SENATE BILL NO. 41 "An Act relating to environmental audits to determine compliance with certain laws, permits, and regulations." CO-CHAIR SHARP announced that the committee would continue with pending action on SB 41, which had been heard yesterday. Amendment 3 by Senator Parnell was on the table. SENATOR PARNELL WITHDREW Amendment 3 without objection. SENATOR PARNELL MOVED Amendment 10. SENATOR PHILLIPS OBJECTED for the purpose of discussion. MIKE PAULEY, STAFF TO SENATOR LEMAN, addressed the committee regarding the amendment. The senator, representatives from the administration and the drilling contractors tried to come up with new language to address their concerns. The redefinition of owner and operator brings independent contractors under the definition making them eligible for privileges and immunity under the bill. SENATOR PHILLIPS asked if the Department of Environmental Conservation (DEC) understood the amendment. CO-CHAIR SHARP called on JANICE ADAIR, DIRECTOR, DIVISION OF ENVIRONMENTAL HEALTH, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, who was available to the committee via teleconference. He asked her to speak to Amendment 10. MS. ADAIR asked Mr. Pauley if the amendment was their definition of owner and operator they had prepared yesterday. MR. PAULEY affirmed that it was the same definition except the words "all or part of" had been inserted before "regulated facility, operation or property." MS. ADAIR stated that DEC had no problems with the amendment. CO-CHAIR SHARP asked if there were further questions or comments. SENATOR PHILLIPS WITHDREW his OBJECTION. There being no further objection, Amendment 10 was ADOPTED. SENATOR PARNELL stated he did not plan to offer Amendments 4 and 5. He believed the Alaska Oil and Gas Association had withdrawn the amendments. CO-CHAIR PEARCE MOVED Amendment 8 on behalf of Senator Adams. SENATOR PARNELL OBJECTED. CO-CHAIR PEARCE read the rationale for the record: "In almost all cases the facts needed to prove exceptions (a)(1)-(4) to the self-audit privilege will be only within the knowledge and control of the owner or operator who conducted the audit. Without knowing what is in the privileged audit or communication, the party seeking disclosure would find it virtually impossible to establish that the privileged information falls within the exception. Our U. S. Supreme Court has held that 'The ordinary rule, based on considerations of fairness, does not place the burden upon a litigant of establishing facts peculiarly within the knowledge of his adversary. The 9th Circuit has said the same.'" Our supreme court has recognized that the burden of proof generally falls upon the party asserting a fact, particularly where that party controls the evidence bearing upon the fact." CO-CHAIR PEARCE believed Amendment 8 had been requested by the Department of Law. She was not familiar with the entire argument and hoped to have Senator Leman's staff speak to it. MR. PAULEY opposed Amendment 8 because it substantially undermined the privilege the bill provided. The subject of contention is language on page 7, lines 14-15 regarding the burden of proof. He said the language had been used in Oregon's law, the first state to pass audit privilege legislation. Of twenty states that have passed this law, the majority have that exact language. The proposed amendment unfairly shifts the burden on the industry that is asserting the privilege, in that the party claiming the privilege has the burden of establishing that the exceptions in (a)(1)-(4) don't apply. Mr. Pauley gave an example to illustrate his point, suggesting that everyone asserting this privilege has to prove they're not a crook. It didn't make sense to him. He sent the proposed language to a number of lawyers representing different industries that would be affected by SB 41. He had heard back from AOGA and they strongly disapproved of Amendment 8 and believed it would nullify the privilege the bill offers. SENATOR PHILLIPS asked to hear from DEC on the amendment. MS. ADAIR stated that the issue had been identified in earlier testimony as one that still needed to be resolved. They had a different amendment prepared that was something between Amendment 8 and what is currently in the bill. The department thought the current drafting of the bill was problematic, regarding asking that a potentially harmed party be required to prove information that they have no specific knowledge of or control over the documents that could produce that knowledge. They had suggested that the party, whether private, third-party or the state, make a prima facie case before the court that there was reason to believe that the audit documents should be disclosed for one of the reasons established in the bill. The department would like to see this problem addressed. MS. ADAIR confirmed that they would be happy with Amendment 8, but recognized that the sponsor had difficulty with it. They were prepared to continue to work to find compromise language. MR. PAULEY provided an additional concern that the amendment included third parties seeking to overcome the privilege. He clarified that the bill requires a 15-day advance notice of intent by the agency to conduct an audit in order to get the privilege and the immunity. The notice has to state when the audit will begin, end, and the scope of the audit, all of which was not privileged information, although the audit report is privileged. The notice information is available to the public and a third party could be aware of this and routinely file motions in court saying they believe the audit is being done for a fraudulent purpose. At that point, the burden of proof immediately shifts to the company doing the audit and they have to somehow prove that they are not undertaking it for a criminal purpose. Therefore, the legal counsel for companies doing audits would be forever tied up in court defending the fact that they aren't doing audits for a criminal purpose. He summarized by strongly opposing the amendment because it would injure the purpose of the bill. MS. ADAIR briefly responded to Mr. Pauley's comments. She stated that was the reason they had suggested the prima facie showing so they wouldn't end up with "fishing expeditions." With a prima facie showing, the court would have to be given solid information as to why the exception applies and it would insure fairness on both sides. CO-CHAIR PEARCE WITHDREW Amendment 8 with the understanding that they would try again if the department came up with language that all could agree to. There was NO OBJECTION to the motion and Amendment 8 was WITHDRAWN. There were no further amendments offered. SENATOR PARNELL MOVED CSSB 41(FIN) from committee with accompanying fiscal notes. CO-CHAIR PEARCE asked if the approved amendments changed some of the fiscal notes accompanying the bill. MR. PAULEY stated his understanding that the pipeline tariff amendment (Amendment 6 adopted the previous day) might have an impact on the fiscal note. CO-CHAIR SHARP asked if it would be a positive or negative impact. MR. PAULEY responded that it would reduce the assessed costs of the bill. CO-CHAIR SHARP requested a reconsideration of the fiscal notes. SENATOR PHILLIPS suggested modifying the motion pending fiscal notes. He asked to hear from the Department of Law. MARIE SANSONE, ASSISTANT ATTORNEY GENERAL, CIVIL DIVISION, DEPARTMENT OF LAW, addressed the committee. The fiscal note they had submitted included $75,000 for expert witnesses on the pipeline tariff cases, which would come out with Amendment 6. CO-CHAIR SHARP directed Senator Parnell to modify his motion. SENATOR PARNELL WITHDREW his original motion without objection. SENATOR PARNELL MOVED CSSB 41(FIN) from committee with individual recommendations and fiscal notes, with the exception of a downward revised fiscal note from the Department of Law. Without objection, CSSB 41(FIN) was REPORTED OUT with a previous zero fiscal note from Department of Health and Social Services, a new zero fiscal note from the Department of Labor, and new reduced fiscal notes from the Court System (35.9), and the Department of Law (121.3).