SENATE RESOURCES COMMITTEE January 19, 1994 3:32 P.M. MEMBERS PRESENT Senator Mike Miller, Chairman Senator Loren Leman, Vice Chairman Senator Drue Pearce Senator Al Adams Senator Dave Donley Senator Fred Zharoff MEMBERS ABSENT Senator Steve Frank OTHERS PRESENT Representative Joe Green 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 - See Resources minutes dated 11/19/93. WITNESS REGISTER Jack Chenoweth Division of Legal Services Legislative Affairs 130 Seward St., #406 Juneau, Alaska 99801-2105 POSITION STATEMENT: Commented on SB 215 Mead Treadwell, Deputy Commissioner Department of Environmental Conservation 410 Willoughby, Suite 105 Juneau, Alaska 99801-1795 POSITION STATEMENT: Commented on SB 215. ACTION NARRATIVE TAPE 94-1 , SIDE A Number 001 SENATOR MILLER called the Resources Committee meeting to order at 3:32 p.m. and announced SB 215 (OIL/HAZARDOUS SUBS. RELEASE RESPONSE FUND) to be up for consideration. He said it was his intent to put this bill into a subcommittee to work on the bill and bring it back after 10 days or so. JACK CHENOWETH, Legal Services, briefed the committee on the bill which, he said, is a second shot at the 5 cents per barrel severance tax surcharge on crude oil. Generally the bill addresses the surcharge itself and the dispositions of the proceeds from that surcharge. It makes other changes in the area of oil and hazardous substances clean up and oversight. Now the surcharge money is made available to the Oil and Hazardous Substance Release Response Fund. This bill proposes to split that Fund into two accounts - one called the Oil and Hazardous Substance Contingency and Abatement Account and the other called the Catastrophic Oil Release Response Account. The latter is generally available to cover emergency major spills of hazardous substances. It is available immediately. The Contingency and Abatement Account is intended to cover all the costs that go into preparing state agencies, contractors, and others to be prepared in the event of an oil spill. Number 87 Sections 25 - 28 reflect the split into two accounts. Use of the money for construction of state ferries would be deleted and the only use for capital improvements would be for equipment that must be placed at the oil and hazardous substance response depots, MR. CHENOWETH said. Number 92 Sections 32 - 33 talk about what the Governor may do in making use of the balance of the two accounts, particularly when an emergency is declared. The following Sections make conforming changes. Number 129 Sections 9 - 16 of the bill divides the current surcharge into 3 cent and 2 cent levies - the 3 cent levy going to the Catastrophic Oil Discharge and the 2 cent levy being made available on an on-going basis for the other fund. MR. CHENOWETH said that one of the reasons this bill is under discussion is that the on-off trigger for the surcharge has never been used. The legislature has drawn on the fund so much that the $50 million cap has never been reached. This on-off trigger is made available in SB 215 to the 3 cent levy, but is lifted from the 2 cent levy so support for the services is on-going. Section 38 reassigns the Oil and Hazardous Substance Response Corps from the Division of Military and Veterans Affairs (DMVA) to Department of Environmental Conservation (DEC). Section 39 transfers responsibility for maintaining response depots from DMVA to the DEC. Section 46 moves the State Emergency Response Commission to the DMVA from DEC. In Sections 19 - 21 there are changes to state-wide prevention planning processes and to regional planning processes in Sections 22 - 23. Number 207 SENATOR ADAMS asked if he had asked if the cost of the two accounts would be covered by the divided surcharge. MR. CHENOWETH said he hadn't asked. SENATOR MILLER said that according to DEC, no. SENATOR ADAMS asked if he could make a motion to bring the surcharge for both to be a total of 6 cents, 3 cents for each fund. Number 267 SENATOR PEARCE asked if there was a conditional change in the definition of oil. MR. CHENOWETH answered no. SENATOR ADAMS asked if this bill was a way to pass the cost of oil distribution to the consumers. MR. CHENOWETH said he didn't see it doing that. SENATOR ZHAROFF asked about definitions. MR. CHENOWETH said he reworked the definition of catastrophic in Section 15 at 100,000 barrels or less for the Governor to issue a proclamation. SENATOR ZHAROFF asked how adequate the 2 cents would be in a few years with the decline of oil. MR. CHENOWETH said the subcommittee should look at that. SENATOR PEARCE said "threatened release" needed to be clarified to include a declaration of emergency or a spill of under 100,000 barrels for purposes of using the fund. owned by villages, for instance. MR. CHENOWETH agreed and said in some instances it would be ludicrous to have to wait for the Governor to declare an emergency or for 100,000 barrels to spill. Number 378 SENATOR ADAMS asked him to explain what is different on Section 1 and the method that we presently have. MR. CHENOWETH said from his perspective the money has not been left in the account long enough to build up. It has been appropriated to DEC and has become another source of revenue for agency operations. If a tanker goes aground and there is another huge disaster, we will all be very embarrassed thinking there's supposed to be a pot of money with substantial amounts in it for response and there isn't. The amount is not growing the way they thought it would when the statute was put on the books. He thought the intent of the fund should be clarified to do what it was supposed to do. SENATOR ADAMS asked if he thought the fund was a federal tax deduction for the companies anyway. MR. CHENOWETH answered that he had no idea. Number 419 MEAD TREADWELL, Deputy Commissioner, DEC, said they have a letter which represents the Administration's position. They would like to work on a consensus approach to modify the process to suspend and impose the surcharge so the amount collected is the only amount needed to have a fully funded prevention and response program. They propose to look for other sources of funding to supplement the nickel. The Administration thinks it is appropriate to eliminate some legal authority for some Fund expenditures and to legislatively strengthen Fund management. MR. TREADWELL said their goal is to maintain a strong state- led spill prevention and response program, build and maintain a $50 million spill reserve, and attempt to develop other revenue sources for the Fund. Number 450 MR. TREADWELL said they have three major concerns with the proposed legislation: 1. The Fund (including the spill reserve) must remain a vital part of Alaska's ability to prevent and respond to spills of all kinds of hazardous substances, not just crude oil. 2. "Splitting the nickel" drastically reduces the level of environmental protection now enjoyed by Alaskans. The Fund should be kept whole, and other sources added to address equity concerns. The Commissioner said we must be cautious in estimating a top limit to the size of state spill prevention and response programs given some weaknesses that exist in our overall spill prevention coverage. 3. As the "nickel" is proposed to be split, not enough funds are left to maintain current spill prevention and response programs. Number 529 SENATOR LEMAN applauded them for making the effort to find alternative sources of funding. But it didn't make a lot of sense to have a tax on crude operations to be responding to some of the spills that are not crude. MR. TREADWELL said the fund has been changed 17 times. Essentially the fund was created to take fines and mitigation and leave it there to respond to other crude and noncrude incidents. In calculating the crude revenue source, they did not add in cost recoveries. They are looking at language to accomplish that. Now we have a very strong capability to respond to emergencies of different kinds. SENATOR ADAMS asked what priority raising oil taxes would have among all the other of the Governor's proposed raises. MR. TREADWELL said he would prefer not to comment directly on that. He said that 1 penny of the motor fuel tax increase is proposed to pay for the underground storage tank program. Number 574 SENATOR ADAMS asked if the mitigation funds had been collected from the Exxon Valdez Settlement. MR. TREADWELL answered that it hadn't all been collected. TAPE 94-1, SIDE B Number 583 He said that funds coming in to it would probably be used for the underground storage tank program. SENATOR ADAMS asked since we'll be in a deficit position within the budget is the Administration looking at replacing the $44 million into the General Fund that was placed in the 470 Fund. MR. TREADWELL referred him to page 2, paragraph 3, that says the fund balance now is approximately $37.5 million which is derived from a number of different sources including surcharges, general fund deposits, cost recoveries, fines, and penalties. He said that some funds from the mitigation account have been spent on what might be considered general fund activities. So in some sense the general fund has been repaid. SENATOR ADAMS asked the subcommittee to do the accounting on that. Number 562 SENATOR ZHAROFF asked what other sources they would be looking at. MR. TREADWELL answered besides cost recoveries there are fines and penalties on noncrude spills. Also, at this time they do not charge fees on industry contingency plans which costs several million dollars. Financial responsibility filings do not cost them a lot to maintain, but it's an important part of their program. There could be fees on both of those, he said. They are prepared to discuss the issue of interest on the spill reserve. SENATOR ZHAROFF wanted to see a breakdown of charges to the 470 Fund. Number 530 SENATOR ADAMS asked if the Fund does get split would they have an opinion on it. MR. TREADWELL said they would want to see more than 2 cents, because it wouldn't cover the cost of the program. So they would definitely want input. SENATOR MILLER said they were running out of time and the bill would be back before them and adjourned the meeting at 4:42 p.m.