Legislature(2003 - 2004)

03/12/2003 03:35 PM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
            SB  44-OIL SPILL RESPONSE COST RECOVERY                                                                         
SENATOR DONALD  OLSON, sponsor of  SB 44, said he  introduced this                                                              
measure in  response to  concerns that  in certain  circumstances,                                                              
the  Department of  Environmental  Conservation  (DEC) needs  more                                                              
flexibility to recover  the actual costs of oil  spill containment                                                              
and  clean up.  Under the  current  statutes, DEC  is required  to                                                              
promptly  seek reimbursement  for the state's  oil spill  response                                                              
costs  from persons  or entities  that have caused  or are  liable                                                              
for the  spill. The current  statutes do  not allow DEC  to adjust                                                              
or  waive  reimbursement  requirements  in  situations  where  the                                                              
costs  far exceed  the financial  resources of  the individual  or                                                              
the  responsible  entity.  The   resulting  financial  constraints                                                              
could cause  serious social  impacts that  affect essential  local                                                              
government programs.                                                                                                            
SENATOR OLSON explained  that DEC currently utilizes  the scope of                                                              
the  attorney general's  authority to  waive or  reduce oil  spill                                                              
recovery  costs.  The  attorney  general has  to  determine  these                                                              
actions without  specific regulatory guidelines or  standards that                                                              
are known  or available to  the public, resulting  in inconsistent                                                              
actions. For example,  Little Diomede is on a  payment program for                                                              
34 years  for a spill, as  compared to Tetlin and  Stevens Village                                                              
where the  attorney general decided  not to pursue those  cases so                                                              
that staff time  could be used in a more beneficial  manner. SB 44                                                              
provides a  process whereby DEC  can consider waiving  or reducing                                                              
the  reimbursement  requirements  in special  circumstances  in  a                                                              
consistent  manner.  The process  relies  on the  explicit  public                                                              
interest  findings   by  DEC  where  a  reduction   or  waiver  is                                                              
SENATOR OLSON said  the provisions in SB 44 allow  DEC to consider                                                              
waiving costs in the following circumstances:                                                                                   
   · where the expenses are not recoverable, such as from a                                                                     
     federal source of funds                                                                                                    
   · where an individual is responsible for a tank system                                                                       
     containing residential heating fuel for less than five                                                                     
   · for an unincorporated community, a village, or a                                                                           
     municipality with a population of less than 5,000                                                                          
   · where the expenses incurred by DEC are less than $3,000                                                                    
SENATOR  OLSON  stressed  that   SB  44  does  not  allow  blanket                                                              
exemptions or automatic waivers.                                                                                                
SENATOR DYSON asked if Senator Olson's intent is consistency.                                                                   
SENATOR OLSON  said consistency  is one of  his goals, as  well as                                                              
creating  a  "black and  white"  way  to make  determinations.  In                                                              
addition, his  intent is  to prevent  the attorney general's  work                                                              
schedule from  being burdened  by time  spent trying to  determine                                                              
the feasibility  of recovering the  costs. He noted  one community                                                              
is on a  34-year payment plan  while another, that is  more vocal,                                                              
is paying nothing.                                                                                                              
SENATOR DYSON said  his reading of SB 44 is that  Senator Olson is                                                              
also hoping  that some communities will  not have to pay  the full                                                              
cost of any amount of the damage.                                                                                               
SENATOR OLSON  said that is  an extreme view  of what SB  44 does.                                                              
However,  it gives  DEC the  discretion  to decide  whether it  is                                                              
worth  trying to  recover the  costs, depending  on the  financial                                                              
situation of  the violator.  He pointed out  that DEC  will expend                                                              
money  trying to collect  over a  protracted  time period  in some                                                              
cases.  He  said the  fact  that  Little  Diomede will  be  paying                                                              
interest for  34 years on  a small amount  of money does  not make                                                              
sense. Right now, DEC has no discretion.                                                                                        
SENATOR DYSON said  if DEC waived the costs for  the two villages,                                                              
it must have the  capacity to forego charging a  community for the                                                              
cost of the oil recovery.                                                                                                       
SENATOR OLSON  noted Senator Dyson's  concerns are valid.  He said                                                              
he  cannot  find  any  written guidelines  used  by  DEC  to  make                                                              
determinations,  which  is  the reason  for  SB  44. He  said  his                                                              
intent is  not to  exempt someone  who is  responsible for  an oil                                                              
spill if that person or entity is capable of paying.                                                                            
SENATOR DYSON asked  Senator Olson if he considered,  when looking                                                              
for a remedy, bankruptcy protections.                                                                                           
SENATOR  OLSON said  the original  statute  does not  make it  any                                                              
easier to  shrug the costs associated  with oil spill  cleanup for                                                              
someone who files bankruptcy.                                                                                                   
SENATOR BEN  STEVENS referred  to language on  page 2,  Section 2,                                                              
and questioned  why a municipality  with a population  under 5,000                                                              
can be exempted.  He pointed out that a municipality  of that size                                                              
could have very large oil tanks.                                                                                                
CHAIR  OGAN  then questioned  the  provision  that says,  "if  the                                                              
expenses incurred  by the  department are  less than $3,000,"  and                                                              
asked if that includes the cost of clean up.                                                                                    
SENATOR  OLSON  noted   the  thought  behind  the   waiver  for  a                                                              
municipality  with  a population  of  5,000  or  less was  that  a                                                              
municipality could be a second-class city.                                                                                      
SENATOR BEN  STEVENS said that  few communities have  a population                                                              
above 3,000.                                                                                                                    
CHAIR  OGAN said  Palmer just  recently  broke the  5,000-resident                                                              
population barrier within its city limits.                                                                                      
SENATOR BEN  STEVENS said he is  curious why that number  was used                                                              
because some  areas on  the road system  have a commercial  entity                                                              
that  operates  the distribution  network.  He  asked  if such  an                                                              
entity would be exempt under SB 44.                                                                                             
SENATOR OLSON said  any town in Alaska with a  population of 5,000                                                              
is  considered  to   be  sizeable  but  many  of   Alaska's  rural                                                              
communities are  poised to grow. However,  the intent of  SB 44 is                                                              
to  give DEC  broad discretion.  He said  he assumes  Palmer is  a                                                              
first class city with different requirements and guidelines.                                                                    
SENATOR SEEKINS  asked for  the definition  of an  "unincorporated                                                              
community"  and   whether  that   could  include  a   commune.  He                                                              
expressed concern that the bill "opens the barn door wide."                                                                     
CHAIR OGAN  was unsure  whether a  definition of  "unincorporation                                                              
community" exists in statute.                                                                                                   
SENATOR OLSON said  a definition exists but he did  not have it at                                                              
this time.                                                                                                                      
SENATOR ELTON said  he agrees with Senator Olson's  intent to give                                                              
more  latitude  to   DEC,  but  he  expressed   concern  that  the                                                              
provision   that  limits   DEC's   expenses  to   $3,000  is   too                                                              
restrictive.  He  pointed out  if  a  small spill  of  residential                                                              
heating oil  occurred in  King Cove,  the cost  of travel  and per                                                              
diem would  run about  $3,000. He  questioned  whether SB  44 will                                                              
create a  situation where the legislature  is telling DEC  that if                                                              
the  cost is  over $3,000,  it has  no latitude  and must  recover                                                              
SENATOR OLSON  agreed that is a  valid concern, but said  the bill                                                              
does  not state  that DEC must  take action  if the  cost is  less                                                              
than $3,000.                                                                                                                    
SENATOR  ELTON said  if travel  costs  are $3,200  or $3,300,  DEC                                                              
will have to make an attempt to recover fees.                                                                                   
CHAIR OGAN asked a representative from DEC to answer questions.                                                                 
MR.  LARRY DIETRICK,  Acting  Director of  the  Division of  Spill                                                              
Prevention  and Response  for DEC,  read  the following  testimony                                                              
into the record.                                                                                                                
     DEC  is required by  statute to  seek reimbursement  for                                                                   
     its   expenses  in   cleaning  up   or  containing   the                                                                   
     discharge   of  oil  or   hazardous  substance.   Alaska                                                                   
     statutes, like  the federal laws and laws  of most other                                                                   
     states,  are based  on the  principle  that the  spiller                                                                   
     pays for the  cost of clean up. It is  a self-sustaining                                                                   
     mechanism  by  which costs  incurred  by the  state  are                                                                   
     recovered from  the spiller and returned to  the state's                                                                   
     response  fund to  ultimately  avoid the  use of  public                                                                   
     funds for clean up.                                                                                                        
CHAIR OGAN asked if that is the 470 fund.                                                                                       
MR. DIETRICK said it is. He continued.                                                                                          
     The  department  very  much appreciates  being  able  to                                                                   
     work  with the sponsor  of this  legislation to  examine                                                                   
     ways  to  provide  exceptions   or  guidelines  to  this                                                                   
     spiller pays,  self-sustaining principle  established in                                                                   
     the  statutes. We have  been working  with the  sponsor.                                                                   
     We  appreciate his  intent to  provide some  guidelines.                                                                   
     It's  not  an  easy  thing   to  do  and  we  have  been                                                                   
     interactive  with him  in an  attempt  to try  to get  a                                                                   
     system  to meet  his  intent.  It will  help  us all  to                                                                   
     provide the clarity that we are trying to see.                                                                             
     This  bill  would  establish, in  our  opinion,  certain                                                                   
     exemptions for  certain types of discharges  and it sets                                                                   
     a  threshold  below  which   the  department  would  not                                                                   
     recover  costs. Currently  we do take  into account  the                                                                   
     ability  to pay,  the potential  costs to  the state  of                                                                   
     pursuing  reimbursement  or   other  mitigating  factors                                                                   
     when  determining   whether  or   not  to  pursue   cost                                                                   
     recovery in  any given case. We currently  exercise this                                                                   
     discretionary authority on a case-by-case basis.                                                                           
     After  careful   consideration,  we've   concluded  that                                                                   
     establishing the  exemptions as currently  proposed, and                                                                   
     the   threshold  below   which  no   cost  recovery   is                                                                   
     authorized  will  shift the  cost  of  clean up  to  the                                                                   
     state  along  with  the  corresponding  fiscal  impacts.                                                                   
     Exemptions  and thresholds  we  believe  remove some  of                                                                   
     the flexibility  we have right  now to seek  recovery of                                                                   
     costs  based on the  circumstances  of each case.  While                                                                   
     we appreciate  the idea of  getting good guidelines  and                                                                   
     would welcome  those guidelines,  I think the  work that                                                                   
     we've  done with  the sponsor  to  date illustrates  the                                                                   
     complexity  of trying  to develop  those.  There are  so                                                                   
     many  site-specific  circumstances;  it becomes  a  very                                                                   
     big  challenge to do  that. We  appreciate the  scrutiny                                                                   
     and the  good faith efforts  to improve the  system, but                                                                   
     we've  concluded  that  the   legislation  as  currently                                                                   
     drafted  will  increase  our  costs  and  eliminate,  we                                                                   
     believe,  some of the  flexibility we  have now to  take                                                                   
     care   of    individual   site-specific,    case-by-case                                                                   
     evaluations. Thank you very much Mr. Chair.                                                                                
CHAIR OGAN  stated that having a  cost recovery provision  acts as                                                              
a hammer  and  motivates individuals  and entities  to comply.  He                                                              
said he  recognizes how large  an issue  leaky tanks are  in rural                                                              
Alaska and,  although the  Denali Commission  has alleviated  some                                                              
of the problem, it  is still huge. He asked Mr.  Dietrick if he is                                                              
also  concerned   that  exempting   communities  will  act   as  a                                                              
disincentive to do a good job.                                                                                                  
MR. DIETRICK  said he  believes the system  the state  has created                                                              
has been  very sensitive to  Alaska businesses and  municipalities                                                              
with regard  to cost recovery and  the problems with  fuel systems                                                              
in rural Alaska.  He said a clear example of  the compassion shown                                                              
is the  financial assistance  program created  by the  legislature                                                              
for underground  storage tanks. The  state has also embarked  on a                                                              
course of  action to  upgrade leaking  above-ground storage  tanks                                                              
in  rural  Alaska  through the  Denali  Commission  using  federal                                                              
funding. That problem is estimated to cost $200 million to fix.                                                                 
TAPE 03-14, SIDE A                                                                                                              
MR.  DIETRICK  said  DEC  also  tries to  use  a  high  degree  of                                                              
compassion based  on ability  to pay. He  noted the  reason Little                                                              
Diomede  has a  $200  per  month bill  is  that DEC  negotiated  a                                                              
workable arrangement  with that village. In cases  where an entity                                                              
does not  have the  ability to pay,  DEC waives  those costs  on a                                                              
case-by-case  basis.   That  is   part  of  DEC's   challenge.  It                                                              
recognizes  Alaska's  unique  situation.  DEC is  not  opposed  to                                                              
guidelines but the circumstances are highly variable.                                                                           
CHAIR OGAN noted  that Little Diomede's payment of  $200 per month                                                              
will equate to $20 per month in 34 years after inflation.                                                                       
MR. DIETRICK  said those payments  were dictated  by affordability                                                              
and the intent of the statute to seek cost recovery.                                                                            
SENATOR DYSON  asked if  interest is being  charged on  the unpaid                                                              
balance in the Little Diomede case.                                                                                             
MR. DIETRICK  deferred to  the assistant  attorney general  for an                                                              
SENATOR  DYSON  asked  Mr. Dietrick  if  DEC's  criteria  includes                                                              
whether cost recovery will exceed the cost of administration.                                                                   
MR.  DIETRICK said  that  is one  criteria  used. If  the cost  of                                                              
recovery exceeds  the amount to  be recovered, it is  not pursued.                                                              
DEC  uses, as  a  general guideline,  a  cost  threshold of  about                                                              
$1,000.  He said  if the  recovery cost  exceeds $1,000,  it is  a                                                              
prime candidate for pursuing cost recovery.                                                                                     
SENATOR  DYSON  asked  if  DEC   is  comfortable  with  the  5,000                                                              
population cutoff mark.                                                                                                         
MR. DIETRICK  said DEC  would normally  conclude that  a community                                                              
of 5,000 has some  ability to pay but other factors  would have to                                                              
be  taken  into  consideration,  such as  extraordinary  clean  up                                                              
costs and the facts behind the spill.                                                                                           
SENATOR DYSON  asked if DEC considers  that a community  or entity                                                              
acted  recklessly and,  if so, whether  DEC would  try to  collect                                                              
higher recovery costs to teach a lesson.                                                                                        
MR. DIETRICK  said penalties apply  if a spill was  intentional or                                                              
willful.  Those penalties  are considered  separately from  and in                                                              
addition to the clean up cost.                                                                                                  
CHAIR  OGAN asked  if  a lack  of  culpability  but negligence  is                                                              
factored into the cost recovery.                                                                                                
MR. DIETRICK said that would be taken into consideration.                                                                       
SENATOR ELTON  referred to  language on page  2, line 24,  "or (3)                                                              
the expenses  incurred by  the department  were less than  $3,000"                                                              
and repeated  his concern  that language  would preclude  DEC from                                                              
waiving  cost recovery  if  department  expenses  were $3,100.  He                                                              
gave King  Cove as an example  and asked if DEC's  travel expenses                                                              
are  $3,500,  and  DEC  determined  that  King  Cove  cannot  pay,                                                              
whether this language would preclude DEC from waiving costs.                                                                    
MR.   DIETRICK  said   DEC  wrestled   with   that  language   and                                                              
interpreted  that provision to  mean that  the first $2,999  would                                                              
be  waived. DEC  would pursue  cost  recovery for  any costs  over                                                              
that amount.   SB 44  limits the liability  of the spiller  at the                                                              
low end but  does not insulate  the spiller for costs  that exceed                                                              
SENATOR ELTON expressed surprise at that interpretation.                                                                        
SENATOR WAGONER asked  if service stations are now  required to do                                                              
pressure tests on their tanks on a regular basis.                                                                               
MR.  DIETRICK said  he believes  Senator Wagoner  is referring  to                                                              
underground  storage  tanks,  which are  regulated  under  federal                                                              
law.  DEC completed  the removal  and  upgrade of  6,000 tanks  in                                                              
Alaska  in 1998.  DEC  originally  had 7,000  on  the list,  about                                                              
1,000 tanks  fall into that  category now  and are subject  to the                                                              
new   requirements  for   leak   detection,  overfill,   corrosion                                                              
monitoring,  inventory controls  and  other controls.  All of  the                                                              
new tanks have  to meet those requirements so  hopefully that will                                                              
result in no future spills.                                                                                                     
SENATOR WAGONER asked  if the same type of pressure  test could be                                                              
performed on  the tanks that SB  44 applies to before  filling the                                                              
MR. DIETRICK  said he  was referencing  commercial tanks  that are                                                              
subject to  those requirements.  He believes the  sponsor's intent                                                              
is to apply SB  44 to non-commercial tanks, which  are not legally                                                              
required to follow the federal requirements.                                                                                    
SENATOR WAGONER  said he  assumed that  Little Diomede's  tank was                                                              
not commercial but a centralized system for the village.                                                                        
MR.  DIETRICK  said  the Little  Diomede  tanks  are  above-ground                                                              
storage tanks, which  are not regulated by DEC  unless they exceed                                                              
420,000 gallons.                                                                                                                
CHAIR OGAN announced that he would hold SB 44 in committee.                                                                     
SENATOR OLSON  told members that  DEC's interpretation  of Section                                                              
2  on  page  2,  as  described  by  Mr.  Dietrick,  regarding  the                                                              
expenses of  $3,000, was  not his  intent. Regarding the  incident                                                              
at Little Diomede,  he noted the tanks did not leak,  a valve on a                                                              
line downstream  ruptured. The  tanks had nothing  to do  with the                                                              
spill and the spill  was not even discovered until  the snow began                                                              
to melt.  He noted that  Mr. Dietrick said  there was  a threshold                                                              
level of the cost  recovery that DEC would not  go after, however,                                                              
he  did not  intend to  put any  minimum  amount in  the bill.  He                                                              
asked Mr. Dietrick to respond.                                                                                                  
MR.  DIETRICK said  that  DEC's understanding  is  that the  first                                                              
criteria would be  that the expenses that would  be incurred would                                                              
not be recoverable from the federal fund.                                                                                       
SENATOR  OLSON  asked  Mr.  Dietrick to  cite  the  language  that                                                              
applies to the federal funds.                                                                                                   
MR. DIETRICK  said that language  is on page  2, line 13.  He then                                                              
     Criteria  number one  then -  that is  being carved  out                                                                   
     here -  is the person here  that would qualify  would be                                                                   
     an individual.  The  fuel would have  to be  residential                                                                   
     heating oil.  And the tank, from which the  fuel leaked,                                                                   
     would  have to serve  fewer than  five families and  the                                                                   
     spill  would  not be  the  result of  overfilling.  That                                                                   
     would be the  criteria that would be met  there for them                                                                   
     to waive costs.                                                                                                            
     The  second   one  then,  as   we  understand   it,  the                                                                   
     responsible   party  would   be  a  municipality,   i.e.                                                                   
     unincorporated   community,  village,  or   municipality                                                                   
     with  a population under  5,000. It  again applies  only                                                                   
     to residential  heating oil. There [are]  no limitations                                                                   
     - it  presumably is from any  tank system as  opposed to                                                                   
     number  one,   which  is  explicit  that  it   would  be                                                                   
     residential  oil  for  fewer than  five  families.  This                                                                   
     could be  any tank and we have  a lot of tanks  in rural                                                                   
     Alaska with  residential fuel that may be  serving a lot                                                                   
     of different  uses - and,  again, the discharge  was not                                                                   
     the result  of a tank overfill.  So, in any  given case,                                                                   
     we would  apply these given  criteria and, if  they fit,                                                                   
     if the circumstances  fit these then we understand  - we                                                                   
     would  conclude then  that  the cost  recovery would  be                                                                   
     waived, if we properly understand your intent.                                                                             
SENATOR ELTON  said he reads it to  mean that DEC can  then make a                                                              
determination to waive, but DEC is not required to waive.                                                                       
MR. DIETRICK said he would agree.                                                                                               
SENATOR OLSON  said Mr. Dietrick  testified that SB 44  will limit                                                              
DEC's flexibility  and asked  him to elaborate.  He said  that was                                                              
not his intent.                                                                                                                 
MR.  DIETRICK  said   he  was  saying  that  DEC  has   a  lot  of                                                              
flexibility  to consider these  and other  criteria now.  DEC sees                                                              
SB 44 as limiting what it can consider in any given case.                                                                       
CHAIR OGAN  announced that  he would hold  SB 44 in  committee and                                                              
that the  committee would not meet  during the following  week. He                                                              
then adjourned the meeting at 5:30 p.m.                                                                                         

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