Senate Bill No. 41 "An Act relating to environmental audits to determine compliance with certain laws, permits, and regulations." Senator Loren Leman, related that SB 41 was similar to legislation that he had introduced in the 19th Alaska State Legislature with SB 199; furthermore, the prior legislation had passed the Senate, but had been in the House Finance Committee when the legislature had adjourned the prior year. He noted that when the bill had been originally introduced, it had provided for environmental audits, as well as health and safety self-audits; however, the bill had been amended in the judiciary committee over his objections and the health and safety self-audit portion had been deleted. He opined that deleting the health and safety self-audit portion of legislation was a mistake and urged the committee to take another look at it because having it in the bill would provide additional benefits to Alaska's workers. He reported that SB 41 created 2 incentives to encourage businesses and other regulated entities to conduct voluntary self-audits of their internal operations and explained that the purpose of the audits would be to identify and correct any non-compliance with environmental regulations. He related that the bill's first incentive was limited immunity and explained that entities that conducted environmental self-audits would be immune from civil and administrative penalties for violations that were discovered, provided that several conditions were met. He stated that the regulated entity must take action to correct the identified problem and prevent its future occurrence and that immunity would not be available for violations that caused substantial offsite-damage or serious onsite or offsite injury; additionally, there were several other conditions that must be, which were contained in the bill. Senator Leman continued to speak to SB 41 and related that the second incentive in the bill was qualified privilege. He stated that the self-critical analysis that was contained within an audit report would be considered privileged and therefore not admissible as evidence or subject to discovery in civil or administrative proceedings; this provision recognized that an audit report by nature was a self-incriminating document that discovered problems, identified what personnel or management deficiencies were responsible, and recommended corrective action. He offered that many studies had shown that businesses or individuals opted not to perform audits based on the fear that the resulting reports would be used by agencies or hostile 3rd parties as a "roadmap" to prosecution; as with the bill's immunity benefit, this privilege also had limitations. He expounded that the privilege could be overcome if it was asserted for a fraudulent purpose or if the regulated entity had failed to take the required actions to correct the areas of non- compliance. He opined that some people had misrepresented what the privilege did and had referred to it as a cloak of secrecy, but offered that this was not the intent of the bill. He stated that the intent of the legislation was to create the incentive for people to make changes to their operations, not to create a cloak of secrecy and urged the committee to see through the language of the opponents of the bill's concept and details. He asserted that the purpose of self-auditing would be to bring about full compliance with regulations that were designed to protect the environment and that the intent was to encourage businesses and public institutions to integrate environmental protection measures into their normal operating procedures. He stated that currently more than 1,000 of the world's larger corporations had self-audit programs and that the state needed to encourage smaller companies to adopt those programs as well. He noted that many of the larger companies in Alaska were conducting self-audits and that the bill would help the smaller businesses to participate. He expressed a desire to improve and expand the existing audit programs and noted that the state could not totally depend on government inspectors to regulate business. He offered that the bill would help bring people into compliance. Senator Leman continued to discuss SB 41 and related that 20 other states had passed some form of self-audit incentive legislation; additionally, 8 other states were debating the same measures in their respective legislatures in the current year. He thought that the success from this type of legislation had been very good and related that he had recently returned from a conference in Washington D.C. where he had spoken with legislators from other states regarding the issue. He stated that self-audit incentive bills had been in place in Texas for 2 or 3 years and that the program had completed about 400 audits; furthermore, there had been substantial evidence that the program was working as intended. He stated that in addition to Texas, several other states with similar environmental concerns as Alaska had self-audit laws; these states included Oregon, Idaho, Utah, Colorado, and Wyoming. He pointed out that legislation to encourage self-auditing had been introduced in the last congressional session and understood that similar legislation would be introduced in the 105th Congress. He pointed out that while other measures talked about making Alaska open for business, SB 41 actually took Alaska in that direction and concluded that the legislation would make it clear that Alaska wanted a cooperative and not a confrontational relationship with the business community. Senator Adams noted that he was trying to understand the bill and inquired if it encouraged companies to clean up their acts without penalties from the Department of Environmental Conservation (DEC) through self-audits. Senator Leman replied that the bill would provide incentives so that companies would make changes to their existing operations if they had identified shortcomings in operations that they did not know existed outside of conducting the audit; in this case there would be limited immunity and privilege. Senator Adams inquired if the bill provided the same right to municipalities. Senator Leman responded in the affirmative and stated that municipalities would be able to participate. He related that in the Texas, the university and the municipalities had profound participation. Senator Adams directed the committee's attention to page 6, line 27 through page 7, line 15 of the bill, which discussed an exemption of disclosure by the court; he inquired if this section represented a "catch 22" and further queried how a party seeking disclosure under this section would prove anything if they did not know what the report contained and therefore, did not have the information. Senator Leman responded that the section in question provided for an in-camera review and it would be looked at in the judge's chambers. Senator Adams opined that this represented a problem. JANICE ADAIR, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, ANCHORAGE (via teleconference), stated that the sponsor had been working with DEC on the bill, but that the department still had areas of concern. She related that the department thought there was a way to properly construct a privilege and immunity for self-audits that would not jeopardize the primacy of federally delegated programs. She stated that the bill's sponsors had been open to several of the department's suggestions, but that there were still several areas that needed to be addressed; the burden of proof section that Senator Adams had pointed out was one area that the department felt should be addressed. She explained that the department wanted to ensure that the objective or underlined facts were not subject to the privilege. She thought that some of the definitions had been affected by amendments that had been made in the Senate Judiciary Committee and that those needed to be looked at; additionally, similar terms in the bill needed to be reviewed. She related that there was concern in DEC about how the bill would impact pipeline-tariff cases. Co-Chair Sharp inquired if Ms. Adair had Amendments 1 through 7. Ms. Adair replied in the affirmative. Co-Chair Sharp requested Ms. Adair to address any of the amendments that the department felt would meet some of its concerns. Ms. Adair stated that Amendment 6 was the tariff amendment that the department had offered to address those concerns; however, the other amendments had not been designed to address concerns of the department. Senator Adams requested an explanation of the section contained within page 6, line 17 through page 7, line 15 of the bill and admitted that he was having difficulty with that section. She explained that the section stated that if a person believed that the privilege had been inappropriately applied to the audit report, they could request the court or hearing officer to set aside the privilege; furthermore, the bill lined out the reasons why a person could make such a request. She explained that the problem was that subsection (b), which was on page 7, line 15, put the burden of proof on the person that any of the exceptions applied. She explained that case law indicated that asking somebody prove something for which they had no knowledge was an extremely difficult hurdle; the department's suggestion was that a party seeking disclosure could make a prima facie case that gave a reason why the exception should apply. She offered that asking someone to prove something from a document that they had not seen was impossible. Senator Adams observed that needing an exception would be difficult to prove without the information. Ms. Adair stated for example that a prima facie case might involve the second exception, which was injury; she explained that if a party was injured and believed that an audit would show that the company in question knew the potential existed but did not take action or contributed to the injury, then the party would have to demonstrate to the court why they thought that. She explained that the prima facie case would not require someone to prove something, but would require a reasonable explanation as to why the party thought there was an exception; at this point, the court would be in a position to agree or disagree with the case and whether or not the information should be disclosed. MIKE HANUS, SENIOR STAFF ENGINEER, EXXON COMPANY U.S.A. (via teleconference), stated that the Alaska Oil and Gas Association (AOGA) supported the intent of SB 41. He explained that AOGA was a 19-member trade association company that accounted for the majority of oil and gas exploration, production, transportation, refining, and marketing activities in Alaska. He related that AGOA supported the intent of environmental self-audit legislation that provided immunity from penalties and ensured confidentiality and explained that the majority of AGOA members currently conducted self-audits as a means of ensuring compliance; furthermore, the company saw value in legislation that encouraged the regular utilization of self-audits by providing immunity and privilege. He explained that immunity would act as an incentive for companies to identify, correct, and prevent the reoccurrence of non-compliant behavior; privilege protected the company from the unnecessary repercussions of disclosing all of it results and helped preserve the integrity of the audit process. He stated that looking for deficiencies, identifying them, disclosing them to the appropriate agencies, and making corrections were what self-auditing was about. He offered that self-auditing was an important tool for voluntary compliance and that AOGA believed the legislation moved the lines in a positive direction towards encouraging self-auditing. He concluded that AOGA would continue to work with DEC, the Department of Law, and bill's sponsors on SB 41. SUSAN SCHRADER, EXECUTIVE DIRECTOR, ALASKA ENVIRONMENTAL LOBBY (via teleconference), testified against SB 41. She explained that the Alaska Environmental Lobby was a coalition of different conservation groups throughout Alaska that represented about 10,000 members. She shared that she had been the draftee of the position paper that Senator Leman "has suggested perhaps misrepresented this legislation." She respectfully disagreed that her position paper misrepresented the bill and opined that it offered an alternative interpretation of "these" bills that had been passed in other states. She reported that the Alaska Environmental Lobby supported the goal of the bill, which was to encourage compliance by providing incentives for regulated industry to voluntarily find, disclose, and correct violations of environmental laws; however, the lobby was of the opinion that the bill would not achieve this goal. She offered that responsible corporations did not need the added secrecy and immunity privileges in order to audit their operations. She stated that in 1997, the Environmental Protection Agency adopted its self-policing program and reported that the program appeared to be working nicely; to date, 105 companies had voluntarily disclosed violations at over 350 facilities. She offered that responsible companies were doing fine without the added privilege and secrecy provisions within the bill and opined that the legislation would make it easier for the industries that were irresponsible to continue to act that way. She stated that the Alaska Environmental Lobby felt that the bill was one of secrecy that would keep vital information hidden from review by the agencies that Alaska depended on to enforce the laws, as well as keep it hidden from the legal system. She pointed out that the legislation limited employees' right to know, as well as the right to know of property owners who were adjacent to certain industries. She related that in other states, there were cases in which residents who were living near landfills had great difficulty obtaining information regarding concerns of possible contaminated ground water and problems with air quality due to methane escapes. Ms. Schrader continued to speak to the bill and offered that it would increase litigation because the people who needed the information would have to undergo a long laborious court process to try to overcome the privilege requirement in the legislation; furthermore, in the meantime, drinking water may have been contaminated. She opined that the legislation would allow companies to conceal and condone non-compliance and that the supporters of the bill were making the assumption that companies would come forward with their violations and correct them in a timely manner; however, she did not see the incentive for companies to come forward with their violations and correct them in a timely manner. She opined that past experience had shown that prompt compliance was not always the course of action that industry would choose. She reported that the Alaska Environmental Lobby felt that the bill would create more confusion, litigation, and expense and pointed out that DOL had offered over a 12 amendments to the bill in previous committees in order to clarify the legal language in the legislation; this was a prime example of the problems that the courts would be facing if the legislation was enacted. She pointed out that the term "construed broadly" in the legislation's definition section would pull in all manner of federal, state, and municipal laws. She offered that legislation that safeguarded the environment was passed out of necessity and was typically a reaction to a nasty problem that needed to be fixed. She spoke of industry's "less than admirable" record of self-regulating and opined that the bill would only weaken a process in Alaska that was already weakened by budget cuts. She offered that the bill's intent could and should be met by simple legislation that provided clear incentives through leniency for self-disclosure and correction that would define the time windows and would not contain privilege provisions. SB 41 was HEARD and HELD in committee for further consideration. SB 35 was SCHEDULED but not HEARD. SB 109 was SCHEDULED but not HEARD. Co-Chair Sharp discussed the following meeting's agenda.