Tuesday, May 25, 2010

Senate Hearing On Oil Spill Liability & Financial Responsibility

May 25: The Senate Energy & Natural Resources Committee, Chaired by Senator Jeff Bingaman (D-NM), with Ranking Member Lisa Murkowski (R-AK) held a hearing to received testimony on the liability and financial responsibility issues related to offshore oil production [See WIMS 5/14/10], including the Deepwater Horizon accident in the Gulf of Mexico, including S. 3346, a bill to increase the civil and criminal penalties on liability under the Outer Continental Shelf Lands Act. Witnesses included: Senator Sheldon Whitehouse (D-RI) and sponsor of S. 3346; Associate Attorney General, U.S Department of Justice; Director, National Pollution Funds Center, United States Coast Guard; Deputy Secretary, the U.S. Department of Interior; along with three representatives from the Congressional Research Service.
    Chairman Bingaman outlined the existing situation in his opening statement and indicated, "There is urgency in our effort.  We need to ensure that those harmed by this accident are fully compensated, and that a system is in place that properly allocates these risks and losses. Based on what I've learned so far, I believe that we have a system in dire need of repair.  Current law caps the responsible parties' damages – other than clean up costs – at $75 million, nowhere near the damages which will result from this accident. 
    "Equally troubling, the law requires the Secretary of Interior to adjust the amount of these caps at least every three years to reflect significant increases in the Consumer Price Index.  Yet the limits on damages for offshore facilities have not been increased since the law was passed in 1990 -- 20 years of inflation have been ignored. Victims of this disaster will surely wonder why there should be any cap on damages, and why those responsible should not simply be required to pay the full amount of the harm they cause. BP has stated that it will pay all legitimate claims, and that it will not insist on the $75 million cap currently in the law.  Even accepting that as true, we still have a broken system in need of repair.
    "The Oil Spill Liability Trust Fund, financed mostly by a tax on oil, is intended to cover higher levels of damages, and to spread the risk of excess damages among the industry as a whole.  Yet it is limited to paying $1 billion per incident.  Congress over the years has been inconsistent in enacting taxes to fund this effort, and the taxes that support it are scheduled to expire in 2017.   So, we obviously need to look at this as well. The law also requires that operators in the offshore environment demonstrate certain levels of financial responsibility, to ensure that they can cover the losses that they may cause.    However, for facilities like the Deepwater Horizon, the maximum amount required is $150 million, and the standard requirement is only $35 million.  This amount has not been increased in decades.  We obviously need to fix this.
    "Finally, there are civil and criminal penalties available to the Secretary to punish those who violate safety and other legal requirements.  These are intended to be a deterrent to playing fast and loose with the rules and creating safety risks.  But the civil penalties were set in 1990 at $20,000/day and have been raised only to $35,000 a day.  They remain at that level.  Here too, the law requires the Secretary to adjust these penalties every three years to reflect increases in the Consumer Price Index.  That has been done only sporadically."
    In her opening statement Senator Murkowski said, "When it comes to liability issues associated with a major oil spill, I don't believe any other state represented on this committee has more experience than my home state of Alaska. The recovery from the Exxon Valdez oil spill has been long and sad, and it took 20 years for litigation over punitive damages to be resolved. That in and of itself was a tragedy we can't let happen again. I wanted our committee to hold this hearing because there has been considerable debate -- along with major misunderstandings -- about liability for the Deepwater Horizon spill and what parts of that liability are or are not limited. Among the most often repeated mischaracterizations is the idea that BP is only responsible for $75 million of the likely billions in total spill costs."
    She said, "The reality is that the $75 million figure is drawn from just one provision on strict liability in the Oil Pollution Act, and has nothing to do with the expressly unlimited liability provided for cleanup costs. Even more important, it has nothing to do with the law's authorization for unlimited damages allowed under various state laws." Murkowski recently blocked a Senate consideration to raise the limit to $10 billion; but, she said she supports raising the liability limit, "but cautioned that we need to do so in a manner that makes sense or it will have long-lasting unintended consequences. We must and we will hold BP fully accountable for this tragedy. We also must consider the cumulative effect of the different levels of liability, which could be economically devastating. Thousands of jobs, particularly along the Gulf coast, could be lost, our nation's energy security could be weakened, without providing any additional protection."
    Thomas Perrelli, Esq., Associate Attorney General, U.S Department of Justice said the Administration's proposal would do two things: "First, it would raise the potential cap on damages for responsible parties beyond the current limits. Second, it would increase the amount in the Oil Spill Liability Trust Fund by increasing the tax on industry through which the Fund is financed and would increase the amount the Fund could pay for cleanup and damages related to any given incident." He said the Administration supports "a significant increase in liability for offshore oil and gas developers whose actions pollute our oceans and coastlines and threaten our wildlife and other natural resources." He outlined a number of factors to consider in increasing the liability caps.
    Access the hearing website for link to all testimony and a webcast (click here). Access a statement from Chairman Bingaman (click here). Access a statement from Ranking Member Murkowski (click here). Access legislative details for S. 3305 (click here). Access legislative details for S. 3346 (click here). Access legislative details for S. 3375 (click here).