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Bill to replenish oil spill fund stalls Legislation would raise the per-barrel surcharge on oil production from 4 cents to 7 cents; oil industry opposes hike as unfair Wesley Loy For Petroleum News
A bill to hike an environmental surcharge on oil production appeared dead as the Alaska Legislature lumbered toward adjournment.
The legislation, House Bill 325, remained in the House Resources Committee on April 16, four days before lawmakers were scheduled to gavel out for the year.
State Rep. Cathy Munoz, R-Juneau, the bill’s prime sponsor, introduced the bill on Feb. 21 and said it was “intended to help start a discussion on how best to protect the public good of having funds available to prevent and respond to a spill of oil or other toxic pollutants and assure Alaskans that measures are in place to keep their water and land pristine.”
The bill would raise the per-barrel surcharge on oil production from 4 cents to 7 cents.
Several other legislators signed on as co-sponsors, including Rep. Paul Seaton, R-Homer; Rep. Peggy Wilson, R-Wrangell; Rep. Scott Kawasaki, D-Fairbanks; and Rep. Sam Kito III, D-Juneau.
Dual accounts Surcharge receipts go into the Oil and Hazardous Substance Release Prevention and Response Fund.
The fund, created by the Legislature in 1986, provides funding for pollution regulators in the Alaska Department of Environmental Conservation to prevent, and respond to, oil and other hazardous spills.
The fund is broken into two parts: a “response account” for dealing with disastrous spills, and a “prevention account” that provides operating money for DEC’s Spill Prevention and Response Division, known as SPAR.
A 1 cent oil surcharge feeds the response account, while a 4 cent surcharge feeds the prevention account.
The problem, DEC officials told legislators, is that the prevention account is fast depleting, a consequence of inflation and declining North Slope oil production.
The 4 cent surcharge currently raises nearly $7 million a year. Besides the surcharge, the prevention account also has funds from fines, penalties, settlements and investment earnings.
But the savings balance in the prevention account is expected to run out by fiscal 2016.
If the surcharge was raised to 7 cents, and if oil production were to remain at current levels, it could generate approximately $12 million — still short of the $17 million needed to run the division, Munoz wrote in a sponsor statement for HB 325.
However, she said, the additional revenue could “lead to a smaller draw on unrestricted general funds during a time of expected deficits.”
Mixed sentiment “With increasing exploration and production, and so much new activity in Cook Inlet and the Arctic, DEC must maintain its robust spill prevention and response capacity,” DEC officials told legislators.
Aside from raising the surcharge for the prevention account, HB 325 also would let stand the 1 cent surcharge for the response account.
Under current law, the 1 cent surcharge is suspended once the response account exceeds $50 million. HB 325 would raise this cap to $75 million. Munoz noted that the $50 million cap was set two decades ago, in 1994, and “has not kept up with inflation since then.”
HB 325 drew support from organizations such as the Prince William Sound Regional Citizens’ Advisory Council and Prince William Soundkeeper.
The supporters noted that 2014 marked the 25th anniversary of the catastrophic Exxon Valdez oil spill. They endorsed HB 325 as an important measure to address the “budget gap” SPAR faces in performing work such as reviewing oil spill prevention and contingency plans, conducting response drills and training, and verifying proof of financial responsibility.
The Alaska Oil and Gas Association opposed HB 325. AOGA represents most of the state’s crude oil producers.
In an April 14 letter to the House Resources Committee, AOGA’s president, Kara Moriarty, suggested that “from the very beginning,” the response fund had been misused.
“For example, in the first four years of the fund, the money appropriated was for things like campgrounds, state airports, privately owned greenhouses and buying new ferries. While those were important concerns, they were not oil spill emergencies,” she wrote.
Moriarty noted that, according to DEC, oil production and exploration facilities accounted for only 16 percent of the volume of product releases in fiscal year 2013.
“The other type of facilities that reported spills were mining, maintenance yard/shops, vessels, air transportation, canneries and a variety of other facilities,” she wrote.
Moriarty continued: “For the last 25 years, the oil and gas industry has been the only industry to make any contributions to this fund and this bill only seeks to continue that policy by increasing the surcharge on oil and gas producers to 7 cents per barrel.”
AOGA also opposes talk of expanding the surcharge to Alaska refineries.
“It is already challenging at best to operate a refinery in Alaska,” Moriarty wrote.
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