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
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         March 12, 2003                                                                                         
                           3:35 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Scott Ogan, Chair                                                                                                       
Senator Thomas Wagoner, Vice Chair                                                                                              
Senator Fred Dyson                                                                                                              
Senator Ralph Seekins                                                                                                           
Senator Ben Stevens                                                                                                             
Senator Kim Elton                                                                                                               
MEMBERS ABSENT                                                                                                                
Senator Georgianna Lincoln                                                                                                      
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 116                                                                                                             
"An  Act  relating   to  the  emission  control   permit  program;                                                              
relating  to  fees for  that  program  and  to the  accounting  of                                                              
receipts  deposited  in  the  emission   control  permit  receipts                                                              
account; and providing for an effective date."                                                                                  
     HEARD AND HELD                                                                                                             
SENATE BILL NO. 44                                                                                                              
"An  Act  relating  to  the  recovery   of  the  expenses  of  the                                                              
Department of  Environmental Conservation  that are  incurred when                                                              
containing  or cleaning  up a  discharge,  release, or  threatened                                                              
release of oil; and providing for an effective date."                                                                           
     HEARD AND HELD                                                                                                             
HOUSE BILL NO. 69                                                                                                               
"An  Act relating  to regulation  of shallow  natural gas  leasing                                                              
and  closely  related  energy  projects;   and  providing  for  an                                                              
effective date."                                                                                                                
     SCHEDULED BUT NOT HEARD                                                                                                    
PREVIOUS ACTION                                                                                                               
SB 116 - No previous action to record.                                                                                          
SB 44 - No previous action to record.                                                                                           
WITNESS REGISTER                                                                                                              
Commissioner Ernesta Ballard                                                                                                    
Department of Environmental Conservation                                                                                        
410 Willoughby                                                                                                                  
Juneau, AK 99801-1795                                                                                                           
POSITION STATEMENT: Presented SB 116                                                                                          
Mr. Tom Chapple                                                                                                                 
Director, Air and Water Quality                                                                                                 
Department of Environmental Conservation                                                                                        
410 Willoughby                                                                                                                  
Juneau, AK 99801-1795                                                                                                           
POSITION STATEMENT:  Answered questions about the Emission                                                                    
Control Program                                                                                                                 
Ms. Marilyn Crockett                                                                                                            
Alaska Oil and Gas Association (AOGA)                                                                                           
121 West Fireweed Lane                                                                                                          
Anchorage, Alaska 99503                                                                                                         
POSITION STATEMENT:  Supports the concept of SB 116                                                                           
Ms. Charlotte MacKay                                                                                                            
3105 Lakeshore Dr.                                                                                                              
Building A, Suite 101                                                                                                           
Anchorage, Alaska 99517                                                                                                         
POSITION STATEMENT:  Testifying on her own behalf in support of                                                               
SB 116.                                                                                                                         
Mr. Tadd Owens                                                                                                                  
Resource Development Council                                                                                                    
121 W. Fireweed, No. 207                                                                                                        
Anchorage, AK 99503                                                                                                             
POSITION STATEMENT: Supports SB 116.                                                                                          
Mr. John Kuterbach                                                                                                              
Division of Air & Water Quality                                                                                                 
Department of Environmental Conservation                                                                                        
410 Willoughby                                                                                                                  
Juneau, AK 99801-1795                                                                                                           
POSITION STATEMENT:  Gave a sectional analysis of SB 116                                                                      
Senator Donald Olson                                                                                                            
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Sponsor of SB 44                                                                                         
ACTION NARRATIVE                                                                                                              
TAPE 03-13, SIDE A                                                                                                            
Number 0001                                                                                                                     
CHAIR SCOTT  OGAN called the  Senate Resources Standing  Committee                                                            
meeting to  order at 3:35  p.m.  All  members were  present except                                                              
Senator Lincoln, who was excused.  The committee took up SB 116.                                                                
             SB 116-EMISSION CONTROL PERMIT PROGRAM                                                                         
COMMISSIONER   ERNESTA   BALLARD,  Department   of   Environmental                                                              
Conservation  (DEC),  provided  the following  description  of  SB
116. This legislation  is a proposal to streamline  the permitting                                                              
process. Over the  last 30 years, much has been  learned about the                                                              
environmental  and health hazards  associated with air  pollution,                                                              
emission   control   technologies,    air   modeling   and,   most                                                              
importantly,   about   the  necessary   protective   ambient   air                                                              
standards.  Through  national  and   state  legislation,  DEC  has                                                              
recognized shared  values of environmental protection,  along with                                                              
many  other core  values  enshrined by  the  legislature in  state                                                              
law. These  values form  the framework  for government  regulatory                                                              
COMMISSIONER  BALLARD told members  that environmental  protection                                                              
is  not   incompatible  with   resource   development;  it   is  a                                                              
fundamental  component of  resource development  as are labor  and                                                              
worker safety laws.  Governor Murkowski is committed  to enhancing                                                              
Alaska's economy  through resource  development and he  is equally                                                              
committed  to protecting  Alaska's environment.  A strong  economy                                                              
will generate  the revenue  needed to  continue funding  important                                                              
regulatory   programs.   Governor   Murkowski  and   his   cabinet                                                              
recognize that Alaska's  laws form the framework  for a successful                                                              
resource development  program. Environmental  laws are one  of the                                                              
essential pieces of  a public policy mosaic. They  are no more and                                                              
no less  important than  the other  pieces.   SB 116 will  improve                                                              
the process  and the  function of the  underlying state  policy to                                                              
protect  the  environment.  It will  not  in  any way  change  the                                                              
protective standards.                                                                                                           
COMMISSIONER BALLARD  told members  through DEC's proposed  fiscal                                                              
year 2004  budget, DEC intends  to sharpen  its focus on  its core                                                              
responsibilities,  air permitting being  one. SB 116  is essential                                                              
to achieve the results promised in its budget proposal.                                                                         
COMMISSIONER  BALLARD  said the  federal  Clean  Air Act  and  the                                                              
Environmental  Protection  Agency (EPA)  rules  have been  amended                                                              
several  times  in recent  years  to  establish new  programs  and                                                              
control concepts.  Alaska's state permitting program  has not kept                                                              
pace with  the national regime and,  more importantly, it  has not                                                              
kept  pace with  the needs  of Alaskan  communities and  industry.                                                              
Alaska  must  have  a  predictable   permitting  process  that  is                                                              
protective of air  quality. In the past, DEC has  not been able to                                                              
mesh  its federal  programs well  with  the needs  of the  remote,                                                              
isolated  and  small  communities  in  Alaska.  DEC  seeks  to  be                                                              
flexible  and timely  enough to  take advantage  of fast  changing                                                              
business opportunities,  particularly on  the North Slope.  SB 116                                                              
does both.  It provides the tools  DEC needs to work  with Alaska-                                                              
specific isolated  geography and tools  to meet the  challenges of                                                              
COMMISSIONER   BALLARD  said  specifically,   SB  116   creates  a                                                              
predictable,   timely   and  rational   permitting   program.   It                                                              
differentiates  major pollution  sources  from  minor sources.  It                                                              
regulates  minor  sources  with   standardized  permit  conditions                                                              
based on best  management practices. DEC's present  permit by rule                                                              
program  works in  the oil  industry  for the  drilling rigs.  DEC                                                              
wants to  expand that concept  of permit  by rule to  include more                                                              
situations.  DEC   has  more  mobile   and  portable   plants  and                                                              
machinery than  most states and  issues more Title 5  permits than                                                              
Colorado and  more PSD permits than  the state of New  Jersey. DEC                                                              
needs appropriate  tools to  work with  Alaska's very  unusual but                                                              
essential mobile  fleet. SB  116 provides  those tools  and allows                                                              
DEC  to exempt  sources  from  permitting  to the  extent  allowed                                                              
under federal  law. It achieves  efficiency in permitting  through                                                              
adopting federal rules  by reference, making it easier  for DEC to                                                              
permit  rural power  plants. DEC  will be  able to  use the  clean                                                              
unit test  to avoid  a detailed  site-by-site technology  analysis                                                              
now required for every rural plant.                                                                                             
COMMISSIONER  BALLARD  told  members  that  currently,  Alaska  is                                                              
regulating  minor  sources  in  the  same  way  it  manages  major                                                              
sources  of air  emissions. SB  116 establishes  a permit  program                                                              
for minor  air pollution  sources,  when it is  needed to  protect                                                              
ambient  air  quality  and  health.  This  single  improvement  in                                                              
permitting   minor   sources   will  be   widely   recognized   as                                                              
significant  permit streamlining.  DEC worked  with a  stakeholder                                                              
work group last  fall that recommended this and  other changes and                                                              
will herald  the incorporation  of these  changes into  state law.                                                              
SB 116  makes an important revision  to the permit  fee structure.                                                              
It changes the  present hourly permit administration  fees to flat                                                              
fees whenever possible.  This single change will  allow permittees                                                              
to predict  in advance  both community  permittees and  industrial                                                              
permit applicants.  They will know  their permit costs  in advance                                                              
and plan for those costs in their budget cycle.                                                                                 
COMMISSIONER  BALLARD told  members SB  116 is  the result  of two                                                              
very  important efforts  DEC  concluded  at the  end  of the  last                                                              
calendar year.  The first was  a several year benchmarking  effort                                                              
in  which  other  states'  permit   programs  were  evaluated  and                                                              
compared to  DEC's permit programs.  DEC determined it  needed the                                                              
benefit  of  statutory  changes,  which  will  be  accompanied  by                                                              
regulatory changes.  DEC will  need a staff  increase to  meet the                                                              
standards maintained  in other states. The other  effort this bill                                                              
reflects is  the effort of the  stakeholder work group,  an effort                                                              
facilitated  by  Brian  Rogers  and concluded  in  a  report  made                                                              
available to committee members.                                                                                                 
COMMISSIONER  BALLARD said  she  is proud  to propose  legislation                                                              
that  she believes  reflects the  best practices  in other  states                                                              
and also  reflects the wishes and  expectations of the  work group                                                              
comprised  of those  who need air  permits to  succeed in  Alaska.                                                              
She  noted  that  Tom  Chapple and  John  Kuderbach  of  DEC  were                                                              
available to answer questions.                                                                                                  
SENATOR  WAGONER questioned  why SB  116 requires  an increase  in                                                              
the  number of  staff  at DEC  if the  legislation  will make  the                                                              
permit process more efficient.                                                                                                  
COMMISSIONER  BALLARD said  DEC concluded,  from its  benchmarking                                                              
study, that it  has not put adequate manpower  into its permitting                                                              
programs,   both  in   the  field   to  understand   site-specific                                                              
circumstances, and  in the office to  do the work. The  tools that                                                              
those individuals  will require also need to  be sharpened through                                                              
statutory  reform.  For example,  DEC  will  need  to be  able  to                                                              
incorporate  federal  rules  more quickly  and  more  efficiently.                                                              
That  is accomplished  through a  statutory  change. In  addition,                                                              
DEC needs a larger  work force to accommodate the  very large work                                                              
burden  of   air  permitting   in  the   state.  Those   are  both                                                              
requirements   of  DEC's  proposed   budget  and  the   Governor's                                                              
requested legislation.                                                                                                          
CHAIR OGAN said  he shares Senator Wagoner's concern.  He asked if                                                              
most of  SB 116 contains technical  changes to conform  to federal                                                              
definitions, while  the section that  will require extra  staff is                                                              
on page 14.  He also asked if  the additional costs of  the fiscal                                                              
note will be recovered from emission fees.                                                                                      
COMMISSIONER  BALLARD  said those  costs  will be  recovered  from                                                              
permit fees.                                                                                                                    
CHAIR OGAN  asked if the  emission fees are  charged on a  per ton                                                              
basis of  the emission  of pollutants. He  noted the  bill changes                                                              
the word  "contaminant" to  "pollutant." He  asked her  to address                                                              
the provision on page 14.                                                                                                       
COMMISSIONER  BALLARD  said the  language  on  page 14  refers  to                                                              
emission fees. She  said the good news is that  DEC's emission fee                                                              
income  is   declining  because   emission   fees  are  based   on                                                              
emissions.  The implementation  of better  control technology  has                                                              
lowered  emissions  throughout  the state.  The  manpower  changes                                                              
within  DEC will  be  offset  by an  increase  in  the permit  fee                                                              
charged to issue a permit.                                                                                                      
COMMISSIONER  BALLARD   explained  that   one  reason  it   is  so                                                              
important for DEC  to have adequate field staff is  to reflect the                                                              
unique  circumstances   in   Alaska.  In   the  instance   of  air                                                              
emissions,  those circumstances  are  particularly  unique and  do                                                              
not apply  anywhere else  in the  country. Alaska has  permafrost,                                                              
which sometimes results  in a larger project footprint  than in an                                                              
area   that  only   requires  digging   to   construct  a   single                                                              
foundation.  Sealift  in harbors  is  also  common in  Alaska  and                                                              
requires  larger   storage  capacities.  DEC  needs   to  use  the                                                              
flexibility  provided  in the  federal  rule  to the  maximum  and                                                              
incorporate  it   into  its  standards   to  reflect   its  unique                                                              
circumstances.  DEC  found, in  its  benchmarking  study, that  to                                                              
accomplish  that, DEC  has less  staff than states  with a  fairly                                                              
similar  permitting burden.  She  repeated  that DEC's  permitting                                                              
workload  is  comparable to  or  greater  than  any state  in  the                                                              
nation for  its size because  Alaska does  not have a  power grid.                                                              
The air emission  control program is one of the  most important to                                                              
economic development  and environmental  protection in  the state.                                                              
If  Alaska had  a power  grid, this  would be  a relatively  minor                                                              
CHAIR  OGAN noted  that Governor  Murkowski  told the  Legislature                                                              
that  if  it  increases  the budget  in  any  component,  it  must                                                              
decrease it elsewhere.  He asked if DEC is planning  to offset the                                                              
$900,000 fiscal  note by  raising the  cost of processing  permits                                                              
through an  increase in permit fees,  which is essentially  a user                                                              
fee for developers.  He referred to the language on  page 14, line                                                              
2,  and  pointed  out  it says  "these  shall  be  recovered  from                                                              
emission fees under  AS 46.14.258 for the following  services." He                                                              
asked if  DEC is charging for  those services now or  whether they                                                              
are new charges.                                                                                                                
COMMISSIONER BALLARD  said DEC charges  for those items  now. Many                                                              
of the  permit applications  are for  community power  plants. DEC                                                              
does not  exclusively provide  this service to  industry. It  is a                                                              
necessary  component of permitting  all sources  of emission.  The                                                              
permit program  will cover  its costs through  permit fees,  as it                                                              
does now.                                                                                                                       
CHAIR   OGAN  asked   if   DEC   is  requesting   any   additional                                                              
authorization for program receipts to cover the $900,000 cost.                                                                  
COMMISSIONER  BALLARD  said the  fiscal  note shows  exactly  what                                                              
positions will be necessary.                                                                                                    
CHAIR  OGAN  said  that  basically,  SB  116  appears  to  contain                                                              
technical changes  to the law. He suggested  requesting additional                                                              
positions in the Governor's operating budget.                                                                                   
COMMISSIONER  BALLARD  said  all  of  the  positions  are  in  the                                                              
operating budget  proposal. However,  a statutory change  needs to                                                              
occur to  allow those  positions to be  as effective  as possible.                                                              
DEC's  present  statutes  and regulations  established  a  program                                                              
that  does  not  meet  the  needs   of  Alaska's  communities  and                                                              
industries because  they contain terms that are  inconsistent with                                                              
federal terms.  That inconsistency makes  it difficult for  DEC to                                                              
adopt, by  rule, federal changes.  The inconsistency  requires DEC                                                              
to  go   through  a  lengthy   site-by-site  or   permit-by-permit                                                              
process.  DEC will  charge more  to cover  the cost  of its  staff                                                              
increase, however it  would not be appropriate to  charge more for                                                              
an outdated  program so the  statutory changes are  necessary. She                                                              
explained  that  in the  spirit  of  the Governor's  request  that                                                              
increased  costs  to  budget components  be  offset  by  decreases                                                              
elsewhere, DEC's  budget contains  a fairly significant  reduction                                                              
of other  activities in  order to  focus on  this effort.  DEC has                                                              
proposed  a net  reduction of  positions in  order to  accommodate                                                              
the growth of this core program.                                                                                                
CHAIR  OGAN  asked  why  DEC  provided   a  fiscal  note  if  this                                                              
increased cost is being "washed out" by other cost savings.                                                                     
COMMISSIONER   BALLARD  said  the   fiscal  note  fulfills   DEC's                                                              
requirement to communicate  to the Legislature the  precise fiscal                                                              
impact of  the legislation.  Even if DEC  raises its  permit fees,                                                              
it needs  the Legislature  to appropriate  increased revenue.  She                                                              
noted that  a requirement  of the  federal Clean  Air Act  is that                                                              
the program fees cover the cost of the program.                                                                                 
SENATOR ELTON asked  if SB 116 will only cover  stationary sources                                                              
of emissions and not apply to cruise ship emissions.                                                                            
COMMISSIONER BALLARD deferred to Tom Chapple for an answer.                                                                     
MR.  TOM  CHAPPLE, Director  of  the  Division  of Air  and  Water                                                              
Quality,  DEC, told  Senator Elton  that  SB 116  does not  change                                                              
anything  relative  to  cruise   ships;  it  addresses  stationary                                                              
sources that require permits.                                                                                                   
CHAIR OGAN asked if SB 116 makes any substantive changes.                                                                       
MR.  CHAPPLE replied  that  the  terminology changes  will  change                                                              
terms  in state  law to  comport  with federal  terms. That  major                                                              
feature of  the bill will allow  DEC to streamline the  program by                                                              
both adopting  the federal  rules and the  court cases  behind the                                                              
federal  rules.  He  explained that  whenever  a  question  arises                                                              
about  what  a term  means  when  DEC is  implementing  a  permit,                                                              
people do  not have to ask  whether DEC's terms differ  from terms                                                              
in  the  decisions  made  in four  court  cases.  Using  the  same                                                              
terminology will save costs to both industry and the state.                                                                     
CHAIR OGAN  asked why, in spite  of the streamlining,  the program                                                              
will cost more.                                                                                                                 
MR. CHAPPLE  told members  that SB  116 is  a step forward  toward                                                              
timely, responsible,  predictable permits.  DEC's past  record for                                                              
construction permits,  which are required  to build a new  mine or                                                              
power plant,  takes an average  of 254  days. That is  not timely.                                                              
SB  116  will   allow  DEC  to  accomplish   efficiencies  through                                                              
streamlining but that  alone will not enable DEC  to issue permits                                                              
in 90 to 120 days, which would be timely.                                                                                       
CHAIR  OGAN said  his  line of  questioning  reflects his  concern                                                              
about the "disconnect"  between the bill and the  fiscal note. The                                                              
bill will  streamline the permit  process by changing  terminology                                                              
to  comport with  federal rules,  but  it necessitates  additional                                                              
COMMISSIONER BALLARD  said if DEC  does not make both  changes, it                                                              
could  not  achieve   the  promised  result.  Both   changes  were                                                              
presented together  because DEC believes they are  inseparable. It                                                              
would be pointless  to put more manpower into  the existing permit                                                              
program  because it  is cumbersome  and does  not achieve  for the                                                              
permit holder  the opportunities  to conform to federal  programs.                                                              
SB  116 alone  will  not allow  DEC  to achieve  the  efficiencies                                                              
because it  will not have  the manpower  to use the  better tools.                                                              
DEC believes  they belong  together and, in  the interest  of full                                                              
disclosure, they  ought to  be presented as  one piece. SB  116 is                                                              
necessary to  gain the  efficiencies that  the manpower  will use;                                                              
the manpower is needed to make the bill real.                                                                                   
SENATOR SEEKINS  asked if SB 116  will enable DEC to use  the same                                                              
terminology as  the federal  government so that  SB 116  in itself                                                              
will  not  create  additional  expense,  but  implementing  it  to                                                              
reduce the permit process time will require additional staff.                                                                   
COMMISSIONER BALLARD  said that  is correct. Certain  requirements                                                              
in  the  bill  will, in  and  of  themselves,  require  additional                                                              
effort,  which  DEC  believes will  be  beneficial.  That  entails                                                              
reallocating  minor  sources  to  a  permit-by-rule  category  and                                                              
writing  some new  general permits.  Some of  the work  associated                                                              
with  this  bill  is  over  and  above  DEC's  current  permitting                                                              
regime. That  alone will  not achieve the  result expected  by the                                                              
communities and industries that need these permits.                                                                             
SENATOR  SEEKINS  noted  the  funding  source  identified  on  the                                                              
fiscal  note is  the 1093  Clean  Air Protection  Fund*. He  asked                                                              
what the asterisk signifies.                                                                                                    
MR. CHAPPLE  explained that  the user  fee revenues are  deposited                                                              
into  the Clean  Air  Protection  Fund.  That dedicated  fund  was                                                              
created in Alaska  law in 1993 because the Clean  Air Act requires                                                              
the  operating  permit  program   to  be  a  dedicated  fund.  DEC                                                              
realized  since then  that only  the operating  permit program  is                                                              
supposed  to have  dedicated  protection.  The revenues  generated                                                              
from  construction  permits and  minor  source permits  should  go                                                              
into a different  fund - the Emission Control Permit  Fund. SB 116                                                              
will create  that new fund. The  asterisk signifies the  year 2006                                                              
because that  is when  DEC believes  the funds  need to  be split.                                                              
Until DEC accomplishes  the permit reforms, it  will be impossible                                                              
to say how much should go into each pot.                                                                                        
CHAIR  OGAN referred  to  page  2 of  the  fiscal  note and  read,                                                              
"...the accounting  for the air permits will change  to align with                                                              
requirements of  the Alaska Constitution...."  He asked  what part                                                              
of  the  current program  is  out  of alignment  with  the  Alaska                                                              
MR. CHAPPLE  answered under the  Alaska Constitution,  a dedicated                                                              
fund can  only be established  if it is  required under  a federal                                                              
law  provision. This  change will  allow  only the  fees from  the                                                              
operating  permit program  to  go into  the  Clean Air  Protection                                                              
Fund  to  align  with  federal  law.  Right  now,  the  fees  from                                                              
construction permits  and operating permits go into  that fund and                                                              
that is not consistent with the Alaska Constitution.                                                                            
CHAIR OGAN asked why that is being done.                                                                                        
MR. CHAPPLE said DEC is trying to correct the problem.                                                                          
CHAIR  OGAN  asked   what  portion  of  the  bill   addresses  the                                                              
dedicated fund.                                                                                                                 
MR. CHAPPLE said that is in Section 34 on page 17.                                                                              
CHAIR  OGAN   asked  if  changing   the  conforming   language  in                                                              
regulation will be a one-time expense.                                                                                          
COMMISSIONER  BALLARD said  that  is correct.  She explained  that                                                              
the  fiscal  note   anticipates  DEC's  fiscal  year   '04  budget                                                              
request.  It  is  conceivable  that  DEC  will  need  a  different                                                              
staffing configuration or number in later years.                                                                                
There  being  no   further  questions,  CHAIR  OGAN   took  public                                                              
MS. MARILYN  CROCKETT, Deputy Director  of the Alaska Oil  and Gas                                                              
Association  (AOGA),  told  members that  an  AOGA  representative                                                              
participated in DEC's  stakeholder work group that  put together a                                                              
package  of recommendations  to  streamline  and  enhance the  air                                                              
emissions permit  program. The group  met on a regular  basis over                                                              
a  four-month period  and  wrestled with  the  problem of  reduced                                                              
emission  fee revenues  and the  challenge of  timely issuance  of                                                              
permits. Members  unanimously supported  the work group's  report,                                                              
issued in December.  The commissioner has adopted  that report; SB
116  is  one   result.  AOGA  has  not  had   the  opportunity  to                                                              
scrutinize the  bill, but she  understands, from the  briefing she                                                              
received from  Mr. Chapple and Mr.  Kuterbach, that the  intent is                                                              
to implement  those recommendations.  If SB 116 accomplishes  that                                                              
intent, AOGA  supports it and applauds  DEC for proposing  it. She                                                              
advised  members that  AOGA might  propose some  minor changes  to                                                              
the  legislation.  AOGA agrees  that  the statutory  changes  will                                                              
allow  DEC to  adopt a  more federalized-looking  permit  program,                                                              
which  will  resolve  a  lot  of the  problems  that  come  up  on                                                              
individual permits.                                                                                                             
CHAIR OGAN informed  Ms. Crockett that the committee  will hear SB
116 in about  two weeks and asked  her to submit comments  by that                                                              
MS. CHARLOTTE MacKAY,  representing herself, told  members that SB
116 removes  the necessary  obstacles  to allow  DEC to adopt  the                                                              
work group's  recommendations.  The work  of restructuring  is yet                                                              
to be done and  she believes the fiscal note will  help enable the                                                              
process  to  continue.  She  said  DEC  has  been  very  open  and                                                              
receptive to outside  suggestions. She believes that  by following                                                              
the work  group's recommendations,  DEC will  be able  to maintain                                                              
its high  level of  protectiveness while  concurrently creating  a                                                              
more responsive and predictable air permit program.                                                                             
MR. TADD  OWENS, Executive  Director of  the Resource  Development                                                              
Council  (RDC),  said  that  although the  RDC  did  not  formally                                                              
participate  in the  work group,  several RDC  members had  direct                                                              
participation in that  process. The RDC is pleased  to see DEC and                                                              
the  Administration come  forward  with SB  116  to implement  the                                                              
recommendations from  that work group. The RDC believes  SB 116 is                                                              
part  of  a   comprehensive  effort  to  streamline   the  state's                                                              
permitting systems. He made two comments in regard to the fees:                                                                 
     It's our understanding  that under the old  air program,                                                                   
     those  fees that were  charged on  an hourly basis  will                                                                   
     now fall  under the old HB  361 that was  passed several                                                                   
     years ago.  Under that fee  structure, the RDC  supports                                                                   
     very strongly.  I would also  like to commend DEC  for -                                                                   
     the  committee has  discussed  the fiscal  note of  this                                                                   
     bill and I  believe Commissioner Ballard noted  that the                                                                   
     overall  DEC  budget reflects  that  there's  a gain  in                                                                   
     this  program  and  they've made  adjustments  in  other                                                                   
     areas  to make sure  that their  overall budget  request                                                                   
     has  come  in  flat.  We  very   much  appreciate  their                                                                   
     efforts on that behalf as well.                                                                                            
CHAIR OGAN asked  if he is aware of any discussion  about who will                                                              
bear the cost of the increase in user fees.                                                                                     
MR. OWENS  replied  that it is  the RDC's  understanding that  the                                                              
fees  that  were  previously  charged   on  an  hourly  basis  for                                                              
construction  and  operating  permits  will  now  fall  under  the                                                              
legislation  that  the RDC  and  its members  spearheaded  several                                                              
years  ago. The  RDC feels  very comfortable  with the  sideboards                                                              
that legislation  puts on fees  charged to permit  applicants. The                                                              
RDC  also feels  very comfortable  with the  division between  the                                                              
costs borne  by the  private sector and  the overhead  costs borne                                                              
by DEC.                                                                                                                         
There being no one  else wishing to testify, CHAIR  OGAN asked for                                                              
a  sectional analysis  of  the substantive  changes  that will  be                                                              
made if the legislation is enacted.                                                                                             
MR. JOHN KUTERBACH,  manager of the Air Permits  Program, gave the                                                              
following explanation of specific sections of the bill.                                                                         
Section 12  (page 5) makes  two changes.  It allows DEC  to exempt                                                              
operations  from  getting  an  operating   permit  to  the  extent                                                              
allowed under  federal law.  Under DEC's  current statute,  if EPA                                                              
exempts a  source, DEC  is to  follow suit.  However, it  does not                                                              
specify what  to do  when EPA's decision  is pending.  Federal law                                                              
allows DEC to  exempt an operator under that  scenario; Section 12                                                              
allows DEC to follow that federal law.                                                                                          
He explained that  federal law lists a class of  sources for which                                                              
EPA is supposed  to decide whether  a permit is required.  EPA has                                                              
not yet  made a decision  on most of  those categories  of sources                                                              
but it allows states to defer permitting.                                                                                       
CHAIR OGAN  asked what would  happen if  DEC takes a  more liberal                                                              
interpretation  of the  law than  the federal  agency and  whether                                                              
DEC can back-pedal if it has issued a permit.                                                                                   
MR.  KUTERBACH  explained that  would  fall  under DEC's  Title  5                                                              
permit program  so DEC would submit  a proposed regulation  to EPA                                                              
for approval.  He then continued with the sectional analysis.                                                                   
Section 12  also requires  permits for  the minor [source]  permit                                                              
program that are categorized under regulation.                                                                                  
Sections  13  and  14 establish  the  minor  permit  program.  The                                                              
language  that  requires  permitting  of minor  sources  from  the                                                              
major source permitting  programs is removed in Section  13. It is                                                              
re-established  under Section 14  as the  minor permit  program to                                                              
provide a  clear distinction in  statute between the  major source                                                              
permitting program,  which will  cover construction  and operating                                                              
permits, and the minor source permitting program.                                                                               
CHAIR  OGAN asked  for a  description of  the differences  between                                                              
the two programs.                                                                                                               
MR.  KUTERBACH  said  the major  source  permitting  programs  are                                                              
actually set up  in the Clean Air Act for operations  with a large                                                              
potential for  major sources of  air pollution. The  federal rules                                                              
contain  what  is  called, "new  source  review,"  which  includes                                                              
prevention of  significant deterioration  (PSD) permits  for large                                                              
industrial  operations   or  large  increases  of   pollutants  at                                                              
existing operations.  The permitting process for  those operations                                                              
is  very  extensive;  the  permits  are referred  to  as  Title  5                                                              
permits. They are  for operations with large sources  of pollution                                                              
or  sources  subject  to  federal regulation  that  may  apply  to                                                              
smaller  units.  It is  on  those  smaller unit  federal  emission                                                              
standards  that EPA  must decide  whether an  operating permit  is                                                              
required. Those sources would be deferred.                                                                                      
SENATOR BEN STEVENS  referred to language on page 5,  line 21, and                                                              
asked  whether the  phrase,  "has  the potential  to  emit" is  in                                                              
federal law.                                                                                                                    
MR. KUTERBACH said it is.                                                                                                       
SENATOR BEN STEVENS asked how that determination is made.                                                                       
MR.  KUTERBACH  said  the  evaluation   is  based  on  the  actual                                                              
measured  ability  of  sources  to  emit  pollutant  and  on  some                                                              
assumptions  about how those  sources would  operate. The  federal                                                              
definition,  which DEC would  incorporate  by reference,  bases it                                                              
on the  maximum amount  of emissions  the facility  could  emit in                                                              
one year  based on the  design of the  equipment and  any approved                                                              
limitations to that emission.                                                                                                   
SENATOR BEN  STEVENS expressed  concern that  the words,  "has the                                                              
potential to emit"  are very ambiguous and asked  whether DEC must                                                              
follow strict guidelines in that evaluation.                                                                                    
TAPE 03-13, SIDE B                                                                                                              
SENATOR BEN  STEVENS noted he has  the potential to be  as wealthy                                                              
as Warren Buffett  but he doesn't know whether  he'll realize that                                                              
SENATOR ELTON said he hopes so.                                                                                                 
CHAIR  OGAN asked if  DEC hires  consultants  or has engineers  on                                                              
staff to make that determination.                                                                                               
MR. KUTERBACH  said the evaluation  is technical in nature  and is                                                              
based on the  engineering design of the equipment  and the maximum                                                              
ability  of  that equipment  to  emit  pollutants. He  noted  that                                                              
physical principles are involved.                                                                                               
SENATOR BEN STEVENS  thanked Mr. Kuterbach for  the clarification.                                                              
He  then  asked  why  the phrase,  "as  having  the  potential  to                                                              
violate the  ambient air quality  standards" was deleted  on lines                                                              
MR. KUTERBACH  explained that the  technical evaluation  of having                                                              
the  potential to  violate  ambient air  quality  standards has  a                                                              
much less  technical basis behind it.  It is very easy  to measure                                                              
the exhaust  of a boiler  and multiply  that measurement  by hours                                                              
and  days.  It  is  much  more   difficult  to  predict  how  that                                                              
pollution  will distribute  through  the atmosphere  and  possibly                                                              
violate ambient air quality standards.                                                                                          
SENATOR  BEN  STEVENS  commented  that in  his  way  of  thinking,                                                              
having the  potential to  emit is essentially  the same  as having                                                              
the potential  to violate the  ambient air quality  standards but,                                                              
because  technical guidelines  are used,  he would  not press  the                                                              
matter further.                                                                                                                 
MR. CHAPPLE  told members that the  language on both lines  17 and                                                              
21 that mention  the 100 tons per  year and potential  to emit 250                                                              
tons per year are  based upon federal law, which  defines those as                                                              
large sources.   The Clean  Air Act is  based on the  premise that                                                              
states  need  to  identify  what sources  have  the  potential  to                                                              
violate ambient standards  and manage those sources.  In the past,                                                              
DEC has  lumped both  small and large  sources together  under the                                                              
construction  and  operating  permit   program.  Those  are  being                                                              
separated in SB 116. He stated:                                                                                                 
     And  so,  ones  that  have   the  potential  to  violate                                                                   
     ambient  standards  tend to  be  the smaller  ones  even                                                                   
     though  the bigger  ones will  too. It's  just not as  -                                                                   
     the  federal law  says clearly  when  you're above  this                                                                   
     amount,  you have  the potential  to be  a major  source                                                                   
     and  the potential  to  violate health  standards.  It's                                                                   
     the smaller  ones - it's where  we have done  other work                                                                   
     to  say  a   source  smaller  than  100  tons   in  this                                                                   
     situation,  or  this  type   of  source,  could  violate                                                                   
     public  health standards  and  therefore  put them  into                                                                   
     the minor  source permitting  program.  We think  that's                                                                   
     an  improvement  because  we can  streamline  the  minor                                                                   
     source   permitting.   That's  the   separation   that's                                                                   
     occurring in this section, Senator Stevens.                                                                                
SENATOR BEN  STEVENS then  referred to Section  3(b)(4) on  page 2                                                              
and noted  that a new section  AS 46.14.130(c)(2) is  being added.                                                              
He felt that language  is ambiguous. He asked if  Section 14 (page                                                              
6) contains the  reasons for issuing a minor  permit and expressed                                                              
concern that  the phrase, "the potential  to violate" gives  DEC a                                                              
lot of latitude.                                                                                                                
MR.  KUTERBACH  said  that  language   does  give  DEC  a  lot  of                                                              
latitude,  however,  the  language  on  page 2  deals  with  those                                                              
regulations that  must go through  special procedures in  order to                                                              
be adopted  by DEC. The special  procedures include a  peer review                                                              
of DEC's determination of the need for that regulation.                                                                         
SENATOR  BEN STEVENS  asked if  Section 3  on page  2 pertains  to                                                              
MR. KUTERBACH  said that  is correct. He  explained the  intent of                                                              
Section  3 is  to update  the cross-reference.  DEC currently  has                                                              
this broad  language about the  public health effects  distributed                                                              
both in  the construction and operating  permits. That is  what is                                                              
cross-referenced  in Section  3  on line  25. It  removes the  old                                                              
cross-reference   and   puts   in  a   new   cross-reference.   AS                                                              
46.14.010(b)  or Section  3 specifies  that certain  types of  DEC                                                              
regulations  must  go through  extra  procedures  in order  to  be                                                              
SENATOR BEN STEVENS  said it looks to him like  SB 116 streamlines                                                              
and will be more  definitive but yet adds a new  subsection, which                                                              
is very broad.                                                                                                                  
CHAIR  OGAN   suggested  that  Senator   Stevens  meet   with  Mr.                                                              
Kuterbach to discuss the matter.                                                                                                
MR. KUTERBACH continued with his sectional analysis.                                                                            
Section 15  adds a phrase that  recognizes that DEC does  not want                                                              
to use the  same processes for  minor source permits that  it uses                                                              
for the major  source permits and  adds an exception to  the types                                                              
of regulations  that DEC has  to adopt  in order to  implement the                                                              
permit program.  Minor source  permits are  exempted. That  allows                                                              
DEC  to decide  what is  most appropriate  for the  type of  minor                                                              
permit that regulations are being developed for.                                                                                
Section  17  eliminates  an  application   deadline.  The  current                                                              
operating permit  program has two  application deadlines:  one for                                                              
existing facilities  and another  for new  facilities that  do not                                                              
require construction  permits. The second application  deadline is                                                              
not in federal  law and it  only applies to minor  facilities that                                                              
need  an operating  permit but  not a  construction permit.  Since                                                              
the minor  permits will be pulled  out, very few  facilities would                                                              
fall under this deadline so DEC recommends that it be removed.                                                                  
Section 20 is new. It adds a deadline for issuing minor permits.                                                                
Section  23  recognizes that  a  public  comment process  will  be                                                              
unnecessary  for a  majority of  the minor permits  and refers  to                                                              
the ad  judicatory hearing  requirement only  if a public  comment                                                              
process is required or solicited.                                                                                               
Section  25  is a  new  section  that specifies  requirements  for                                                              
general  minor  permits. DEC  currently  has  a section  under  AS                                                              
46.14,  which allows  general permits.  That  language comes  from                                                              
federal   rules  for  major   permits  and   does  not   recognize                                                              
explicitly that  the permit can  be valid for operations  that are                                                              
mobile. The  intent is to explicitly  say that the  general permit                                                              
can  be used  for operations  that move  around. However,  because                                                              
the other  language is important  for the major  source permitting                                                              
program, it was retained.                                                                                                       
Section  26 adds a  phrase required  by federal  language  for the                                                              
major  operating   program   and  specifies   that  is  what   the                                                              
restrictions are for.                                                                                                           
Section  28 changes  the fee  structure  from hourly  fees to  the                                                              
flat fees based on AS 37.                                                                                                       
CHAIR OGAN asked which are greater.                                                                                             
MR.  KUTERBACH said  most people  would  say the  hourly fees  are                                                              
greater. He continued.                                                                                                          
The  current  AS  46.14.240  contains an  explicit  list  of  what                                                              
services hourly fees  can be charged for. Section  28 changes that                                                              
to the  flat fees.  Section  30 says that  DEC is  not allowed  to                                                              
directly  charge  qualified small  businesses  for  some of  those                                                              
permit services  under federal  Title 5  mandates. Those  services                                                              
must be paid for from emission fees.                                                                                            
Section 31 pertains  to a change on page 15, line  31. At present,                                                              
DEC  is supposed  to  periodically  review  its fees  every  three                                                              
years.  AS 37  requires that  review  to occur  every four  years.                                                              
Section 31  changes the three-year  requirement to four  years for                                                              
the sake of consistency.                                                                                                        
Section  32  changes  the current  statutory  requirement  to  use                                                              
emission fees  for cost recovery  from operating permits  only. It                                                              
specifies   that    emission   fees   will   also    support   the                                                              
implementation of minor permits or construction permits.                                                                        
Section  34   establishes  a  new   receipts  account.   When  the                                                              
construction permit  fees and minor permit fees  are separated out                                                              
of the dedicated fund, they will be placed in this new account.                                                                 
Section  35  simply  adds  minor permits  to  DEC's  authority  to                                                              
terminate, modify, or revoke permits.                                                                                           
Sections 48 through  60 contain the permit definition  changes. In                                                              
every  case, DEC  has  tried to  replace  the  department term  or                                                              
definition of  a term with  its federal equivalent.  One exception                                                              
is   Section  59,   which  adopts   the   federal  definition   of                                                              
"stationary source,"  which corresponds  to the Alaska  definition                                                              
of  "facility."  However, the  Alaska  definition  has one  unique                                                              
situation not covered  in the federal definition,  that being that                                                              
Alaska has  both floating  and onshore  processors. DEC's  current                                                              
statute treats them  the same. The state definition  explains that                                                              
a vessel  can also be  considered a facility  if it is  engaged in                                                              
an  industrial operation.  The  federal rule  does  not make  that                                                              
distinction so it  has been retained so that  onshore and offshore                                                              
processors are treated the same under the permit program.                                                                       
CHAIR OGAN asked why that is being done.                                                                                        
MR. KUTERBACH said  it retains the decision made in  1993 to treat                                                              
them the same way.                                                                                                              
SENATOR ELTON said  his guess is that was done to  make sure there                                                              
is  an  equal  playing  field  between  those  who  have  invested                                                              
onshore and those who have not.                                                                                                 
CHAIR  OGAN  asked  if  DEC  currently  gets  emission  fees  from                                                              
MR. KUTERBACH  said this covers  what DEC currently does;  it will                                                              
not add any new  facilities. If DEC were to change  to the federal                                                              
definition without  including offshore  processors, they  would no                                                              
longer be  regulated under the  permit program. He  explained that                                                              
Sections 61  through 63 provide  for the transition  period. While                                                              
SB 116  removes a  lot of  impediments to  streamlining, DEC  will                                                              
have to  promulgate regulations  to get  the minor permit  program                                                              
established and  up and running.  These sections provide  for that                                                              
time period. Sections  64 through 66 address the  effective dates.                                                              
The  majority of  the changes  become  effective immediately.  The                                                              
sections changing  the fee from an  hourly fee to a flat  fee take                                                              
effect January  1, 2005  to give  DEC time  to determine  what the                                                              
flat fees  should be and to  establish the necessary  regulations.                                                              
Section 66 establishes  that the separation of  the dedicated fund                                                              
will occur in 2006.                                                                                                             
4:48 p.m.                                                                                                                     
CHAIR OGAN  thanked the  DEC participants  and closed  the hearing                                                              
on SB 116. The committee took up SB 44.                                                                                         
            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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