spent cleaning oil and                       
  hazardous waste, and stated that the DEC is obligated by                     
  statute to recover those expenditures from the spiller.  He                  
  read from a letter from the Alaska Environmental Lobby                       
  written in response to HB 470, enacted in 1986, which called                 
  for clear direction to the state to pursue reimbursement                     
  from parties responsible for spills.                                         
                                                                               
  REPRESENTATIVE GREEN told the committee that a 1991 DEC                      
  internal audit showed the DEC had recovered just over half                   
  of the money spent on spills.  He then referred to the most                  
  recent DEC report, which states "full cost recovery of the                   
  majority of incidents has not occurred."  One of the causes                  
  for poor rates of recovery, he said, relates to poor                         
  documentation of expenses when the Department of Law goes to                 
  court to try to recover.                                                     
                                                                               
  Number 509                                                                   
                                                                               
  REPRESENTATIVE GREEN also complained of poor tracking of                     
  money from the fund that is transferred to other                             
  departments.  He referred to a recent DEC Finance                            
  Subcommittee meeting, where he said the director of the                      
  Division of Spill Prevention and Response told the                           
  subcommittee, "We've created a public trough, but we watch                   
  it closely."  Representative Green said it was not watched                   
  closely enough.  He then referred to a report from a                         
  governor's task force on organizational efficiency, and                      
  quoted, "The liberal use of the fund appears to be driving                   
  up total state spending with little concern for efficiency."                 
                                                                               
  REPRESENTATIVE GREEN related again the $80 million                           
  contribution of the oil industry to the fund, and said that                  
  was not the extent of the industry's financial commitment.                   
  He noted that Alyeska Pipeline Service Company had invested                  
  in an inventory of spill response equipment and trained                      
  personnel.  He pointed out that the world's largest                          
  accumulation of spill response equipment is in place in                      
  Prince William Sound, as well as a work force of hundreds.                   
                                                                               
  Number 546                                                                   
                                                                               
  REPRESENTATIVE GREEN referred to Alaska Clean Seas, a                        
  consortium of oil producers, and said the group has an                       
  inventory of over 70 miles of response booms.  He also                       
  pointed to the great steaming capacity of the industry.  In                  
  addition, he said that approximately $14.5 million was being                 
  spent on response equipment and storage facilities in                        
  strategic locations to respond to spills in Prince William                   
  Sound or the North Slope.  He referred to 1989 legislation                   
  that called for the fund to finance response depots in other                 
  parts of the state.  He said that these have not been                        
  established.  He said HB 238 or something like it must be                    
  passed this year to respond to these problems.                               
                                                                               
  Number 570                                                                   
                                                                               
  REPRESENTATIVE GREEN said the response fund had turned into                  
  a trough, and "when you pull the critters who have become                    
  dependent on a trough away from that trough, they squeal."                   
  He suggested that if the state did not learn from history,                   
  it would be doomed to repeat it.  If another spill occurred                  
  in Alaskan waters, he hoped that the fund would not be found                 
  empty because of unauthorized extravagances.  House Bill 238                 
  was submitted, he said, to prevent further pirating and                      
  possible legal action for improper administration of the                     
  fund.                                                                        
                                                                               
  Number 580                                                                   
                                                                               
  REPRESENTATIVE DAVID FINKELSTEIN objected for the record to                  
  the remarks made by Representative Green referring to                        
  certain parties as "squealing."  Representative Finkelstein                  
  said that members of the public are trying to work together                  
  to find solutions to the oil spill threats faced by Alaska.                  
  He called Representative Green's remark rude.                                
                                                                               
  Number 586                                                                   
                                                                               
  JANICE ADAIR, ASSISTANT COMMISSIONER OF THE DEPARTMENT OF                    
  ENVIRONMENTAL CONSERVATION (DEC), told the committee there                   
  seemed to be a great amount of misinformation surrounding                    
  the use of the spill response fund.  She explained that at                   
  the time of the Exxon Valdez oil spill in 1989, the                          
  legislature took quick action in passing a number of bills.                  
  Three of particular importance were SB 260, SB 261, and SB
  264.  The DEC's Division of Spill Response was established                   
  by SB 264, she said, and SB 261 mandated the preparation,                    
  review and revision of state and regional master plans for                   
  oil contingencies, and directed the restoration of the                       
  environment after a release.                                                 
                                                                               
  MS. ADAIR explained that SB 260 was the funding source for                   
  those activities, and created the nickel a barrel oil                        
  surcharge account.  She related that throughout the                          
  testimony on those three bills (the minutes for which she                    
  had supplied to the committee), it was very clear the                        
  legislature intended for the nickel a barrel to fund the DEC                 
  programs that relate to spill response.  Within the                          
  statutory provisions of the response fund in Title 46, she                   
  said, there is a list of activities for which the fund can                   
  be used.  All uses of the fund, she said, require                            
  legislative appropriation except when there is an emergency                  
  where the DEC has to take a first response activity.                         
                                                                               
  MS. ADAIR said the DEC was absolutely not able to go into                    
  the fund to use it however they wanted to.  She said the DEC                 
  spends hours going over the uses of the fund in excruciating                 
  detail with the DEC finance subcommittee, including what                     
  other agencies get money from the fund and what they would                   
  do with it.  In previous years, she said, money was                          
  appropriated directly from the fund to different agencies,                   
  without the DEC's knowledge of where or how the monies were                  
  being spent. Since that time, Ms. Adair explained, the DEC                   
  and its finance subcommittee have worked with the Office of                  
  Management and Budget to run all of the expenditures from                    
  the fund through the DEC in the form of Reimbursable                         
  Services Agreements (RSA's).                                                 
                                                                               
  MS. ADAIR clarified that the balance remaining in the fund                   
  is just over $23 million.  She said this figure is not in                    
  dispute, contrary to Representative Green's statements, and                  
  that there is no subterfuge involved.                                        
                                                                               
  Number 635                                                                   
                                                                               
  MS. ADAIR related that the figure of $100,000 that                           
  Representative Green had mentioned is the difference between                 
  all of the appropriations out of the fund and all of the                     
  appropriations into the fund.  The spill reserve is an                       
  appropriation out of the fund, and so the amount left over                   
  after the legislature appropriates the money for use by the                  
  DEC for spill-related activities according to the laws                       
  passed by the legislature.  There is an amount, she said,                    
  that is called the Spill Reserve, which is appropriated to                   
  give the DEC access to funds for emergency first response.                   
  It has been used, she said, although not very often, because                 
  the Contaminated Sites Program deals with contaminated sites                 
  as they come up, and the Spill Reserve is available in case                  
  of an emergency.                                                             
                                                                               
  MS. ADAIR said she had provided the committee with a break                   
  down of the funding of the spill reserve, which she said                     
  shows how over the past several years it has gone from $5                    
  million to $23 million in FY 93, and is expected to be more                  
  than $25 million in FY 94, based on the DEC's proposal for                   
  expenditures from the fund for FY 94.  Any amount not                        
  expended for the requested activities, she said, would go to                 
  the spill reserve.                                                           
                                                                               
  Number 660                                                                   
                                                                               
  MS. ADAIR stated that HB 238 does more than just change what                 
  the spill reserve fund can be used for.  She said it was                     
  important to recognize that one of the reasons the                           
  legislature wanted a funding source for the spill program                    
  was to ensure there would always be money available to the                   
  state to properly implement those programs.  She said the                    
  DEC is typically at the top of everyone's list for general                   
  funds' budget cuts.  It was one of the reasons cited for the                 
  fact that the DEC had not done as good a job as hoped in                     
  reviewing contingency plans and making sure the capabilities                 
  exist to respond to a spill.                                                 
                                                                               
  MS. ADAIR explained that the legislature, in establishing                    
  the fund, had wanted to ensure that no matter what else was                  
  going on with state finances on a year to year basis, there                  
  would always be money available for spill programs.                          
                                                                               
  MS. ADAIR, in describing the effect of HB 238, said it also                  
  changes the definition of containment and clean-up to remove                 
  the requirement that the polluter restore the environment.                   
  She said she had asked Craig Tillery of the Department of                    
  Law where clean-up ends and restoration begins.  Under the                   
  provisions of HB 238, she said, the state can no longer                      
  require a polluter to restore the environment.  She raised                   
  the question of where the line between clean-up and                          
  restoration is drawn.  Mr. Tillery's response, she said, was                 
  that it is an arbitrary line.                                                
                                                                               
  MS. ADAIR cautioned the result of not requiring restoration                  
  when there is no clear definition of the difference between                  
  clean-up and restoration, is that a polluter who does not                    
  want to repay the state can argue that an activity was not                   
  clean-up, but was instead restoration of the environment.                    
  House Bill 238 will create tremendous ambiguity, she said,                   
  as well as the fact that prevention and clean-up is a term                   
  that is used throughout the state pollution statutes and the                 
  fundamental change would make Alaska the only state in the                   
  nation that did not require a polluter to restore the                        
  environment.  She called this a significant policy change.                   
                                                                               
  MS. ADAIR explained that another major change in HB 238 is                   
  the way the $50 million cap is calculated.  She presented                    
  the committee with a flow chart of the response fund.  There                 
  are two funds within the general fund, she explained, that                   
  are appropriated into the response fund each year.  One is                   
  the Oil Surcharge Account (where the five cent a barrel                      
  surcharge goes), and the other is the Mitigation Account,                    
  where monies the state receives from fines, penalties,                       
  settlements, and cost recoveries are accounted for.  This                    
  Mitigation Account, she said, receives monies from a variety                 
  of sources, not just oil companies.                                          
                                                                               
  MS. ADAIR continued her explanation, and said both the Oil                   
  Surcharge and Mitigation accounts are appropriated on an                     
  annual basis into the Spill Response Fund.  Under current                    
  law, she said, only the amount attributable to the oil                       
  surcharge account is counted toward the $50 million cap.                     
                                                                               
  TAPE 93-35, SIDE B                                                           
  Number 000                                                                   
                                                                               
  MS. ADAIR said that under HB 238, all the money going in or                  
  coming out, including the mitigation account, would go                       
  against the $50 million cap.  The DEC would no longer be                     
  able to use the fund to generate the money that goes into                    
  the mitigation account, she explained.  The fund would no                    
  longer be able to be used to pay legal expenses to seek                      
  reimbursement, fines, or penalties.  The fund could not be                   
  used to clean up or restore the environment.  The cap would                  
  get the benefit of money that comes from the general fund,                   
  and from other funding sources, she said, under HB 238.                      
                                                                               
  Number 059                                                                   
                                                                               
  MS. ADAIR concurred with Representative Green's statements                   
  that the oil industry, through the oil surcharge account,                    
  had paid about $80 million into the account.  The total fund                 
  balance, adding up all the appropriations that have gone                     
  into the fund, she said, was just over $161 million.  The                    
  oil industry had paid just about half of that, and Exxon had                 
  paid in $30 million in program receipts in 1989-1990.  The                   
  balance of the money in the fund had come from the general                   
  fund, she said.  Money being repaid to the state now through                 
  the mitigation account, she noted, could be either                           
  mitigation income or the surcharge.                                          
                                                                               
  MS. ADAIR said the state had used the mitigation account in                  
  the past to fund other programs not related to the oil and                   
  hazardous substance release response fund, because the                       
  mitigation fund is a general fund account.  It has been used                 
  to pay for the underground storage tank program, to clean up                 
  contaminated sites of particular concern in rural Alaska,                    
  and to do fuel assessment related to storage facilities.                     
  She said the fund is not restricted to clean up of oil                       
  spills, but applies as well to releases of other hazardous                   
  substances.                                                                  
                                                                               
  MS. ADAIR, referring to the nickel a barrel surcharge, said                  
  she had heard it interpreted to apply only to crude oil                      
  activities.  After reading the minutes of the 1989 meetings                  
  on the subject, she said this was absolutely not the case.                   
  The legislative intent was very clear for the nickel a                       
  barrel to be used for hazardous substance releases as well                   
  as crude oil releases.  There was discussion in 1989 about                   
  refined products, she said, relating to an incident shortly                  
  before the Exxon Valdez accident where a rail car rolled                     
  over.  The resulting release of formaldehyde required the                    
  evacuation of the community of Moose Pass.                                   
                                                                               
  MS. ADAIR stated the legislature in 1989 acknowledged the                    
  need for the state to be able to respond to and prevent the                  
  release of hazardous substances.  Some of those substances                   
  are extremely toxic, she said.                                               
                                                                               
  Number 099                                                                   
                                                                               
  CHAIRMAN WILLIAMS noted that Senator Kerttula had joined the                 
  meeting.                                                                     
                                                                               
  REPRESENTATIVE BUNDE asked for clarification of the                          
  provision to cap the response fund at $50 million.  He said                  
  that whenever there is a pool of state money, it will                        
  generate a number of enthusiastic users.  He asked Ms. Adair                 
  if she foresaw that the potential uses of the fund would                     
  ever allow the fund to reach $50 million.                                    
                                                                               
  Number 126                                                                   
                                                                               
  MS. ADAIR said the DEC believed the fund would reach $50                     
  million, but that there would always be appropriations out                   
  of the fund.  Under current law, she explained, the ongoing                  
  programs in the DEC and other agencies that are related to                   
  spill prevention and response will be funded.  The nickel a                  
  barrel contribution declines based on production, she                        
  clarified, so if production picks up, there would be more                    
  nickels in the fund.  When SB 260 was first considered in                    
  1989, she said, it was anticipated the nickel a barrel would                 
  generate about $32 million per year.  In fact, its highest                   
  contribution has been $28 million, she noted.                                
                                                                               
  MS. ADAIR explained that the DEC is now at the peak of                       
  implementing the programs called for in 1989, and once fully                 
  in place, they would go into a maintenance phase which would                 
  allow a somewhat decreased level of funding.                                 
                                                                               
  REPRESENTATIVE BUNDE asked when it might be expected the                     
  fund could reach the $50 million cap, barring any major                      
  incident.                                                                    
                                                                               
  Number 157                                                                   
                                                                               
  MS. ADAIR said a projection on that topic had been done, and                 
  she had been unable to find it.  She told the committee that                 
  she would provide it to them when she found it.                              
                                                                               
  SENATOR JAY KERTTULA commented that Ms. Adair's summary of                   
  the intent of the 1989 legislation was correct.  He said                     
  that he had been involved in two of the three pieces of                      
  legislation which HB 238 now proposes to affect.                             
                                                                               
  Number 163                                                                   
                                                                               
  REPRESENTATIVE JEANNETTE JAMES related a concern that she                    
  had heard from people outside of the legislature,                            
  surrounding the possibility of a major spill while the                       
  response fund is short of its $50 million goal.  She asked                   
  Ms. Adair whether it was important to have a readily                         
  available $50 million fund to be protected from any                          
  consequences of a spill such as the one in 1989.                             
                                                                               
  MS. ADAIR replied that it was very important to have a                       
  readily available fund.  Whether the balance in that fund is                 
  $25, $50, or $75 million will depend on the circumstances,                   
  she added.  Having a fund, but no state programs through                     
  which the response can be carried out would do no good at                    
  all, she stated.  The programs instituted after the 1989                     
  Exxon Valdez spill, she said, that are funded by the nickel                  
  a barrel surcharge, are intended to assure that the state                    
  has the ability to respond.  She said a result of the                        
  hearings on the 1989 legislation was an understanding that                   
  the state could no longer rely on industry to protect the                    
  state.                                                                       
                                                                               
  REPRESENTATIVE JAMES questioned how the state could respond                  
  to a spill if the programs were in place but there was                       
  insufficient money in the fund.                                              
                                                                               
  Number 215                                                                   
                                                                               
  MS. ADAIR replied that if a circumstance arose where there                   
  was no money, as happened in 1989, there were other funding                  
  sources available, such as the budget reserve account, in                    
  the event of a catastrophic event.                                           
                                                                               
  REPRESENTATIVE JAMES noted that such funds were subject to a                 
  legislative appropriation, and we could not count on a spill                 
  happening in the first four months of the year.                              
                                                                               
  MS. ADAIR agreed that it is important to have funds                          
  available in the event of a spill, but the amount of money                   
  needed in the fund would vary with the circumstances.  She                   
  pointed out that there is an additional funding source                       
  available that did not exist in 1989, which is a federal                     
  fund created under the Oil Pollution Act of 1990.  That fund                 
  is accessible through the Coast Guard and is a one billion                   
  dollar account.                                                              
                                                                               
  Number 246                                                                   
                                                                               
  REPRESENTATIVE FINKELSTEIN addressed the issue of when the                   
  fund might reach the cap of $50 million, and mentioned that                  
  he has been a member of the DEC finance subcommittee.  He                    
  said it was his recollection that the figures on                             
  expenditures before the full committee were approximately $2                 
  million less than what the DEC proposed.  He said other                      
  small changes in the budget are being proposed.  The lesson                  
  taught to the state by the spill, he suggested, is "What did                 
  we learn?"  He said the state still does not have the                        
  ability to clean up tens of millions of gallons of oil,                      
  especially in bad weather.                                                   
                                                                               
  REPRESENTATIVE FINKELSTEIN said that from the DEC's point of                 
  view, preparedness and prevention are the key points to                      
  learn, and he commented that with HB 238, the state would                    
  seem to be going in the opposite direction.                                  
                                                                               
  Number 288                                                                   
                                                                               
  MS. ADAIR agreed with Representative Finkelstein that                        
  prevention was the linchpin, and that was why research had                   
  been authorized and was to be funded from the release                        
  response fund.  She pointed out that oil spill response is                   
  an evolving field and not everything is known.  The                          
  legislature had wanted to be able to keep on top of the                      
  changes going on in the response area, she explained, while                  
  keeping in mind that prevention was the highest priority.                    
                                                                               
  Number 295                                                                   
                                                                               
  REPRESENTATIVE FINKELSTEIN requested of the Chairman that                    
  before taking more public testimony, the sponsor might give                  
  some explanation of the bill in detail to help the committee                 
  understand the complex issues.                                               
                                                                               
  CHAIRMAN WILLIAMS replied that more testimony and questions                  
  would be taken first, and that there would be more meetings                  
  scheduled to address HB 238.                                                 
                                                                               
  Number 300                                                                   
                                                                               
  REPRESENTATIVE JOHN DAVIES commented that one lesson learned                 
  from the Exxon Valdez spill was that all the money in the                    
  world could not have helped while the equipment and trained                  
  personnel were lacking.  Even with the "deep pockets" of a                   
  corporation like Exxon, he said the response could not be                    
  carried out quickly enough.                                                  
                                                                               
  Number 318                                                                   
                                                                               
  VICE CHAIRMAN HUDSON suggested part of the problem was that                  
  the oil surcharge account and the mitigation account funds                   
  are commingled, and the legislature has appropriated from                    
  the oil and hazardous substance release response fund, which                 
  he said has had money pouring in from settlements and                        
  repayments of past expenses.  Meanwhile, he said, the nickel                 
  a barrel surcharge continues to add to the fund.  He said                    
  the reason Alaska is more prepared today than in 1989 is                     
  because the state has had access to the funds, and has                       
  underwritten planning and programming, equipment and                         
  training and other prevention activities.                                    
                                                                               
  VICE CHAIRMAN HUDSON said prevention is the only thing we                    
  would have going for us in an oil spill.  He wanted to see a                 
  strong prevention program established and he believed we                     
  were doing that.  He described the problem with HB 238 is                    
  that it seems to react to problems with the initial phases                   
  of the spill account.  There was loose handling of the                       
  funds, he said, and how they were used.  A major audit led                   
  to the DEC tightening up control of the fund, he said, and                   
  if anything, the legislature should now look at splitting                    
  the mitigation and the surcharge accounts and provide for                    
  separate accounting.  Then the legislature could decide                      
  which particular programs it wanted to fund, he added.                       
                                                                               
  Number 358                                                                   
                                                                               
  VICE CHAIRMAN HUDSON said that while Prince William Sound is                 
  in good shape in the event of a spill, he was concerned                      
  about what would happen if a spill occurred in Southeast                     
  Alaska waters.  He mentioned the establishment of remote                     
  site depots, and said not much has been done to further                      
  response capability in those areas.                                          
                                                                               
  Number 365                                                                   
                                                                               
  SENATOR KERTTULA mentioned that funding a state ferry had                    
  been part of that plan.                                                      
                                                                               
  VICE CHAIRMAN HUDSON commented that a ferry could be hauling                 
  500 passengers and 300 vehicles and the state could not just                 
  dump them in the event of a spill, especially without remote                 
  response depots.                                                             
                                                                               
  Number 372                                                                   
                                                                               
  MS. ADAIR noted that the DEC had been given a special                        
  appropriation in 1992 of $1.2 million to do a near-shore                     
  demonstration project, looking at Southeast Alaska and lower                 
  Cook Inlet going down toward Kodiak.  She said the Request                   
  for Proposals (RFP) would be ready to go out on that project                 
  within the next week.  She noted that there are a great many                 
  miles of Alaskan coastline that are unprotected.  The                        
  response depot concept recognized the need to have equipment                 
  available to move to the scene of a spill quickly.                           
                                                                               
  MS. ADAIR said that in the bill that created the state's                     
  master plan, amendments were made in Senate Finance to                       
  require that the master plan identify where the depots                       
  should be established.  In 1989, she explained, things were                  
  happening so fast that it wasn't known where those depots                    
  should be or what they should consist of.  Since that time,                  
  through the master planning process, she said the state had                  
  learned that it probably does not make sense to have booms                   
  sitting on a dock somewhere with no one paying attention to                  
  them.                                                                        
                                                                               
  MS. ADAIR said it would make more sense to have a standby                    
  contract, with an organization that purchases the necessary                  
  equipment with state help and then they would be on call in                  
  case they were needed.  That was the direction now being                     
  taken, she said, and it has been called the "near-shore                      
  demonstration project."  She said the DEC believes that this                 
  is the right direction to take and it was anticipated that                   
  two of them would be operational in another year.                            
                                                                               
  Number 413                                                                   
                                                                               
  REPRESENTATIVE ELDON MULDER asked Ms. Adair what percent of                  
  the DEC's operational budget is derived from 470 funds.                      
                                                                               
  MS. ADAIR responded that she would estimate approximately                    
  one-third.  In FY 94, she said, the DEC's request was $14                    
  million, and about that same amount comes from general                       
  funds, with another $8 million in federal funds, as well as                  
  $3 million in program receipts.                                              
                                                                               
  Number 427                                                                   
                                                                               
  REPRESENTATIVE GREEN offered to hold his comments until                      
  after further testimony and questions.                                       
                                                                               
  Number 436                                                                   
                                                                               
  CRAIG TILLERY, ASSISTANT ATTORNEY GENERAL, told the                          
  committee that Ms. Adair had covered most of the financial                   
  implications of HB 238.  There were a couple of areas which                  
  did strike him regarding the finances.  He prefaced his                      
  remarks by saying the bill is complicated and makes some                     
  wholesale changes in definitions of things like containment                  
  and clean-up that reverberate throughout the statutes.  He                   
  mentioned that the Department of Law recently figured out                    
  that HB 238 would tend to gut the ability to use the                         
  underground storage tank program assistance for restoration.                 
                                                                               
                                                                               
  As MR. TILLERY understood the statute it would not allow the                 
  state to use funds for cost recovery actions or for                          
  restoration.  Those kinds of actions then, would be done                     
  through general funds, he said.  He continued by saying that                 
  once cost recoveries are made, the state would presumably                    
  recover the cost of litigation.  Those would then go into                    
  the mitigation account, under HB 238, he said, and the                       
  mitigation account would be used to offset the nickel a                      
  barrel surcharge.  The result would be that general funds                    
  would go into what is now the nickel a barrel account.  He                   
  called it an anomaly.                                                        
                                                                               
  MR. TILLERY said there had also been comments made that                      
  there were problems with the Department of Law getting the                   
  DEC's accounting for cost recovery.  Mr. Tillery noted that                  
  he had been working on the Exxon case since March, 1989, and                 
  that had been a major problem with the Exxon case, so that                   
  an independent outside accounting firm had to come in to do                  
  the cost recovery.                                                           
                                                                               
  MR. TILLERY noted that since that time a much better working                 
  relationship had been established with the DEC, and a                        
  program has been initiated to create a systematic                            
  DEC/Department of Law cost accounting system.  This would                    
  allow the state to make the polluters pay for every cent                     
  spent by the state.                                                          
                                                                               
  Number 491                                                                   
                                                                               
  MR. TILLERY turned to the effect of HB 238 on the                            
  environmental laws.  At the heart of what HB 238 does, he                    
  said, is the deletion of the restoration requirement.  As he                 
  understood the legislation, he said, it appears to say the                   
  polluter or contingency plan holder is no longer required to                 
  restore the environment.  This would make Alaska, he said,                   
  an anomaly in the United States.  Moreover, he said, HB 238                  
  eliminates the DEC's ability to restore the environment by                   
  taking away that authority.  It would appear to eliminate                    
  the ability to do restoration work through the underground                   
  storage tank systems program.  This is a policy decision, he                 
  said, that the legislature should carefully consider, of                     
  whether it wants to take restoration out of the kinds of                     
  activities that someone who causes pollution is required to                  
  pay for.                                                                     
                                                                               
  MR. TILLERY then said that as a lawyer, he gets worried                      
  because HB 238 creates a difficult legal situation for the                   
  state.  By taking away the ability to use funds to restore                   
  the environment, the bill puts the burden on the state to                    
  decide what is clean-up and what is restoration.  The courts                 
  would be faced with a polluter coming in and saying an                       
  activity is restoration instead of clean-up, knowing that if                 
  something is classified as restoration they would not have                   
  to pay for it. He noted that there had already been a                        
  disagreement with the Coast Guard on the question of clean-                  
  up versus restoration.                                                       
  MR. TILLERY called the distinction a fuzzy area.  Under the                  
  current statutory scheme, he said, it doesn't matter because                 
  both are required and the state recovers its costs for all                   
  activities.                                                                  
                                                                               
  Number 533                                                                   
                                                                               
  MR. TILLERY said there is a provision in HB 238 to change                    
  the aspects of 760(e) which refers to the recovery of costs                  
  incurred for restoration, to "only if feasible."  This takes                 
  the burden off the polluter, he said, and puts it on the                     
  state as to whether something is or is not feasible.  This                   
  could lead to litigation, he said, where the polluter could                  
  start "nickel and diming us down."  Strictly from a legal                    
  perspective, he was worried about the litigation aspect and                  
  the ambiguity of the definition of "threatened release."                     
  These were important policy questions, he said.                              
                                                                               
  MR. TILLERY also pointed out fiscal and litigation                           
  considerations as to whether the burden should be on the                     
  state to make the up-front decisions that could result in                    
  litigation.  He cautioned against creating ambiguities.                      
                                                                               
  Number 559                                                                   
                                                                               
  REPRESENTATIVE BUNDE said that the committee seemed to agree                 
  on the overriding goal of prevention, with clean-up second.                  
  He referred to the summary report of Governor Hickel's                       
  Organizational Efficiency Task Force regarding the DEC.  On                  
  page 2, marked IV-34, in response to a question about                        
  appropriate expenditures from the fund, he quoted, "Liberal                  
  use of the fund appears to be driving up total state                         
  spending with little concern for efficiency."  He asked Mr.                  
  Tillery if HB 238 addresses those concerns.                                  
                                                                               
  Number 576                                                                   
                                                                               
  MR. TILLERY said he did not know whether the bill would make                 
  the state more efficient at what it does.  It would                          
  eliminate some of the options the state has, he said, and he                 
  added that he assumed that if you eliminate some spending                    
  you would then naturally eliminate some inefficiencies.  He                  
  said that what the Department of Law and the DEC were trying                 
  to do was tighten up cost recoveries so the state would get                  
  its money back from polluters.                                               
                                                                               
  REPRESENTATIVE BUNDE referred to the "liberal use" of the                    
  fund by the DEC, and asked Mr. Tillery whether, in his                       
  opinion, the DEC was using the fund efficiently to achieve                   
  the goals agreed upon.                                                       
                                                                               
  Number 599                                                                   
                                                                               
  MR. TILLERY said the accounting problems he was referring to                 
  were strictly related to cost recovery.  He said he had not                  
  been involved with DEC's other fiscal activities.  In his                    
  experience, he said, DEC was not an inefficient organization                 
  in spill response and cost recovery.                                         
                                                                               
  Number 605                                                                   
                                                                               
  MS. ADAIR noted that the DEC's total requested expenditures                  
  for its own operations from the response fund at the highest                 
  point, following the Exxon Valdez spill in FY 90, was $25                    
  million.  As she stated earlier, the DEC's FY 94 request                     
  from the fund was $24 million.  She said the                                 
  characterization of the DEC as having a liberal use policy                   
  was not accurate.                                                            
                                                                               
  Number 626                                                                   
                                                                               
  REPRESENTATIVE FINKELSTEIN referred to the OMB efficiency                    
  review, and said there had been a chart handed out in the                    
  DEC finance subcommittee that showed the fact that the state                 
  is now spending much less than previously out of the 470                     
  funds, and that indications are that the trend will                          
  continue.  As an example, he said there are five legislators                 
  on the DEC finance subcommittee who spent hours trying to                    
  find any place to cut the DEC budget request.  The programs                  
  are difficult to reduce, he said.                                            
                                                                               
  Number 638                                                                   
                                                                               
  REPRESENTATIVE MULDER asked Mr. Tillery if it was fair to                    
  say most of his testimony centered around the state's                        
  ability for cost recovery in a policy call of restoration                    
  versus clean-up.                                                             
                                                                               
  MR. TILLERY replied that the serious policy call required is                 
  whether to throw out the requirement that the polluter must                  
  restore the environment.  Even if the state does that, he                    
  said, we need to ask if, by doing that, we are throwing out                  
  both restoration and the ability to recover clean-up costs                   
  because of the fuzziness between restoration and clean-up.                   
                                                                               
  REPRESENTATIVE MULDER asked what would be accurate                           
  definitions of clean-up and restoration.                                     
                                                                               
  Number 660                                                                   
                                                                               
  MR. TILLERY said that those definitions are not clear.                       
  There are some activities that clearly fit within one or the                 
  other category.  For example, if some oil is spilled and                     
  skimmed off the surface, that would be clean-up.  If fish                    
  were killed and are replaced, that would clearly be                          
  restoration.  He pointed out that a number of other                          
  activities don't fit cleanly into one or the other category.                 
  That ambiguity is one of the problems he had with the                        
  statute, he said.                                                            
                                                                               
  Number 670                                                                   
                                                                               
  REPRESENTATIVE MULDER suggested it would be a legitimate                     
  policy question for the legislature to determine or clarify                  
  those definitions, so it is clear what the polluters are                     
  liable for.                                                                  
                                                                               
  MR. TILLERY said that if the state decides that it will not                  
  require restoration of a polluter, then by all means the                     
  definition should be made more clear.  There is no problem                   
  he said, the way the statute is written now.  The end of                     
  restoration is clear, but the line between clean-up and                      
  restoration is unclear.  As long as both are required, there                 
  is not a legal problem with the definition, he explained.                    
                                                                               
  REPRESENTATIVE MULDER asked Mr. Tillery to explain where                     
  restoration ended.                                                           
                                                                               
  Number 680                                                                   
                                                                               
  MR. TILLERY gave an example of a fish hatchery built on                      
  Prince William Sound as evidence that restoration was                        
  completed.  In essence, he said, restoration is completed                    
  when no further action is required to ameliorate the effects                 
  of an oil spill.                                                             
                                                                               
  CHAIRMAN WILLIAMS noted that Representative Gary Davis had                   
  joined the meeting.                                                          
                                                                               
  Number 687                                                                   
                                                                               
  REPRESENTATIVE CLIFF DAVIDSON asked Mr. Tillery, in regards                  
  to HB 238, in terms of public policy and resource                            
  allocation, where is the pain, who gets it, what does it                     
  apply to, and who gets the gain.                                             
                                                                               
  Number 692                                                                   
                                                                               
  MR. TILLERY replied that from a legal perspective, potential                 
  polluters benefit from HB 238 because their responsibility                   
  is diluted.                                                                  
                                                                               
  TAPE 93-36, SIDE A                                                           
  Number 000                                                                   
                                                                               
  REPRESENTATIVE DAVIES expressed concern with using general                   
  fund dollars for restoration.  He asked Mr. Tillery to                       
  clarify statements made regarding underground storage tanks.                 
                                                                               
  MR. TILLERY referred to AS 46.04.020, and a provision                        
  whereby if the DEC determines that containment or clean-up                   
  activities are inadequate, they may direct the person to                     
  cease and take up those activities itself.  As he understood                 
  HB 238, it would change the definition of containment and                    
  clean-up.  The result would be that where previously the DEC                 
  had the authority to undertake restoration if the polluter                   
  was not doing it correctly, the bill would appear to take                    
  away that authority.                                                         
                                                                               
  Number 041                                                                   
                                                                               
  REPRESENTATIVE GREEN stated that it was not the intent of                    
  HB 238 to allow a polluter to avoid making payments after a                  
  spill.  He had hoped to introduce the bill, raise the                        
  concerns of people, and then go to a subcommittee and make                   
  revisions.  The intent was to shore up the problem of                        
  determining who is responsible, get that party to pay, and                   
  not charge a certain entity a broad scope of concerns.  He                   
  suggested that after testimony at the meeting, HB 238 be                     
  assigned to a subcommittee to work out the problems.                         
                                                                               
  Number 078                                                                   
                                                                               
  CHAIRMAN WILLIAMS stated that HB 238 presented a substantial                 
  policy decision and the committee would have more hearings                   
  on the bill to determine which direction to go with it.                      
                                                                               
  Number 089                                                                   
                                                                               
  JOHN RINGSTAD, ASSOCIATE DIRECTOR OF GOVERNMENT AFFAIRS FOR                  
  BRITISH PETROLEUM (BP), told the committee that when the                     
  nickel a barrel surcharge was proposed in the 1989                           
  legislative session, BP did not oppose it, and agreed with                   
  the intent of assuring adequate response to spills.  He said                 
  it was BP's understanding that the surcharge would stop at                   
  $50 million.  He remarked that only $23 million had been                     
  saved for an emergency.  This year's budget proposal, he                     
  said, was to add only $2 million to the fund.  British                       
  Petroleum, he said, supports HB 238 in its effort to return                  
  to the original purpose of the surcharge.                                    
                                                                               
  Number 132                                                                   
                                                                               
  REPRESENTATIVE BUNDE asked Mr. Ringstad if he saw the $50                    
  million cap ever being achieved, from an industry point of                   
  view.                                                                        
                                                                               
  MR. RINGSTAD responded that it could perhaps be reached,                     
  technically, but that realistically, it probably would not.                  
  As an example, he remarked that with $27 million going into                  
  the fund in 1993, only $1.6 million of that would be saved.                  
  He explained that the trend has been that the uses of the                    
  fund have consistently changed and increased.                                
                                                                               
  Number 167                                                                   
                                                                               
  REPRESENTATIVE MULDER asked Mr. Ringstad to explain his                      
  understanding of the original intent that the 470 funds were                 
  to be used for.                                                              
                                                                               
  MR. RINGSTAD replied that initially, one of the senate bills                 
  in 1989 established the nickel a barrel surcharge, and the                   
  others established regional and statewide contingency plans,                 
  as well as remote depots with a corps of trained personnel.                  
  As he recalled, the discussion at that point was that the                    
  state would spend around $5 to $7 million a year to                          
  accomplish those goals.                                                      
                                                                               
  Number 185                                                                   
                                                                               
  REPRESENTATIVE MULDER commented that Ms. Adair had said one-                 
  third of the DEC's budget comes from the spill response                      
  fund.  He asked Mr. Ringstad, in his recollection, what                      
  percentage of the DEC's operating budget actually is done to                 
  administer or oversee the programs related to spill                          
  prevention and response.                                                     
                                                                               
  MR. RINGSTAD did not know the exact percentage.  He said                     
  there were two policy issues involved:  First, how much of                   
  the responsibility rests with the crude oil producers?  He                   
  questioned whether it was the crude oil producers'                           
  responsibility to finance the program that approves                          
  contingency plans of the U.S. Navy, for example.  The other                  
  question, he said, was whether it was the oil producers'                     
  responsibility to pay for activities directly related to                     
  Prudhoe Bay.  He said there were different extremes, and                     
  also a legitimate question regarding the total expenditure                   
  from the fund beyond those of the DEC.                                       
                                                                               
  MR. RINGSTAD added that every year there are a number of                     
  requests for funding out of the fund from various agencies,                  
  not just the DEC.                                                            
                                                                               
  Number 225                                                                   
                                                                               
  REPRESENTATIVE FINKELSTEIN asked Mr. Ringstad, what the                      
  general categories were of things BP feels it should or                      
  should not be paying for.                                                    
                                                                               
  MR. RINGSTAD said the two extremes were easier to identify,                  
  while the middle ground was fuzzy.  For example, he said it                  
  was very clearly the oil companies' responsibility if crude                  
  oil were spilled.  A situation where a gas station has a gas                 
  leak somewhere, he said, that is not so clearly the oil                      
  industry's responsibility.  He said that underground storage                 
  tanks should not be the oil companies' responsibility.                       
                                                                               
  Number 254                                                                   
                                                                               
  REPRESENTATIVE FINKELSTEIN asked Mr. Ringstad why, in light                  
  of his testimony, BP would support HB 238, rather than just                  
  go to a user-fee system.  He noted that HB 238 eliminates a                  
  variety of other uses of the 470 fund, some of which might                   
  meet BP's criteria for what is an appropriate use of the                     
  fund.                                                                        
                                                                               
  MR. RINGSTAD responded that Rep. Finkelstein's suggestion                    
  does not totally accomplish the goal if all it does is add                   
  additional money, while spending from the fund still                         
  prevents it from reaching the $50 million cap.                               
                                                                               
  REPRESENTATIVE FINKELSTEIN asked Mr. Ringstad if the fund                    
  was properly apportioned so that the causers of costs were                   
  the payers of costs, his concerns would be met.                              
                                                                               
  MR. RINGSTAD replied that it would address a big part of his                 
  concerns.                                                                    
                                                                               
  Number 278                                                                   
                                                                               
  REPRESENTATIVE DAVIES asked Mr. Ringstad if he could provide                 
  a list of expenditures that he thought were inappropriate                    
  uses of the fund since it was implemented.                                   
                                                                               
  MR. RINGSTAD replied that he would try to do that.                           
                                                                               
  Number 286                                                                   
                                                                               
  REPRESENTATIVE WILLIAMS thanked those testifying at the                      
  meeting and said another meeting would be set to take public                 
  testimony on HB 238 before any action was taken on the bill.                 
  He suggested that testimony be submitted in written form for                 
  inclusion in members' bill packets.                                          
                                                                               

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