HOUSE SPECIAL COMMITTEE ON OIL AND GAS February 20, 1996 10:07 p.m. MEMBERS PRESENT Representative Norman Rokeberg, Chair Representative Scott Ogan, Vice Chair Representative Gary Davis Representative Bill Williams Representative Tom Brice Representative Bettye Davis Representative David Finkelstein MEMBERS ABSENT All members present COMMITTEE CALENDAR Briefing by Department of Law, Mr. Bob Loeffler - TAPS Tariff Cases Before Federal Energy Regulatory Commission (FERC) and Alaska Public Utilities Commission (APUC) * HOUSE BILL NO. 342 "An Act relating to water quality." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 342 SHORT TITLE: WATER QUALITY STANDARDS SPONSOR(S): REPRESENTATIVE(S) ROKEBERG JRN-DATE JRN-PG ACTION 05/09/95 2042 (H) READ THE FIRST TIME - REFERRAL(S) 05/09/95 2042 (H) O&G, RESOURCES 10/17/95 (H) O&G AT 01:00 PM ANCHORAGE LIO 10/17/95 (H) MINUTE(O&G) 02/13/96 (H) O&G AT 10:00 AM CAPITOL 124 02/20/96 (H) O&G AT 10:00 AM CAPITOL 124 WITNESS REGISTER ROBERT H. LOEFFLER, Partner Morrison and Foerster 2000 Pennsylvania Avenue NW Washington, D.C. 20006 Telephone: (202) 887-1506 POSITION STATEMENT: Presentation on TAPS Tariffs before FERC and APUC NANCY HILLSTRAND Pioneer Alaska Fisheries P.O. Box 170 Homer, Alaska 99603 Telephone: (907) 235-3877 POSITION STATEMENT: Testified on HB 342 SARAH HANNAN, Executive Director Alaska Environmental Lobby P.O. Box 22151 Juneau, Alaska 99801 Telephone: (907) 463-3366 POSITION STATEMENT: Testified on HB 342 SHIRLEY BUCKHOLZ, Lobbyist Alaska Environmental Lobby P.O. BOX 22151 Juneau, Alaska 99801 Telephone: (907) 463-3366 POSITION STATEMENT: Testified against HB 342 ALICE BULLINGTON UNOCAL 909 West 9th Avenue Anchorage, Alaska 99501 Telephone: (907) 263-7832 POSITION STATEMENT: Testified on HB 342 SUSAN BRALEY, Chief Technical Services and Program Development Division of Air and Water Quality Department of Environmental Conservation 410 Willoughby Avenue, Suite 105 Juneau, Alaska 99801-1795 Telephone: (907) 465-5308 POSITION STATEMENT: Testified on HB 342 ACTION NARRATIVE TAPE 96-11, SIDE A Number 000 The House Oil & Gas Special Committee was called to order by Chairman Norman Rokeberg at 10:07 a.m. Members present at the call to order were Representatives Rokeberg, Ogan, G. Davis, Williams, Brice, and B. Davis. A quorum was present. This meeting was teleconferenced to Anchorage and Homer. CHAIRMAN NORMAN ROKEBERG announced the agenda was a presentation by Robert Loeffler followed by HB 342. He said the Thursday, February 22, 1996, meeting was cancelled. Representative Finkelstein joined the committee meeting at 10:08 a.m. Number 145 ROBERT H. LOEFFLER, Partner, Morrison and Foerster, discussed his work with the state of Alaska. He said in 1975, he began to work on the proposed natural gas pipeline. His work involved years of federal proceedings up to proceedings in the White House involving that pipeline. He said he worked on that project, until he was asked by the Department of Law (DOL), in the 1980s, to work on oil pipeline issues, his involvement in this area began in the 1980s. He played a role, both in the litigation and settlement of all the pipeline cases including the TransAlaskan Pipeline System (TAPS), Kuparuk, Endicott, and Milne Point. Number 240 MR. LOEFFLER gave background on the context of the pipeline issues and what difference it makes to the state of Alaska. He said the state is heavily dependent on petroleum revenue. Pipeline rates, if they are high, depress the amount of revenue that the state receives. Therefore any reduction in pipeline rates, spills back to the state in terms of increased royalties, on royalty oil, and increased production taxes. The short formula, is that any decrease in tariffs will bring a 25 percent gain to the state. So, a dollar reduction in tariffs, will bring 25 cents back to the state treasury. He said, it is for this reason that the state got involved in pipeline issues in the 1970s and that why the state remains involved. MR. LOEFFLER said the rates are set by something called the Federal Energy Regulatory Commission (FERC) for interstate traffic, meaning oil that ends up outside of Alaska. This rate is also set by the Alaska Public Utilities Commission (APUC) for oil that ends up inside the state of Alaska. He said, after years of litigation in the mid-1980s, a general settlement was reached which established a formula for pipeline rates, but only for a ceiling on those rates. He said if competition ensued, the rates could drop below the ceiling. No one is required to peg the rate at the ceiling, although the seven owners of the pipeline, all of whom set their own rate for their own space in the pipeline, have all set their tariff at that ceiling rate. MR. LOEFFLER said the settlement was aimed at reducing the tariffs in the future. In the mid-1980s, the intention was to reduce the tariffs. In the 1990s, that intention was met. Tariffs have dropped from $6 per barrel to, on a weighted average, $2.83 per barrel as of 1996. He said measured against the $6.00 point, the settlement has reached about $4 billion in revenues to the state to date. So, the reduction in tariffs has worked as designed. Number 413 MR. LOEFFLER said the settlement allowed the state to challenge certain provisions of certain future rates. If rates weren't calculated in accordance with the settlement or if there were imprudent wasteful expenditures, the state could challenge them, and that is what has happened. He said, in a somewhat surprising sense to the state, new and unanticipated expenditures of hundreds of millions of dollars have shown up on the pipeline cost side. The first set of these expenditures was for corrosion repairs, which was a multi-hundred million dollar item. Recently, as has been seen in the press, the owners of the pipeline have been forced to spend around $300 million, today's number, on repairs to the electric system and on preparing drawings showing how everything is wired on the electric system, which is very important in regards to repairs and other possible disasters. He said these expenditures have been imprudent, and rate cases have been started at the regulatory agencies to challenge these expenditures. Number 520 MR. LOEFFLER said the largest of these rate cases, is called the electric code case which involving the wiring, diagrams and drawings of the electric system on TAPS. This was discovered by a number of audits by the TAPS owners, the Bureau of Land Management (BLM) and by the state. "We believe the state should not be responsible and that those costs should not be in the tariffs, so the state started a case challenging those expenditures as impudent." So far, these costs represent $300 million, with a state gain, if the case is won, of 25 percent or $75 million. This case is set for an administrative three week trial in September, although some alternative methods were proposed to resolve the dispute sooner. The judges promised to issue a decision by the end of 1996, after which it would go on appeal to the five commissioners of the FERC. This case is occupying a lot of resources at the moment. Number 603 MR. LOEFFLER said the next case is called the oil spill case. Alyeska was sued as part of the litigation involving the Exxon Valdez oil spill. Alyeska settled the case in terms of their potential liability for around $98 million, having spent $30 million to $50 million in legal fees. Alyeska tried to put those expenditures in the 1994 rates. The state tried this case, received an unfavorable decision at the trial level, but this decision was reversed at the level of the FERC. He added that further proceedings might ensue in a court case, because no one is going to give up $100 million plus very easily. He said there are also some minor issues involving public relations costs, and whether they belong in the tariff. Number 672 MR. LOEFFLER said the third case that is brewing is the capacity litigation. This is a case that was started among the owners, they are suing each other. However this action affects the interest of the state. The reason for this is that when the state looked at the pipeline in the mid-1970s, it was noted that someday the oil coming out of Prudhoe Bay would decline and at that point there might be more pipeline space then there would be oil to fill it. He said to think of this in terms of seven airlines serving Alaska. If there are not enough passengers to fill all the seats, someone is going to cut their costs to fill those seats. If that happens on the pipeline, people who own pipeline space, but do not have enough oil to fill it up, are going to have an incentive to lower their rates, and the state will benefit as a result of this competition. The owners have started a fight amongst themselves. Some owners want to have a legal interpretation which would prevent that space from existing, others don't, and the state is perusing its interest in seeing that competition exists. Number 766 MR. LOEFFLER said there are a number of smaller cases involving the Milne Point field, where the owners of the pipeline just raised their tariff from 48 cents to 76 cents with some impact on state revenues. He said there are some issues about the different kind of oil that you put into the pipeline and how the tariffs should differ according to the types of oil. He said in a large overview, that is what is going on in the oil pipeline world for the state of Alaska. He said the state does not enjoy spending lots of money on expensive litigation, but it does have a pocket book interest in making sure tariffs are not too high, both to get money into the treasury right away, and also because lower tariffs are thought to encourage development of new fields. The lower tariffs give more of an incentive, more of a profit at the wellhead for people seeking to produce and develop new fields. All of these cases are managed by the DOL, with the majority handled directly by the DOL. Number 848 MR. LOEFFLER concluded that he had raced through a lot of material and then said he was available to answer any questions. Number 859 REPRESENTATIVE BRICE asked, in relation to the imprudent expenditure suit, what is the size of the suit. Number 884 MR. LOEFFLER said in the electric code case, it is in the order of $300 million, but the expenditures are continuing to grow. He mentioned the drawings, as-built drawings, on which $35 million have been spent, but only 10 percent of the drawings have been redone. He said, recently, the owners have expressed that they are not satisfied with those drawing in terms of accuracy. The expenditure for these drawings could balloon out of control. Number 917 REPRESENTATIVE BRICE asked about capital construction. MR. LOEFFLER said most of the expenses are listed as operating expenses, not as capital items. He said this is not always true, and cited the corrosion context which some of those expenditures related to the capital side of the pipeline. He said on the operating side they just recover the cost of those expenses, without receiving profit on those expenses. Number 947 CHAIRMAN ROKEBERG asked how normal repairs and operations are handled as compared to major expenditures that have been raised by the Joint Pipeline Office and the BLM. MR. LOEFFLER said the owners classify whether the expenditure lies in capital or operating expenses. The state, to make sure this is done properly, periodically audits through an accounting firm. He said there is currently an audit going on that started a year and a half ago, checking the books and making sure that things go in the right account rather than the wrong account, in terms of capital versus operating expenses. Number 997 CHAIRMAN ROKEBERG asked if there was a rule of thumb that the state used to allow for a certain amount of repair and maintenance. Number 1006 MR. LOEFFLER said there is no rule of thumb except for standing accounting practice and what is learned in terms of good pipeline practice from consultants and the Joint Pipeline Office. He said the audit looks for things that appear extraordinary in size and cost. He said at the beginning of the pipeline construction, the pipeline owners said this would be a corrosion-free pipeline, utilizing state of the art technology for the life of the pipeline. So, when 15 years later, the owners are suddenly spending hundreds of millions of dollars to fix the corrosion system, the state asked for an explanation as it was contrary to the representations made to get the lease right-of-way from both the state and federal governments. A corrosion consultant was then employed, to see whether those corrosion practices they found were the proper ones and whether or not it was good or bad management, this is an area where outside consultants are needed to make judgements. MR. LOEFFLER said these corrosion cases have all been settled. He said you need to ask, in all litigation cases, what is the state objective. He said the state policy makers thought it was very important to have a corrosion free pipeline to guarantee that flow of petroleum without any disruptions. This decision led to a cooperative program to discover the problems that caused the corrosion as well as the remedies. Part of the settlement, won by the state, achieved an expenditure of upwards of $30 million on corrosion prevention measures that the owners did not want to undertake, but that the consultants told the state, that it needed to be done in order to cure corrosion on the pipeline. Number 1140 REPRESENTATIVE BRICE referred back to $300 million in the electric code corrections, he asked if that was in any way connected with the recommendations by the Congressional Oversight Committee. Number 1150 MR. LOEFFLER said absolutely, he added that two things happened in that case. Congressman Dingle had hearings and his own investigators look into this case. This case was also investigated by Owen Thurrow (ph.) of Quality Technology, hired by the BLM. These investigations caused a large crash program of expenditures, and concluded that yes, it came out of that controversy. Number 1183 CHAIRMAN ROKEBERG referred to the decline in oil production, he asked if the tariff rate would be increasing as a result. Number 1200 MR. LOEFFLER said at some point there are not enough barrels to divide the fixed cost into and mentioned a number of pipeline expenditures needed to run it. The operating expenses run, today, between $5 million and $6 million a year. He said if you divide those expenses by a million and a half barrels, you get a lower number than if you divide the expenses by a million barrels. The mathematics mean that you get a higher pipeline tariff when fuel levels fall, because you don't have enough barrels left over to divide the expenses over. MR. LOEFFLER said production decline and increased tariffs were an expected result. He added that oil production has stayed higher than expected through the mid-1980s, but in 1996 it will be near 1.4 million barrels per day as compared to a high of over 2 million barrels per day. He said this will continue to decline. Number 1270 REPRESENTATIVE OGAN asked how the tariff adjustment affects state revenues. He then asked whether or not the tariff directly relates to the amount of royalties that the state receives. Number 1308 MR. LOEFFLER said it is an indirect affect, but that it is roughly 25 percent. He said a dollar per barrel increase in the tariff, would mean the state would lose 25 cents per barrel of oil due to combination effect on royalties and production taxes. He said on the other side if the tariff is reduced by one dollar, then the state gains 25 cents a barrel. He said if tariffs can be kept as low as possible, the state is in the best possible condition. MR. LOEFFLER said the pipeline owners are owed something under regulatory law to operate the pipeline to cover their expenses and make some profit. Number 1367 REPRESENTATIVE OGAN stated that it would be advantageous to maintain as much oil as possible flowing in that pipeline, in terms of increasing revenues and the rate of return. Number 1398 MR. LOEFFLER said from the states perspective more oil through the pipeline means more revenue to the state. Whereas from the owners perspective, more oil means more revenue to the owners. He said to create an incentive for the owners, when the settlement was constructed, a provision was inserted that the owners profit was fixed per barrel at 35 cent per barrel with some escalations. The owners will earn more dollars if they pump more barrels through, because they have more 35 cent units. He said this would not have been the scheme under standard regulatory law, but it was created to provide an incentive for everyone's benefit to get more barrels through the line. Number 1447 CHAIRMAN ROKEBERG clarified that the owners return is based on this 35 cent, plus adjustments. MR. LOEFFLER said this is the case today, and added that up until 1990 it was not. It used to be that a more traditional return on investment was calculated through return on investment formulas for utilities. He said this formula has two components including interest on debt and the order of a 6 percent real mean without regard to inflation on the rate base. He said this amount looks fair in retrospect. Number 1498 CHAIRMAN ROKEBERG clarified that if the state litigates these cases, it increases the state revenue and decreases the profit of the pipeline owners because they must pay the disputed amounts out of the 35 cents. He then asked how differences between the state interest in running a safe pipeline and reinvesting in it and the state interest in generating more revenue. Number 1531 MR. LOEFFLER said there is tension involved, the state tries to look at, with expert help, to determine what the proper measures are for running the pipeline and to not contest those. He said the state recognizes that a zero tariff would create little incentive to maintain a well managed and safe pipeline. Number 1577 CHAIRMAN ROKEBERG asked how profits are split between the seven owners of the pipeline. Number 1590 MR. LOEFFLER used an analogy to describe this situation as used by a judge from Washington, D.C. The judge said the pipeline is one legal entity with seven virtual soda straws. Each owner has a different size soda straw. BP or Standard has 50 percent, ARCO and Exxon both have 20 percent and Mobile is next. Each of these companies charge their rate for their space with each oil company trying to keep their oil in their soda straw. In reality, the oil companies each have different interests in the oil than they do in the pipeline. ARCO, in the future or maybe today, has more oil than it has soda straw and maybe Exxon has less oil than it has soda straw. This scenario creates competition to fill up the soda straw. He said the ceiling for this price is set at 35 cents per barrel, or whatever the formula sets for that space, but you are not required to set it at that price. He said the state hopes that competition will reduce this price on barrels going through the pipeline, although this has not happened yet. Number 1650 CHAIRMAN ROKEBERG asked for information regarding development and promotion of a gas pipeline in the state of Alaska. Number 1691 MR. LOEFFLER said the problem with the gas pipeline was the location of its resource in regards to where the market was located. He said, to bring the gas to the continental United States the cost was up to $40 billion to $50 billion, way above the market price for that gas. He referred to the TransAlaska Gas System (TAGS) project and its attempts to get the pipeline cost down. He said it is a competitive market, and mentioned the gas needs of the Far East market. He said the owners of the gas, as well as the state, have tried to reduce the cost and he mentioned the geographical disadvantages Alaska faces. He said the owners of the gas would have to forego some profit, in the short term, to make the gas competitive in those Asian markets over the long term, with profit being earned in the later stages of the project. He said there is not much that can be done at the federal government level as all of the proceedings are completed as far as they can be, leaving the problem as one of finding the market. Number 1770 REPRESENTATIVE OGAN asked for information regarding the corrosion of the pipeline, specifically in regards to the buried sections. Number 1787 MR. LOEFFLER said the problems related to the main pipeline, although there were also problems at the Valdez marine terminal. He said the state believes that the cathodic (ph.) protection system that was installed to protect the pipe, was not installed correctly. He said the depth of the corrosion varied according to where it was measured, but the state was confident that the system was not working. He said, essentially, corrosion is the turning of iron back to its natural state of ore. He said this process can be reversed with the flow of electric current and that system was not working properly. He said there were other problems having to do with improper wrapping of the pipe with coating. He said there was also a problem with the PIG technology. He explained that the PIG technology is the electronic devices that are sent down the pipeline to take ultrasonic readings of the inside of the pipe. He said this technology improved over the years, but this technology could not catch specific things and it was a major concern. MR. LOEFFLER said part of the settlement required expenditures for enhanced cathodic (ph.) protection, but it is a lot of pipe and it was the underground pipe that had the particular problem. Number 1877 REPRESENTATIVE OGAN asked if the corrosion problem was an electrolysis problem basically. MR. LOEFFLER deferred to the Assistant Attorney General, Tina Kobayashi. Ms Kobayashi did not have a comment on this point. Number 1904 HB 342 - WATER QUALITY STANDARDS  CHAIRMAN ROKEBERG announced that next on the agenda was HB 342 an act relating to water quality. Chairman Rokeberg, sponsor of HB 342, said he introduced this bill last session as an attempt to reduce the controversy around regulations issued by the last Administration. During the last interim, meetings were held between representatives of the Administration, industry, and environmental agencies resulting in a number of resolutions and changes in regulations. He said the issues of mixing zones and sediment were not addressed and it is those areas that he wished to address in HB 342. CHAIRMAN ROKEBERG added that he has an amendment which he will bring forth later in the meeting. Number 1975 NANCY HILLSTRAND, Pioneer Alaska Fisheries, testified via teleconference from Homer. She had hoped there would have been a short explanation of HB 342. She said water quality is her main concern as she is in the fisheries processing business. She hoped that the water in Alaska would stay at the highest quality. She stated that it was not good to enhance businesses at the risk of degrading the water supply. She added that her business seeks to maintain good water standards, and she would hope other businesses would strive to do so also. She said we will pay for the water quality in the long run and hoped that the legislature would honor the water quality that we deserve here in Alaska. Number 2065 SARAH HANNAN, Executive Director, Alaska Environmental Lobby, Incorporated, was next to testify. She said her organization is a coalition of 20 environmental groups across the state of Alaska. She said the organization has been incorporated for 15 years in Alaska working with the legislature and has a two-fold mission. She said this mission is to work not only on behalf of the coalition but to work with members of the coalition to give them skills in dealing with the legislature. She said they have month long lobbyist who come down from various parts of Alaska to learn about the process. She then introduced Shirley Buckholz, as one of their newest volunteers and said Ms. Buckholz has been working on the water quality issue. SHIRLEY BUCKHOLZ, Lobbyist, Alaska Environmental Lobby, Incorporated, read from a sponsor statement. "The Alaska Environmental Lobby, Incorporated, opposes HB 342, `An act relating to water quality.' Water that has been impaired by humans and their activity needs to be cleaned back up. An increase in the loading of the pollutants will move those pollutants further into other waters. We need to clean these waters up by starting at the original source and discharging higher quality water back into waters that we have previously damaged. HB 342 violates the intent of the Federal Clean Water Act to keep all waters fishable and swimable. HB 342 ignores the fact that additional dirty discharge will cause greater downstream impact, while treated water could improve downstream conditions. For example the Red Dog Mine background streams are not capable of supporting aquatic life in their natural state. The Alaska Clean Water Alliance (ACWA) is now working with the Department of Environmental Conservation (DEC) and Cominco to help facilitate new permits for the mine recognizing the fact they will not require the mine to discharge at pristine conditions. The Red Dog Creek didn't support aquatic life due to the natural metal content there, not prior human disruption. The current Alaska water quality standards allow the use of site specific criteria. This specifically deals with natural conditions and problems. Our current standards work. HB 342 allows our streams and rivers to be polluted. Please oppose it." MS. BUCKHOLZ then read from her own statement, "This language, `may not require a higher discharge water quality standard for water used than water received for use,' to me this means something like the Sitka Mill, which has been closed for a couple of years, would, if it had not been closed down, be able to dump dirty water. Originally when the mill started the water was clean but after years of dumping this is not the case. If this bill were in place, as written at the time the mill was closed, they would have been able to continue to operate while dumping poor quality water even though the water they were dumping into was clean when the mill originally opened. Since the water is now of poor quality they could continue dumping in water of poor quality. This would apply be it oil and gas, logging mills, placer mining or whatever. Mother Earth can only sustain so much of this. Doing away with laws requiring clean-up of water you have previously mucked up and allowing the poor quality dumping to continue is no better than having no laws regarding clean-up." Number 2228 REPRESENTATIVE OGAN clarified that Ms. Buckholz was his constituent and invited her to discuss issues of concern to her with him. He said it is of benefit to the state that citizens get involved with the legislative process. Number 2253 REPRESENTATIVE BRICE asked for background on the connection mentioned between the Red Dog Mine and the Alaska Alliance for Clean Water (ACWA) in their attempt to establish clean water standards. Number 2277 MS. HANNAN said the ACWA is one of the 20 member groups. She said the arrangement has come about through a suit placed against Cominco. The alliance is now in the settlement process, and is participating in facilitating their additional permits to operate. She said she would get the contact name and phone number of Gershon Cohen of the ACWA. Number 2317 ALICE BULLINGTON, UNOCAL, testified via teleconference from Anchorage. She read a statement into the record, "UNOCAL supports the goal of HB 342 which would establish state water quality standards that are no more stringent than the federal standards unless, on a case by case basis, scientific and economic evidence justifies more stringent state regulations. UNOCAL feels that the state water quality standards should be consistent with federal requirements, regulations should require only EPA approved measurement methods, and allowances should be made for discharge waters to match the quality of receiving waters. The state is required to amend its regulations only when changes to federal regulations result in more restrictive standards. The state should also be required to change its standards when the federal regulations become less stringent. UNOCAL encourages agencies to develop efficient methods of modifying existing regulations to reflect changes in federal standards. And finally, UNOCAL feels that there should be established review criteria for evaluating the merit of the argument for having state regulations that would be more stringent than federal requirements. Thank you for the opportunity to provide testimony on the proposed bill." Number 2390 REPRESENTATIVE GARY DAVIS asked if Ms. Bullington would elaborate on her company's utilization of mixing zones and the studies of producing downstream sediment. Number 2404 MS. BULLINGTON said recently UNOCAL has gone through a rigorous process to determine what the impact of our mixing zones are in the Cook Inlet, including permanent mixing zone studies. She said they have found that there has not been an impact on the water of Cook Inlet from their continuing operations. She added that UNOCAL has done the most rigorous studies in the state of Alaska. She said these studies have incorporated over 800 modeling runs in an effort to determine what the worst case scenario would be in the Cook Inlet. TAPE 96-11, SIDE B Number 000 CHAIRMAN ROKEBERG asked if she had any comments about the language of HB 342 involving the water quality criteria and standards. Number 015 MS. BULLINGTON said the initial draft of HB 342 is very good. She said she was aware of the discussions on how to change the language and expressed her willingness to help form a final draft of HB 342. Number 045 SUSAN BRALEY, Chief, Technical Services and Program Development, Division of Air and Water Quality, Department of Environmental Conservation, was next to testify. She read a statement into the record, "among other things, our section is responsible for managing and administering the Alaska Water Quality Standards, which are regulations designed to protect the water quality of the state of Alaska. I am here today to testify on behalf of the department on HB 342, an act relating to water quality. The department has concerns with this legislation because the statutory changes it proposes are difficult to interpret and would unduly limit the flexibility of establishing water quality criteria or permiting limits for the measurement of sediment, and also for waters already polluted or impaired. Some of our concerns include: just overall the language in HB 342 appears to incorrectly using the terms for water quality criteria, water quality standards, and effluent limit discharges." She said she would be willing to explain how those terms are used and why the legislation is confusing. "This leads to difficulty in interpreting the legislation and how it relates to the existing Alaska Water Quality Standards regulations. As read, it is not clear what the intent of HB 342 is. For example in Section 3(a), it appears to be to limit the measurement of sediment to determine water quality in the water quality standards, but this change would also affect other regulations that the department has, for example, in our waste water regulations the efficiency of some treatment processes such as classical sewage treatment are historically described in terms of suspended solids. Because this bill would require that you could only measure in terms of settleable solids, it would prohibit the ability to use suspended solids as a monitoring tool or a measurement tool. Subsection (b) is also difficult to interpret. In the instance where it appears to say that the department cannot apply an effluent limit that is more restrictive than federal water quality standards. The language also suggests that the effluent limit can not be more strict than the quality of the intake water, although it may also be interpreted to mean the upstream water or receiving water. The bill does not recognize that some waters are already polluted. This bill would limit the ability to clean the waters back up to their original condition, since the language suggests that an effluent limit cannot be more strict than the quality of the intake water. I would like to note that the department already has the flexibility in existing statutes and regulations to deal with situations where the natural quality of the receiving water is above applicable receiving water quality. As a final note, there has been some interest at the Department of Environmental Conservation (DEC) to assume the federal National Pollutant Discharge Elimination System (NPDES) permitting program, since it appears the DEC could implement the program with more flexibility that the Environmental Protection Agency (EPA) is willing to use. If language in HB 342 were included in the DEC statutes, the department would not be able to assume the NPDES program, since it would prohibit application of EPA effluent limitation guidelines for suspended solids effluent limits and therefore EPA would not agree to allow DEC to take over the NPDES program. The department appreciates the opportunity to testify on HB 342." MS. BRALEY said she would be available to answer any questions and would be happy to work with the legislators on HB 342. Number 177 REPRESENTATIVE OGAN said the intent of HB 342 is to bring some common sense into the regulatory schemes. He said several of his constituents, miners in particular, have had problems with needing to have water that was cleaner than the water upstream. He asked if DEC reviews situations on a case by case basis. He again referred to the case of water that goes through a heavy metal area before it reaches the mining area, but that the miners are required to clean up the water at a cost prohibitive rate. Number 228 MS. BRALEY said the situation faced is that miners are required to get a federal NPDES permit, which creates limitations are outside the DEC's ability to do anything. She said on review of HB 342, it appeared that this was one of the things that the legislation was trying to correct by the bill's description of taking sediment and describing it as settleable solids rather than suspended solids. She didn't believe that HB 342 would correct the situation with the NPDES permits because DEC does not have primacy, therefore EPA is the agency that determines what the discharge limitations should be. She said DEC has been working with both the industry and EPA to reach a common sense approach. Number 285 MS. BRALEY referred back to Representative Brice's question regarding the Red Dog Creek where the intake water doesn't support any life, and it is actually being cleaned up to the point where fish are going up farther in the stream then they have ever gone up before. She said DEC is working with Red Dog and the EPA to go through the reclassification as well as using site specific criteria for the Red Dog Creek so that the miners won't ever have to go through this situation again by removing the strictest and highest use of water quality of that stream, which is drinking water. She said DEC has a section in their regulations which allows them to look at natural background quality and set site specific criteria that would apply to that specific water. MS. BRALEY said that the Red Dog Creek issue is a complicated issue and the DEC is trying to use a couple of mechanisms to create a situation that will last a long time. Number 344 REPRESENTATIVE FINKELSTEIN asked if the DEC had discretion to consider the issues in HB 342 in regards to intake water. Number 355 MS. BRALEY said DEC does for state permits. She said DEC does have the ability to deal with natural background conditions in setting discharge limitations already, so HB 342 would increase their ability. She said, what HB 342 does not do, is resolve the issue of the NPDES permit and how it is applied. REPRESENTATIVE FINKELSTEIN asked if DEC has the ability to consider settleable solids where it is biologically appropriate. Number 394 MS. BRALEY said yes they do. She said DEC revised the Water Quality Standards in January of 1995. She said sediment is listed as a criteria and at that time there was a lot of discussion about this issue. She said this discussion included whether you used the Imhoff Cone which measures what settles out versus the total suspended solids. She said the DEC clarified in the January 1995 regulations, that for purposes of measuring sediment, it was specified that it is would use the settleable solid method. She reiterated the problem of HB 342, referring to only using settleable solids as discharges. She said this takes it out of the criteria description and puts it into another description. It is common with NPDES and state permits to require that a Total Suspended Solids (TSS) be used as a measurement to see how you are doing. She referred to her experience of using this method when she worked at a seafood processing plant in Kodiak. She said TSS would not be able to be used as a monitoring tool under HB 342, a tool commonly used by industry. Number 468 REPRESENTATIVE FINKELSTEIN asked if the most critical factor, from a fishery perspective, was suspended rather the settle solids. Number 489 MS. BRALEY said she was not a fish biologist, but she said she would assume that would be where you would want to know what the TSS was. She said DEC is doing a lot with water quality standards at this time and referred to mixing zone language up for public review. Number 512 CHAIRMAN ROKEBERG referred to a document sent from the Governor's office, contained in the committee packet, which is an update of what DEC is doing. He encouraged any committee members to submit any written questions to Ms. Braley. Number 559 REPRESENTATIVE OGAN made a motion to set forth Amendment 1 on the table for discussion. REPRESENTATIVE FINKELSTEIN asked if the committee could wait on adopting the Amendment until the committee acted on HB 342. CHAIRMAN ROKEBERG said a CSHB 342 would be brought forth at a later meeting. He said Amendment 1 requires the commissioner to adjust the Alaskan regulations to meet any changes in EPA regulations whether they increase or decrease in severity. ADJOURNMENT There being no further business to come before the House Oil & Gas Special Committee, Chairman Rokeberg adjourned the meeting at 11:10 a.m.