SENATE RESOURCES COMMITTEE Fairbanks, Alaska November 19, 1993 9:23 A.M. MEMBERS PRESENT Senator Mike Miller, Chairman Senator Loren Lehman, Vice Chairman Senator Dave Donley Senator Fred Zharoff MEMBERS ABSENT Senator Drue Pearce Senator Steve Frank Senator Al Adams COMMITTEE CALENDAR SENATE BILL NO. 215 "An Act relating to and redesignating the oil and hazardous substance release response fund and to its use in the event of a disaster emergency; repealing the authority in law by which marine highway vessels may be designed and constructed to aid in oil and hazardous substance spill cleanup in state marine water using money in the oil and hazardous substance release response fund; amending requirements relating to the revision of state and regional master prevention and contingency plans; altering requirements applicable to liens for recovery of state expenditures related to oil or hazardous substances; amending the authority to contract to provide personnel to respond to a release or threatened release of oil or a hazardous substance and to contract to conduct spill related research; reassigning responsibility for the oil and hazardous substance response corps and for the emergency response depots to the Department of Environmental Conservation, and for the operation of the state emergency response commission and its attendant responsibilities for the local emergency planning commissions to the Department of Military and Veterans' Affairs; and modifying definitions of terms relating to the preceding provisions; terminating the nickel-per-barrel oil conservation surcharge; levying and collecting two new oil surcharges; and providing for the suspension and reimposition of one of the new surcharges; and providing for an effective date." PREVIOUS SENATE COMMITTEE ACTION SB 215 - No previous action to record. WITNESS REGISTER Jack Chenowith Division of Legal Services Legislative Affairs 130 Seward St., #406 Juneau, Alaska 99801-1795 POSITION STATEMENT: Provided sectional review of SB 215. Maria Gladziszewski Legislative Research Agency 130 Seward Street, Suite 218 Juneau, Alaska 99801-2196 POSITION STATEMENT: Provided review of memo regarding SB 215. Shelby Stastny, Director State Office of Management & Budget P.O. Box 110020 Juneau, Alaska 99801-0020 POSITION STATEMENT: Provided review of DOA memo regarding SB 215. . Craig Tillery Department of Law 1031 West Fourth Avenue, Suite 200 Anchorage, Alaska 99501-1994 POSITION STATEMENT: Testified regarding reimbursement of Exxon Valdez Settlement monies to the "470 Fund." Mead Treadwell, Deputy Commissioner Department of Environmental Conservation 410 Willoughby, Suite 105 Juneau, Alaska 99801-1795 POSITION STATEMENT: Commented on SB 215. Ardie Gray, Public Affairs Manager Alaska Oil & Gas Association 121 West Fireweed Lane, ¦Suite 207 Anchorage, Alaska 99503 POSITION STATEMENT: Supported SB 215. Walt Furnace Alaska Support Industry Alliance 4220 B Street, #200 Anchorage, Alaska 99501 POSITION STATEMENT: Supported SB 215. Richard Mullen, Manager South East Alaska Petroleum Resource Organization 3350 Denali Ketchikan, Alaska 99901 POSITION STATEMENT: Commented on SB 215. Charles McKee 7800 East DeBarr Road, #63 Anchorage, Alaska 995-4 POSITION STATEMENT: Opposed SB 215. Chip Thoma 2 Marine Way Juneau, Alaska 99801 POSITION STATEMENT: Opposed SB 215. ACTION NARRATIVE TAPE 93-24, SIDE A CHAIRMAN MILLER called the Resources Committee meeting to order at 9:23 a.m. and announced SB 215 (OIL/HAZARDOUS SUBS. RELEASE RESPONSE FUND) to be up for consideration. SHELBY STASTNY, Director, State Office of Management & Budget, gave an overview of the First, Second, and Third Quarter Reports for the Oil Surcharge Account (dated 4/2/93, 8/20/93) issued by the Department of Administration which are required by AS 43.55.230 (b). He acknowledged there is concern that the balance of the fund is a negative number. He referred to a memo from his office included in a packet submitted by the Department of Environmental Conservation (DEC) to the House Resources Committee hearing last week, dated November 5, 1993, regarding similar legislation (House Bill 238). He explained that the statute requires that the quarterly reports simply show the cumulative surcharge, or total collected through the nickel- per-barrel tax, minus the total cumulative expenditures, which produces a negative balance of $15,105,728 according to his 11/2/93 memo. The amount actually available in the Response fund as of that date, however, was $37,229,669. The difference between the Fund balance prepared by DOA and the Fund balance prepared by OMB occurs because funding for the cumulative expenditures is provided by the nickel-per-barrel tax as well as program receipts and other general fund contributions from the oil industry. Therefore, based on the statutory calculation, the ending balance will never reach $50 million unless there is $125 million in the Fund. The Administration would like to see some sort of correction so the quarterly reports reflect the true Fund balance. He stated that if the Legislature's goal is to provide a $50 million fund, then there should be a better way of calculating when the tax "turns off." the administration's position is that the state should accumulate a $50 million fund that will always be available to respond to disasters and other significant spills, releases, etc. SENATOR MILLER asked Mr. Stastny to clarify if and when the tax would cease based on the $15 million and $37 million figures presented in the OMB memorandum. MR. STASTNY said he believes the tax would stop when the figure in the right hand column ($37 million reached approximately $125 million due to the $75 million in expenditures which come from revenues other than the nickel-per-barrel tax. He noted that when the present administration took office the balance of the fund was between $8 and $9 million and has increased to the present $37 million. SENATOR LEMAN asked why the figures reflecting the Cumulative Surcharge Collected were different under the columns titled AS 43.55.230 (b) Calculation and Response Fund. MR. STASTNY said the Response Fund figure is an amount appropriated by the Legislature annually. However, the state continually collects the surcharge (reflected in the AS 43.55.230(b) Calculation column) even though it has not yet been appropriated by the Legislature. CRAIG TILLERY, Department of Law, explained the process for reimbursements of Exxon Valdez Settlement monies to the Fund. He testified that Exxon is required to pay $900 million in settlement money. Of that amount, the state and federal governments are entitled to take their reimbursements from certain Exxon Valdez oil spill related expenses. The remainder goes to the Exxon Valdez Trust Fund where it is spent under the direction of the joint federal and state trustees. The governments determine what their restoration needs will be for a given year, then look at how much will be left and from that, take the appropriate amount due. That money does not go through the trust Fund, but straight to the governments via the General Fund. The money being reimbursed from the Response Fund goes into the Mitigation Account from which the Legislature may, as it always has done, appropriate it back into the Response Fund. He pointed out that under the proposed bill, the money would go to the Oil & Hazardous Substance Release Contingency and Abatement Account (OHSRCAA) from which the Commissioner may spend money. He views this as bypassing the process of legislative appropriation of the money into the OHSRCAA which could be viewed as setting up a dedicated fund. He suggested the committee explore the possibility of running the money through the Mitigation Account, then allowing the Legislature to appropriate it into the OHSRCAA. MARIA GLADZISZEWSKI, Legislative Research Agency, reviewed her memo dated 11/18/92 in response to questions posed by Senator Miller. The first asked for the current balance in the Spill Response Fund and the emergency spill reserve. She said the committee heard from Mr. Stastny regarding the balance of the fund and referred to the flow chart (Table One) attached to her memo. She also referred to Table Two in the memo which explains the process discuss by Mr. Tillery regarding reimbursements. The second question asked was if a legislative appropriation to the emergency spill reserve is considered an expenditure for the purpose of AS 43.55.230(b) (suspension and reimposition of the $0.05/pbl surcharge). She referred to a memo by Mr. Breck Tostevin, Department of Law, which concludes that money appropriated to the spill reserve is not considered an expenditure for the purpose of calculating whether to suspend the surcharge. The third question asked for (1) the current status of the Exxon Valdez Settlement reimbursements to the State of Alaska and the Response Fund, (2) the amount that has been reimbursed so far and (3) how much is likely to be reimbursed in the future. A detailed response is contained in Ms. Gladszizewski's memo. JACK CHENOWETH, Legislative legal Services, gave a sectional summary of SB 215. The principal changes occur with respect to the structure and objects of expenditure of the Oil & Hazardous Substance Release Response Fund. It is divided into two accounts; the release Contingency and Abatement Account, and the Catastrophic Oil Release Response Account. Sections 25-27 identify the division of the current fund into two accounts. Section 28 adds in the proviso that equipment that can be used in substance response depots may be purchased out of the Fund and that the current authorization of expenditure for marine ferries is to be repealed. Section 29 discusses the composition of the Oil & Hazardous Substance Release Contingency and Abatement Account (OHSRCAA); Section 30 discusses the composition of the Catastrophic Oil Release Response Account (CORRA) and essentially requires what is currently required of the fund as a whole. Section 31 makes changes in what the two accounts may be sued for. The Catastrophic Release Account may be used for major oil releases; the Contingency and Abatement Account is used for events that fall short of catastrophic or threatened catastrophic oil releases. Sections 32 and 33 are companion measures which both discuss what the Governor may do with the balance of funds in the Catastrophic Release Account. Following the passage of Senate Bill 90 in 1993, Section 32 is no longer necessary in SB 215 and Section 33 would become the operative section. Section 34 speaks to the use of monies from either account and requires a specific appropriation for most purposes except for immediate response action currently authorized in law. Sections 8 and 35 reflect the division of the Fund into two accounts. Sections 42 and 43 reflect revisions of definition of the terms "release" and "threatened release." Sections 35 and 37 make conforming changes. Sections 1,4, 6, 7 and 41 make reference to the renamed accounts. Section 5 refers to the two accounts and touches upon grants to municipalities for disaster emergencies. Sections 44 and 49 reflect changes in the definition of "catastrophic oil discharge" in an effort to explain that definition's applicability. MR. CHENOWETH summarized that all the above sections make changes that reflect the fact that the current 470 Fund would be divided into two accounts, and the purpose of the accounts would differ in that the Catastrophic Release Account would be used for major oil releases, and the Contingency and Abatement Account would handle other purposes spelled out in the bill revisions. Sections 9 through 16 reflects a revision in the Oil & Gas Conservation Surcharge, or nickel-per-barrel surcharge. A 3 cent levy would be deposited into the Catastrophic Release Account and be subject to suspension or termination when the balance of the fund reaches $50 million. A 2 cent levy would be deposited into the contingency and Abatement Account and continues without limitation. Section 38 reassigns the Oil & Hazardous Substance Response Corps to DEC. Section 39 transfers responsibility for maintaining the response depots to DEC. Section 46 moves the State Emergency Response Commission from DEC to Department of Military and Veterans Affairs (DMVA). Section 51 holds harmless the terms of persons serving on the Response Committees despite the agency transfer. Sections 2 and 3 address the Governor's authority to declare disaster emergencies. Sections 32 and 33 make changes that relate to the Governor's use of money in the Oil and hazardous Substance Release Prevention & Response Fund in the face of a disaster emergency. Sections 17 and 18 make conforming changes. Sections 19 and 20 make changes in the statewide prevention and contingency master planning process. Sections 22 and 23 make changes in the regional prevention and contingency master planning process and eliminate the Oil & Hazardous Substance Response Office's ability to conduct spill technology research. Section 24 amends the definition of "catastrophic oil discharge" to include the declaration of a disaster emergency by the governor. Section 40 assigns the Oil & Hazardous Substance Response Office the authority to contract to provide personnel for certain release related work. Sections 43 and 45 revise the definition of "threatened release." MR. CHENOWETH suggested that some technical drafting changes should be considered to "clean up" the bill based on action taken during the first session of the 18th Legislature before reporting the measure from committee. MEAD TREADWELL, Deputy Commissioner, Department of Environmental Conservation, referred to a draft package submitted to the Committee entitled "DRAFT 11/12/93: Principles for Consensus on the Response Fund Funding." He emphasized the Department's desire to work with all interested parties in maintaining a strong spill response program. He also emphasized that DEC does want to build and maintain a $50 million spill reserve and believes that will be achieved this year. Finally, he pointed out that DEC agrees that greater equity should be achieved in funding sources for the non- crude and hazardous substance prevention and response aspects of the program. The Department's strategy is to look at other ways to expand response fund sources including cost recovery. The fund is owed approximately $30 million from Exxon Valdez expenditures and DEC estimates the recovery schedule on page 6 of the draft. DEC is also increasing, in cooperation with the Department of Law, cost recovery efforts. Damages and fines currently collected by the Mitigation Account could possibly be figured in when determining suspension of the tax. Fees to be paid by non-crude facilities for contingency plan review, as well as fees for financial responsibility submissions, could be imposed. Loading fees as a source of UST funding has been discussed. Substitution of General Funds, including interest ont the spill reserve and use of other tax revenues, were suggested as other possible funding sources to cover the program. Suggestions regarding the surcharge include: 1( amending the tax law to reflect that the tax is collected when the balance of the fund, less obligations appropriated by the Legislature or spent from the spill reserve, is less that $50 million and 2) adopting an incentive clause stating that the tax will not be collected in such a year unless other named sources are also appropriated to the fund. DEC has reviewed methods to further limit fund expenditures including: removal of full funding for the SERC by making an all- hazards SERC, repeal of the provision that allows ferries to be built with the Response Fund, review of expenditures by a body such as the SERC in case of spill prevention and response plans and the HSSTRC, in case of research. MS. ARDIE GRAY, Public Affairs Manager, Alaska Oil and Gas Association (AOGA) said they were concerned that money from the 470 Fund was being appropriated for activities other than oil spill emergencies. She said it was being used extensively for other activities including funding one third of the ADEC's operating budget. MS. GRAY also noted that there was no consensus on how to account for the money in the 470 Fund and this needs to be clarified. Also, there is a significant question about the money appropriated by the legislature to the emergency spill reserve and whether it counts toward the $50 million cap on the Fund. Because of the confusion over what the balance in the 470 is, whether appropriations to the spill reserve are considered "expenditure", and the differing views over what are appropriate uses of the money in the 470, she said AOGA believes it is necessary to look at a new approach to the Fund. For this reason they strongly support SB 215. This proposal would ensure there is an independent source, the 3 cents per barrel, for the $50 million in case there is an emergency. It would also insure, with the 2 cents per barrel levy, that there is a secure source of funding for state prevention and preparedness programs as long as oil is being produced in Alaska. While this would not provide the amounts ADEC currently needs for the operating costs, they have indicated that the need will decrease after the "start up". This proposal, she said, would provide tax certainty for the industry and for the State. MS. GRAY said that AOGA does not think it is appropriate to use the state's supposed oil spill emergency fund to pay for the underground storage tank cleanup assistance program. They do support using the mitigation account money to fund it, but with future Exxon Valdez settlement reimbursement payments which should be adequate. TAPE 93-25, SIDE A CHIP THOMA, Juneau, testified that the 470 Fund is, for the most part, the crude and non-crude producers' profits. He stated these producers are behind the proposed gutting of the 470 Fund. Very large profits are also being made by the refiners and transporters. He believes anti-trust fraud and price fixing practices exist in the fuel industry and hopes it will be curtailed. He pointed out that a recent BLM audit of the TAPS, Alyeska, and the owner companies shows the management responsibility for serious operational shortcomings is practically nonexistent. He does not believe any of the owner companies have taken steps necessary to prevent another large spill, nor have they made the improvements necessary to protect communities and river systems in Alaska that depend on refined products. he stated this is why the 470 Fund exists, and should remain, in its present size and form. RICHARD MULLEN, Manager, Southeast Alaska Petroleum Resource organization (SEAPRO), said he believed the Fund has not accomplished what the Legislature originally intended. They believe the Fund is valuable, yet it is regionally limited, it targets only a small segment of the potential global pollution threat, and is not necessarily available to the public. the Legislature should look at what is available and determine methods to make better use of those sources to protect the general public. SENATOR MILLER said the committee would consider SB 215 within the first two weeks of session, work with the concerned parties, and move it from committee before the end of the first month.