Legislature(2023 - 2024)BUTROVICH 205

05/05/2023 03:30 PM Senate RESOURCES

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Heard & Held
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**Streamed live on AKL.tv**
                  SB 137-REFINED FUEL SURCHARGE                                                                             
3:35:15 PM                                                                                                                    
CO-CHAIR  BISHOP   reconvened  the  meeting  and   announced  the                                                               
consideration  of SENATE  BILL NO.  137 "An  Act relating  to the                                                               
refined fuel surcharge; and providing for an effective date."                                                                   
He invited the sponsor to introduce the legislation.                                                                            
3:35:25 PM                                                                                                                    
CO-CHAIR  GIESSEL  introduced  SB  137 speaking  to  the  sponsor                                                               
     In 1990,  the Alaska  State Legislature passed  the Oil                                                                    
     and   Hazardous   Substance  Release   Prevention   and                                                                    
     Response  Act,  which  established  the  Department  of                                                                    
     Environmental  Conservation's  Spill,  Prevention,  and                                                                    
     Response (SPAR) division. The Act  requires the oil and                                                                    
     gas industry  operating in Alaska  to pay a tax  on oil                                                                    
     and  gas   production  to  fund  the   program's  spill                                                                    
     prevention and response activities.                                                                                        
     SPAR  is  responsible   for  developing  and  enforcing                                                                    
     regulations  related to  the prevention,  preparedness,                                                                    
     and  response   to  oil  spills  and   other  hazardous                                                                    
     substance  releases  in  Alaska's waters.  The  program                                                                    
     also  provides  training  and technical  assistance  to                                                                    
     local  communities, businesses,  and  agencies to  help                                                                    
     them prepare for and respond to spills.                                                                                    
     SPAR has  two primary funding accounts:  the Prevention                                                                    
     Account and  the Response Account.  The funds  from the                                                                    
     Response  Account  are used  to  respond  to spills  or                                                                    
     threats   of  spills   that   pose   an  imminent   and                                                                    
     substantial threat.  The Prevention Account is  used to                                                                    
     respond,  contain,   clean  up,  and   monitor  spills;                                                                    
     address  existing   contamination;  and  pay   for  the                                                                    
     operating  costs of  the  division. Unfortunately,  the                                                                    
     Prevention Account has a revenue shortfall.                                                                                
     The Prevention  Account is funded  by $0.04  per barrel                                                                    
     of  crude  oil  produced  and  $0.0095  per  gallon  of                                                                    
     refined   fuel.   The   refined  fuel   surcharge   was                                                                    
     implemented  in   2015  but   since  then   the  annual                                                                    
     expenditures  exceed the  annual  revenue. The  balance                                                                    
     has  been decreasing  for years  and  its solvency  has                                                                    
     been  extended  by  the   addition  of  General  Funds.                                                                    
     Currently, the  Prevention Account is projected  to run                                                                    
     a deficit.                                                                                                                 
     In hopes of keeping  the Prevention Account solvent, SB
     137  would increase  the  refined  fuel surcharge  from                                                                    
     $0.0095  to $0.015.  Keeping the  account solvent  will                                                                    
     help  SPAR's  ability  to  carry  out  its  mission  of                                                                    
     protecting Alaska's  waters from  oil spills  and other                                                                    
     hazardous  substance releases.  SPAR  plays a  critical                                                                    
     role in ensuring that the  state's oil and gas industry                                                                    
     operates safely and responsibly.                                                                                           
CO-CHAIR BISHOP asked if there were questions.                                                                                  
3:38:50 PM                                                                                                                    
SENATOR KAWASAKI asked how successful the department had been in                                                                
recouping the costs associated with cleaning up spills.                                                                         
SENATOR DUNBAR joined the committee.                                                                                            
3:39:46 PM                                                                                                                    
TIFFANY  LARSON,  Director,  Spill Prevention  &  Response,  DEC,                                                               
Fairbanks, Alaska, stated that the  department recovered about 85                                                               
percent of the  costs incurred last year to clean  up spills. She                                                               
noted  that  this  information was  in  the  department's  annual                                                               
report to the legislature and was on the DEC website.                                                                           
SENATOR KAWASAKI asked if the  money that's recouped goes back to                                                               
the general fund.                                                                                                               
MS. LARSON  directed attention to  the chart in the  bill packets                                                               
that  shows  that  revenue  relating   to  spill  prevention  and                                                               
response goes into  the general fund (GF), passes to  the oil and                                                               
hazardous substance release prevention  and response fund, and is                                                               
then distributed to DEC operating appropriations.                                                                               
SENATOR KAWASAKI asked  whether the 85 percent  cost recovery was                                                               
net revenue.                                                                                                                    
MS. LARSON  responded that the  legal and other  associated costs                                                               
of a  spill cleanup are  also recoverable. She  acknowledged that                                                               
the  department   typically  does  not  recover   all  the  costs                                                               
associated with  a spill.  It depends on  who is  responsible for                                                               
the spill,  but private  citizens typically do  not have  as many                                                               
liquid funds as large industries.                                                                                               
CO-CHAIR BISHOP  asked Ms. Larson if  she had anything to  add as                                                               
an invited testifier.                                                                                                           
3:43:00 PM                                                                                                                    
MS. LARSON  again directed attention  to the chart, "How  the Oil                                                               
and  Hazardous Substance  Release  Prevention  and Response  Fund                                                               
Works" and  mentioned that the  red boxes represent  the response                                                               
account  which is  generally for  emergency responses.  The green                                                               
boxes  represent  the  prevention   account,  which  provides  70                                                               
percent of SPAR's  operating budget. She agreed  with the sponsor                                                               
that declining oil  production has resulted in  less revenue from                                                               
the  $0.04/barrel  surcharge.  The  $0.0095/gallon  refined  fuel                                                               
surcharge  brings in  about $1  million, which  is less  than was                                                               
anticipated. She  noted that there were  other miscellaneous fund                                                               
MS.  LARSON  explained  the salient  reason  for  increasing  the                                                               
refined  fuel  surcharge  from  $0.0095 to  $0.015  is  that  the                                                               
majority  of spills  and contaminated  sites requiring  long-term                                                               
monitoring  are  associated  with   refined  fuels.  These  fuels                                                               
represent  70-75   percent  of   the  total  oil   and  hazardous                                                               
substances released in the calendar years 2021 and 2022.                                                                        
3:45:00 PM                                                                                                                    
SENATOR WIELECHOWSKI recalled  that in 2015 when  an increase was                                                               
proposed  to the  per barrel  tax,  the oil  industry said  taxes                                                               
deter  investment and  that the  oil tax  reform that  passed the                                                               
previous  year provided  the opportunity  for  Alaska to  realize                                                               
more oil  production than ever before.  The legislature responded                                                               
by passing  the tax  on to the  people of Alaska  in the  form of                                                               
increased  gas  taxes.  He  said   the  prediction  of  increased                                                               
production  hasn't happened  and he  wonders why  the legislature                                                               
shouldn't increase the per barrel surcharge to the oil industry.                                                                
MS. LARSON  said that's  a policy call  for the  legislature. She                                                               
added that  the refined fuel  surcharge collects the  spiller fee                                                               
at the point of sale.                                                                                                           
CO-CHAIR  BISHOP  talked  about   his  experience  with  midnight                                                               
dumpers  and  then  posed  a  hypothetical  example  of  somebody                                                               
spilling 20 gallons  of fuel when they're  filling their vehicle.                                                               
The spill wasn't noticed immediately  so nobody knew the identity                                                               
of the responsible  party. He asked whether SPAR  would use funds                                                               
from the emergency response account to pay for the cleanup.                                                                     
MS. LARSON  replied that  every attempt is  made to  identify the                                                               
responsible party and recover the  costs. In Alaska that includes                                                               
not just the person who spilled  the fuel but also the person who                                                               
owns  the land  where  the  spill occurred  and  the  owner of  a                                                               
business where  the spill occurred.  If this fails and  the spill                                                               
poses an imminent risk to  human health and the environment, that                                                               
is the threshold for accessing the emergency response account.                                                                  
3:49:18 PM                                                                                                                    
SENATOR KAWASAKI  asked if  she was  familiar with  the sulfolane                                                               
spill in Fairbanks on property  formerly owned by Williams Alaska                                                               
Petroleum, Inc.                                                                                                                 
MS. LARSON said yes, she lives in Fairbanks.                                                                                    
SENATOR KAWASAKI asked who eventually paid for that response.                                                                   
MS. LARSON  replied that it  was Flint  Hills that paid,  but the                                                               
department  was awaiting  the Alaska  Supreme Court  decision for                                                               
the ultimate disposition of funding.                                                                                            
3:50:20 PM                                                                                                                    
CO-CHAIR GIESSEL  described a former homestead  in Anchorage that                                                               
had  buried  fuel  tanks  that leaked.  The  property  owner  was                                                               
deceased.  She asked  whether the  emergency response  fund would                                                               
have been used for that cleanup.                                                                                                
MS.  LARSON said  yes;  the  state picks  up  the  cost when  the                                                               
responsible party  can't be found.  That's the reason  for taking                                                               
the fee at the point of sale.                                                                                                   
CO-CHAIR BISHOP invited Donna Schantz to provide her testimony.                                                                 
3:51:57 PM                                                                                                                    
DONNA SCHANTZ, Executive Director,  Prince William Sound Regional                                                               
Citizens  Advisory  Council,  Valdez,  Alaska,  stated  that  the                                                               
council  is a  nonprofit  that was  created  following the  Exxon                                                               
Valdez  oil spill.  It  has a  congressional  mandate to  involve                                                               
citizens  in decisions  that impact  the safe  transportation and                                                               
storage of oil  at the Valdez terminal and onto  the tankers that                                                               
call there. She stated strong  support for increasing the refined                                                               
fuel surcharge  as proposed in  SB 137. She said  this additional                                                               
revenue  is  necessary to  close  the  revenue gap.  The  reduced                                                               
revenue  that has  been  discussed has  resulted  in a  continued                                                               
shortfall within the prevention  account within the oil hazardous                                                               
and substance release prevention  and response fund. This greatly                                                               
diminishes the  ability of  the state to  prevent oil  spills and                                                               
hazardous  substance releases,  maintain adequate  readiness, and                                                               
respond rapidly  should a spill  occur. The Council  believes the                                                               
division  is beyond  doing more  with less;  it has  had to  make                                                               
difficult choices about how to do  less with less and continue to                                                               
meet   its  statutory   responsibilities.   She  emphasized   the                                                               
importance of being  able to adequately engage  in prevention and                                                               
response activities to protect the  environment, economy, and the                                                               
health  safety and  well-being of  Alaskans. Without  legislative                                                               
action, the  existing funding sources  will remain  inadequate to                                                               
maintain  preparedness.  The  state   cannot  afford  to  further                                                               
diminish  the  important  mission  of  preventing  another  Exxon                                                               
Valdez  type  of  oil  spill disaster.  She  clarified  that  the                                                               
Council  receives no  funds from  the  prevention account.  Their                                                               
support for  SB 137 is solely  to ensure that SPAR  has access to                                                               
adequate financial resources.                                                                                                   
3:54:54 PM                                                                                                                    
CO-CHAIR  GIESSEL asked  her  to  comment on  the  report on  the                                                               
Alyeska facility  in Valdez that  highlighted potential  risks at                                                               
the facility.                                                                                                                   
MS.  SCHANTZ  said  the Council  commissioned  that  report.  She                                                               
continued  that  the  refined   fuel  surcharge  funds  the  SPAR                                                               
division,  which   is  the   agency  primarily   responsible  for                                                               
overseeing  oil spill  prevention measures  for the  Trans Alaska                                                               
Pipeline and the Valdez Marine  Terminal. She described the plans                                                               
for the facility  as the most complex in the  state, and said the                                                               
increase in  the refined  fuel charge will  help ensure  that the                                                               
state is fit, willing, and able to oversee that facility.                                                                       
CO-CHAIR GIESSEL offered her understanding  that Alyeska would be                                                               
responsible for  an uncontained leak  at the Valdez  terminal but                                                               
the  SPAR  fund would  provide  resources  for an  immediate  and                                                               
perhaps  ongoing response.  She  asked if  that  was an  accurate                                                               
MS.  SCHANTZ  said that's  correct;  the  SPAR division  requires                                                               
resources  to  maintain  preparedness  to  respond  rapidly  when                                                               
there's a need. Recovering those costs comes later.                                                                             
CO-CHAIR BISHOP  referenced the hypothetical spill  at the Valdez                                                               
tank farm and  clarified that by having adequate  funds, DEC will                                                               
have the  manpower and expertise to  hopefully eliminate problems                                                               
on the front end so you don't get to problems on the back end.                                                                  
MS.  SCHANTZ responded  that  SB 137  increases  revenue for  the                                                               
prevention  account.  The  goal  is  to  prevent  accidents  from                                                               
happening,  but  it's  necessary  to have  an  adequate  response                                                               
mechanism in case the prevention measures fail.                                                                                 
CO-CHAIR  BISHOP agreed;  prevention and  emergency response  are                                                               
both needed.                                                                                                                    
3:58:56 PM                                                                                                                    
SENATOR  DUNBAR  referenced  Senator Wielechowski's  point  about                                                               
prevention and response  and said he wonders whether  it might be                                                               
beneficial to  increase both the  refined fuel surcharge  and the                                                               
per barrel surcharge.  He said it seems that the  majority of the                                                               
expense  for  prevention is  more  directly  attributable to  the                                                               
efforts in  Prince William  Sound or other  places that  have oil                                                               
industry infrastructure. He asked if that was correct.                                                                          
CO-CHAIR  BISHOP  suggested the  director  of  the SPAR  division                                                               
MS.  LARSON  responded  that  the  prevention  account  funds  70                                                               
percent of  the operational costs  of the entire  division, which                                                               
is comprised  of administrative  staff, contaminated  site staff,                                                               
and prevention  preparedness and  response staff.  The activities                                                               
include  all the  oversight  required  for successful  prevention                                                               
activities in the state,  attending drills, visiting contaminated                                                               
sites,  assessing sites,  and  cooperating  with the  responsible                                                               
parties to figure out the best  way to help them solve the issue.                                                               
She said  most of the  response and  response funding is  the red                                                               
side of  the chart and  the bill  is generally about  funding the                                                               
prevention account which is the green side of the chart.                                                                        
SENATOR DUNBAR  asked if there has  been any growth in  the costs                                                               
for  the  traditional  prevention  activities  that  are  closely                                                               
related  to  the pipeline  and  activities  on the  North  Slope,                                                               
particularly Prince William Sound and the Valdez terminal,                                                                      
MS. LARSON said she didn't know  whether there had been growth in                                                               
those  costs  but  recovery  is   generally  high  from  the  oil                                                               
industry. She noted that her  phone a friend lifeline just texted                                                               
that cost recovery for crude oil last year was 99 percent.                                                                      
4:02:49 PM                                                                                                                    
SENATOR  WIELECHOWSKI  referenced the  2015  Alaska  Oil and  Gas                                                               
Conservation  Commission  (AOGCC)  position  paper  in  the  bill                                                               
packet that  shows that 29 percent  of the spill volume  was from                                                               
oil and  gas exploration and  production and 33 percent  was from                                                               
all  other  facilities. He  asked  what  was included  in  "other                                                               
facilities" and  whether she  had an  updated breakdown  of spill                                                               
volume by facility.                                                                                                             
MS. LARSON said she'd be happy to provide that information.                                                                     
CO-CHAIR  BISHOP  asked  her  to  send  the  information  to  the                                                               
committee  and he'd  see that  it was  distributed. He  continued                                                               
that  he'd  like  to  invite  her   back  next  year  to  give  a                                                               
comprehensive overview of what SPAR does in different scenarios.                                                                
SENATOR WIELECHOWSKI said his reading  of the fiscal note is that                                                               
the bill will  generate $3.6 million. He asked how  much the per-                                                               
barrel  surcharge  would  need  to be  increased  to  generate  a                                                               
similar amount.                                                                                                                 
4:04:54 PM                                                                                                                    
BRANDON  SPANOS, Deputy  Director,  Tax  Division, Department  of                                                               
Revenue,  Anchorage,  Alaska,  stated   that  he  would  do  that                                                               
analysis and provide the information to the committee.                                                                          
CO-CHAIR  BISHOP  asked  him  to  send  the  information  to  the                                                               
committee and he'd distribute it.                                                                                               
4:05:24 PM                                                                                                                    
CO-CHAIR BISHOP opened public testimony on SB 137.                                                                              
4:05:41 PM                                                                                                                    
JASON  WERNER, CFO,  Petro  Marine  Services, Anchorage,  Alaska,                                                               
stated that Petro  Marine has no position on the  increase to the                                                               
refined  fuel tax  proposed  in SB  137, but  he  wanted to  call                                                               
attention to the wording in  the current fuel surcharge exemption                                                               
and how  it impacts his  company. He explained that  Petro Marine                                                               
operates a  US flagged  tug and  barge that  brings fuel  from US                                                               
refineries in  Puget Sound into  Skagway where it's  then trucked                                                               
into the  Yukon and distributed.  He said this fuel  currently is                                                               
subject to the fuel surcharge because  the fuel is refined in the                                                               
US, not Canada.  By comparison, a Canadian flagged  tug and barge                                                               
could  bring  fuel from  Vancouver  refineries  into Skagway  and                                                               
truck  it  into  the  Yukon  and  not  be  subject  to  the  fuel                                                               
MR. WERNER  explained that  the fuel  that Petro  Marine delivers                                                               
into  Skagway that  goes into  the Yukon  is competing  with fuel                                                               
that  is  trucked from  Edmonton,  Alberta  into the  Yukon.  The                                                               
current fuel surcharge and proposed  increase puts Petro Marine's                                                               
export  business  at  a competitive  disadvantage  with  Canadian                                                               
companies. He said  Petro Marine would like to  level the playing                                                               
field with  a wording  change in the  exemption that  aligns with                                                               
the  motor  fuel tax  exemption  for  fuel consigned  to  foreign                                                               
4:07:33 PM                                                                                                                    
CO-CHAIR GIESSEL asked  who would pay for the cleanup  if a Petro                                                               
Marine barge were  to spill fuel into the water  or on land while                                                               
in Skagway.                                                                                                                     
MR. WERNER  answered that  Petro Marine would  pay and  they have                                                               
insurance to cover that.                                                                                                        
CO-CHAIR GIESSEL  asked what  trucking firm  takes the  fuel from                                                               
the Skagway harbor into the Yukon.                                                                                              
MR.  WERNER said  it's a  sister company  called North  60 Petro,                                                               
which is an Alaska corporation that does business in the Yukon                                                                  
CO-CHAIR GIESSEL  asked if  North 60  Petro would  be responsible                                                               
for the cleanup if they were to  have a spill while in transit to                                                               
the Yukon.                                                                                                                      
MR.WERNER said that's correct.                                                                                                  
4:08:58 PM                                                                                                                    
SENATOR DUNBAR asked if he said  the Canadian firm is not subject                                                               
to  the fuel  surcharge  because  the fuel  stays  in Canada  the                                                               
entire time  or if it  was that  the fuel passes  through Skagway                                                               
enroute to the Yukon but isn't subject to the charge.                                                                           
MR. WERNER  said a US  flagged vessel can't export  Canadian fuel                                                               
into Canada; it has  to be US fuel so the company  has to pay the                                                               
SENATOR DUNBAR asked whether the  fuel surcharge could be imposed                                                               
on a Canadian tug and barge.                                                                                                    
MR. WERNER  said he  wasn't aware  of anybody  currently bringing                                                               
Canadian fuel through Skagway, but it was a possibility.                                                                        
4:11:14 PM                                                                                                                    
CO-CHAIR BISHOP  closed public testimony  on SB 137 and  held the                                                               
bill in committee.                                                                                                              

Document Name Date/Time Subjects
SB 68 CS WORKDRAFT Ver. D 05.05.23.pdf SRES 5/5/2023 3:30:00 PM
SB 68
SB 68 Explanation of Changes Version U to D 05.05.23.pdf SRES 5/5/2023 3:30:00 PM
SB 68
SB 137 Sponsor Statement 5.5.23.pdf SRES 5/5/2023 3:30:00 PM
SB 137
SB 137 Sectional Analysis Version B.pdf SRES 5/5/2023 3:30:00 PM
SB 137
SB 137 Fiscal Note DOR 05.01.23.pdf SRES 5/5/2023 3:30:00 PM
SB 137
SB 137 DEC Response on Surcharge 4.13.23.pdf SRES 5/5/2023 3:30:00 PM
SB 137
SB 137 Letter of Support 5.5.23.pdf SRES 5/5/2023 3:30:00 PM
SB 137
SB 137 Support Document AOGA 470 Fund White Paper.pdf SRES 5/5/2023 3:30:00 PM
SB 137
SB 137 Support Document Prevention Account Projection FY2023 - FY2032 $.015.pdf SRES 5/5/2023 3:30:00 PM
SB 137
SB 137 Support Document Prevention Account Projection FY2023 - FY2032 $.0095.pdf SRES 5/5/2023 3:30:00 PM
SB 137
SB 137 Support Document Refined Fuel Surcharge Handout.pdf SRES 5/5/2023 3:30:00 PM
SB 137
SB 137 Support Document SPAR Response Fund Flowchart.pdf SRES 5/5/2023 3:30:00 PM
SB 137
SB 137 Support DocumentRisks and Safety Culture Assement Report.pdf SRES 5/5/2023 3:30:00 PM
SB 137