HOUSE RESOURCES STANDING COMMITTEE January 26, 1994 8:00 a.m. MEMBERS PRESENT Representative Bill Williams, Chairman Representative Bill Hudson, Vice-Chairman Representative Con Bunde Representative Pat Carney Representative John Davies Representative Joe Green Representative Eldon Mulder Representative David Finkelstein MEMBERS ABSENT Representative Jeannette James COMMITTEE CALENDAR *HJR 49: Requesting the United States Department of Interior to adopt regulations that give a narrow interpretation to certain definitions under the Oil Pollution Act of 1990 relating to evidence of financial responsibility that must be shown by offshore facilities. ADOPTED CS (RES) AS AMENDED, MOVED FROM COMMITTEE WITH INDIVIDUAL RECOMMENDATIONS *(first public hearing) WITNESS REGISTER REPRESENTATIVE JOE GREEN Alaska State Legislature State Capitol, Room 114 Juneau, Alaska 99811-1182 Phone: 465-4931 Position Statement: Read sponsor statement and gave an overview of HJR 49 GLENN GRAY, Project Analyst Division of Governmental Coordination P.O. Box 110030 Juneau, Alaska 99811-0030 Phone: 465-3562 Position Statement: Gave a briefing on the draft consolidated state comments and answered questions MEAD TREADWELL, Deputy Commissioner Department of Environmental Conservation 410 Willoughby Avenue Juneau, Alaska 99801-1795 Phone: 465-5050 Position Statement: Supported HJR 49 and answered questions PREVIOUS ACTION BILL: HJR 49 SHORT TITLE: FED REGS UNDER OIL POLLUTION ACT OF 1990 SPONSOR(S): REPRESENTATIVE(S) GREEN JRN-DATE JRN-PG ACTION 01/18/94 2096 (H) READ THE FIRST TIME/REFERRAL(S) 01/18/94 2096 (H) RESOURCES 01/26/94 (H) RES AT 08:00 AM CAPITOL 124 ACTION NARRATIVE TAPE 94-4, SIDE A Number 000 The House Resources Committee was called to order by CHAIRMAN BILL WILLIAMS at 8:15 a.m. Members present at the call to order were Representatives Williams, Hudson, Bunde, Carney, Finkelstein, Green, and Mulder. Members absent were Representatives Davies and James. CHAIRMAN WILLIAMS announced the committee would consider House Joint Resolution 49 sponsored by Representative Joe Green. Chairman Williams stated Representative Green has provided a draft committee substitute version located in committee member folders. REPRESENTATIVE JOE GREEN, PRIME SPONSOR, HJR 49, stated last year he became aware of the problem now before the committee. He said the Minerals Management Service (MMS) had sent out a notice of meetings along with a draft of their regulations. In the regulations, MMS included, what he felt was an onerous amount of financial responsibility. He thought what was even more onerous was that the regulation applied to every hamlet, borough and activity; and the guidelines included the broadest possible interpretation of terms, as well as the definition of wetlands. Representative Green said wetlands has been interpreted to mean even lands containing permafrost. REPRESENTATIVE GREEN read his sponsor statement: "In August 1993, the Minerals Management Service (MMS) of the U.S. Department of the Interior published an `Advanced Notice of Proposed Rulemaking' in the Federal Register, initiating the process of implementing the financial responsibility section of the Oil Pollution Act of 1990 (OPA '90). Currently, the MMS requires a $35 million liability bond for Outer Continental Shelf (OCS) facilities. OPA '90 increased the financial threshold to $150 million, and expanded it's application to navigable waters. "In the process of promulgating regulations to implement OPA '90, the MMS has interpreted the terms `navigable waters,' `offshore facility,' and `responsible party' in a very broad manner. Tom Fry, Director of the MMS has stated that `These definitions seem to create a financial responsibility requirement for any activity that can spill oil and is located in, on, or under most of the surface waters of the U.S. and adjacent wetlands.' "The financial responsibility requirements apply both to commercial and private operations, and make no allowance for quantity. Read literally, if someone were to store or transport five gallons of petroleum-based fuel in, on, or under navigable waters, including wetlands, that person would fall under the OPA '90 requirements. These regulations will apply to marinas, port facilities, utility companies, gasoline filling stations, trucking companies, logging operations, railroads, refineries, airports, farms, fishing boats and tenders, pipelines, and many other Alaskans." Number 055 REPRESENTATIVE GREEN stated in preparing for the committee meeting, he noticed the original wording should be changed. Specifically, in the resolve section, he requested the MMS to redefine phrases which they do not have the power to redefine. In order to remedy his oversight, he requested legal to draft a sponsor blank committee substitute (CS) now before the committee. He said the CS requests MMS reinterpret the phrases, something they do have the power to do. Representative Green asked the committee to adopt the proposed committee substitute. REPRESENTATIVE GREEN said HJR 49 requests the MMS to reinterpret and narrow their definitions. Due to problems caused by this, and other sections of OPA '90, HJR 49 asks the MMS to propose amendments to Congress which address the problems. He remarked that Alaskans from Ketchikan to Anchorage to Kotzebue have written to support these redefinitions, and copies of these letters are included in committee members folders. REPRESENTATIVE GREEN noted support for the CS from local governments, including boroughs, municipalities, municipal league, and utilities, including two statewide utility organizations. He said Commissioner Paul Fuhs of the Department of Commerce and Economic Development, the Department of Environmental Conservation (DEC), Native corporations, fuel carriers, statewide development organizations, tug and barge companies and the majority leader. REPRESENTATIVE GREEN mentioned the MMS has scheduled a hearing on the regulations for February 16 in Anchorage. He hoped that HJR 49 can pass both houses of the legislature in a timely manner, so that it can be included as part of the official public record at those hearings. He added a similar resolution is being introduced in the Senate, and while this resolution asks the MMS for specific action, the Senate's version asks Congress to change their definition. Representative Green felt the two resolutions compliment each other. Number 088 REPRESENTATIVE DAVID FINKELSTEIN asked what the time frame is for the regulations. REPRESENTATIVE GREEN responded public hearings are currently being held and the regulations will be enacted later this year. Number 098 REPRESENTATIVE FINKELSTEIN felt page 2, line 2 in the CS, "without further clarification, these definitions might be interpreted in regulations..." sounds like the regulations do not exist. He wondered if it should say "these definitions are interpreted in regulations." REPRESENTATIVE GREEN replied there is a draft set of regulations which is constantly being changed. He felt if someone interprets the regulations as he has interpreted them, it would mean a catastrophic situation. Number 111 GLENN GRAY, PROJECT ANALYST, DIVISION OF GOVERNMENTAL COORDINATION, stated the Governor asked his division to prepare a consolidated state response to the financial responsibility rulemaking proposed by the U.S. Department of the Interior, the MMS and mentioned his division has also asked individual agencies to respond. He said the regulations are just proposed rulemaking and the regulations will not be in draft form until the end of 1994. It will take one more year of rulemaking before they become finalized. MR. GRAY explained the MMS is being vague, saying the proposed rulemaking may affect individuals, state and local governments and private businesses. MMS is being very careful not to say the rulemaking will affect the parties mentioned. Number 125 MR. GRAY stated the proposed rulemaking relates to Section 1016 of the OPA '90 and covers both vessels and offshore facilities. He remarked for vessels, the most dangerous polluters, there is a sliding scale of financial responsibility. For offshore facilities, it is a flat $150 million proof of financial responsibility, regardless of the size of the facility. He pointed out it will be impossible for any facility, except the largest companies, to meet this requirement because coverage is not available and if it is available, it is not affordable. MR. GRAY said only a few insurance companies are willing to give pollution insurance and noted that those who do, need $1.5 billion in capital and surplus. He distributed to committee members, a copy of his remarks and draft consolidated state comments (on file), which the state has developed and are currently under review by the Department of Law and may change. MR. GRAY believed Congress did not intend the proposed rulemaking to apply to everyone, and stressed the initial interpretation by the Department of Law implies that the proposed rulemaking is a little narrower than what the MMS is saying because of the definition of responsible parties. In Section 1016, it clearly says that only responsible parties must provide proof and refers to lessees, permitees and holders of a right. MR. GRAY felt an argument can be made by the MMS that applicable state laws are laws which are similar to the Outer Continental Lands Act, because the words applicable state laws occur before that, but the Department of Law says opposition could argue the other way and say that applicable state laws are all state laws. That would mean anyone who has a lease or permit would have to provide the $150 million proof of financial responsibility. He felt the MMS is trying to be careful in case of a suit and taking the broadest interpretation possible. MR. GRAY noted there is a hint from the MMS people that they may be backing off, but he has not seen it in writing nor has he had it clarified verbally. He said the proposed rulemaking could be devastating to Alaska in that everyone will have to operate in noncompliance or shut down completely. He also noted it will be an enforcement nightmare. MR. GRAY said the MMS has no choice but to go with what attorneys are telling them on the interpretation on what OPA '90 means. He felt the proposed rulemaking may have to go back to Congress but it might be possible that the MMS would have a strong case to argue in that the rulemaking does not include onshore wetlands, and that by navigable waters, it means those waters commonly understood as offshore such as oil production and exploration and development in state waters, as well as the outer continental shelf. MR. GRAY stated the Division of Governmental Coordination respectfully suggests a possible change to line four, page two where it refers to "fishing boats and tenders." He understood vessels would not be covered by Section 1016, but would be covered by the Coast Guard, and the MMS is the body implementing the financial responsibility for offshore facilities. Mr. Gray wondered if Congress intended the rulemaking to apply to onshore areas, why would they have a separate definition for onshore areas. Number 192 (CHAIRMAN WILLIAMS noted for the record REPRESENTATIVE DAVIES arrived at 8:25 a.m.) REPRESENTATIVE ELDON MULDER expressed concern as to what the rulemaking is going to do to the smaller operators and wondered if they will be able to afford the $150 million bond. MR. GRAY responded they probably will not. He said the Division of Insurance did a rough analysis and believe the only people who will be able to afford the bond through insurance are the top Fortune 500 companies. REPRESENTATIVE MULDER felt the intention of OPA '90 was not to make only the wealthy survive. MR. GRAY replied he was not sure, but added that Congress did not intend the rulemaking for onshore. He noted his division's comments ask for a sliding scale even if it is just applied to offshore areas. REPRESENTATIVE MULDER asked if other states are concerned and reacting in the same manner. MR. GRAY replied the big oil states are, but he was not sure about testimony from the smaller states. He added, however, about a month ago there were only about 200 responses nationwide, which alarmed the state. Number 224 REPRESENTATIVE GREEN asked for a clarification on the change suggested by the Department of Governmental Coordination. Were they suggesting to delete "and tenders"? MR. GRAY answered at least delete "fishing boats"; and "tenders", if they are considered vessels. REPRESENTATIVE GREEN asked "because of the possible question of where does the transfer go between loading or fueling and being set adrift, is there any objection. He expressed concern that there may be a possibility of slipping through the crack saying it was neither fish or fowl." MR. GRAY said he had no objection. REPRESENTATIVE FINKELSTEIN asked, referring to page two, lines seven and eight, if there was any evidence of Congress's intent. Number 244 MR. GRAY replied there is no physical strong evidence and a case would have to be developed by looking at the definitions. He said the common approach would say Congress did not intend this. Why would Congress set a sliding scale for those vessels who are responsible for 90 percent of the oil which goes into marine waters? REPRESENTATIVE FINKELSTEIN felt the WHEREAS (lines seven and eight on page 2) is not supported by any evidence and is not necessary to the rest of the resolution. REPRESENTATIVE GREEN stated in the announcement made by Tom Fry, Director of the MMS, the words "in broadest possible interpretation" are used and the WHEREAS in question is in response to those words. Number 270 REPRESENTATIVE FINKELSTEIN argued that this WHEREAS speaks to what Congress's intent is, which the Director of the MMS would not be aware of. He said it was like trying to read someone's mind. REPRESENTATIVE GREEN disagreed, because when words are written and someone interprets them in the broadest possible sense, it usually goes beyond what was intended. REPRESENTATIVE FINKELSTEIN stressed in order to determine the intent, there needs to be an understanding of what Congress's intent was. He felt it was important that in resolutions, all of the WHEREAS are proven facts. REPRESENTATIVE JOHN DAVIES suggested to insert the words "appears to have been" after the word "than" on page two, line seven. The line would read "WHEREAS this kind of interpretation would be much broader than appears to have been intended by the Congress..." Number 300 REPRESENTATIVE MULDER MOVED to ADOPT the draft committee substitute for HJR 49 as CSHJR 49(RES). CHAIRMAN WILLIAMS asked if there were any objections. Hearing none, CSHJR 49(RES) was ADOPTED. REPRESENTATIVE MULDER MOVED to AMEND line seven on page two of the Resources CS, inserting the words "appears to have been" after the word "than". CHAIRMAN WILLIAMS asked if there were any objections. Hearing none, the AMENDMENT was ADOPTED. REPRESENTATIVE MULDER asked if there was a need to amend line four on page two? REPRESENTATIVE GREEN responded that did not need changing as the questions were resolved. REPRESENTATIVE MULDER agreed with Representative Green that there is a need for a proactive stance in relation to the potential interpretation, as no one knows what Congress did intend. He said he is most concerned about the smaller companies in the state and added that the oil industry in the state was founded by the smaller companies. He stressed the proposed rulemaking could either drive the smaller companies out of business or they will operate without insurance and produce the opposite effect of what the proposed rulemaking is intended to do. Number 350 MEAD TREADWELL, DEPUTY COMMISSIONER, DEPARTMENT OF ENVIRONMENTAL CONSERVATION (DEC), expressed DEC's support of HJR 49, and believes it is fully compatible with and complimentary to the Senate Resolution. He said if one is to read statements made by Billy Townsend, Chairman of the subcommittee that drafted OPA '90, it is clear that there will be an impasse over the wetlands issue, as he did not intend for it to cover wetlands. MR. TREADWELL felt that in the first WHEREAS clause in the resolution (lines six, seven and eight), it would not be proper if the legislature granted a legal interpretation which does not have a consensus on. He suggested it should read "WHEREAS the Oil Pollution Act of 1990 has been interpreted to require offshore facilities..." MR. TREADWELL, referring to the draft consolidated comments and looking at page three of the draft, advised there are four specific changes suggested if Congress takes up a legislative solution. He said rather than change CSHJR 49, the suggested changes should be considered when the Senate considers it's resolution. Number 401 MR. TREADWELL stressed that DEC feels it very important to limit coverage to offshore facilities. It is also important to use state financial responsibility requirements. He said many times the legislature has considered the financial responsibility necessary for operations in Alaska. He added that the MMS already has the right to set certain bonding requirements when it leases land, and suggested that Congress may have reached too far in that area. Currently the state has a high level of $50 million for the financial responsibility requirement and liability requirements are much higher. Number 420 MR. TREADWELL said in terms of developing a risk-based approach, DEC feels it should be set in law with specific numbers similar to the way Alaska's laws have been set, rather than leaving the MMS more flexibility to set levels on a case-by-case basis. He noted there is another bill which will come before the committee on financial responsibility issues. Mr. Treadwell mentioned the Energy Council will have a panel on the issues, and hearings will be held with the MMS representatives February 16 in Anchorage. Number 445 REPRESENTATIVE BILL HUDSON appealed to Mr. Treadwell to have the hearings in Juneau. He felt it is important that those involved with the Oil and Gas Committee be present to represent the views of the state. Representative Hudson stated he was the Chairman of the Oil and Gas Committee immediately after the Exxon Valdez spill, and remembers clearly all of the laws which were put in place dealing with the implementation of OPA '90. REPRESENTATIVE HUDSON said he is convinced that it was not the intent of OPA '90 to result in the interpretation presently before the committee. He felt that if it truly is the MMS's interpretation, it is a blatant misread of the intent of Congress. He noted the Oil and Gas Committee went through the hearing process to discuss what level of financial responsibility should be required for different elements within the state. At that time, it was determined that operators storing less than 5,000 barrels of crude oil or less than 10,000 barrels of non-crude oil are exempt from financial responsibility requirements. He stressed that decision was adopted by the legislature, so Alaska's intent was clearly known by the people who interpreted it. He does not believe there is anything on the record that indicated it was the intent of Congress to impose a $150 million proof of financial responsibility. REPRESENTATIVE HUDSON stated everyone who transports and stores crude oil is going to be required to have an oil spill response plan. He stressed the state does not want to expose it's marine system to oil pollution, and strong steps have been taken to ensure the right level of financial responsibility and response capability is in place. He felt the state has some of the strongest laws in the nation, but also has some of the most unique and unusual situations. Representative Hudson voiced strong support for CSHJR 49. REPRESENTATIVE GREEN agreed with Representative Hudson's comments. The COMMITTEE had a general discussion regarding a joint House Resources meeting with representatives from the MMS. Number 613 REPRESENTATIVE DAVIES expressed a concern regarding lines seventeen and eighteen on page two, the words "as narrowly as possible." He felt "narrowly as possible" may go beyond reasonable protection which Representative Hudson also discussed. REPRESENTATIVE DAVIES offered an amendment to say "more narrowly and more reasonably." REPRESENTATIVE HUDSON thought the word "practical" might be a good approach. He said instead of "as narrowly as possible," say "as practical as possible" which would imply other considerations. Number 670 MR. TREADWELL referring to the draft consolidated position, at the top of page 3, remarked DEC is urging coverage be limited to offshore oil exploration and production facilities traditionally regulated by the MMS. He suggested other words which might be used are "to apply only on the outer continental shelf." REPRESENTATIVE DAVIES stressed the clause also refers to "navigable waters" and "responsible party" which may not be only the continental shelf. He said he likes Representative Hudson's suggestion. TAPE 94-4, SIDE B Number 000 REPRESENTATIVE MULDER felt there was not a problem with the words "as narrowly as possible." REPRESENTATIVE PAT CARNEY asked Mr. Treadwell to repeat his suggested language. MR. TREADWELL responded he had suggested the words "to apply only on the outer continental shelf" on line eighteen. He pointed out that DEC is urging the Department of Interior to stay in its traditional back yard which is on the outer continental shelf. Number 029 REPRESENTATIVE HUDSON suggested line 18 on page 2 the "as narrowly as possible" be changed to "compatible with Alaska state law." MR. TREADWELL referred the committee to the Attorney General's November 3 letter to Tom Fry which said "he was pleased to learn that the Department of Interior believes the term `navigable waters' has traditionally included wetlands among other water bodies. As the news release states, large areas of Alaska have been classified as wetlands. Therefore, because title to all navigable waters passed to Alaska at statehood, the state holds title to much more submerged land than Alaskans previously realized." He said the state has been making a claim about navigable waters and subsurface waters. REPRESENTATIVE DAVIES MOVED to AMEND line 18 on page two of the Resources CSHJR 49 to substitute the word "possible" with the word "practical." CHAIRMAN WILLIAMS asked if there were any objections to the motion. Hearing none, the motion PASSED. REPRESENTATIVE GREEN MOVED to AMEND line 6 on page one of the Resources CSHJR 49 to read "WHEREAS the Oil Pollution Act of 1990 has been interpreted to require offshore...". CHAIRMAN WILLIAMS asked if there were any objections to the motion. Hearing none, the motion PASSED. REPRESENTATIVE MULDER MOVED to pass the committee substitute for HJR 49 as adopted and amended with INDIVIDUAL RECOMMENDATIONS. CHAIRMAN WILLIAMS asked if there were any objections. Hearing none, the motion PASSED. The COMMITTEE again discussed a possible meeting in Juneau with the MMS representatives and Senators Stevens and Murkowski. The committee asked staff to research the possibility and schedule it. ANNOUNCEMENTS CHAIRMAN WILLIAMS announced the committee will meet at 8:15 a.m. on Friday, January 28 to hear SB 153 relating to the exchange of raw fish for seafood product. ADJOURNMENT There being no further business to come before the House Resources Committee, CHAIRMAN WILLIAMS adjourned the meeting at 9:10 a.m.