CSSB 41(FIN) - ENVIRONMENTAL AUDITS Number 1357 CHAIRMAN GREEN advised members they would next consider CSSB 41(FIN), "An Act relating to environmental audits to determine compliance with certain laws, permits, and regulations. Prime Sponsor Senator Loren Leman, and his staff person, Michael Pauley, would present the bill to committee members. MICHAEL PAULEY, Legislative Administrative Assistant to Senator Loren Leman, advised members that SB 41 was similar to legislation introduced in the 19th Legislature, which was then called SB 199. That bill passed the Senate and was also passed by the House Resources Committee and, unfortunately, the legislature adjourned before the House Finance Committee was able to consider the bill. MR. PAULEY advised members that the purpose of SB 41 was to create an incentive system to encourage self auditing. He stated that the purpose of self auditing was to bring about full compliance with regulations designed to protect the environment. The bill would encourage businesses and public institutions to integrate environmental protection measures into their normal operating procedures. MR. PAULEY pointed out that currently, more than 1000 of the world's largest corporations conduct self audits; however, SB 41 was an attempt to encourage smaller companies to adopt that practice as well. In addition, it was the desire that the bill would result in the expansion and improvement of existing audit programs. MR. PAULEY noted that 20 other states had passed some form of self audit legislation, most being very similar to SB 41, and also 8 other states were debating those measures in their legislatures this year. Mr. Pauley advised members that the laws had been very well received and had lead to increased compliance. He expressed that among the states with self audit incentive laws, many had environmental concerns that were similar to Alaska, such as Oregon, Idaho, Utah, Colorado and Wyoming. MR. PAULEY advised members that, in addition, legislation had been introduced in the last Congress to encourage self auditing through federal law. It was Mr. Pauley's understanding that that legislation would be re-introduced in the 105th Congress. Number 1473 MR. PAULEY advised members that the mechanism in SB 41 involved two incentives to encourage self auditing. The first incentive was limited immunity. Mr. Pauley explained that entities that conduct voluntary self audits would be immune from civil and administrative penalties for violations discovered, provided that several conditions were met. The regulated entity must take action to correct the identified problem and prevent its occurrence in the future. Immunity was not available for violations that had caused substantial off-site damage, or serious on-site injury. Mr. Pauley pointed out that there were several other conditions that must be met, but the ones he described were the most important. MR. PAULEY advised members that the second incentive was qualified privilege. He explained that the self critical analysis contained in an audit report would be considered privileged, and therefore, not admissible as evidence, or subject to discovery, in civil or administrative proceeding. Mr. Pauley pointed out that that provision recognized that an audit report, by its very nature, was a self incriminating document. It discovered problems, identified what personnel, or management deficiencies caused the problem, and also recommended corrective action. Mr. Pauley noted that studies had shown that many businesses had opted not to perform audits out of fear that the resulting reports would be used by agencies, or hostile third parties, as a road map to prosecution. MR. PAULEY advised members that as with the immunity benefit, the privilege had limitations and could be overcome if it was asserted for a fraudulent purpose, or if the regulated entity had failed to take required actions to correct noncompliance. MR. PAULEY pointed out that there had been a lot of talk lately about making Alaska open for business, and it was the sponsor's belief that SB 41 would help create a pro-business climate in the state of the Alaska. He noted that it made clear that the state was interested in having a cooperative, not a confrontational relationship with the business community. MR. PAULEY expressed that there had been nine proposed amendments that had been circulated to committee members, and of those, Amendment 3 and Amendment 9 were problematic from the sponsor's view point. It was believed by the sponsor that the other amendments were supported by the administration and the affected industries in the state, or they had no objection to their adoption. Mr. Pauley stated that the sponsor was willing to request a blank committee substitute to incorporate the amendments that were noncontroversial, and the committee could then proceed with those which met with controversy, which ever way the Chairman saw fit. Number 1611 REPRESENTATIVE BERKOWITZ asked if everyone had a copy of the Price Waterhouse survey. MR. PAULEY advised members he did not have a copy with him; however, he could provide the full survey to the committee. REPRESENTATIVE BERKOWITZ pointed out that he had received a letter, through the Chairman, from the U.S. Attorney in Anchorage, which expressed the impact of the proposed legislation. He asked Mr. Pauley if his office had had a chance to review that letter. MR. PAULEY stated that he had not read the letter, and a copy had not been sent to Senator Leman's office, although they would be very interested in reviewing that letter. He asked if the letter was from Mr. Bundy. REPRESENTATIVE BERKOWITZ stated that was correct. MR. PAULEY was then provided a copy, and noting its length, he expressed that he would refrain from offering any immediate comments to the letter. REPRESENTATIVE BERKOWITZ pointed out that Mr. Bundy was fairly critical of SB 41, and that he had interpreted some of the data from the Price Waterhouse survey differently than the Senator. Representative Berkowitz pointed out that Mr. Bundy felt SB 41 could have a negative impact on business. MR. PAULEY acknowledged that the federal government had not been enthusiastic about self audit incentive legislation, at least in the form that had been passed in most states. He felt it was fair to say that both the Department of Justice and the Environmental Protection Agency (EPA), had objections to similar legislation, and the Senator believed those objections could be answered, and did not believe, that in many cases, they had a lot of merit. MR. PAULEY stated with regard to the effect on the business community, all he could say was that in Alaska, the legislation had been endorsed by the State Chamber of Commerce, the Resource Development Council, the Alliance and many other business groups. He noted that, obviously, from the perspective of the many business groups who had reviewed the bill thought there was something beneficial for them. REPRESENTATIVE BERKOWITZ understood and respected the viewpoint of those organizations; however, he did note that one indication in Mr. Bundy's letter reflected that the Republican Governor was going to let a similar bill sunset, and that George Pataki, the Republican Governor of New York, would oppose any attempt to enact privilege and immunity in that state. So there was clearly a spectrum of opinions even from that side of the political agenda. Number 1744 CHAIRMAN GREEN asked if Mr. Pauley had access to, or information relating to the responses from other states who had enacted similar legislation, and their reaction to the kinds of objections that had been conveyed here. MR. PAULEY advised members that there had been some third party challenges to the self audit law in Colorado, and Democratic Governor Romer [Ph], had defended, vigorously, their state's audit law and pledged that he would commit the full resources of the state to defend those objections and law suits that had been raised against the Colorado Law. Number 1787 REPRESENTATIVE JEANNETTE JAMES advised members that a concern she had related to a business being exempt, or being granted amnesty from their reports. She stated that if Alaska wished to have a good, clean environment, it would require that the people do that, as opposed to government enforcing it. Representative James expressed that generally, she would encourage companies to conduct audits on themselves, whether or not it was required by the government or not. Representative James requested an explanation of the amnesty provision, because as she saw it, there was the possibility of someone conducting an audit that was damaging, and could then cover it up and it would never be found. MR. PAULEY advised members that there were a lot of conditions that would have to be met in order to be eligible for the immunity. He noted that he had often described SB 41 as creating a mine field for any bad actor who thought that they would gain some benefit from what the bill provided. Mr. Pauley directed members attention to page 7, which related to the immunity aspect of the proposed legislation. He advised members that immunity was not available if the violation reported posed a threat of causing substantial injury to people on-site, or substantial injury to person's property, the off-site environment. Mr. Pauley pointed out that they were generally talking about violations that were of a non-serious nature when considering immunity. MR. PAULEY noted that in the state of Texas, the kinds of violations that were typically reported involved displaying the wrong kind of labels on hazardous materials that were stored at the facility. Their wastewater treatment operators did not have their certifications up to date. Mr. Pauley reiterated that serious violations would not be considered eligible for immunity. MR. PAULEY stated that other things required in order to get immunity was to promptly disclose the violation and work with the appropriate regulatory agency, in the case of Alaska, the Department of Environmental Conservation (DEC), to bring about corrective action. He noted that there was a time table that would be necessary to follow with respect to the corrective measures that should be taken towards a violation. Mr. Pauley advised members that the time table required that any violation must be corrected within 90 days, unless a longer amount of time was negotiated between the business and the DEC. He advised members that another element also existed within the bill which would require the individual to implement appropriate measures to prevent the violation from occurring in the future. Mr. Pauley noted that it was not just fixing an existing problem, but making sure that it would not occur again, and to consider what systems would necessary to assure that it would not happen again. MR. PAULEY stated that Senator Leman believed that the proposed legislation provided a rather extensive list of caveats and conditions placed on the ability to get immunity. Number 2017 REPRESENTATIVE JAMES advised members that she thought a self audit concept would provide for better compliance because there was the incentive to regularly police themselves which they otherwise might not do because of waiting for the state to go in and conduct the audit. She was surprised to hear people from the environmental community, and others, being concerned that the proposed legislation would make things worse, as well as forgiving people for being in noncompliance. Representative James asked if Senator Leman had answers that would respond to those concerns that had been expressed, or if it was just a fear they had that a self audit would not work. MR. PAULEY advised members that the sponsor did feel he had answers to the concerns that had been expressed and believed that they were addressed in the bill. He assumed that people from some of the environmental groups would be testifying and he would be available to respond to the issues raised by those people if the Chair so desired. CHAIRMAN GREEN suggested that there could be some entities who, just prior to being audited by the state, would rush out and quickly audit his premises, and then point out whatever to the inspector in hopes to receive some degree of immunity. Number 2343 REPRESENTATIVE CROFT referred to the Bundy letter on page 5, which indicated that Idaho did sunset its law because the governor found it had no tangible benefit. He noted that the states of Utah and Texas were revisiting the issue because of compliance problems. Representative Croft pointed out that to the extent SB 41 was modeled after those laws, he would like to hear a response to why those states were changing their laws. He expressed that Mr. Pauley could respond to that at the next hearing after having the ability to review the Bundy letter. REPRESENTATIVE CROFT stated that on a theoretical level, he understood the reasons for the argument for keeping a self audit confidential. He asked with respect to the immunity clause, if the EPA, or federal government had a procedure of lesser penalties if someone promptly disclosed a violation, and if SB 41 provided immunity if something was promptly disclosed. Representative Croft asked why it was appropriate to absolve an act of irresponsibility, rather than provide an incentive that provided for a minimal penalty. MR. PAULEY advised members that part of the answer to Representative Croft's question was contained in the intent language of the bill on page 1, beginning on line 5; "As environmental regulations evolve, performance-based standards will increasingly replace the traditional command-and-control approach of state regulatory practices." He explained that what that meant was that there were a couple of ways to measure how the state was enforcing environmental compliance. Mr. Pauley pointed out that the success could be measured by the number of fines that had been imposed in a given month, how many people had been sued and brought to court, or, it could be measured on performance based standards. He stated that that would involve determining what percentage of a regulated community was actually in compliance, because the two realities were not necessarily the same. Mr. Pauley pointed out that the reason that was the case was because the state's departments did not have unlimited budgets, in fact the budgets were shrinking with each passing year, and there were simply not enough inspectors to inspect every facility out there. MR. PAULEY advised members that the bill was an attempt to encourage a system where people were policing themselves. He expressed that some of those audits cost hundreds of thousands of dollars for some of the larger companies. Mr. Pauley stated that if a company were to spend a lot of money on a compliance inspection and they found violations that they knew they would get fined for, they would more than likely say, why bother. So, providing immunity for violations that were inadvertent violations of a non-serious nature would bring more people into compliance with regard to those types of violations. REPRESENTATIVE CROFT felt Mr. Pauley's explanation was very well said; however, felt very few people would get immunity for turning themselves in, that most of the criminal analogies he had reviewed provide some sort of reduced penalty, if you take the action required. Representative Croft questioned the purpose of going all the way to providing immunity in order to accomplish the goals of the proposed legislation. MR. PAULEY advised members that immunity had been the pattern in self audit legislation that had been passed in 20 other states. Penalty immunity was the incentive that was provided. The EPA policy which offered reduced penalties at agency discretion, that the sponsor believed, and was the view of many people in the business community, that it was sufficiently nebulous as to how much a penalty would be reduced. Mr. Pauley pointed out they were talking about punitive penalties, not economic benefits that someone might have realized for being out of compliance, nor did the bill address the costs for fixing a problem. He noted that if a person self disclosed a violation, they would be automatically bound by the conditions of the law that they would be required to address any damage caused, and also it would be necessary to implement a system that would prevent the same kind of violation from occurring in the future. Mr. Pauley expressed that those were other things that could cost money and the investment of resources on the part of the business. He reiterated that the immunity clause would protect one from being assessed punitive fines and penalties, adding that they were only talking about things in the civil, administrative sphere. Mr. Pauley advised members there would be no immunity to things that fell within the criminal sphere. REPRESENTATIVE CROFT asked where the bill referred to the economic benefit being recovered. MR. PAULEY advised members that could be found on page 10, line 9, and essentially what it said was, "the owner or operator, after taking into account the cost of completing corrective and remedial measures realize substantial economic savings in not complying with the requirement for which a violation is charged." Mr. Pauley stated that, basically, after fixing the problem and taking the remedial measures and after subtracting for those costs, if it was still evident that the person had realized an economic benefit over their competitors, then the government could collect the difference. Number 2441 CHAIRMAN GREEN noted that Mr. Pauley stated that the bill would only affect civil actions, and asked where a situation would fall whereby some company had had a out-fall line. that was improper and felt the pinch coming, so they point out that they had, inadvertently discovered the problem, and so they change it from a criminal penalty to a civil penalty. He asked if there would be immunity in a situation such as that, or would it require an act of committing perjury in order to deny knowing about the violation. MR. PAULEY was not certain about the specific example cited by Chairman Green; however, pointed out that language on page 9, line 23 would allow for no immunity if it was found that the owner or operator claiming the immunity had intentionally, knowingly, or recklessly committed or authorized the violation. With the hypothetical situation put forth by Chairman Green, Mr. Pauley felt that appeared to be a deliberate action by the company who was in noncompliance. CHAIRMAN GREEN, for clarification purposes, asked if the proposed legislation would provide for a loophole for a criminal prosecution by including an immunity clause because if the violation was caught it would be criminal, but because it was a volunteered, self audit report, it would then be considered a civil violation. REPRESENTATIVE BERKOWITZ pointed out that that was one of the concerns raised by the U.S. Attorney in his letter, that frequently a prosecution might arise following an administrative action, and if there was immunity granted in the administrative action that the discovery process of the administrative action could lead to a criminal prosecution down the road. TAPE 97-50, SIDE B Number 000 MR. PAULEY stated that it seemed in either case that there would be a burden on the prosecutor to show that it was a knowing violation. In viewing it from the other analogy where the person did not voluntarily report a violation and was discovered later as a result of an inspection, that a decision would still have to be made whether a civil case was appropriate, or if it would be considered a criminal case. Mr. Pauley did not believe the proposed legislation made that determination any more or less difficult than it would be otherwise. REPRESENTATIVE PORTER expressed that there was no immunity for a criminal act, and if the proof was available to prove a criminal act had taken place, there would be no immunity. REPRESENTATIVE BERKOWITZ felt one could get into an Oliver North situation where evidence might come out in an immunized setting, whereby evidence could be used in one forum; however, it could not be used in another forum because it was immunized. REPRESENTATIVE PORTER advised members if an allegation was criminal that anything that had transpired would be admissible because there was no immunity, or confidentiality provided in a criminal case, that it is not allowed under statute. LISA KIRSCH, Counsel to House Judiciary Committee, felt that possibly what Representative Porter was referring to was a circumstance where the action was initially brought as a criminal action. She believed that Representative Berkowitz referred to a situation where the violation originally arose in a civil action where the testimony was immunized, and that at point they discovered a potential criminal action. The criminal action would be filed later, and in that circumstance Representative Berkowitz might have a good point. REPRESENTATIVE PORTER believed the criminal charge would overcome the immunity granted in a civil context. MS. KIRSCH noted that she had just received the letter from U.S. Attorney Bundy today, as everyone else had, and had not had the opportunity to review it in detail. However, she believed that the concern that Mr. Bundy raised, was that there could be circumstances where a violation would begin as a civil action, then become immunized, and because of that, a problem would arise in an attempt to use the evidence in a criminal context. Ms. Kirsch stated that to her, there was a colorable legal argument, although she would have to investigate it further to be certain. She pointed out that one problem was that they did not know what the bill was going to do yet, and perhaps they could look to other states' experience to see how it had worked within the context of their evidentiary rules, and that could possibly explain why other states had questioned the legislation. REPRESENTATIVE BERKOWITZ advised members that there had been an example in the state of Alaska with respect to the Exxon-Valdez oil spill. He pointed out that when Joe Hazelwood ran aground, he stated that he had banged into the rocks; federal immunity kicked in regarding the spill, and that immunity was granted and was attached to the state criminal action against him. Representative Berkowitz pointed out that that was one of the reasons Joe Hazelwood's criminal conviction was overturned. Number 160 CHAIRMAN GREEN advised members the issue under discussion was something that needed to be followed up on, possibly through the state's Attorney General's Office, and/or the experience of other states. REPRESENTATIVE BUNDE asked how being immune from a civil penalty would play into a private party bringing a civil suit, as opposed to having a reduced civil penalty and a private party bringing a civil suit after that process had taken place. He explained that under one scenario, a person conducts a self audit and was subsequently immune from any state civil action, and utilizing the same scenario with a reduced penalty, rather than immunity, would in turn result in civil action against the individual. Representative Bunde asked if it was more likely to more standing for the ensuing civil action because the person had been found guilty, even though at a reduced rate, or did the state action have no standing at all in the ensuing civil action. REPRESENTATIVE BUNDE for clarification purposes, advised members that his question dealt with a concern expressed by Representative Croft as to why not just have reduced penalties rather than immunity, and asked if one or other of the scenarios have a likely impact other than civil suits brought by private parties. MR. PAULEY advised members he was not prepared to provide a definitive answer to Representative Bunde's question. He understood the question to be what impact the proposed legislation would have on third party law suits, but he was not sure he could see, in SB 41, how it could have the impact Representative Bunde was inquiring about. REPRESENTATIVE BUNDE stated that his ultimate goal of the question was to see if that might be more reason to provide for immunity than partial penalties being imposed. REPRESENTATIVE JAMES expressed that in trying to understand the hypothetical that had been presented, it would appear to her that if a business conducted an environmental audit and disclosed the outcome which resulted in a series of things which they were immune to, as well as some violations they were not granted immunity for. She stated that it did not appear to her that they would get into a civil action and claim immunity because the only resulting action would be to determine if there was a violation that did not fall under the immunity clause, and that could mean that it might fall under a criminal action. Representative James stated that in response to Representative Bunde's question, that immunity in that case would be better than a reduction of a penalty because reducing the penalty would be a result of a civil case. Representative James believed that the initial challenge would be to determine whether the violation was immune, which would either provide evidence for criminal action or not. Number 378 REPRESENTATIVE PORTER stated that to the extent that a third party claim for a violation having caused some outside damage to private property, or public property, he believed would be covered under page 10, line 9, subsection (3), which provided exceptions to the immunity clause, that; "the owner or operator, after taking into account the cost of completing corrective or remedial measures within a reasonable time and implementing appropriate measures to prevent recurrence", and pointed out that if those stipulations were not carried out, immunity would not be granted. REPRESENTATIVE ROKEBERG stated that he would like to speak to the supremacy clause, or the primacy issues about the differential between federal and EPA regulations and state regulations and standards. He asked if presently there were instances that the bill would affect where state regulations were in effect. Representative Rokeberg pointed out that clearly, SB 41 focused on state regulatory activity; however, it had come to his attention that there were a number of gray areas in which the EPA and the definition of environmental law as contained in the bill, referred to both federal and state regulations. And the fact that members had a letter from a United States attorney, indicated that there was federal interest involved because of the area where the issues were melded together. REPRESENTATIVE ROKEBERG asked if the bill only related to a breach of state regulations, or was it a joint authority between both federal and state jurisdictions, and if so, how would that work. MR. PAULEY advised members that the bill applied to state laws; however, added that federal laws would override it if the gray areas came about when there was a federal law that was implemented by the state. He stated that primacy of those programs had been an issue in some other states that had passed self audit laws; however, he was happy to report to the committee that two weeks ago, the state of Texas, and the Federal EPA worked out an agreement where if Texas agreed to make certain changes to their audit law, that they could retain the ability to implement all the state delegated programs that they had from the federal government. Mr. Pauley explained that the changes that the state of Texas was required to make were changes that had already been added into SB 41 through the committee process. He stated that after reviewing the Texas EPA Settlement, they felt very comfortable that SB 41, as written, would not cause problems with the EPA, in so far as state delegated programs, although the government was still opposed to self audit laws as a concept. MR. PAULEY pointed out that the federal government did not like the legislation. He stated that in a lot of areas, the states were on the cutting edge of policy development and Washington D.C. lagged behind. Mr. Pauley expressed that it was the view of the sponsor, that that was the case with SB 41; that the EPA had resisted such a policy in every state that had attempted to implement it. He advised members that he had spoken with John Riley, the Director for the Enforcement Office for the Texas Natural Resources Conservation Commission, and they were extremely enthusiastic about the effect of the self audit law in that state. He noted that Mr. Riley had faxed him a list of well over 400 companies who had given audit notices to his agencies regarding self audits they planned to conduct on their companies. Mr. Pauley advised members that Mr. Riley also faxed samples of violation disclosures that those companies had sent in, which he would be happy to provide the committee because they could provide a real sense of taking the concept out of the abstract and see how it worked in real life. MR. PAULEY advised members that the reports consisted mainly of minor violations, such as the water treatment officers not being properly certified, stored chemicals in which the label did not reveal all the information required by state law, et cetera. REPRESENTATIVE ROKEBERG expressed that Mr. Pauley spoke exactly to his second question, which was in many instances that the EPA enforced various different congressional acts and provided for daily penalties or daily fines. Those then begin to cumulatively add up, and asked if the state of Alaska, similarly, had daily type fines and were they mandated by the EPA as part of their enforcement regime to do that. Number 712 CHAIRMAN GREEN pointed out that Janice Adair, with the Department of Environmental Conservation was available to testify, and could probably respond to some the concerns expressed by committee members. MR. PAULEY advised members that he did not have anything to offer in response to Representative Rokeberg's question, and felt Ms. Adair could. CHAIRMAN GREEN agreed that in some cases the federal government provided primacy to the state, but in other cases the state was enforcing federal law, and if a company came forward and admitted a mistake under state law and was provided immunity, what would occur with respect to federal prosecution. MR. PAULEY advised members that the federal law always had primacy, and if a federal law, implemented by the federal government, that neither privilege nor immunity would apply to a case such as that. SB 41 only spoke to state enforcement, although as he had indicated before, there were certain programs where the federal government had delegated the enforcement authority to the state's Department of Environmental Conservation. And those would be covered under the proposed legislation. REPRESENTATIVE BERKOWITZ stated that through reading the U.S. Attorney's letter he did not see it as a conflict between state rights and federalism, and questioned what sparked introduction of SB 41. CHAIRMAN GREEN asked that Senator Loren Leman join Mr. Pauley at the witness table. SENATOR LOREN LEMAN advised members he brought SB 41 to the attention of the legislature last year, and it had been brought to his attention during a meeting of the Energy Council approximately two years ago which was an organization of 10 states who had a tremendous interest in energy, as did Alaska. He advised members that the other states had described their success and experiences, and in particular, Texas described their most recent success in passing legislation that would provide for some limited immunity and privilege for environmental and health and safety self audits. SENATOR LEMAN explained that he saw the practice as being very beneficial, and from his own background as a professional engineer working in that area, and from having clients from around the state express to him anecdotal stories of things that they might not know, or chose not to know because of their concern about the overreaching arm of government. He advised members that that was where the idea had originated and reiterated that 20 states had adopted similar legislation and eight other states were considering the similar legislation currently. Senator Leman expressed that to have Mr. Bundy, the U.S. Attorney, say the legislation was not necessary, flew directly in the face of evidence throughout the United States. He pointed out that, obviously, enough people believed it was necessary because not only was legislation being introduced, but it was being enacted. For that reason, he believed SB 41 would be a big step in helping small businesses in the state of Alaska, especially. Senator Leman did not believe the main benefit of the proposed legislation was to large companies, but to the "Moms and Pops" of Alaska because it would enable them to come into compliance with environmental law. Number 976 CHAIRMAN GREEN asked if Senator Leman could explain to the committee his opinion as to why there was such a reluctance from the overseers from both the state and federal government. SENATOR LEMAN advised members that it was his opinion that those in control in federal government wanted to continue to maintain that control. They preferred to have the command of control approach. The EPA had literally come kicking and screaming who had now seen policy changes in the EPA; however, Senator Leman wondered if they would have made those changes but for resistance and the new ideas taking place in the states. No, they would not have done that, so they are now saying that they can make some policy changes, because they now think it is appropriate, and in fact they were now saying their own department said it was their own policy. SENATOR LEMAN expressed that now when more than 25 states had implemented such a law that he felt it would provide an even greater incentive for the EPA to change its policy. Number 1085 CHAIRMAN GREEN asked that Patty Ginsburg, testifying from Anchorage, provide her comments to the House Judiciary Committee. Number 1285 PATTY GINSBURG, Staff person to the Prince William Sound Regional Citizens Advisory Council, (RCAC), advised members that their mission was to promote environmentally safe operations of the Alyeska terminal and associated tankers. Ms. Ginsburg stated that she could not emphasize enough RCAC's support of the underlying goal of SB 41. She stated that in their work with the industry and regulatory agency, they found that a cooperative approach was almost always more productive than the alternative. MS. GINSBURG advised members that RCAC was in support of the cooperative approach to encourage regulated entities to find and correct environmental problems. RCAC believed that goal could be met while still protecting the public's right to know and the government's responsibility to enforce. MS. GINSBURG stated that the bill, in its current form, went too far by granting blanket immunity from legitimate litigation for self disclosed offenses. She advised members that it was primarily that aspect of SB 41 that RCAC opposed. Ms. Ginsburg advised members that they believed that the blanket immunity was not necessary and did not serve the public interest. MS. GINSBURG pointed out that RCAC would suggest, in stead, that the bill prohibit agencies from initiating civil or administrative litigation based solely on an environment audit report. That was a provision used by the EPA in its policy and it made more sense. It assured both fairness to the regulated entity and provided appropriate protections to the public. Number 1214 REPRESENTATIVE ROKEBERG asked that Ms. Ginsburg explain for members what the Prince William Sound Regional Citizens Advisory Council was, who paid for it and when, and if it had a sunset provision. MS. GINSBURG advised members that RCAC did not have a sunset provision. She explained that the RCAC was a citizens advisory group funded almost entirely under contract with the Alyeska Pipeline Service Company. Ms. Ginsburg advised members that they were charged by Alyeska with advising them and the public on issues associated with an environmental safe operation of the terminal. Ms. Ginsburg stated that the RCAC actually predated the federal law because their contract with Alyeska was initiated and signed prior to the OPA 90 announcement. REPRESENTATIVE ROKEBERG asked if advisory councils were mandated under OPA 90. MS. GINSBURG advised members that OPA 90 set up a pilot program as a demonstration project after the oil spill for both Prince William Sound and Cook Inlet for the purpose of citizens being able to work with industry, and with regulators, to resolve issues of mutual concern. REPRESENTATIVE ROKEBERG asked if Prince William Sound and Cook Inlet were specifically created under OPA 90. MS. GINSBURG advised members that the law required that something like SB 41 be established in those specific geographic areas. She reiterated that it was a demonstration project with the idea that congress would look at those demonstration projects to determine if the oversight provided by RCAC should be required at other terminals. REPRESENTATIVE CROFT advised Ms. Ginsburg that he had a January 1997 EPA update which listed companies that were voluntarily disclosing under the EPA's procedures. He noted that there were two disclosures by Alyeska Pipeline, Prudhoe Bay, and one at Unocal in Cook Inlet. Representative Croft asked if Ms. Ginsburg had any additional information as to what had been disclosed, and if she did not currently have that information, if she could obtain that information for the committee. MS. GINSBURG stated that she did not have that information; however, could attempt to find out. Number 1482 MICHAEL HANUS, Senior Staff Engineer, Exxon Company USA, advised members he was testifying on behalf of the Alaska Oil and Gas Association, more commonly known as AOGA. He advised members that AOGA was a trade association with a 19 member company that accounted for the majority of oil and gas exploration, production, transportation, refining and marketing activities in Alaska. MR. HANUS advised members that AOGA was in support of the intent of environmental self audit legislation, which would provide immunity from penalty, and ensure confidentiality of the self audit. He pointed out that the majority of AOGA members currently conducted self audits as a means of assuring compliance, and saw value in legislation that encouraged greater utilization of self audits by providing immunity and privilege. MR. HANUS stated that immunity acted as an incentive for companies to identify, disclose, correct and prevent the reoccurrence of non- confined behavior. He stated that privilege would protect companies from unnecessary repercussions of disclosing audit results to agencies, and would preserve the integrity of the audit process. MR. HANUS advised members that looking for deficiencies, identifying them, disclosing them to the appropriate agencies, and correcting them was what self auditing was all about. He continued to state that self auditing was an important tool for voluntary compliance. Mr. Hanus stated that by providing privilege and immunity for self auditing, the state was saying that voluntary compliance with environmental laws and regulations was in the best interest of the state, as well as industry. MR. HANUS reiterated that AOGA was in support of the intent of SB 41, and believed the bill would move compliance in a positive direction through its encouragement of self auditing. Mr. Hanus advised members that they were hopeful that legislation, based on the intent of SB 41, could be passed, and encouraged the committee's support of the proposed legislation. DOUG DONEGAN, Vice President, Trident Seafoods Corporation, advised members he strongly supported CSSB 41. He believed that the bill would increase overall compliance with environmental regulations. Mr. Donegan advised members that his observation and experience, working both in the DEC and the seafood industry, was that there were two basic views of business in environmental regulation. In one view, operators were seen as people who avoid regulations to increase their profits. The second view involved people who were primarily responsible citizens who wished to comply with the rules, but due to the vast volume of regulations, they may not know what their responsibilities were and might be afraid to ask. Mr. Donegan advised members that through his experience, the second view point reflected the reality. His experience had lead him to believe that many violations occurred because of the sheer mass of regulations and various policies regarding their interpretation. MR. DONEGAN advised members that in the seafood industry, compliance was particularly problematic. Many operations were subject to the whole gamut of environmental regulations. Mr. Donegan expressed that they must meet requirements for the disposal of solid waste, disposal of carcass waste, disposal of hazardous substances, transportation hazardous substances, drinking water systems, air quality and fuel storage. Mr. Donegan expressed that compliance was sometimes made more difficult because of being a highly seasonal operation, with heavy employee turn over. MR. DONEGAN advised members that some facilities would stand a much greater chance of compliance if they would hire consultants to come in and assist them in understanding their responsibilities. Mr. Donegan reiterated that the fear of incurring staggering penalties for unknown violations had a chilling effect on operations. Mr. Donegan stated that SB 41 encouraged businesses to investigate their level of compliance and required that they remedy deficiencies, and rather than waiting for an inspector that might never come, they would be provided incentives to investigate themselves. Mr. Donegan advised members if it was the wish to have increased regulatory compliance, SB 41 would help in achieving that goal. He noted that the proposed legislation was not designed to protect criminals, not designed to let egregious violators off the hook, but designed to encourage facilities to investigate their operations and correct problems. Number 1664 REPRESENTATIVE ROKEBERG asked if Mr. Donegan could provide an idea of what an environmental audit might cost on one of his seafood plants, and also if he could speak to any of the types of penalties or fines that he thought he might be subject to which he felt the bill would preclude from happening in the future. MR. DONEGAN expressed that there were many different levels of environmental auditing that could come from things that were fairly focused, relatively inexpensive and that it would depend on the size of the operation. He stated that if it was a small "Mom and Pop" operation, it could get an environmental audit relatively inexpensively. Mr. Donegan advised members that he had heard quotes for full scale environmental audits of a large facility that would run into six figures. MR. DONEGAN stated that he thought, in terms of environmental penalties, that the potential was enormous. He stated, for instance with air quality, he believed the minimum penalty for the first day of violation was $500 and not to exceed $100,000, and then $10,000 per day for a violation for the first day. Mr. Donegan stated that if someone was inadvertently violating an air quality regulation, which could happen just through lack of knowledge, that by the time the person found out about it he could potentially incur an enormous penalty. After that point when they hire someone to investigate the facility they could suddenly find that they were facing penalties in the hundreds of thousands, and perhaps millions of dollars. Mr. Donegan advised members that sometimes that type of information could be used to extract things out of an owner or operator that might be termed unreasonable. Number 782 BOB SHAVELSON, Executive Director, Cook Inlet Keeper, advised members they were a 501 C3 nonprofit organization dedicated to protecting water quality in Cook Inlet. MR. SHAVELSON advised members that he had been working on the environmental audit issue for several years because it was an issue of great concern to him. He felt very strongly that privilege was the wrong way to go when looking at environmental compliance. Mr. Shavelson pointed out that there were comments made earlier that the state was on the cutting edge of policy breakthroughs and that EPA was behind the curve on that. Mr. Shavelson noted that he was not testifying to defend the EPA; however, suggested that they were certainly the first ones to get out of the gate on the issue, and they convened a National Stakeholder effort in Chicago and San Francisco several years ago with all the largest corporations and stakeholders in that, to review the issue thoroughly and decided not to go with "privilege". He advised members that they came up with a policy that recognized that immunity from certain civil penalties was a way to induce proper behavior, but they did away with the privilege idea because it was too extreme of a solution to a non-problem. MR. SHAVELSON stated that he would say it was a non-problem because there had been no demonstrated need that there was a problem. With all due respect to Senator Leman, and the anecdotal evidence that he cited, Mr. Shavelson stated that all the reports and studies he had seen from both sides of the issue had shown that responsible corporations and businesses were doing environmental audits. He expressed that there were a number of different studies available that clearly showed that people that were in business, that were concerned about environmental compliance, were already doing the type of work as suggested in SB 41. MR. SHAVELSON advised members that he also believed there was no evidence that the system worked in the states where the legislation had been passed. He stated that they could get information from the state of Texas that would reflect people were signing up under the law, but there was nothing to compare that to, to say how many people provided an audit if they had not had a similar law to work with. MR. SHAVELSON pointed out that another argument that was frequently made was that prosecutors would use environmental audits as road maps and puts the chill on auditing by companies. Mr. Shavelson reiterated that privilege was a very extreme solution to a non- problem, and pointed out that one commentator from the Attorney General's Office in Arizona made a comment and said that the environmental audit privilege was like replacing a brand new car because it had a flat tire. Mr. Shavelson felt that was an appropriate analogy because that was really what was being proposed through SB 41. The state would be taking an extreme step to get at a rather small problem. MR. SHAVELSON advised members that he believed the type of legislation before members was really anti-family, anti-worker, anti-community. He stated that if members reviewed some of the U.S. Supreme Court writings, and what they said in the case of former President Nixon; "that privileges and other exclusionary rules are not lightly created nor expansively construed, for they are in derogation of the search for the truth." He felt it was important that people consider that the Supreme Court refused to create a new privilege for the President of the United States. Number 2038 REPRESENTATIVE ROKEBERG stated that in the course of the oil and gas development in the Cook Inlet area, the offshore platforms, that even recently there had been fines that had been basically bookkeeping type fines which had required both Marathon Oil, and its predecessor Unocal, to pay significant fines over a period of time. He asked Mr. Shavelson if he thought there had been a harmful effect on oil and gas development in Cook Inlet. And also asked him if he thought it was fair to charge those fines based on administrative bookkeeping type issues when they, in fact, did not have any kind of negative impact on the environment. MR. SHAVELSON stated with respect to the second question, he did not see those as administrative bookkeeping violations. Those were right-to-know violations because it was the public's right to know about certain things. Mr. Shavelson advised members that if a corporation did not record the amount of pollution it was discharging in a report or document, then that document would not be available to a citizen who was concerned about subsistence resources, or other things. Mr. Shavelson expressed that he was not clear as to the first question asked by Representative Rokeberg. REPRESENTATIVE ROKEBERG stated that his first question related to if oil and gas development in Cook Inlet offshore drilling negatively impacted the eco system of Cook Inlet. MR. SHAVELSON believed there were a number of studies available that would reflect more information was needed. REPRESENTATIVE CROFT referred to the EPA report that showed Unocal had provided a voluntary disclosure on Cook Inlet, and asked Mr. Shavelson what had been disclosed and the reduction in penalty they received. MR. SHAVELSON advised members he did not have that information in front of him, but it was his understanding that on the Steelhead platform last summer, Unocal did an audit and they discovered that they were mixing some of the processed waste waters with some of their deck drainage. He pointed out that that was an illegal discharge that had apparently been going on for at least 10 years, including when Marathon owned the Steelhead platform. Mr. Shavelson advised members that in that case there had been 10 days of daily violations of the Clean Water Act, and as was mentioned earlier, the Clean Water Act imposed a substantial per day, per violation penalty. He expressed that the potential penalty there could have been astronomical, but because Unocal considered the problem itself, and reported it to EPA under their voluntary reporting system, Unocal got off with a relatively minimal penalty. Mr. Shavelson felt that was a classic example of how the EPA policy was acceptable without going to the extreme of enacting a privilege. REPRESENTATIVE PORTER asked Mr. Shavelson if he said that he felt that the revelations by businesses that had been reported in Texas, because of their law, would have occurred, or would have turned themselves in. MR. SHAVELSON advised members that he was saying that there was no evidence that would suggest that they would not have. REPRESENTATIVE BERKOWITZ stated if compliance reports or audits were made public, and the citizenry had a good idea of, for example, how little pollution was occurring, if Mr. Shavelson believed they might be more supportive of industry. MR. SHAVELSON agreed with that, adding at the national level, and uniformly across the board, it had been recognized that the more information that citizens are provided about a facility, the more comfortable they feel in discussing the issues. He noted that that in itself, making the information available to agencies and the public, had a very positive effect in getting industry and businesses to come into compliance. REPRESENTATIVE BERKOWITZ asked if it would then be fair to say, that in some cases, disclosure could be good for business. MR. SHAVELSON advised members he felt it was frequently good for business. TAPE 97-51, SIDE A Number 000 CHAIRMAN GREEN moved on to take testimony from Kenai, Alaska, and asked if Gary Hinkle was available to comment on SB 41 GARY HINKLE stated from the point of view of a small business operator that he supported the proposed legislation strongly. He advised members that the primary issue should not be compliance with the law, but the environment. Mr. Hinkle stated that the more easily the environment could be cleaned, the more people who encounter contamination would gladly and willing do it; the easier it was to accomplish, the more it would be done. MR. HINKLE advised members that he felt the state needed to even go further with the concept put forth in SB 41 to exempt property and individuals who get involved in contaminations that were unknown at the time of purchase. He did not mean to exempt those individuals from cleanup, but exempt them from any kind of criminal act or fine. Mr. Hinkle stated that a policy should be offered that would develop methods of cleanup only, and a new landowner should not be required in any case, to spend more than the equity in the land they just purchased. He noted that there had been several individuals on the Kenai Peninsula who had been very severely financially damaged by unknowingly buying land that turned out to be contaminated, and great hardships had been caused by total unknowing situations. MR. HINKLE reiterated his full support of SB 41, although encouraged members, and the legislature, to take it further to protect new landowners. REPRESENTATIVE ROKEBERG asked Mr. Hinkle of those who were penalized, if it was done so under federal law, or by state regulation. MR. HINKLE stated that to his knowledge the state operated, in the instances he was aware of, on behalf of the federal law, so believed it was based on the federal law; however, was administrated by the Department of Environmental Conservation. Number 405 JANICE ADAIR, Director, Division of Environmental Health, Department of Environmental Conservation, advised members that the department had been working cooperatively with the sponsor of SB 41, and appreciated his willingness to listen to the concerns of DEC, and to work with the department to address those concerns. MS. ADAIR advised members that besides working with the sponsor of the bill, they had talked with EPA and had reviewed what other states had done, and had looked into the department's own experiences to make sure they were upholding the public trust that DEC was required to fulfill to both protect the environment and business. MS. ADAIR pointed out that the "privilege" was actually very narrow and what was confidential was the work of the auditor. She stated that what was not privileged were any reports that any industry or company was required to submit to the DEC by virtue of statute, regulation, permit, lease or other contracts with the state and anything generated in the normal, daily operations of the business. Ms. Adair stated that all that was privileged was the critical self analysis that was done by the auditor, and the department felt that was a significant improvement over last year's version of the proposed legislation. MS. ADAIR advised members that the department was pleased when the sponsor reintroduced the bill without having it apply to criminal actions. She noted that she, too, had only just seen Mr. Bundy's letter, and thought the bill was probably not as clear on the criminal point as it should be, and that might be reevaluated. Ms. Adair stated that both for the department, and she felt for the sponsor as well, that the intent was not to cover criminal actions. MS. ADAIR noted that there was a provision in the proposed legislation for an in-camera review if someone felt that disclosure of the privileged information was necessary to have a fair trial because they could not get the information any other way. She pointed out that the reasons for disclosure were specifically address in the bill. MS. ADAIR advised members that one concern the department continued to have with the bill, which was one of the not agreed to amendments before the committee, Amendment 3, was the burden of proof and what would be necessary to have that disclose be granted. Ms. Adair expressed that the way the bill was currently written, the burden of proof was on the person seeking disclosure, and the department felt that was a burden of proof that could never be done. She explained that they would never see the document to be able to say that the audit document had information that was needed by the department. MS. ADAIR stated that the department felt a person should have to make a good faith showing that a reasonable person would believe that disclosure was necessary. Ms. Adair noted that she had recently read a book titled A Civil Action, which was an actual account of a law suit brought by a variety of citizens in a community against Beatrice Foods and a chemical manufacturer. She pointed out that it was a very good case history of an environmental law suit and how things could go wrong, as well as provided a good description of the in-camera review process and how the judge used that. It also addressed the types of things that a person would have to prove in order to get disclosure of privileged information. MS. ADAIR advised members that DEC currently had a policy of not seeking penalties for people who voluntarily disclose certain violations to the department. She expressed that the department wanted people to voluntarily disclose, and they wanted people to correct the violations, which was the department's primary interest. Ms. Adair pointed out that the department only had penalty authority for air violations, hazardous wastes and large oil spills. She advised members that the department was seeking penalty authority for drinking water violations, which would be an administrative penalty authority that was currently required by the Safe Drinking Water Act. Other than that, the department had no administrative penalty authority, but only civil penalty authority for the three ares she earlier referred to, and she felt that was important for members to keep in mind. MS. ADAIR advised members that the air program penalty authority was required as part of the delegation from EPA, and hazardous waste was put on the books when it was thought that the DEC would get authority for that program. She noted that oil spill penalties resulted from the Exxon-Valdez oil spill. MS. ADAIR stated that another area she wanted to point out were some of the protections the department had attempted to factor into the proposed legislation. She advised members that one that would be most important to the department was a notification requirement. Ms. Adair explained that a person who was going to conduct an audit who wanted to either have the privilege or the immunity apply, would have to give the department 15 days written notice prior to commencing the self audit. The written notice would require the individual specify the scope of the audit, when it would start, and generally, how long it would last, and she thought there was a 60 or 90 day deadline on how long the audit could last. Ms. Adair pointed out that if the audit was going to extend that time period, it would require the person to approach the department and negotiate a different time line. Ms. Adair explained that that was real important to the department because they did not want people to be able to shield things from the public. She noted that the sponsor agreed with that change. Ms. Adair pointed out that the Exxon-Valdez oil spill was one of examples the department had considered when discussing a notice requirement. MS. ADAIR advised members that the bill did not privilege underlying information, or facts, that related to a violation. Any documents that are required to be kept otherwise, as well as anything that a company created prior to, or after an audit had been completed, would not be subject to the privilege. Ms. Adair advised members that the department had the authority to look at an audit to ensure that the appropriate remedial action was taking place, and they felt that was a very important protection so the department would be able to respond to whomever, that the company was undertaking the appropriate remedial action. MS. ADAIR pointed out that the bill included a provision for voluntary disclosure to be a mitigating factor in setting a penalty if immunity did not apply for one of the reasons stipulated in the bill. She expressed that certainly working with the agency, to come to an agreeable solution on whatever violation might be found, would be part of getting immunity. However, it was important to remember that the vast majority of things were not privileged because they were already required by statute, or by regulation, to be disclosed to the department. MS. ADAIR advised members that she had met with the EPA during the Easter break in Seattle, Washington, and they told her that as far as the types of laws, such as SB 41, went across the nation, SB 41 was one of the best they had seen. All but one of EPA's concerns were addressed in the pending proposed amendments except for one which involved the delegation for MPDES, the Clean Water Act, the department would have to be able to penalize people for gross negligence. Ms. Adair pointed out that should the state ever go after MPDES delegation, that it would be a problem. Number 878 REPRESENTATIVE ROKEBERG noted that Ms. Adair had stated that it was not the policy of DEC to penalize people that disclose certain infractions, and asked if the department had the statutory authority to do that currently. MS. ADAIR advised members that the department always had enforcement discretion, which is what they used. The department had no specific statutory direction to do that. REPRESENTATIVE ROKEBERG asked if the department only had the ability to take civil actions that related to air quality, oil spills and hazardous wastes. MS. ADAIR explained that the department had penalty authority in those areas. REPRESENTATIVE ROKEBERG stated that under the Clean Water Act, the department would not have the authority to assess fines. MS. ADAIR responded that was correct, unless it also related to an oil spill, or a hazardous waste release. REPRESENTATIVE ROKEBERG stated that in conjunction with the Clean Drinking Water Act, there was a bill before the legislature currently that would provide the ability for the state to assess fines for violation, and asked if it was consistent with the federal policy, or would it just grant authority to the department. He was speaking to a portion of HB 51, and it was his understanding that without that law, the department had no ability to charge penalties currently, and that authority would be necessary to go forward with federal grants. MS. ADAIR advised members that when Congress reauthorized the Safe Drinking Water Act, in 1996, they added, as a condition of primacy, the ability to levy administrative penalties; HB 51, HB 71 and SB 50 all dealt with that added authority for the DEC in order for the department to retain primacy of the Drinking Water Act. She pointed out that the department had not gotten to a "drop dead" date from EPA yet as to when the department must have that authority, or when they would begin primacy withdrawal, it was not high enough on their list of priorities. REPRESENTATIVE ROKEBERG reiterated, then, that the department currently had primacy, but the provision was necessary to maintain the primacy. MS. ADAIR said that was correct. Number 1078 REPRESENTATIVE JAMES expressed that she was interested in Ms. Adair's testimony and pleased with her comments. She pointed out that she had heard the DEC say consistently, over the past few years, that they viewed their purpose was to assist people in following environmental law, as opposed to imposing penalties, and comments presented by Ms. Adair reaffirmed that position. Representative James stated that because the goal of the department was the same as hers, which was the goal of voluntary compliance, and asked Ms. Adair if she believed that by placing self audits into statute would provide some incentive for more people to self police, than what was current law. MS. ADAIR pointed out that that was a question she had contemplated for approximately one and a half years. She stated that she honestly did not know. Ms. Adair advised members that a part of her believed that a company or a business was either inclined to be in compliance, or they were not. She stated that she felt there was a lot of anecdotal information about what the DEC did, or did not do that was, frankly, not correct. Ms. Adair expressed that she was not sure that by passing a law people would not believe those stories anymore than they were inclined to not believe them now. Ms. Adair felt that voluntary compliance was always the best kind of compliance and the most long term. She thought it was necessary to encourage people to do the right thing, but it would be necessary to be prepared, in the background, to have some form action available if they did not. REPRESENTATIVE JAMES shared the concerns expressed by Ms. Adair, and advised members that she compared the issue of environmental compliance to all the other problems that currently existed. She pointed out that there were two mentalities, of which one was punish, and the other was encourage, and she had always believed that encouragement gets one further than punishment did. Representative James stated that the opposition to the proposed legislation came from groups who, through her experience, did not trust, and another aspect was that there had to be some trust, which she believed was one of the most valuable things a person had to deal with, and it had been destroyed so much over the years. Representative James stated that, "we don't know if we don't try", and she would hope they could measure some success in compliance and that the end result of environmental law would be for compliance, not for punishment. CHAIRMAN GREEN asked if it was not true that the DEC oversaw and enforced laws and regulations that were not just DEC regulations, but were actually on an agreement basis with the EPA. MS. ADAIR advised members it did not work like that exactly. She explained that the DEC had, in every case, their own, independent statutory authority, whether it was for solid waste, drinking water, contaminated sites, air quality, et cetera. In some cases, that statutory authority mirrored the federal law, or better, and the department was then delegated that program from the EPA to act in their stead. Ms. Adair advised members that it was not an exclusive jurisdiction because the EPA could always come in and take their own independent action because, they too, had their own independent statutory authority. MS. ADAIR explained that there were other cases where the EPA was not involved at all. She noted that a lot of the oil spill regulations were like that. OPA 90 was passed after most of the state statutes were passed, and there were some conflicts with Alaska law and OPA 90, and she did not know if they had been resolved or not. CHAIRMAN GREEN explained that the reason for his question was because with the potential for dual jurisdiction it could be possible that company A, in one case, would approach the DEC voluntarily, and would subsequently get hammered by the EPA, or visa versa, because they did not voluntarily approach both agencies because the other agency would also have access to the records. MS. ADAIR stated that in a case like that she felt it would work in the following manner. She felt there would have had to have been a failure, or perceived failure on the part of the DEC, before EPA would get involved in a program where the DEC had primacy. MS. ADAIR believed that a company would disclose to the agency who had primary enforcement authority. She stated that in the case of MPDES, that would be the EPA because it was their permit, and Ms. Adair would suspect that UNOCAL and Alyeska instances, mentioned by Representative Croft, were probably MPDES situations, which she pointed out was a guess on her part. MS. ADAIR advised members that the EPA used to contract with the DEC to conduct hazardous waste inspections, although she did not know if that was still the case. She pointed out that it was not that the department had primacy, but EPA actually provided funds to DEC on a contract sort of basis. Number 1554 REPRESENTATIVE ROKEBERG asked if the DEC set daily penalties in the areas where the department had primacy and the ability to enforce, or if they had a penalty schedule set out. MS. ADAIR advised members that she believed the statute, at least in the air bill, laid out a penalty schedule. She expressed that it had been awhile since she had reviewed the statute and could not recall if it addressed hazardous waste in that respect. REPRESENTATIVE ROKEBERG pointed out that there were provisions, for example in the Clean Water Act, where the state of Alaska had a regulation that was not covered by a federal regulation standard or criteria. Therefore, the state may have a regulation, or something, and asked if the DEC enforced that regulation in absence of a federal regulation. MS. ADAIR advised members that the department did have independent statutory authority from the EPA in many areas, including some water quality standards. REPRESENTATIVE ROKEBERG asked what she meant by independent statutory authority. MS. ADAIR advised members that the legislature had given the department the authority to do things, despite whatever the federal government may, or may not do. REPRESENTATIVE ROKEBERG asked how those were enforced, and if it was through civil penalties. MS. ADAIR advised members that the department enforced those through permit actions; not issuing a permit, through cajoling, through wailing and gnashing of teeth. REPRESENTATIVE ROKEBERG stated, for example, if there was an illegal discharge, how would the department find that person. Would they have to refer back to the MPDES permit and have the EPA actually do the finding. MS. ADAIR advised members if there was a discharge into a water body where there was no MPDES permit, the department would issue a NOV, a written Notice of Violation which would state that they violated, whatever. If it was a continuing violation, the department would try to negotiate with the party, a compliance order by consent whereby they would stop the discharge and take steps to prevent it from happening again. Ms. Adair pointed out that that document could include stipulated penalties where they agree if they did not meet the terms of the compliance order they would pay a penalty; however, reiterated that it was by consent and the party did not have to sign that document. She stated that in the most extreme case, the department could take the party to court and the judicial system would take it from there. Ms. Adair stated that if the violating party had a state permit, the department could suspend that permit. REPRESENTATIVE ROKEBERG stated that was why SB 41 was before the committee, that if in fact there was an operator discovered who was illegally discharging and they brought it to the attention of the department, the department would have the primary enforcement ability, and SB 41 would be applicable in that case. MS. ADAIR advised members that would not be the case. She explained that the bill would not privilege or immunize that action because it would have been in violation of a permit. Ms. Adair emphasized that in no case could a permit term be violated and be immunized or privileged. REPRESENTATIVE ROKEBERG thought that perhaps they could revisit that issue later. Chairman Green agreed, as neither were aware of that. Number 1777 REPRESENTATIVE CROFT stated that a lot of the primacy discussion regarding the other bill was interesting, if not directly relevant, because he did not believe HB 51, in its entirety, would be needed in order to keep primacy. MS. ADAIR thought that members could keep the portion that was HB 71. REPRESENTATIVE CROFT noted that Ms. Adair had stated that before the audit information was freely disclosable, and after an audit was disclosable would not be privileged. MS. ADAIR responded that that would involve information that was generated before and after. REPRESENTATIVE CROFT stated that his worry about the length of an audit was if there was some way that a company could keep an audit going forever for the purpose of extending that period of protection. MS. ADAIR stated that there was a provision that would not authorize continuous audits, and there was also a 15 day notice requirement, which could be found on page 3, beginning on line 3, subsection (B), and on line 14; the audit could not last longer than 90 days unless the party and the department agreed to an extension of time. Number 1866 REPRESENTATIVE JAMES pointed out that Ms. Adair had indicated that the department did not have any penalty authority; however, the department issued penalties anyway because in order for the violating party to keep their permit they would be required to clean up the violation. MS. ADAIR stated that members could interpret what she had said that way. She explained that the department had compliance orders by consent, which essentially allows the party to operate outside the strict terms of their permit, an in all unlikelihood, a regulation or a statute for some period of time while they come into compliance. Ms. Adair advised members that the department demands that the party come into compliance by a certain date, and to let the department know if more time was necessary, or a penalty would be associated with continued violations. Ms. Adair pointed out that the terms of the permit were legally binding terms and conditions based upon regulations which are based upon statutes that had been passed by the legislature. She reiterated that the department would allow the entity to operate, for a period of time, outside of the terms of the permit, outside the terms of the law, and then provide for stipulated penalties if they did not. Ms. Adair pointed out that in most cases it worked fine and the stipulated penalties never came into play. REPRESENTATIVE JAMES, in follow up, stated then that the department did not have any statutory authority to impose a penalty, but that it was only because the entity agreed with the process put forth by the department to clean up the violation. MS. ADAIR advised members that the department had statutory authority to impose penalties for violations of air quality, hazardous waste and the larger oil spills. REPRESENTATIVE JAMES thought Ms. Adair was speaking to violations that the department did not have the authority to impose a penalty. MS. ADAIR stated that that was correct, but she wanted to point out that there were some areas where the department could impose a penalty, and some areas where they did not have that authority. REPRESENTATIVE JAMES stated that she understood that; however, she would rather provide some kind of penalty authority, rather than have a penalty that was agreed to. She expressed that with respect to landlord tenant laws, the landlord could not hold personal belongings in lieu of rent monies due; however, in her case, she did get the renter to agree to such an arrangement whereby the tenant signed a note. What Representative James saw, was the department asserting a penalty that really was not available for the purpose of protecting the public. MS. ADAIR advised members that the department would like to have administrative penalty authority, as they thought it would work better for everyone concerned, but absent that, the department found that most operators would much rather be able to continue to operate. Ms. Adair advised members that the department's purpose was not to shut businesses down, but to assist them in finding a way to comply with the law and continue to operate. She stated that if that meant the entity needed a little extra time to order a part, to wait till summer when they could do the construction, or whatever, that the department was willing to do that. However, it would be necessary to recognize that there were certain laws on the books and the department was charged with upholding those laws. Number 2049 REPRESENTATIVE ROKEBERG pointed out that under common law, Representative James had every right to distraint for rents due for chattel that she may have in possession. CHAIRMAN GREEN pointed out that before Representative Bunde left, he had asked a question about third party litigation and Ms. Adair had indicated that the actual facts of the admission would not be public record. Chairman Green stated that if he was "Joe Goodheart" and was aware that there had been a voluntary audit conducted but was aware of smoke, or whatever, so he then would file some sort of an action, and through the court process he would be able to have access to the information relating to the violating party. MS. ADAIR advised members that in the state of Alaska an individual was required to have standing in order to bring a law suit. She stated that there were no citizen law suit provisions like there were at the federal level, so, while the notice would be public record, that, in and of itself, would not be enough to say that there was any problem. Ms. Adair expressed that an individual could conduct a self audit and find that they were not only 100 percent in compliance, but had gone far beyond that. CHAIRMAN GREEN felt that it appeared that third party litigation would not be an issue if SB 41 were enacted. MS. ADAIR thought only in a case where the third party had been harmed, or believed they had been harmed. Number 2142 CHAIRMAN GREEN asked that Ms. Schrader come forward and provide her comments to the committee. SUSAN SCHRADER advised members that she was Executive Director, Alaska Environmental Lobby, which was a coalition of 22 conservation groups throughout the state with a combined membership of over 10,000 Alaskans. Ms. Schrader advised members that because of the late hour she would touch on the high points of what she had expressed in her position paper. MS. SCHRADER advised members that the Environmental Lobby was in support of the concept of providing incentives for regulated entities to voluntarily find, disclose and correct violations of environmental laws. She noted that certainly, a voluntary audit was something that was quite noble and the Lobby would endorse it; however, they did not believe SB 41 would achieve that goal. Ms. Schrader advised members that the history of industry in the country, and the state of Alaska, provided ample evidence that voluntary auditing did not always work. MS. SCHRADER stated that the responsible companies that did voluntary audits had found that by doing their audits, they would be economically ahead, would be competitively ahead because typically, if they were conducting business in an environmentally sound manner it would be to their economic advantage. Ms. Schrader further stated that the responsible companies did not need a new privilege of secrecy. She noted that many people had referred to the EPA's self policing program which indicated that it had been working well. Ms. Schrader pointed out there had been 350 violations disclosed by 105 companies, of which several were in the state of Alaska, and that seemed to be working with no particular problem. MS. SCHRADER stated that it was unfortunate that a lot of companies did not take responsibility for their actions, and those were the companies that would enjoy having SB 41 in place. Ms. Schrader advised members that the proposed legislation would simply make it easier for those individuals to continue their irresponsible ways. MS. SCHRADER stated that there were a couple of issues she did not believe had been brought out. She stated that from her own point of view, and having spoken with a number of attorneys, the bill would limit the people's right to know. Ms. Schrader pointed out that it would limit, potentially, the right of property owners near potentially polluting industries to know what was going on with those industry. Ms. Schrader advised members that there were two cases pending, one in the state of Ohio and one in Texas, where landfill businesses were allegedly polluting the ground water and the air quality. Adjacent property owners were having concerns with that and were having great difficulty in getting access to information they needed to pursue their concerns because of the audit privilege legislation that was on the books in those states. MS. SCHRADER further stated that such laws could certainly have a chilling effect on an employees' ability to defend their right to speak the truth about workplace activities. She pointed out that the kind of legislation under consideration would impact whistle blower protections, and although the sponsor had denied that, she suggested that members review the letter from the Alaska Forum for Environmental Responsibility (AFER). Ms. Schrader advised members that the letter directly discussed the impacts on whistle blower protections that SB 41 would negatively impact. MS. SCHRADER advised members that SB 41 would basically allow secrecy, the privilege, to replace corporate responsibility and accountability. She thought that it would also create a lot of confusion, there would be a lot of additional litigation surrounding the bill and, obviously, a lot of expense to both the companies it was intended to assist, and for the people who would be impacted. MS. SCHRADER stated that just the fact that the Department of Law had proposed over a dozen amendments to the bill to simply clarify the language was ample evidence that the bill was very ambiguous. She reiterated that there were problems in other states with similar legislation, and she could not see why Alaska would not realize similar types of problems, and certainly an increase in litigation. MS. SCHRADER stated that an example of that, in the bill, was the definition of how the environmental law should be construed broadly, and by doing so it would pull in all matter of federal, state and municipal laws that might be able to fall under the bill if enacted. MS. SCHRADER noted that while the sponsor was quick to point out that 20 states had enacted audit privilege legislation, he did not make clear that several of those states did not have immunity, which she thought was what Representative Croft had alluded to. Illinois, Idaho and Oregon did not provide for immunity. Ms. Schrader pointed out that Minnesota had passed an audit privilege bill, but it was very limited and quite similar to the EPA's self policing policy. She noted that several of the bills that had passed had sunset provisions, such as Idaho's governor had indicated that he would not push for re-enactment of their self audit law. MS. SCHRADER stated also that the bill sponsor had not mentioned that 18 states, in 1996, considered similar legislation and chose not to enact it. In Arizona the legislature enacted a similar bill which was vetoed by their republican governor. MS. SCHRADER advised members that the Lobby would suggest that the same intent that would be achieved through enactment of SB 41 could be accomplished by having the DEC adopt a self policing policy similar to the EPA's that would provide for clear incentives, through leniency, for self disclosure and correction without the unnecessary privilege and immunity provisions as provided in SB 41. Ms. Schrader pointed out that the Lobby would strongly encourage both the legislature and the administration to pursue that type of policy, rather than enacting legislation such as SB 41. Number 2422 CHAIRMAN GREEN pointed out that Ms. Schrader had indicated that if SB 41 were to pass that someone who conducted self audits could continue to operate in their same polluting manner and asked that she expand on that theory. He stated that it seemed to him a short time frame had been included that would address such a situation. MS. SCHRADER stated that through her reading of the bill that there was no mandate that if a self audit was done and a violation discovered, that the violation had to be disclosed. She stated that if the company wished to disclose, the immunity privilege would then come into place. Ms. Schrader asked how the DEC, or anyone, would know if a company was out of compliance if they did not disclose what they had found on their self audit because that information was privileged. She stated that if there was enough suspicion to go to a judge to get an in-camera review, they could possibly get around that privilege, or at least allow a judge to look at the situation. Ms. Schrader felt that was one of the basic problems with the bill. CHAIRMAN GREEN asked if what she was implying was that the entity, or individual conducting a self audit, was falsifying what they found. TAPE 97-51, SIDE B Number 000 MS. SCHRADER advised members that she did not see where the bill required information in the audit be disclosed. REPRESENTATIVE CROFT felt Ms. Schrader was making a distinction between the privilege, which is attached to the self audit, and the immunity, which was attached to disclosure. He stated that clearly, if he disclosed something he would be immune, but he might audit himself, find out he was polluting and just keep on going. MS. SCHRADER advised members that was her concern, and she was not sure that concern had ever been addressed sufficiently. REPRESENTATIVE CROFT pointed out that he had such a concern, as well, and did not know whether that was addressed in the bill. REPRESENTATIVE JAMES stated that she was of the opinion that the only real advantage of a self audit was to file the audit with the department because it would provide the company, or whomever, a clean bill of health. She advised members that if there was a problem, it would be disclosed, as well, as how it would be addressed and corrected. Representative James did not see any advantage, at all, for even bothering with a self audit if they were not going to provide a report on the results. REPRESENTATIVE JAMES expressed that the area of Ms. Schrader's presentation that she was most interested in was when she stated that it limited the employees' right to know and that it would have a chilling affect on an employees' ability to defend their right to speak the truth about the workplace activities without fear of reprisal. Representative James likened those circumstances to when she worked for General Foods Corporation and they did not have an auditor within the company, but had an outside auditor that came in periodically to conduct an audit. She advised members that they "shook in their boots" when the auditors came out because they knew, no matter how good things were being done, the auditor would find something out of compliance to challenge the company on. Representative James advised members that later, General Foods Corporation expanded the facility and hired an internal auditor who was on the premises all the time. Representative James advised members that the difference between not having an auditor on the premises, and having one, was that it provided an open door for employees to report problems that they saw or perceived. She pointed out that that was back in 1966, so was a long time ago, but she felt that having an on-site auditor at a facility at all times was an immediate improvement in correcting problems as they arose, as opposed to some time later when an auditor would come in to conduct a random audit. REPRESENTATIVE JAMES stated that her understanding where self audits would be conducted, she would assume that the entity would have someone on staff that was assigned specifically for that purpose. She thought that would make it easier on the employees, and it also seemed that under the self audit procedure, that the incentive to listen to employees concerns would exist because they would be the ones bringing a deficiency to the attention of the company. MS. SCHRADER agreed with Representative James' comments if she understood them correctly. She stated that she would suspect that most responsible corporations already, if they could afford it, had their own type of procedures in place for maintaining employee safety. Ms. Schrader expressed that the health and safety laws, per se, OSHA laws had been removed from the bill, and was not meaning to confuse it with that. Ms. Schrader reiterated that she did not see where responsible corporations would necessarily be helped by the proposed legislation because they were already doing things right. The situation she foresaw was when there was a whistle blower, that for the most part, those employees would report a violation within their own company prior to going outside with the information. Ms. Schrader stated that what could happen in such a situation, regarding an irresponsible company, might start retaliating against that trouble maker. She explained that that person would get to the point where the problem was not being addressed or corrected and might feel like he/she was being harassed by the company. At that point, the person might approach an attorney for the purpose of seeking legal help, and after explaining the situation to the attorney, the attorney would ask for evidence of the alleged violation. Ms. Schrader advised members that the employee would not be able to access that evidence because it was contained in an audit privilege report. Number 265 REPRESENTATIVE JAMES noted that she was considering the positive side of the proposed legislation, and it appeared as though Ms. Schrader was looking at the negative side. She stated that she could see where changing the law for the benefit of a business would result in a company having less desire to conceal a violation than what was current law. REPRESENTATIVE BERKOWITZ was also concerned about the whistle blower because he had seen cases where the whistle blowers did suffer retaliation. He noted that he had not reviewed the bill with a specific eye towards the whistle blower provision, and asked what kind of protection was provided for a whistle blower. MS. SCHRADER advised members that she would have to defer that question, although Senator Leman's staff could probably address that issue, as well as the two letters submitted by the Alaska Forum for Environmental Responsibility. She thought he might want to contact Stan Stevenson directly because they dealt much more directly with whistle blower issues than she did. REPRESENTATIVE BERKOWITZ expressed that he tended to agree with Representative James whereby scrupulous companies would not have to worry about that situation so much. MS. SCHRADER agreed with that also; however, in the letter from AFER, they personalized such an incident to a situation that had occurred in the state of Alaska, and she felt that made it quite clear that it was a real concern. CHAIRMAN GREEN directed members attention to page 3, line 26, which provides that an individual would not be compelled to testify, but it did not appear to prohibit the person from wanting to testify. He thought that was an area the committee might want to revisit with Senator Leman. Number 365 DAVID ROGERS advised members he was representing the Council for Alaska Producers, which was a nonprofit corporation that consisted of most of the active mining companies doing business in the state of Alaska. MR. ROGERS advised members that the Council strongly supported SB 41, and felt it provided for a balance in competing interests by providing effective incentives. He stated that the Council wanted to particularly thank and compliment Senator Leman, Mike Pauley, Janice Adair, Marie Sansone with the Department of Law and others for their surprisingly and effectively cooperative approach to resolving the issues, and would happy to continue working with them on any remaining concerns. Number 454 PAM LA BOLLE, President, Alaska State Chamber of Commerce, advised members the Chamber was in support of SB 41. She stated that in the Chamber's view, the bill did provide an incentive for companies to undertake self audits, and the goal of everyone was to be in compliance with the environment laws. Ms. LaBolle stated that the Chamber believed SB 41 encouraged compliance because it would allow for finding inadvertent situations where one may have overlooked, or were unaware of being out of compliance. She advised members that the Chamber felt that immunity and privilege was very important because there was the problem of law suits being brought after the fact, even though what had been found to be out of compliance had been corrected. Ms. LaBolle expressed that the Chamber believed the proposed legislation was a win-win situation for everyone, and strongly supported SB 41. Number 507 KYLE PARKER, representing the International Association of Drilling Contractors, wanted to comment very briefly to a question raised by Representative James which was whether people would actually take advantage of what was being provided through SB 41. Mr. Parker pointed out that there was a new reality on the slope in the relationship between operators and drilling contractors and other oil field service companies. He advised members that specifically had to do with the development and implementation of health, safety and environmental plans. Mr. Parker stated that as a part of that, the new relationship between the drilling contractors and the other service companies were responsible for developing their HFC plans, which were traditionally the plan of the operators, and the contractors had been required with the operator's plans. MR. PARKER stated that they now would have the obligation of developing HFC plans and they would be sharing the types of audits they conduct on those HFC plans with the operators, and the operators would also share the results of their audits conducted on the implementation of their plans with the contractors. Mr. Parker advised members that the International Association of Drilling Contractors intended to take full advantage of SB 41 if enacted into law. He expressed that they felt it was a great incentive, and was actually required with the new relationship on the slope. CHAIRMAN GREEN advised members that would close public testimony on SB 41.