Legislature(1993 - 1994)

11/12/1993 01:45 PM 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 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.                                                                 

Document Name Date/Time Subjects