HOUSE BILL NO. 160 "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." ERNESTA BALLARD, COMMISSIONER, DEPARTMENT OF ENVIRONMENTAL CONSERVATION testified in support of the legislation. She read from prepared testimony as follows: Mr. Chairmen and members of the committee, thank you for the opportunity to testify today on behalf of the Governor's air permit reform legislation, HB 160. Governor Murkowski is committed to enhancing Alaska's economy through resource development. He is equally committed to protecting Alaska's environment. It is not an either/or proposition. A strong economy will generate the revenue base to continue funding our important regulatory programs. Without a strong economy we cannot hope to have a strong government. Over the last 30 years, we have learned much about the environmental and health hazards associated with air pollution. We have also learned much about emission control technologies, air modeling and protective ambient air standards. Through national and state legislation we have recognized our shared value of environmental protection along with the many other core values that form the framework for government regulatory programs. Environmental protection is not incompatible with resource development. Rather, it is as fundamental a component of resource development as are labor and worker safety laws. Governor Murkowski and members of his Cabinet recognize that Alaska's laws taken together form the framework for a successful resource development strategy. Environmental laws are one of the many equally important pieces of the public policy mosaic. They are no more, and no less important. This bill will improve the process and function of underlying state policy to protect the environment. It does NOT change the protective standards already in place and administered by the Department through existing regulation. Through DEC's proposed FY 04 budget we intend to sharpen our focus on our core responsibilities. House Bill 160 is essential to achieving the results promised in our budget proposal. HB 160 achieves permit reform. As you can see - reform requires attention to detail. The bill is long with many reference changes. Reform means re-engineering the way we do business. These proposed changes in law will substantially change the mechanisms of permitting. Moreover, the bill makes way for many more changes that we can accomplish through revised regulations. The ultimate result will be a timely, predictable and rational program that will meet business and development needs without sacrificing air quality. Our legislative proposal is based on two important developments of the last several years. One was a benchmarking study conducted by the department. We reviewed the funding and workforce allocation in the air programs of states that we consider comparable in workload and complexity to Alaska. Alaska has an unusual air program. Although we have a small population, we have a high number of air permits: as many operating permits as the State of Colorado, and as many major new permits as the state of New Jersey. We discovered in our benchmarking study that we simply have not funded, staffed or organized our program adequately to do the job applicants expect. House Bill 160 and the program increase proposed in the Governor's budget will allow us to remodel our permit program in line with successful programs in other states. The second development that guided our proposal was the Air Permit Work Group - a stakeholder group convened last year. The Work Group carefully reviewed our program against the federal Clean Air Act and the EPA rules that have been amended several times establishing new programs and control concepts. Our state permitting program has not kept pace with the national regime or the needs of Alaskan communities and industry. The Work Group report is in your packets and the work group recommendations are incorporated into HB 160. Specifically, this bill: · Creates a predictable, timely and rational permitting program. · Changes how we regulate minor sources using more standardized permit conditions based on best management practices. Our present "permit by rule" program works for the oil drilling rigs. We want to expand the concept and apply it to more situations. For our population size, we have many more mobile and portable plants and machinery than most states. We need the tools to work with this unusual but essential fleet. · Exempts sources from permitting to the extent allowed under federal law. · Streamlines permitting for the major sources in Alaska by matching our procedures to those in federal rules. · Achieves efficiency through adopting federal rules by reference - this will make it much easier for us to permit rural power plants - we will be able to use the so-called "clean unit test" to avoid a detailed site by site technology analysis. I want to take some time to explain our zero fiscal note. The bill itself does not warrant a significant increase in staffing. However, reform and streamlining alone will not obtain the desired result. On-time permitting in a fast changing resource development climate can only be achieved through a combination of reforming the process and increased staff. Without additional staff, the important changes achieved through the legislation cannot be delivered.   We are asking for an increment in the Governor's FY 2004 Operating Budget to increase staffing for permitting and field functions and to hire contractors to handle fluxes in permitting demands - both critical components to achieving overall success. The direction in which I am leading the department is based on my commitment to develop sound, understandable standards, spend time in the field and enforce the law when it is necessary to achieve compliance. I have proposed additional staffing in this program to fulfill my commitment. A well run air permit program is essential to the economic and social well being of our state. I also want you to know that while we are increasing this very important program, we have looked closely at our mission and have reduced our services so that we are only providing those that are essential to our mission of protecting public health and the environment. With this increment as well as several other small increases in core permitting programs the department still has an overall net reduction of 13 positions and $153,000. Co-Chair Harris MOVED to adopt the Committee Substitute for HB 160 (FIN), Work Draft (23-GH1059\D). There being NO OBJECTION, it was so ordered. Co-Chair Harris referred to the fiscal note (#1, DEC, 3/3/03) and asked if the numbers were correct. Commissioner Ballard clarified that the new fiscal note (3/26/03) was actually a zero fiscal note. She explained that in preparing the initial fiscal note, the department followed instructions to reflect that the amount was included in the FY 04 budget and would therefore be "zeroed out". She noted that a subsequent meeting with Co-Chair Williams' staff clarified that the appropriate course of action was actually to prepare a zero fiscal note. Co-Chair Harris asked if positions would be added and pointed out that seven new positions reflected in the previous fiscal note did not now appear on the new fiscal note. Commissioner Ballard responded that new positions were intended to implement the new program. She maintained that the legislation could not be properly implemented without additional staff and that staff needed the new legislation to improve the permitting program. Co-Chair Harris referred to the previous fiscal note and asked about funds to be received from the Clean Air Protection Fund. Commissioner Ballard clarified that the Federal Clean Air Protection Act established a permit program, paid for through permit fees. She stated that collected fees would offset the entire cost of the budget request increment. She did not feel it was appropriate for the Department to raise fees in order to upgrade the program. Co-Chair Harris contended that the previous note was more appropriate. He noted, however, that although the spending was increased, the program did not seem to impact the overall governmental budget. In response to a question by Co-Chair Harris, Commissioner Ballard responded that the seven new positions would work with existing positions in an entirely new program. Co-Chair Harris asked for a definition of a major versus a minor source. Commissioner Ballard responded that a major source might be a power plant, whereas a minor source might be an asphalt plant. Representative Joule asked about the differences between the Committee Substitute and the original bill. Commissioner Ballard deferred to Mr. Chapple. She noted the Department's review and support of the Committee Substitute. TOM CHAPPLE, DIRECTOR, DIVISION OF AIR AND WATER QUALITY, DEPARTMENT OF ENVIRONMENTAL CONSERVATION provided information regarding key changes in the Committee Substitute. Mr. Chapple referred to Section 12, on page 5 of the Committee Substitute, sub-section (f), pertaining to facilities exempt from permitting. He noted the language change of "exempt or defer", since some federal rules speak of deferring a source if a permit were required at a later point. He also referred to Section 13, line 12 of the same page, pertaining to construction permits. He noted that current statute indicates numbers regarding quantity per year of emission, but left some criteria to regulation. He explained that the changes specified the federal cutoff values, linking it to the federal regulation. Mr. Chapple also referred to page 7, Section 15 of the bill, line 21, where a new sub-section (2) is added, dealing with monitoring, record keeping and reporting requirements. He noted that the new provisions linked with federal rules about monitoring permits. Mr. Chapple then referred to Section 25, on page 12, under "General minor permits". He briefly defined these permits, and stated that the section allowed general permits for minor sources. He noted previous confusion over the permit holder. He maintained that the language clarified the permit user. Mr. Chapple also referred to Section 26 under Temporary operations. He referred to line 27, changing the number from thirty to ten days. He noted that federal rules had not been drafted at the time of the original bill, and that the federal rules now specifies ten days, a time period which also corresponds to industry needs. Mr. Chapple referred to Section 54, page 23, which defines the term "modification". He noted that the citation was more specific in federal regulations, and that the new language corresponds to federal regulation. Mr. Chapple referred to Section 59, on page 25, which adds definitions of "major modification" and "major stationary source". He also referred to Section 62, page 25, which adds a new sentence placing a requirement on the department to adopt regulations recently adopted by the Environmental Protection Agency (EPA). He emphasized that the regulations were important to the state of Alaska. Co-Chair Harris asked if the Department had received statewide feedback from various groups regarding the legislation. Mr. Chapple responded that they had heard predominantly from the Stakeholder Group, representing the oil and gas and mining industries, as well as members of the Prince Williams' Sound and Cook Inlet advisory councils. He noted that those parties engaged in substantive discussion about the bill throughout the late summer and early fall. Co-Chair Harris asked about the differences between the modified Alaskan statute and federal law in terms of emission standards. Mr. Chapple stated that the bill did not change "out of stack" limits, which still exist along with ground level limits, also known as ambient public health standards. He stated that the bill merely streamlined the process for timely permitting and attained efficiencies by better imitating federal standards. He explained that one efficiency moved "minor sources" from the major source permitting program and created a new, streamlined program. Mr. Chapple also stated that the Committee Substitute reflected conversations between the Sponsor and the Department, and that provisions had been thoroughly examined by DEC staff and the Department of Law. MARILYN CROCKET, DEPUTY DIRECTOR, ALASKA OIL AND GAS ASSOCIATION (AOGA) testified in support of the bill. She explained that her organization was a trade association of seventeen oil and gas companies in the state of Alaska. She observed that the oil and gas industry had long been involved in the air permitting process and an active participant in the aforementioned discussions to revise the state's regulatory program. She noted that the revised process allowed timelier permitting and more clearly defined fees. She also observed that the new program more clearly resembles the federal program. Ms. Crocket noted two changes in the Committee Substitute to which AOGA took exception. She noted a citation error in referring to federal rules: page 25, lines 2 and 5, referring to 40 CFR.165 and .166, should read 51.165 and 51.166. Representative Foster MOVED to accept the technical changes [CFR 51.165 and CFR 51.166] to the Committee Substitute. There being NO OBJECTION, it was so ordered. Ms. Crocket also referred to page 7, lines 21-25, pertaining to monitoring and reporting requirements. She noted the new language "but which may be supplemented by additional requirements that". She suggested that the language was not consistent with the recommendations of the Work Group. She noted the great challenge of monitoring and reporting requirements. She observed that Alaska's terrain and climate might sometimes result in additional or other monitoring requirements. She summarized that the oil and gas industry did not anticipate that the recommendation would add additional monitoring requirements, but rather enhance flexibility to take into account Alaska's situation. Mr. Chapple noted that the words that were developed in the Work Group were "take into account Alaska's unique conditions". He suggested that a change had occurred in the drafting process. He suggested that the words "supplemented by additional requirements that" be omitted. Representative Croft suggested "additional or different requirements" as a possible solution. After further discussion by Committee members, Ms. Crocket suggested that the sentence might read "but which may be modified to take into account this state's unique conditions". STEVE MULDER, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, testified via teleconference. He stated that either solution would be acceptable, but recommended the option of "additional or different". Co-Chair Harris recommended the solution of "but which may be modified to take into account", as suggested by Ms. Crocket. Representative Whitaker asked whether the intent was to establish a limitation as to compliance with record keeping, reporting and monitoring requirements. He speculated that the goals were for specificity and clarity. Mr. Chapple clarified that the intent was to be consistent with federal regulations, while allowing flexibility to respond to Alaska's unique conditions. In response to a question by Representative Whitaker, Mr. Chapple confirmed that this would provide more certainty to applicants as to requirements. Representative Croft emphasized that the bill did not change the overall standards. He referred to Page 9, which lists the substantive standards, and differentiated this from reporting requirements, which required more flexibility in Alaska. Co-Chair Harris pointed out that "modify" did not preclude additional requirements. There being NO OBJECTION, the Committee Substitute was amended to read "but which may be modified to take into account this state's unique conditions" (page 7, lines 24 and 25). TADD OWEN, EXECUTIVE DIRECTOR, RESOURCE DEVELOPMENT COUNCIL (RDC) testified via teleconference in support the amended version of the Committee Substitute. He read from a prepared statement as follows: Thank you, Mr. Chairman. For the record my name is Tadd Owens, I am the executive director of the Resource Development Council. RDC is a private, non-profit, business association representing individuals and companies from Alaska's oil and gas, mining, timber, tourism and fisheries industries. Our membership also includes electric utilities, local communities and Native regional and village corporations. RDC's mission is to help grow Alaska's economy through the responsible development of the state's natural resources. RDC supports the amended version of House Bill 160 and we ask the House Finance Committee to move the legislation forward. I would like to thank DEC for not only establishing a Work Group to evaluate the department's air permitting program, but also for taking action on that group's recommendations. While RDC did not formally participate in the Air Program Work Group, several of our members did and we endorse their recommendations. Working in cooperation with the regulated community, DEC has successfully addressed many of the air program's major weaknesses and inefficiencies. HB1 60 provides DEC with additional flexibility in administering the air program and it simplifies the permitting process for those in the regulated community. Specifically, this bill accomplishes the following: • It allows DEC's program to remain consistent with the federal program on a long-term basis • It differentiates between major and minor source permits and standardizes the requirements for minor permits • It restructures the program's fee schedule making the costs more transparent and predictable for applicants In or view, this legislation will result in more efficient review of permits allowing agency staff more time and resources for the field work necessary to protect Alaska's air quality. HB1 60 also creates a much more user-friendly process for those in the regulated community. The legislation has RDC's strong support. HENRIK WESSEL, ENVIRONMENTAL OFFICER, GOLDEN VALLEY ELECTRIC ASSOCIATION testified in support of the Committee Substitute and thanked the Working Group for their recommendations. He noted that his group was a non-profit cooperative serving 90 thousand residents. He commended the legislation for streamlining the permitting process, while still protecting the environment. Representative Foster MOVED to report CSHB 160 (FIN) out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. Committee Substitute HB 160 (FIN) was REPORTED out of Committee with a "do pass" recommendation and a new zero fiscal note from Department of Environmental Conservation. TAPE HFC 03 - 39, Side B