CS FOR SENATE BILL NO. 110(FIN)(efd fld) "An Act relating to regulation of the discharge of pollutants under the National Pollutant Discharge Elimination System." KURT FREDRIKSSON, ACTING DEPUTY COMMISSIONER, OFFICE OF THE COMMISSIONER, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, new commissioner, provided written testimony: Mister Chairman, members of the Committee, I am pleased to testify today in support of this Bill authorizing the Department of Environmental Conservation (DEC) to assume primacy for the National Pollutant Discharge Elimination System (NPDES) permit program from the federal Environmental Protection Agency (EPA). Governor Murkowski and I believe passage of this legislation will allow Alaskans to better protect the State's water resources and build a strong economy. With me today is Dan Easton, Director of the Department's Division of Water to provide you with the details of how this bill was developed. Under federal law all discharges to surface waters must be permitted under the NPDES permit program to protect water quality. Community sewage treatment facilities, construction of storm water drains on more than one acre, seafood processors, log transfer facilities, ballast water discharge facilities, mining operations, oil and gas operations, and fish hatcheries all must have NPDES permits to operate. There are currently over 2300 regulated permit holders in Alaska under the NPDES permit program. The federal Clean Water Act is founded on the principle that the rights of states to manage water quality within their borders should be protected. The Clean Water Act includes provisions for a state to assume primacy from the Environmental Protection Agency (EPA) for issuing NPDES permits for discharges to surface waters within the state's borders. In states that do not assume primacy, EPA runs the NPDES program. Like four other states, Alaska has never pursued the opportunity provided by the federal Clean Water Act to shape the NPDES water pollution control permit program to fit our state's unique circumstances. The bill before you would allow DEC to develop a comprehensive water quality protection program where all program components, from legislative budgeting and oversight to fieldwork and enforcement, are conducted here in the state, where Alaskans can shape solutions to fit Alaska's challenges. Without this legislation, EPA will continue to be Alaska's water quality permitter. EPA makes the permit rules and review timeframes. EPA decides what goes into the permits and who gets inspected. EPA decides how Alaska's water quality standards will be applied to specific discharges. EPA sets Alaska's water quality priorities. EPA decides what's important for Alaska and what's not. As you know, Governor Murkowski has an ambitious agenda for the responsible development of Alaska's natural resources. The Governor has pledged to improve permit efficiency without a rollback of environmental protection. However, as long as EPA runs the NPDES permit program in Alaska, DEC cannot fix what we don't control. We can't establish appropriate performance measures with the legislature for timely permit actions, we can't establish the state's annual permit and environmental protection priorities, and we can't offer a timely appeal process that allows conflicts to be judged by Alaskans in Alaska. A state run NPDES permit program won't be free. When EPA issues permits in Alaska the costs are borne by the U.S. taxpayer. A state permit program will shift authority and responsibility to the state, but it will also shift some of the costs to permit holders and the state. State primacy for the NPDES permit program is a critical investment in the stewardship of Alaska's environment and development of our natural resources. It will better align regulatory requirements with real Alaskan conditions and the real risks to Alaska's water quality. A faster, more effective state permit program will be based on Alaska's priorities - not national "one-size-fits-all" priorities. DEC's permit priorities; level of effort and performance measures would be subject to annual review and approval by Alaskans through their elected officials in the state Legislature. If Alaska is to realize the promise of resource development, we must accept responsibility for managing Alaska's water quality by assuming primacy for the NPDES program. It's time we invest in the development of Alaska's resources by taking responsibility from the federal government to protect Alaska's environment. I respectfully ask that you vote to pass SB 110. 9:41:12 AM DAN EASTON, DIRECTOR, DIVISION OF WATER, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, explained that SB 110 was the result years of effort, starting in 2002. The legislation began with SB 326, which asked the Department to take a look at the consequences and benefits of state primacy for the National Pollutant Discharge Elimination System (NPDES) permit program. He gave a brief history of the process of looking at primacy. He acknowledged that there was a sizeable fiscal note. The Department currently has a staff of 30 and budget of $3.3 million, which would become part of a NPDES program. Senate Bill 326 indicated that there would need to be a staff of 43 and a budget of $4.8 million dollars [to implement state primacy]. The fiscal note indicates the difference. The Division of Water welcomes the opportunity for an all Alaskan program. 9:43:11 AM Co-Chair Meyer referred to the fiscal note and questioned if the industry fees are detailed in the program receipts. Mr. Easton clarified that it would take two years to implement the primacy. The fiscal note reflects an incremental increase as the state does more and more and can charger more and more. It will start modestly and build. The Division already collects some fees. He observed that, on average, fees would increase by 1.8%. 9:44:21 AM Representative Joule voiced concern that primacy might adversely affect the fisheries resource. He questioned the zero fiscal note from Department of Fish and Game. Representative Joule noted that the federal government recognizes tribal governments and noted that state primacy would affect their standing. Commissioner Fredriksson stressed that it is a questioned of accountability. He felt that the state could be more accountable than the federal EPA. He acknowledged that the Department of Fish and Game does play a roll. He felt that state primacy would allow them to be more responsive to local concerns and did not envision any change. The same entities would still be involved in review of the NPDES permits. 9:48:24 AM Representative Joule asked if the Department would actively seek some of that consultation. Commissioner Fredriksson replied yes. He maintained that the state would be able to work with the tribes in the constructing and permitting process. 9:49:27 AM JON TILLINGHAST, SEALASKA CORPORATION, spoke in support of the legislation. He noted that Sealaska is a federally recognized tribe. He stressed that that consultation with EPA has not always been good, while their consultation with the Department of Environmental Conservation had been good. 9:51:19 AM KEVIN RITCHIE, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL LEAGUE, noted that the AML supports the bill. He observed that the legislation would enhance local control and provide greater access and accountability. 9:52:06 AM DICK COOSE, FORMER ASSEMBLY MEMBER, KETCHIKAN, (via teleconference) voiced support for the legislation. The state needs to control its own future. He maintained that state management would be better than that of the federal EPA. He felt that the Department of Environmental Conservation uses better science and works better with people in the permitting process. He recounted problems with EPA. 9:55:44 AM LOIS EPSTEIN, COOK INLET KEEPER, ANCHORAGE, (via teleconference) expressed concern with the legislation and summarized written testimony (copy on file.) She stated that SB 110 accurately reflects the wish list from the industry members of the Department of Environmental Conservation's workgroup studying NPDES. She noted that because public interest groups were not allowed to participate in the work group their concerns were never addressed. She requested changes be made to the committee substitute in sections 1(b)(2) and 4(h)(3). She urged opposition to passage of the legislation. She listed three reasons for their opposition: 1. The high governmental cost of the permitting program; which only will grow as the state's industrial growth increases, 2. Ensuring a high-quality permitting program to protect Alaska's salmon and ether fish. 3. Ensuring governmental accountability to the public and Tribes, Ms. Epstein continued to explain that permittees could suffer with passage of the legislation. She maintained that according to SB 11's fiscal note, the legislature would need to appropriate, at a minimum, $1.5 million each year. These costs are for a service - wastewater discharge permit issuance - that the state now gets for free, This is a major change to DEC operations. She observed that the workgroup limited permit fees at 16% of program costs (compared to 57% of program costs paid by permittees in Oregon and 75-80% paid in Washington). She maintained that the increased costs would come from other state initiatives such as education or road maintenance. She asserted that industrial growth or growth among businesses with less than 20 employees could further increase costs. She stressed that the DEC fiscal note, prepared on April 25, does not show how fines will meaningfully reduce these new costs. The Fiscal Note does not estimate the NPDES fines likely to be received, only total fines historically received for all DEC programs. Ms. Epstein pointed out that the Department of Environmental Conservation would not get any more federal funding, since the state receives the maximum amount allowed for administering its Clean Water Act programs. While federal funding is projected to continue at the current level, the federal budget process in future years may decrease this amount, resulting in additional costs to the state. If the legislature fails to fund the program adequately in the futureit is likely that permit issuance would be slowed 7 and permit errors may occur, Since there is virtually no chance that EPA will take back the permitting program once it has been given to the state, permittees will suffer due to insufficient general fund resources. The workgroup's report states that permit fees "are expected to increase by a factor of 1.8, a substantial increase," including increases to municipal permit fees. Thus, both state and local costs will increase significantly should the state obtain NPDES primacy. Fiscal Note cost estimates are arguably low because proposed DEC staffing levels are insufficient to implement the program adequately. If the program is not carried out with sufficient technical and enforcement staff, water quality and fish habitat will decline. Currently, a total of 51 full-time equivalent (FTE) employees from EPA and DEC carry out the permitting program. DEC estimates reduce this number to 43 ETE, including a 38% reduction in program development staff (e.g., water quality standards staff), a 28% reduction in permitting staff, and a 16% reduction in compliance and enforcement staff. Ms. Epstein asserted that the reductions are serious and would change the nature and timing of permit issuance. She stressed that they are not opposed to NPDES primacy, but expressed concern the state of Alaska is trying to "do it on the cheap". She noted that the state of Alaska expects to spend only 52% of the resources that Washington State spends per permit. Ms. Epstein requested that the legislature obtain additional, detailed information from DEC on the adequacy of its staffing estimates, especially for technical and enforcement staff, and on the likelihood of EPA approving the permitting program with serious staff reductions in a state with numerous, large industrial operations. "Additionally, Cook Inlet Keeper and industry- members of the workgroup share a concern about the limited technical expertise at DEC and the likely use of consultants to develop permits. Problems with the use of consultants include potential conflicts of interest and the lack of long-term DEC staff experience with particular industries, which can result in technical deficiencies and costly staff inefficiencies, though conflicts of interest were discussed in the workgroup, Section 4(h)(4) needs to be amended to specifically prevent conflicts of interest for DEC consultants." Ms. Epstein summarized that NPDES primacy is a major undertaking with serious fiscal, fish and governmental accountability implications. 10:04:02 AM MIKE POLLEN, NTL ALASKA, INC, (NAI), FAIRBANKS, (via teleconference) noted that he had provided testimony to his representatives. He related a couple instances that occurred to him personally with testing laboratories in Fairbanks. He stressed that the EPA has not been timely in coming forward in providing standards or permits. He stated that he has worked with both the EPA and the Department. He felt that Department of Environmental Conservation staff are more confident and have the skills require for implementing the program. He supported the legislation, which is an economic issue and stressed the impact on mining and gas line project, which could be held hostage by a badly written contract and/or permit. He urged passage and funding of the positions. 10:08:51 AM STEPHANIE MADSEN, VICE PRESIDENT, PACIFIC SEAFOOD ASSOCIATION PROCESSORS, noted that she participated in the workgroup. She stressed that they are not limited to paying 16 percent of the Department of Environmental Conservation budget. She observed that under HB 360 in 2000, there was a formula of direct costs identified by the department. She acknowledged that the direct costs would go up. She felt that the increase costs would be worth it to have Alaskans interpreting Alaska water standards. She emphasized that the federal Clean Water Act would guide the program and EPA would still be available for consultations. She urged passage of the legislation. 10:11:09 AM CS SB 110 (FIN)(efd fld) was HELD in Committee for further consideration.