[Senate Hearing 106-161]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 106-161


 
                       YEAR 2000 AND OIL IMPORTS:
                   CAN Y2K BRING BACK THE GAS LINES?

=======================================================================

                                HEARING

                               before the

                        SPECIAL COMMITTEE ON THE
                      YEAR 2000 TECHNOLOGY PROBLEM
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                                   on

                        OIL AND ITS AVAILABILITY

                               __________

                             APRIL 22, 1999

                               __________

                  Printed for the use of the Committee

                              

 Available via the World Wide Web: http://www.access.gpo.gov/congress/senate

                               _______


                      U.S. GOVERNMENT PRINTING OFFICE
 56-952 CC                   WASHINGTON : 1999
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                        SPECIAL COMMITTEE ON THE
                      YEAR 2000 TECHNOLOGY PROBLEM

         [Created by S. Res. 208, 105th Cong., 2d Sess. (1998)]

                   ROBERT F. BENNETT, Utah, Chairman

JON KYL, Arizona                     CHRISTOPHER J. DODD, Connecticut,
GORDON SMITH, Oregon                   Vice Chairman
SUSAN M. COLLINS, Maine              JOHN EDWARDS, North Carolina
TED STEVENS, Alaska, Ex Officio      DANIEL PATRICK MOYNIHAN, New York
                                     ROBERT C. BYRD, West Virginia, Ex 
                                     Officio

                    Robert Cresanti, Staff Director

              T.M. (Wilke) Green, Minority Staff Director

                                  (ii)



                            C O N T E N T S

                                 ------                                

                     STATEMENT BY COMMITTEE MEMBERS

Robert F. Bennett, a U.S. Senator from Utah, Chairman, Special 
  Committee on the Year 2000 Technology Problem..................     1

                    CHRONOLOGICAL ORDER OF WITNESSES

Robert S. Kripowicz, Principal Deputy Assistant Secretary for 
  Fossil Energy, Department of Energy............................     3
William C. Ramsay, Director of the Office of Non-Member 
  Countries, International Energy Association....................     5
Red Cavaney, President, American Petroleum Institute.............     8
Rear Admiral George N. Naccara, CIO, United States Coast Guard...    16
Bob Malone, President, Alyeska Pipeline Service Company..........    19
Phillip M. Davies, Area Operations Manager, Chevron Shipping 
  Company........................................................    21
Michael J. Ingle, Treasurer, Service Station Dealers of America..    23

              ALPHABETICAL LISTING AND MATERIAL SUBMITTED

Bennett, Hon. Robert F.:
    Opening statement............................................     1
    Prepared statement...........................................    31
Cavaney, Red:
    Statement....................................................     8
    Prepared statement...........................................    32
    Responses to questions submitted by Chairman Bennett.........    35
Davies, Philip M.:
    Statement....................................................    21
    Prepared statement...........................................    37
    Responses to questions submitted by Chairman Bennett.........    39
Dodd, Hon. Christopher J.: Prepared statement....................    40
Ingle, Michael J.:
    Statement....................................................    23
    Prepared statement...........................................    41
    Responses to questions submitted by Chairman Bennett.........    42
Kripowicz, Robert S.:
    Statement....................................................     3
    Prepared statement...........................................    43
    Responses to questions submitted by Chairman Bennett.........    46
Malone, Bob:
    Statement....................................................    19
    Prepared statement...........................................    48
    Responses to questions submitted by Chairman Bennett.........    50
Naccara, Rear Adm. George N.:
    Statement....................................................    16
    Prepared statement...........................................    52
    Responses to questions submitted by Chairman Bennett.........    54
Ramsay, William C.:
    Statement....................................................     5
    Prepared statement...........................................    57
    Responses to questions submitted by Chairman Bennett.........    59
Stevens, Hon. Ted: Statement.....................................    19

              ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

PDVSA Y2K Strategy and Actions Summary...........................    62
Prepared Statement of Ken Gunn...................................    68


       YEAR 2000 AND OIL IMPORTS: WILL Y2K BRING BACK GAS LINES?

                              ----------                              


                        THURSDAY, APRIL 22, 1999

                               U.S. Senate,
                 Special Committee on the Year 2000
                                        Technology Problem,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:35 a.m., in 
room SD-538, Dirksen Senate Office Building, Hon. Robert F. 
Bennett (chairman of the committee), presiding.
    Present: Senators Bennett and Stevens.

  OPENING STATEMENT OF HON. ROBERT F. BENNETT, A U.S. SENATOR 
    FROM UTAH, CHAIRMAN, SPECIAL COMMITTEE ON THE YEAR 2000 
                       TECHNOLOGY PROBLEM

    Chairman Bennett. Good morning. The committee will come to 
order. Good morning and welcome to a hearing on Y2K and the oil 
industry. When the special committee was first established, we 
laid out as our first priority an examination of the energy 
sector, primarily focusing on power, but recognizing that power 
in many instances comes from the oil industry. So it's 
appropriate that we follow up today with a hearing on oil and 
its availability.
    We focused in our first hearing on the fact that all 
utilities are highly dependant on services and supplies that 
are upstreamed from the actual manufacturer of power, and 
consider for a moment what else is affected by oil. 
Automobiles, of course, come to mind first. Our ability to get 
from Point A to Point B and the price of gas affect how people 
perceive the health of the economy, and in return, the 
perception of the economy often affects the economy itself.
    Americans have recently seen a sharp increase in gasoline 
prices resulting from a unified reduction agreement among 
gasoline manufacturers. This is not direct cause and effect, 
but it is something for us to pause and think on. In March, 
OPEC announced that it would cut production by 2.104 million 
barrels of oil a day. That sounds like an awful lot, and then 
you put it into the total perspective. That is a reduction of 
2.6 percent. Well, with the reduction announced of 2.6 percent 
in the supply, literally overnight there was a 20 percent 
increase in gasoline prices, prices surging even by 20 to 40 
cents a gallon.
    Clearly, a minimal reduction in world supply can have a 
disproportionate impact on price, and a reduction in the amount 
of available oil resulting from Y2K-related mishaps poses a 
serious and a potential problem very much worth investigating, 
and that is one of the reasons for the hearing this morning. 
When the price of gas increases, everyone is affected, whether 
you happen to drive a car or not. The truckers all let me hear 
from them whenever there is a conversation about an increase in 
gas tax and the implications of that and the ripple effect 
throughout the entire economy.
    The cost is not the only concern. Availability is an even 
greater concern. The gas lines of the 1970's are still vividly 
in the minds of some of the older Americans. Some of the 
teenagers may not remember that, but their parents do. A gas 
line in and of itself is a symbol of economic difficulty, and 
no one wants to revisit that event. The panic over the 
possibility of shortage can create a gas line in and of itself, 
even if there is no shortage, another reason for us to have a 
hearing to examine exactly what will happen and help get the 
word out.
    Now, inherent to the availability of oil is the readiness 
of transportation systems and ports, because more than half the 
oil that we use in this country now is imported. It continues 
to be the chief priority of this committee to receive accurate 
and comprehensive information regarding Y2K readiness in all 
sectors of the infrastructure, but getting accurate and 
comprehensive information from other countries, those countries 
that export oil to us, presents a much more difficult dilemma.
    When we look for information on the status of 
transportation systems of countries that ship petroleum 
products, we are deeply concerned about what we have been able 
to find out so far, but the information has been extremely 
limited, and we have to make assumptions. If we make overly 
optimistic assumptions, we will be adding to a sense of 
complacency that can hurt us. If we make overly pessimistic 
assumptions, then we can add to the panic.
    Now, a reliable, anonymous--we think it's reliable--report 
the committee has received indicates there is an apparent lack 
of information characterizing the confidence of key nations 
about the Y2K status of their shipping services, for example 
the top three oil import sources: Canada, Venezuela, and Saudi 
Arabia. Information on the transportation systems of these 
three countries has been extremely limited. In fact, only 
Canada appears to have at least some information that we are 
able to get a hold of. There is virtually nothing known that we 
can depend on to make confident extrapolations with respect to 
the status of the other two countries.
    Additionally, should the oil exporting countries be able to 
produce and transport oil, will port readiness be a factor? 
Will tankers be able to dock and deliver their product? And 
will the computers that handle the customs papers be ready to 
print things out? We have long since gone beyond the stage of 
press hard, you are making four copies, when it comes to the 
paper work in a company's international shipments.
    All right. While these issues are extremely complicated, 
they cannot be simplified by assuming that an oil shortage due 
to Y2K problems in one place will be offset by production and 
distribution increases in another. The United States is the 
largest producer of petroleum products. Saudi Arabia remains 
the No. 1 source of crude, but there are literally dozens of 
other countries that participate in this global trade business. 
It is a very difficult task for us to sort all of this out, and 
that is why we are having this hearing, and we are looking 
forward to the witnesses who will help us sort it out.
    Now, I notice there are a number of younger people in the 
audience today. This is Take Your Daughter to Work Day, and 
some of the young men in homes have said what about me, and so 
it has become Take Your Children to Work Day, and we welcome 
these children and hope that it is not so boring that they do 
not get something worthwhile out of it. In the spirit of that, 
I will note for the record that John Stephenson, who is the 
Deputy Staff Director of this committee and who helped organize 
today's hearing, is not with us because he and his wife are at 
home with the newest member of their family, a 6 pound, 15 
ounce baby boy who is probably a little young to take to work 
in this kind of an atmosphere. But we send our congratulations 
to John and Penny, as well as Eric's older sister Kaity, and 
welcome Eric to the Senate family, even if his father is only 
on detail.
    Now, we are fortunate to have a distinguished group of 
witnesses with us today, able to discuss the aspects that I 
have talked about in my opening statement, and our first panel 
has been assembled to give us a broad picture of the industry 
in an international framework. The second panel will focus much 
more closely on specific facets of that. We have Robert 
Kripowicz, Principal Deputy Assistant Secretary for Fossil 
Energy, with the Department of Energy. Mr. Secretary, we are 
delighted to have you with us.
    We have Ambassador William Ramsay, who is the Director of 
the Office of Non-Member Countries International Energy 
Association, who rearranged his schedule so that he could be 
with us. Sir, we are grateful for that. Mr. Red Cavaney, who is 
President of the American Petroleum Institute, which means he 
is always ready in Washington with an opinion and some 
information for us. That is what trade associations are for.
    So we will proceed in that order with this first panel, and 
again, gentlemen, our thanks to you for being here this 
morning.
    Mr. Kripowicz.

 STATEMENT OF ROBERT S. KRIPOWICZ, PRINCIPAL DEPUTY ASSISTANT 
       SECRETARY FOR FOSSIL ENERGY, DEPARTMENT OF ENERGY

    Mr. Kripowicz. Thank you, Mr. Chairman. The Department of 
Energy has been addressing Year 2000 computer concerns on two 
fronts: One, we have been working hard to ensure that all of 
our internal mission-critical systems are Y2K compliant, and I 
am pleased to report that as of the end of March, 98 percent of 
these systems were ready to handle the Y2K changeover, and this 
includes all of the mission critical systems of our power 
administrations and the Strategic Petroleum Reserve.
    Two, and more relevant to the hearing today, we are working 
with the President's Council on Year 2000 Conversion to ensure 
that the energy industry is also ready. Initially, DOE was 
assigned responsibility for the electric power sector, and the 
Federal Energy Regulatory Commission was assigned 
responsibility for the international oil and gas sector. Last 
month, DOE and FERC mutually agreed to transfer lead 
responsibility for international oil Y2K preparedness to DOE.
    We believe the most valuable role we can play in addressing 
the international aspects of this issue is to raise the level 
of awareness of the global oil industry and within major oil 
producing nations, and we have worked hard to do this. Often, 
at our initiative, Y2K issues have been placed on the agendas 
of international energy organizations and multilateral energy 
forums, including the International Energy Agency, the Asia-
Pacific Economic Cooperation, or APEC Energy Working Group, and 
the Steering Committee of the Western Hemisphere Energy 
Initiative. We also have extensive bilateral policy discussions 
with major oil producing nations, and we have used these 
opportunities to call attention to Y2K.
    As you will hear, the International Energy Agency is 
playing a central role in many of the global efforts to address 
Y2K, and the Department of Energy, along with the Government of 
Japan and others, has made voluntary contributions to organize 
three regional seminars that deal specifically with ways the 
international oil industry can ensure Year 2000 compliance. The 
first of these seminars was held in Caracas, Venezuela on March 
11th and 12th, and the second in Singapore on the 25th and 26th 
of March. The third will be conducted in Abu Dhabi in United 
Emirates on May 4th and 5th.
    To date, our discussions and information gathering have 
given us a degree of cautious optimism. The four largest 
suppliers of imported oil to the U.S., Venezuela, Canada, Saudi 
Arabia, and Mexico, expect their petroleum sectors to be fully 
prepared by the end of the year or before. Kuwait, Norway, and 
the United Kingdom, likewise, expect to be fully compliant 
before the year is out.
    Where our information is less complete, in countries like 
Nigeria and Angola, multinational oil companies operating in 
these areas are taking steps to counter any Y2K problems and 
develop contingency plans. We are seeing the active 
participation by petroleum associations from many countries and 
several of the largest state-owned companies in API's 
International Y2K Work Group and in the International Oil 
Coordination Council within the Administration. Where there are 
gaps in our knowledge, Mr. Chairman, is more in the service 
areas that support the overseas oil industry, 
telecommunications, electric power, ports and shipping, and 
security systems.
    Another reason for our cautious optimism is that global 
crude oil production and distribution systems have shown 
remarkable flexibility in the past. Accidents, weather, worker 
strikes, natural disasters, and other disruptions, including 
war, have all been encountered over the years, and the global 
oil market has adapted. Moreover, today there is also 
flexibility in the form of some spare crude oil production 
capacity in several countries that could be brought on to 
compensate for any shortfall.
    Finally, there are commercial and strategic stockpiles of 
crude oil. In the United States, we have the Strategic 
Petroleum Reserve. This emergency oil inventory is our 
insurance policy against oil supply disruptions. Its inventory 
currently stands at 561 million barrels, but I might point out 
that this week we began receiving the first of nearly 28 
million additional barrels of royalty oil that will be 
transferred to the reserve from offshore leases over the next 
several months. The reserve is Y2K compliant, and it would be 
capable within literally a few days of responding to a 
Presidential directive to supply crude oil to the market.
    In short, Mr. Chairman, at this point we would urge 
prudency and planning, but certainly not panic. We will 
continue to monitor the situation closely, and we will be 
prepared to take appropriate actions as necessary, both before 
and at the point where we transition into the new century.
    And that concludes my opening statement.
    [The prepared statement of Mr. Kripowicz can be found in 
the appendix.]
    Chairman Bennett. Thank you very much. Ambassador Ramsay.

 STATEMENT OF WILLIAM C. RAMSAY, DIRECTOR OF THE OFFICE OF NON-
       MEMBER COUNTRIES, INTERNATIONAL ENERGY ASSOCIATION

    Mr. Ramsay. Thank you, Mr. Chairman. Thank you for the 
opportunity to speak before the committee about Y2K and the 
international oil industry.
    The Paris-based International Energy Agency is an 
intergovernmental body within the Organization for Economic 
Cooperation and Development. It carries out a comprehensive 
energy program of energy security and policy coordination 
amongst its 24 member countries, which include the U.S., 
Canada, Japan, and countries of the European Union. As you have 
just heard, the Department of Energy encouraged the IEA's 
increased effort on Y2K, both substantially, and more 
importantly, financially, and the Government of Japan 
contributed as well.
    The IEA Year 2000 project in the oil sector has two main 
components: awareness raising and information gathering. The 
IEA is seeking to raise Y2K awareness among large state and 
private oil companies beyond the majors by organizing a series 
of seminars in several of the world's most important oil 
producing and refining regions. The seminars are targeted on 
Year 2000 coordinators and other officials from governments, 
oil companies, and the infrastructure providers in which the 
industry depends, such as electricity, pipelines, shipping, 
ports. Both remediation and contingency planning are covered, 
though there is an increasing emphasis on the latter.
    By raising the awareness and providing a forum for the 
exchange of information, the IEA hopes to prevent at least some 
of the oil market bottlenecks related to Y2K. The seminar you 
heard about in Venezuela was cosponsored by the Venezuelan 
state oil company, PDVSA; the seminar in the Asia-Pacific by 
ASCOPE, the ASEAN organization of state oil companies; and in 
the Middle East, the Emirates Center for Strategic Studies and 
Research is helping us on that seminar. We are examining the 
possibility of holding a fourth seminar for eastern Europe and 
the former Soviet Union.
    The second aspect of the IEA's project is information 
gathering and source identification, where our objective is to 
be in a position to advise our member governments what action, 
if any, elective or individual, they should take in the 
possible threat posed by the Year 2000 problem. In order to 
draw conclusions about possible Y2K effects, we have been 
trying to develop an aggregate picture of the situation. 
Companies have a tendency to be focused mostly on their own 
micro-situation, and to the extent they look beyond this, it is 
generally only to suppliers and infrastructure providers in 
which they directly depend; however it is the aggregate result 
that will affect the oil market.
    Drawing the macro picture requires piecing together the 
various micro pictures along the supply chain and across 
companies and regions. In doing this, we have found that many 
of our target companies are reluctant to share a lot of 
meaningful corporate information because of concern about legal 
and commercial implications of doing so or about their national 
image of reliability. Nevertheless, after two seminars and 
discussions with various participants in the oil industry and 
its support industries, we have come to some preliminary 
conclusions which we plan to refine over the next few months.
    As in other industries, Y2K is not just an IT problem. It 
is less of a computer problem than one of microchips embedded 
in industrial equipment used for production, transportation, 
monitoring, and control; and since there are so many chips, an 
oil platform may contain as many as 10,000, companies have to 
make a business decision on how much effort to put into 
remediation and then to prioritize their search and replacement 
activities based on the criticality of the systems to the 
supply chain. This means Y2K is a management problem.
    The good news is that after exhaustive testing, a number of 
oil companies say they have found fewer problems at critical 
points than they expected. Fortunately, less advanced companies 
can learn from the experience of companies that are further 
ahead. In particular, the API, which maintains a data base of 
equipment, its members have found Y2K compliant and non-
compliant is being made available. We would encourage the API 
in its recent efforts to provide this data base on a more 
general basis beyond API members if they can. Even if companies 
do not have the time or resources to replace many of the 
defective components, they can at least have a better idea 
where the problems are likely to occur, facilitating their own 
contingency planning.
    Low oil prices have been a particular burden for oil 
companies up until recently. Although we do not have evidence 
that this has caused firms to cut Y2K budgets, there is reason 
to believe there will be pressure to do so. As a general rule, 
the state oil companies, especially those in developing 
countries, probably lag the majors in addressing the problem. 
However, the largest state oil companies which represent the 
supply most important to the United States started relatively 
earlier and appeared to be more advanced. Contacts with Saudi 
Arabia, Saudi Aramco, and PDVSA in particular have led us to 
believe that these key suppliers to the U.S. market take their 
preparations quite seriously.
    Obviously, oil producing countries rely so heavily on oil 
for their national revenue that they have a considerable 
incentive to look after their industry. Most oil companies 
probably have a fair chance of handling the major Y2K problems 
in their own organizations. This is because oil companies are 
used to contingency plans, especially in the Third World. 
Moreover, the less advanced state-owned oil companies are less 
dependent upon technology prone to Year 2000 problems.
    Similar to the situation in other industries, a greater 
threat to the oil industry is breakdowns in infrastructure 
outside the company's control, for example in electricity 
grids, telecommunications, and shipping. Such service 
infrastructure risks are probably most pronounced in less 
developed countries. There is also some concern about the large 
amount of outsourcing for various services. Many oil service 
companies are small or medium sized and are more likely to lag 
large companies in their Y2K preparations.
    Oil companies have learned from Y2K exercises that a few 
minor glitches can compound to create bottlenecks, and that 
which starts as a minor Y2K glitch can cascade into 
conventional failures, especially if several such glitches 
occur simultaneously. Flexibility and contingency plans will be 
crucial, and this is probably an area where everybody can do 
more.
    The duration of any overall disturbance is unclear, but the 
oil industry does not operate in real time, and therefore has 
some margin to bring things back to speed. There is generally a 
large amount of oil in storage en route, and there is currently 
a fair amount of surge capacity among producers.
    The oil market effect of Y2K is uncertain, especially since 
Y2K effects on the world economy could actually lower energy 
demand, but the oil market responds to expectations of supply 
and demand, meaning that any nervousness in oil markets could 
lead to an increase in demand in the run up to the Year 2000 
because of stock building at all levels. It is too early to 
speculate on what, if anything, IEA might do collectively to 
calm markets or respond to supply disruptions. Our concern is 
that unless carefully orchestrated, any such efforts can just 
as easily have the opposite effect on market attitudes if our 
preparations are read as the clear indication that there is a 
serious problem, perhaps perversely stimulating customer 
disquiet. It may well be that national level public information 
would be more effective.
    In any case, ministers of energy from the 24 member 
countries of the IEA will address Y2K issues at their biannual 
meeting in May in Paris. Our efforts over the next few weeks 
will be directed to identifying how we might structure the 
fourth seminar to address the various operating entities in the 
oil sector of Eastern Europe and the former Soviet Union. As 
our efforts progress in looking for the weakest links in the 
oil supply chain, we are increasingly alert to non-oil real-
time phenomena which could seriously impede energy delivery 
systems such as electricity and gas. More of these 
considerations will figure in our fourth seminar.
    Finally, if I might just direct your attention to the IEA's 
web site which contains pages on the Year 2000 problem. These 
provide information on our seminars, IEA work on the Year 2000 
relating to the oil industry, and hyper-links to many relevant 
web sites dealing with this issue. The web site URL is 
available in the written testimony.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Ramsay can be found in the 
appendix.]
    Chairman Bennett. Thank you very much, Mr. Ambassador. We 
appreciate your being here.
    Mr. Cavaney.

    STATEMENT OF RED CAVANEY, PRESIDENT, AMERICAN PETROLEUM 
                           INSTITUTE

    Mr. Cavaney. Mr. Chairman, I want to begin by thanking the 
committee for holding this hearing. An informed consumer 
benefits us all.
    I am president and CEO of the American Petroleum Institute, 
representing over 400 member companies involved in every aspect 
of the oil and natural gas industry. I appreciate the 
opportunity to testify on our industry's preparations for the 
Year 2000 and ask that the written statement I have submitted 
be made part of the permanent record.
    Chairman Bennett. Without objection, it will be.
    Mr. Cavaney. The oil and gas industry is working 
intensively to prepare for the Year 2000 and feels it will be 
ready to continue supplying our customers throughout the year-
end changeover. Our industry has long anticipated the challenge 
of Year 2000 computer conversions and has been working hard on 
this problem for more than 5 years. Our Year 2000 task force is 
coordinating the industry's efforts in sharing technical 
information among oil and gas companies and with other 
industries. We are a leading participant on the President's 
Council on Year 2000 Conversion, and we are working with the 
DOE and the Federal Energy Regulatory Commission as well.
    In January, API and the Natural Gas Council surveyed the 
industry's Y2K readiness. The 1,000 companies that responded 
supply 88 percent of the oil and natural gas our nation 
consumes. This is what we learned: Of the overwhelming majority 
of companies responding, 94 percent said they would be Y2K 
ready by September 30, 1999; embedded chips are not the problem 
earlier anticipated; and 97 percent of the companies said they 
expect to have their Y2K contingency plans in place and tested 
before October 1, 1999.
    With that said, let me turn to the source of much of our 
supply. The U.S. is largly self-sufficient in natural gas. In 
1998, our nation imported less than 14 percent of the natural 
gas we consumed. Canada was by far the leading foreign 
supplier. Oil, however, is another matter. Last year the Nation 
imported 56 percent of the crude oil consumed in the United 
States. The Department of Energy has indicated that the four 
largest exporters to the United States, Venezuela, Canada, 
Saudi Arabia, and Mexico, are preparing their computers for Y2K 
and expect all critical systems to be Y2K compliant by the end 
of 1999.
    I have here a letter from the Venezuelan national oil 
company, PDVSA, recounting their readiness plans, and I would 
like to also submit that for the record.
    Chairman Bennett. It will be included.
    [The letter referred to can be found in the appendix.]
    Mr. Cavaney. The United Kingdom, Kuwait, and Norway also 
expect to be Y2K compliant, and API members indicate that their 
operating divisions abroad are on track to be Y2K ready. Even 
if some foreign suppliers experience Y2K problems, imports 
would not stop instantly. There is always some crude oil en 
route to the U.S. via tankers, some of which can take up to 5 
weeks to cover the seas. If foreign suppliers have production 
problems, we will know the day that it happens, giving the 
industry time to move supplies around to compensate for any 
lost production.
    In addition, the Federal Government owns and operates, as 
mentioned earlier, the Strategic Petroleum Reserve, an 
essential buffer in the event of a serious interruption in any 
foreign oil supplies. Although the industry has never 
experienced a challenge quite like Y2K, there have been other 
disruptions to the flow of oil, and there is a record of the 
industry's successful responses.
    The industry's flexibility enabled it to continue serving 
its customers during the Gulf of Mexico hurricanes of 1998. We 
had gasoline supply difficulties during the summer of 1987 and 
during the Persian Gulf War, just to cite a few examples. At 
the end of the day, the critical question is can we give you a 
100 percent guarantee that absolutely no problems will occur 
and consumers, without exception, will find what they want, 
when they want it. No one can make such a blanket assurance 
because we live in an interdependent world, but we can 
guarantee that the domestic oil and natural gas industry is 
very well prepared to serve our customers in a timely manner 
and keep energizing our economy each and every day.
    In conclusion, we are concerned, however, about 
misinformation on the impact on the Year 2000 conversion being 
promoted in the public domain. Some who may mean well but are 
uninformed are inviting unintended consequences in the 
marketplace when they recommend that consumers should take 
their money out of the bank or fill their gasoline tank or 
horde gasoline and groceries. Such changes in behavior could 
produce consequences that are totally apart from how well our 
industry or other industries are doing in their job of 
preparing for the future.
    Congress can help by putting out current, factual 
information about industry preparedness to deal with Y2K and by 
avoiding any unnecessary constraints on the private sector. 
Congress can also use its oversight role to assure the Y2K 
readiness of the SPR, should it be needed.
    We appreciate the opportunity to testify today and to 
update and enhance the public record on the oil and gas 
industry's preparations for the Year 2000. Thank you, Mr. 
Chairman.
    [The prepared statement of Mr. Cavaney can be found in the 
appendix.]
    Chairman Bennett. Thank you very much. You have each heard 
each other's testimony, so I would like to make this a true 
panel, rather than asking a question of any one individual, and 
any comments each of you might have on the others' testimony 
would be welcome.
    Let me start with this question for whomever wishes to 
respond. The information that you have given us here this 
morning is optimistic, and that is one of the reasons we held 
the hearing, so that you would have a platform to deal with the 
potential of panic, Mr. Cavaney, that you talked about. I must 
comment, one of the problems that we are uncovering is people 
deciding that they must stockpile flammable sources of energy 
in their own garage, and this is a very dangerous thing to do. 
To put a lot of jerry cans of refined gasoline and pile them up 
your garage is probably not a prudent thing to do. You would be 
better off having a day or two of cold than run the risk of 
having your house blow up or burn up.
    So it is very encouraging to hear these kinds of reports, 
however I have to ask this fundamental question that comes out 
of our experience in other areas, and that is are all of these 
reports self-reported? Is there any independent verification 
from an outside source that says yes, we are as ready, as some 
of the companies or countries are saying that we are? Does 
anyone wish to respond to that?
    Mr. Kripowicz. Mr. Chairman, I would like to say a couple 
of things. First of all, with regard to the other people's 
testimony, it is clear, you know, that we have been working 
very closely over the past period of time.
    Chairman Bennett. We will not accuse you of collusion.
    Mr. Kripowicz. Among all three organizations. So we are 
pretty much telling the same story, because we have been 
dealing with each other on a constant basis. If you would have 
asked us the same question last year, you would have definitely 
got a different answer because of the stage of the process and 
the amount of information. You would have gotten a different 
response from the Department of Energy on its own internal 
systems, and you did, as you remember.
    Chairman Bennett. Yes.
    Mr. Kripowicz. And the constant awareness has led to, I 
think, an increased effort by everybody. In terms of the 
question of self-reporting, from the Department of Energy's 
point of view, we only verify the systems that we have 
responsibility for. So we have to take the word of the self-
reporters, and we follow up on this on a constant basis, and 
sometimes the word changes as they get further into the 
systems, but basically we have to rely on the organizations 
doing the reporting because we have no ability to actually go 
in and do verification.
    Mr. Ramsay. I would agree with everything that was just 
said there. The self-reporting does get checked a bit because a 
lot of the majors are operating with a lot of the self-
reporters out there beyond the majors, and multiple majors are 
working with the same state oil company. So they get tested and 
they get checked. Everyone is worried upstream about whether 
they can count on the integrity of their suppliers or their 
joint venture partners. So there is a fair amount of internal 
cross-checking going on so that truly inconsistent stories 
would begin, I think, to emerge.
    I think the optimism that you heard, Mr. Chairman is about 
a physical barrel optimism that we can handle the--that the 
trade can handle what is going on in the market and that the 
barrels will be available for consumption. But there is a lot 
beyond that that should not lead to complacence. I do not think 
there has been enough discussion amongst the sectors. There has 
been too much stove pipe conformity being worked on. I do not 
think that there has been quite enough contingency planning 
among sectors so that people can think through what problems 
they might have to deal with and how they might fix them, and I 
think companies have a lot of interest in going further than 
just making sure the barrels are available, because there is a 
question of asset integrity--if equipment fails or equipment is 
damaged, this is very expensive--for corporate integrity, 
safety, environmental issues.
    So there is quite a bit working on companies to get this 
right beyond getting the barrels to the marketplace. So, yes, a 
bit of cautious optimism but still some warnings that there is 
a lot more work to be done, and we will not really have 
finished with that work until the first week of January.
    Chairman Bennett. Yes, sir?
    Mr. Cavaney. Mr. Chairman, I would like to just add a 
couple of points, and certainly I am in agreement with the 
comments from my two colleagues. First of all, it was mentioned 
in some of the earlier testimony, API and its member companies, 
over 50 of whom are active in reporting this various data, have 
made this available on the web. So it is fully available to 
other companies, national oil companies, other countries and, 
anybody that's interested. So there is an opportunity both to 
have this information checked by those who are working with the 
companies but are vendors outside the company, as well as by 
other people who would care to take a look at it.
    At the end of the day, our companies view very importantly 
their franchise to serve their customers, and that as much as 
anything else is what is driving them to ensure that they try 
to move toward a zero defect environment.
    We, as I mentioned in my testimony, are interdependent. We 
do rely on the electric power industry, and we do rely on the 
telecommunications industry in order to make some of our 
operations work successfully. We are already fully engaged in 
industry-to-industry discussions on contingency plans, on 
readiness to ensure that we have those systems well understood 
as we move toward the end of the year.
    Chairman Bennett. Well, you and Ambassador Ramsay 
anticipated my next question, because you are dependant on 
other systems. We have a chart that we use, and I will not 
expect you to try to read it at that distance. I have a little 
trouble reading it at this distance. But you see the different 
colors, and the colors are red, yellow, and green, red being a 
country. Down this axis is the country, and across here is the 
function. So you can take one country and go across, and red is 
probably no chance that they are going to be ready; yellow, 
cautious optimism; and green, they are on top of it, and it is 
going to work.
    Now, you are sitting there saying there is a lot of black 
on the chart, Senator. The black simply means we do not know, 
and that is the area that gives me concern. This particular 
column is the energy column, and presumably that would mean 
power available in that country to run dock facilities or other 
supporting facilities. If the power goes out, it does not 
matter whether the computers are all Y2K compliant.
    And there are some countries on here that are fairly 
important where we have black. That is we just do not know. The 
ones where we have red presumably are not major sources of 
energy to this country, but they are major sources to other 
countries and could upset the world equilibrium, the world 
market equilibrium, and your point, Ambassador Ramsay, that 
there has been a lot of stovepiping, but we need some 
horizontal thought.
    Now, at the risk of angering the appropriate Ambassadors, 
two countries that are listed on here as red in the energy area 
are Russia and China. We do not get a lot of oil from Russia 
and China, but there are countries around the world that do. 
Let us suppose for the sake of the scenario that there is a 
complete breakdown in energy supplies available, whether it is 
oil or natural gas, from Russia and China. How would that hole 
in the world supply affect us? How would it affect world 
prices? And how would it affect world stability? I am asking 
you global-type questions here that you may want to be specific 
about, but this committee lives in the world of unfair 
questions. So let me throw that out and get your responses and 
your reactions.
    Yes, sir.
    Mr. Cavaney. Mr. Chairman, I would comment on a remark you 
made when you gave your opening statement. We are in a time 
right now where there are a number of producer nations who are 
producing their crude oil at less than full capacity, and so I 
think it is safe to say, given the fact that oil travels in a 
global market, that were there shortages in certain areas, as 
you characterize, there is available excess capacity to produce 
more oil and deliver it to those markets, because obviously 
there is going to be some incentive to be able to continue 
serving those markets.
    So as a result of this reduction in OPEC and the 
cooperating countries, we do have this opportunity to have a 
little bit of a contingency there that I think could serve us 
well were one of these things to materialize.
    Chairman Bennett. Ambassador Ramsay, let us talk about 
natural gas in Europe. Does not a fairly large amount of that 
come from Russia, and what kind of a problem would that create?
    Mr. Ramsay. There is a lot of natural gas supplied by 
Russia into western European systems. I think Germany is 35 or 
40 percent dependant on Russian gas, and we have heard from gas 
companies that they are making every effort to be Y2K compliant 
and the gas companies' history of supply has been impeccable. 
Whenever there is a problem, those problems are typically 
absorbed internally. We have made an effort to talk with----
    Chairman Bennett. Now, do not go by that quite so fast. 
Absorbed internally. Do you mean if there is an inability to 
produce 100 percent delivery, the Russians are the ones who 
take the shorts, and they pass everything else on to the 
western Europeans to fulfill their contracts? Is that a fair 
summary of what you just said?
    Mr. Ramsay. That is a fair summary.
    Chairman Bennett. OK. Thank you.
    Mr. Ramsay. We have talked to a number of the gas 
transporters in Europe, and a great deal of work is going on. 
We have talked to customers about their sense of reliance on 
these gas supplies. We think more can be done in that regard, 
that a little bit closer inspection of what might be the 
implications of a pressure shortfall somewhere in the system, 
perhaps transit in Ukraine or Belorussia, and believe that that 
is work that companies are working on, but companies can work 
on that a bit more apparently so that populations can be 
comfortable. That is an area that we will focus on in the next 
months.
    But to go back to a bit more of what you were suggesting 
earlier on, remember that in places like the Gulf of Guinea and 
Campos Basin in Brazil, Saudi Arabia and other places, the oil 
industry is not at the centers of population. It tends to be 
off wherever the deposits are found, Nigeria and so forth, and 
those producing entities have their own power generation 
capacity. They typically will have their own satellite nets. 
They will be on infrastructures that are within their own 
competence, so that the support infrastructures in many of 
those places are inside the stove pipe. That can be somewhat 
comforting. That puts a broader responsibility on those 
producing entities, but there is some hopes that they have been 
attentive to that.
    China, as you know, sir, for the moment, is a net importer, 
so that if China had a problem in their internal energy supply 
systems, that would be an internal Chinese issue, although 
problems inside China are never purely internal.
    Chairman Bennett. That is right.
    Mr. Ramsay. And the same thing could be said about a number 
of other countries. If electricity grids go down, these will be 
domestic issues that they will need to worry about, conceivably 
beyond just energy concerns, but should not cascade out into 
world markets. The observation you made earlier about the 
interdependence of the world is certainly a right one. Any 
supply problems anywhere causing a spike in prices is a problem 
everywhere. This market acts as one.
    So it is best that we maintain our focus on all these 
places in the world, even if we are cautiously optimistic.
    Chairman Bennett. Let us talk about the readiness of 
maritime shipping. You touched on that briefly. We have talked 
about ports and their ability to load and offload tankers full 
of oil, but has any assessment been made about the supertankers 
and how they will operate and how reliable--well, reliable is 
not the word--how vulnerable they are to a Y2K problem?
    Yes, sir.
    Mr. Cavaney. Mr. Chairman, you will hear from the next 
panel in great detail--one of the members companies of API will 
be testifying on that--but I would say when we look at tankers 
themselves, the systems that they have, all have backups, 
manual backups to them. So the concern that even though these 
are leased ships in many cases, while they have been certified 
and checked out, there is even more and more redundancy in the 
system to ensure that those supplies can continue flowing in 
that regard.
    So it is very proper to look at both ports of debarkation 
and ports of call, but also as well as have some confidence 
that the ships themselves will be able to navigate the waters 
and deliver their product where needed.
    Chairman Bennett. Well, you mentioned in your statement 
that the embedded chip problem has turned out not to be as 
serious as we thought when we first began these hearings, and 
that, of course, is a very important aspect of this. One of the 
things that terrified us when the committee was formed was the 
estimate that two to 3 percent failure on embedded chips would 
occur. If you have got 10,000 chips embedded in an oil 
platform, that means 200 of them fail, 200 to 300 of them fail, 
and that would be enough to shut the platform down.
    Now we are thinking that it is more like two or three, that 
it is two-tenths of 1 percent instead of 2 percent. So that is 
an encouraging factor, and now you tell us that there is a 
manual backup.
    Mr. Cavaney. In the case of tankers, yes.
    Chairman Bennett. That is a further reassurance.
    Mr. Kripowicz, you wanted to comment?
    Mr. Kripowicz. With regard to the various areas that 
support the oil industry such as tankers, electricity, and 
other support industries, the President's Council has recently 
set up a Y2K international working group that cuts across 
lines. We have talked about stovepiping here, but a committee--
a working group has been set up by the council to start looking 
at these things across areas just as you were talking about 
where that has not been done in the past.
    So I would believe that in the next few months, we will 
have a much better assessment of how the interaction of the 
various sectors affect each other. That working group has just 
been set up within the past couple of months.
    Mr. Ramsay. Mr. Chairman, on the issue of shipping, we have 
had the benefit of Admiral Naccara coming to our seminars to 
talk about this, at least in Caracas, but we watch this one, 
again, as another of those cross-fertilization opportunities 
that we would not want to miss, because the kinds of choke 
points around the world that could be difficult for navigation 
are important to the oil. I have a couple of them written down 
here: the Bab el Mahdab at the bottom of the Red Sea, 3.3 
million barrels a day; the Bosphorus, 1.4; the Straits of 
Hormuz, 14; the Straits of Malacca, 8.2; the Suez, 3.1. These 
are million barrels a day. So they are pretty important 
passages and some of them are very difficult. The Bosporus, in 
particular, is a dangerous strait, so that the IMO and other 
international organizations are beginning to cross the 
stovepipes to make sure that there is good discussion, and I am 
sure we will hear about that later.
    Chairman Bennett. Well, just to illustrate the seriousness 
of what you have just said, the staff handed me a copy of the 
Year 2000 problem in the oil industry from the international 
energy agency with respect to pipelines and again, the 
importance of external systems. Let me just read this to you 
and have it be part of the record. It says:
    The vulnerable nature of pipeline systems to peripheral 
communication and control systems was recently highlighted in 
Iraq. In February 1999, a missile hit a repeater station on the 
Kirkuk to Ceyhan oil pipeline. Although the pipeline itself was 
not damaged, the loss of the communication center cut the flow 
of oil between Iraq and Turkey.
    The pipeline's control centers at Kirkuk and Ceyhan 
terminals rely on data from repeater stations to operate 
valves, pressure and temperature controls along various stages 
of the pipeline. Without data, these control centers were 
effectively blind, losing operational control and ordering 
system shutdown. An attempt was made to operate the line 
manually but was aborted as operationally unfeasible, thus 
highlighting the vulnerability of modern pipeline systems to 
computerized data and communication links. Repairs took nearly 
1 week to complete.
    So while nobody is going to be shooting missiles, we hope, 
a communications capability could become blind, and in this 
case, even though physically the ability to operate the thing 
manually was there, it is rendered operationally unfeasible 
without the data. It was interrupted for a week.
    Now, if I hear your combined testimony, interruption for a 
week at one center, even if it is a fairly major center, is not 
a crippling problem because there are other capabilities as 
well as the ability to go somewhere else and fill the gap. It 
is clearly there, but if this were to happen in multiple 
places, we could have problems.
    Mr. Ramsay. That, sir, is a valid point. This particular 
case, the reason that a lot of pressure was not put on the 
technical fixes on telecommunications was because of the 
squishiness that we have been talking about in the oil sector. 
There was so much storage at Ceyhan at the time that there was 
no interference of loading vessels out and so no incentive to 
use extraordinary costly measures to fix the telecommunications 
tower. So there was that flexibility in play, again, in how 
they chose to repair it. But as you say, a multiple of these at 
the same time is not the same.
    Chairman Bennett. OK. Let us talk about one last issue 
before we go to the next panel, and that is refining capacity. 
We have been talking about crude supplies and the ability to 
move them around. Is there an equal flexibility in the capacity 
to refine the oil? Prices in California are in the news right 
now, more because of refinery capability than crude oil 
supplies.
    Does anyone have a comment on what would happen if we were 
to have interruptions in some refineries? Yes, Mr. Cavaney.
    Mr. Cavaney. Mr. Chairman, I will address the first part 
which is the point of interdependence that I mentioned to you. 
We are very much reliant on the electric power grid and on 
telecommunications to keep those refineries operating, much 
more so than was mentioned earlier in the upstream area where 
we are out in different parts of the world actually with our 
own power systems to support us separate from the national 
industry. We feel reasonably confident from the beginnings of 
the dialogs that we have had about our supplies of electric 
power and telecommunications and are going to continue working 
with them, you know, to that end.
    We have been operating this past year at about 98 percent 
capacity. So there continues to remain some excess capacity if 
needed. For example, if one refinery for some reason or 
another, cannot operate, others can step in. In the United 
States----
    Chairman Bennett. You say we have. Is that worldwide?
    Mr. Cavaney. In the U.S.
    Chairman Bennett. So in the U.S. there is excess refinery 
capacity?
    Mr. Cavaney. A small amount, yes, there is.
    Chairman Bennett. I see.
    Mr. Cavaney. But more importantly, there is a tremendous 
infrastructure of pipelines and the like to move crude oil 
products around, finished products to the various areas where 
they need to be taken.
    You mentioned California. California is a unique situation, 
and it would not be accurate to extrapolate the circumstances 
that California is undergoing at the present time to a national 
scale, and the reason why is because they have a unique 
gasoline, and because of its high cost of production, only 
refineries in California produce that gasoline. The rest of the 
country, basically because of this infrastructure, because of 
the flexibility, is able to move product around and fill the 
gap.
    So we are quite confident that the kind of consternation 
that people in California are experiencing from some unplanned 
outages are not going to have that scale of concern nationally.
    Chairman Bennett. I see. Thank you. I had not realized 
that, but as you say, yes, California has its own world as far 
as these kinds of issues are concerned.
    Thank you all. We appreciate your appearance here, and this 
has been a very useful panel.
    We will be submitting additional questions in writing to 
all of you. We appreciate your attention.
    [The questions and responses referred to can be found in 
the appendix.]
    Chairman Bennett. We will now move to the second panel. Our 
second panel will address the maritime transport of oil, 
including both tanker and port operations, pipelines, and 
finally where the public meets the industry, the gasoline 
pumps. You, gentlemen, have heard the conversation in the first 
panel, so you have some sense of where it is we are going.
    We have with us Rear Admiral George Naccara who is the 
Chief Information Officer of the United States Coast Guard; Mr. 
Bob Malone, who is President of the Alyeska Pipeline Service 
Company; and sir, as a result of your being here, we can 
anticipate an appearance by Senator Stevens at some point. I 
have three hearings I should be to this morning, all of them 
vital, and Senator Stevens is faced with the same. If he is 
unable to get here, we will understand, but the chances of his 
being here are higher than they would be otherwise. Captain 
Phillip Davies, who is the Area Operations Manager for Chevron 
Shipping Company; and Mr. Michael Ingle who is the Treasurer of 
the Service Station Dealers of America. So we thank you all.
    We will start with you, Admiral.

STATEMENT OF REAR ADMIRAL GEORGE N. NACCARA, CIO, UNITED STATES 
                          COAST GUARD

     Admiral Naccara. Thank you, sir. Good morning, Mr. 
Chairman. As you said, I am George Naccara of the U.S. Coast 
Guard, and I have responsibility for the Coast Guard's Year 
2000 project.
    Your Coast Guard is working to ensure its information 
technology systems are prepared for the millennium, since the 
Y2K readiness of domestic ports will depend partly on the 
readiness of the Coast Guard to respond to disruptions. Our 
motto ``Semper Paratus'' means that we must ensure that we can 
deliver our marine safety, environmental protection, search and 
rescue, and maritime law enforcement services to the public. We 
are keenly interested in the Y2K readiness of the maritime 
industry we regulate. We have been alerting all segments of the 
Marine Transportation System to the threat of Y2K. We are also 
busy assessing the Y2K readiness of domestic and international 
ships and ports.
    To better understand the readiness of companies that 
transport, store, refine, and pump oil, we have engaged with 
them or their respective trade associations, sharing the podium 
at conferences with Chevron, API, and IEA. We know that well-
established companies have robust Y2K projects in place. They 
have gone thorough contingency planning, and they expect to be 
ready for the millennium.
    For example, I have been particularly impressed with 
presentations with Chevron on their Y2K project. However, while 
some trends in the industry appear favorable, it is very 
difficult in such a fragmented industry to assess whether 
progress is meeting projections and whether optimism is 
justified. Uncertainly remains, for example, as to the 
seriousness of the embedded chip problems on ships. At a recent 
IEA conference in Caracas, I heard very troubling assessments 
of other parts of the Central and South American 
infrastructure, such as power and telecommunications.
    As Venezuela is the largest supplier of foreign oil to the 
United States, these concerns lead me to conclude that we must 
continue to push all stakeholders in the Marine Transportation 
System to continue contingency plans. I mentioned that the 
Coast Guard and others are taking measures to help prepare the 
industry for the Year 2000. Some of these measures include a 
Coast Guard Y2K awareness conference and industrial sessions on 
all three coasts, on the Great Lakes and the inland rivers, and 
distribution of over 50,000 Y2K brochures containing 
information, Web sites, and 800 info lines to all ships calling 
in U.S. ports.
    I have attended numerous domestic and international 
speaking engagements and will continue to do so. In fact, I was 
to address the National Association of Waterfront Employees in 
Bermuda just this morning. This has been rescheduled.
    Next, a Coast Guard study of the best Y2K readiness 
practices in the 48 major inland and coastal ports in the U.S.; 
these practices will be shared widely among all captains of the 
port and all transportation system stakeholders. The study 
includes a risk assessment matrix that can be used to assess 
one's own or a partner's Y2K readiness.
    I gave a speech to 120 national Y2K coordinators and 
delegates at the United Nations in December 1998 in which I 
cited potential Y2K disruptions to the international oil 
transport industry. The Coast Guard was later asked by Mr. 
Koskinen and Ambassador Kamal of the United Nations to lead an 
international effort to address the Y2K readiness of the global 
Marine Transportation System. The result was a March meeting of 
16 international marine trade associations at the International 
Maritime Organization, IMO, in London which we jointly 
sponsored with the United Kingdom Maritime and Coastguard 
Agency.
    In preparation, representatives from nine of the trade 
associations met several times to draft a Year 2000 Code of 
Good Practice. After being modified by meeting attendees, 
including very essential contingency planning guidelines and a 
list of ship and port critical systems, the code was published 
immediately by IMO as Circular 2121. The Coast Guard and the 
IMO intend that the Code will become the basis for Y2K 
information exchange, assessment, risk management, and 
enforcement policies by ships and ports worldwide.
    On June 21st and 22nd, there will be another U.N. meeting 
of the national Y2K coordinators. Besides urging worldwide 
acceptance of this IMO circular as the basis for Y2K policy by 
port and flag states, the Coast Guard will distribute its own 
Y2K enforcement policy and port operations guidelines.
    You have asked me to offer an assessment of areas around 
the world where Y2K problems may impede the study, production, 
and transport of oil. Clearly, others on that panel today are 
better qualified to address the issue of production.
    Regarding transport, let me make two points, please. The 
Gardner Group and the Department of State have both published 
unclassified regional and economic sector assessments of 
international Y2K readiness. The studies permit some inferences 
as to regional Y2K impacts on the Marine Transportation System, 
with the caveat that the MTS is the global industry in which 
the readiness of MTS companies is not always the same as that 
of countries in which they do business.
    I also want to stress that oil transport companies will be 
subject both to the uncertainty to embedded chip problems on 
ships and ports and to a range of potential disruptions of the 
interlinkages of the industry with supply chains and supporting 
infrastructures.
    Despite these cautions, the Coast Guard is actively 
collecting data on the international readiness of the Marine 
Transportation System. We are partnering with the U.S. 
Transportation Command and other intelligence organizations to 
gather data on the Y2K readiness of over 50 key international 
ports and critical choke points. We hope to have considerable 
data analyzed by this summer, giving us a reasonable picture of 
global readiness in the Marine Transportation System.
    I have been invited, also, to comment on actions the 
Congress or others should take to address Y2K issues impacting 
the importation of foreign oil. Certainly, it would seem 
prudent for Congress to join with all those concerned about 
fuel supplies in taking a message to the American public 
against hording petroleum products or topping off our tanks a 
day or two before the century change, as we all understand that 
kind of an act alone repeated nationwide could lead to 
shortages.
    To assist the Coast Guard in its preparation for Y2K, I 
would also appeal for mindfulness regarding the amount of 
information being requested from us on a near-daily basis.
    Thank you very much for this opportunity, Mr. Chairman.
    [The prepared statement of Admiral Naccara can be found in 
the appendix.]
    Chairman Bennett. Thank you.
    Mr. Malone, we have been joined by Senator Stevens, and we 
appreciate your presence here that brings his presence here; 
although I will say that Senator Stevens is a more active 
member of this committee than many others who do not have as 
heavy a burden as he carries, and we are delighted to have him.
    Do you have any comments, sir?

   STATEMENT OF HON. TED STEVENS, A U.S. SENATOR FROM ALASKA

    Senator Stevens. Well, I have come, as you say, because Bob 
Malone is a great friend, and I know he has traveled a long 
distance to be here today, and I am happy to see him here. The 
pipeline that he manages transports 20 percent of our nation's 
domestic supply of oil. It is very critical to the Nation, but 
also it is more critical to my state's economy, and I think 
that there is no question we are in difficulty.
    I can remember the day when oil sold for $54 a barrel out 
of that pipeline, Bob, and now it is $11. If anyone does not 
understand that, the economics of one small state that depends 
heavily upon its revenue, you do not have to be a rocket 
scientist to understand how important this man's job is to us. 
So I am pleased to be here to hear him and appreciate you 
coming down.
    Chairman Bennett. Mr. Malone.

 STATEMENT OF BOB MALONE, PRESIDENT, ALYESKA PIPELINE SERVICE 
                            COMPANY

    Mr. Malone. Chairman Bennett, Chairman Stevens, thank you 
for your presence. Good morning. As you said, my name is Bob 
Malone, and I am the president and chief executive officer of 
Alyeska Pipeline Service Company. I am honored to be here with 
you today to assure you that Alyeska Pipeline Service Company 
will be ready when the clock turns over to January 1, 2000, and 
also that the Trans Alaska Pipeline System is fully prepared to 
meet the challenges of the new millennium.
    The west coast of the United States relies on North Slope 
crude for some 40 to 50 percent of their gasoline supply. We do 
not plan to let our neighbors down. Just by way of background, 
Alyeska is the operator of the 800-mile-long common carrier 
pipeline system that today transports 1.2 million barrels a day 
of Alaskan North Slope crude. We load an average of 42 tankers 
per month at the Valdez Marine Terminal. We provide oil spill 
prevention and response services to the tankers that are 
transiting Prince William Sound. Since 1977, we have 
transported approximately, as Senator Stevens said, 20 percent 
of the Nation's domestic crude oil production.
    We have a comprehensive Y2K program, with a very simple and 
a clear objective, that is to ensure that oil continues to flow 
in a safe and environmentally responsible manner. We have 
elected to manage our program through an internal single point 
of contact. My vice president and chief information officer, 
Dave Laurence, who is here with me today, heads that program 
up. The structure that we put in place through Dave gives me 
the assurance that I need to know where we are, whether we are 
meeting the deadlines and any obstacles that are getting in the 
way.
    We started our initial assessment and evaluation of the Y2K 
program on TAPS in 1996. We have used a triage process to 
categorize the systems in terms of both mission and business-
critical functions. Those are the functions that we must be 
able to perform if we are going to operate TAPS safely and 
reliably at the start of the new year.
    Today we are devoting our effort to finalizing remediation 
by the end of June. We have more than 90 percent of those 
mission-critical that will be completed by then, and we will 
only have two systems which, by design, will be finished up at 
the end of September. We also will have our business 
contingency planning complete, again by design, at the end of 
November. Our team consists of 70 people who are exclusively 
devoted to the Y2K issue. We share information with trade 
associations upstream and downstream of our pipeline and also 
with our owner companies.
    Right now I estimate that final Y2K cost for the Trans 
Alaska Pipeline System will be in the area of $30 million. We 
decided early in the planning process that in order to ensure 
our success, we would follow a very straightforward, simple, 
industry standard methodology, that is first to assess the 
systems, remediate them or replace them, and have contingency 
planning in place.
    Every system of the pipeline, the terminal, and our tanker 
escort system has been analyzed. We have looked at in excess of 
110,000 devices which we have inventoried. Of those, 
approximately 27,000 required a detail assessment, and 
fortunately we found that only a small number, approximately 
130, are going to require either remediation or replacement.
    Our efforts have included everything from recoding of the 
software to address the double zero to changes in hardware, for 
example our security systems at four of our river crossings. 
Our efforts focused on completing our contingency planning. 
This planning is designed to minimize the risk in the event 
that we do experience Y2K failure in either our mission-
critical or business-critical systems. There we are working in 
three major areas. The first is the focus on our operating 
assets; second, on a companywide operation; and then, of 
course, gaining mutual understanding and agreement with 
external stakeholders and third parties.
    Our contingency plan will assure continuity in our 
operation and address any possible failures. For example, we 
may actually stage people along the pipeline where they will be 
able to manually operate key parts of our system. We're 
mobilizing our incident command team, which are the people that 
are ready to handle any emergencies in the event that we have a 
serious issue.
    Mr. Chairman, in closing, I want to again state that 
Alyeska Pipeline has anticipated the problem, that we are 
remediating that problem, and that we are prepared, and we are 
ready to greet the new century, although we may be out in the 
weather rather than in the celebration.
    Thank you .
    [The prepared statement of Mr. Malone can be found in the 
appendix.]
    Senator Stevens. Mr. Chairman, I have to go back to my 
other hearing. Could I ask Bob a question?
    Chairman Bennett. Absolutely.
    Senator Stevens. Do you have any problems with any of the 
contractors which interface with the pipeline? Have you checked 
that to see whether there is any critical supply line that 
might be affected by Y2K?
    Mr. Malone. Chairman Stevens, yes, we have. We are working 
with all our suppliers and vendors and contractors in an 
assurance process. To date, we have had no indication of any 
problem, but like everyone else, that is the most difficult 
part of the process at this point in time, which is working 
with those contractors and vendor suppliers to get that 
assurance, but to date, we have no indication that there will 
be a disruption.
    Senator Stevens. Is there any date prior to the end of the 
year that is critical to the Trans Alaska Pipeline System and 
Y2K?
    Mr. Malone. Yes, sir, there are. One that comes to mind 
immediately is 9-1-99. There is several dates that it is 
uncertain whether they will have an impact. We do not think so 
right now. We passed through a couple of those already, but the 
next one that I am aware of is 9-1-99.
    Senator Stevens. 9-9-99, I believe.
    Mr. Malone. 9-9. Sorry. 9-9-99.
    Senator Stevens. Are you telling us that you are going to 
have people out on the pipeline on December 31st at night to 
just be there to turn those valves in case something goes 
wrong?
    Mr. Malone. Yes, sir. In addition to our normal staffing 
levels, we will strategically place additional personnel to 
assist if needed. Right now, all of my vice presidents will be 
in one of our crisis centers. I will be there, and I have asked 
that most of our people be there, because the system can be 
operated, and we do have procedures for manual operation if 
necessary.
    Senator Stevens. That is a new experience. It will be sort 
of cold out there along that line, Bob.
    Mr. Malone. We have thought about that.
    Senator Stevens. Thank you very much, Mr. Chairman.
    Chairman Bennett. That is not an unusual thing. I was at a 
very large financial services company in New York, and they 
said they have booked 400 hotel rooms in downtown Manhattan for 
New Year's Eve, and I said that is going to be a pretty big 
party. And they said, Oh, no. We are going to fill those hotel 
rooms with our technical people, and they are there because 
they are within walking distance of our computers. We have 
canceled all New Year's Eve vacation time and leave in order to 
have the technical people available.
    So they will be a little more comfortable than the folks in 
Alaska, but their holiday will have been interfered with the 
same way.
    Senator Stevens. Mr. Chairman, as Bob probably knows, I 
will be at the Alyeska resort. The ski lifts may not work, but 
my wood fireplace does. Thanks.
    Chairman Bennett. Thank you, Mr. Chairman. We appreciate 
you being here.
    Captain Davies.

   STATEMENT OF PHILLIP M. DAVIES, AREA OPERATIONS MANAGER, 
                    CHEVRON SHIPPING COMPANY

    Mr. Davies. Good day, Mr. Chairman. Today I am also 
testifying on behalf of the American Petroleum Institute, as a 
significant number of API companies own, operate, or charter 
substantial tanker fleets. My own company, Chevron Shipping 
Company, operates 35 oil tankers on trade routes throughout the 
world, and we have a similar number of third-party ships under 
charter at any particular time.
    My current responsibilities cover Chevron Shipping 
operations throughout the eastern and southeastern United 
States, and prior to this, I was a Y2K program manager for 
Chevron Shipping Company; and along with Admiral Naccara, 
attended several conferences around the world to raise 
awareness of Y2K in the marine community. I am happy to say 
that since these conferences, and particularly over the last 
several months, my opinion of the readiness of the oil shipping 
industry to meet the challenges of Y2K has changed 
considerably. We have generally prepared well, and we do not 
expect major problems at the turn of the millennium.
    Through industry organizations such as API and the 
protection and indemnity clubs, ship classification societies, 
and the efforts of the U.S. Coast Guard and other international 
government organizations, there has been a sharing of data on 
an unprecedented scale. This information has been shared among 
major oil companies, independent tanker operators, and 
manufacturers. Various sites on the internet provide a wealth 
of information for those looking for compliance data for 
equipment fitted to their vessels.
    Most companies involved in Y2K follow a phased approach 
that is similar to Alyeska that involves identifying equipment, 
determining the level of risk posed by the equipment, 
prioritizing systems based on the level of risk, and then 
developing contingency plans to deal with systems where 
compliance cannot reasonably be confirmed. This may include 
system replacement, alternative operational modes, or 
operational restrictions to ensure safe operations.
    Equipment that is critical to the ship's operation tends to 
fall into four areas: proportion, steering, navigation/
communication, and cargo. Most problems to date have been found 
in either control processes or in the communications equipment. 
Both of these areas employ a high degree of PC-based computer 
control which are generally easy to repair or replace.
    Though the majority of the systems will be repaired or 
replaced in the lead-up to December 31, 1999, there will always 
be some potential for equipment to fail on board due to a Y2K 
malfunction. Within Chevron Shipping, vessel staff has 
developed contingency plans to address these failures and on-
board routine is developed around them. In the case of Y2K, 
vessels will generally set watch routines to monitor equipment 
where the compliance is unknown. Seafarers are trained to deal 
with emergencies and contingencies and face adversities daily 
such as we can expect could arise from the Y2K problem. 
Seafarers are resourceful, and our ships are routinely designed 
with redundancies and manual workarounds for critical systems, 
and in the case of navigation, to utilize traditional methods.
    In the marine oil transportation industry today, crude and 
products are transported in either oil company vessels on 
tonnage chartered on their behalf. A key role in this process 
is the inspection and vetting process which ensures that the 
vessel is in acceptable operating condition and is in 
compliance with applicable rules and regulations. In 
conjunction with this inspection, Chevron and other companies 
have been including vessel assessments and the owner/operator's 
commitment to Y2K compliance. This assessment includes 
appropriate equipment audits, necessary remediation, crew 
awareness on the existence of contingency plans.
    In order to ensure continued supply, Chevron will only 
charter vessels that have shown a high level of compliance and 
have contingency plans in place. In addition, the U.S. Coast 
Guard is now including Y2K awareness in its on-board program. 
It further helps to focus the attention of owners and 
operators. Contingency planning is a key step in the Y2K 
process, and it takes two forms: preparing to operate the 
vessel with equipment that may fail and positioning the vessel 
such that efforts of Y2K failure either on board or on another 
vessel or facility will have minimal impact on the safety of 
the vessel, crew, environment, and cargo.
    In order to minimize this risk within Chevron, we have 
taken various steps in our contingency planning: Step one would 
be to vessels where possible at sea or alongside in port, to 
suspend cargo operation during critical periods, and to 
increase awareness on board our vessels. We believe other 
companies are addressing contingency planning in a similar 
fashion.
    In conclusion, the API and its member companies support the 
U.S. Coast Guard effort to develop national guidance to ensure 
key elements are addressed in local government contingency plan 
reports. Such guidance will provide such flexibility to allow 
individual ports to address their own specific needs. The U.S. 
Coast Guard, through the captains of the ports or district 
commanders, will take the lead in all major ports to convene 
stakeholder groups that can be charged with assessing port 
readiness.
    Finally, due to leadership of the U.S. Coast Guard and the 
initiative of the API and its member companies, the level of 
awareness to have Y2K problem is such that the impact on the 
oil transportation infrastructure is expected to be minimal. Of 
course, Chevron and API members will continue to develop 
contingency plans with the U.S. Coast Guard and the oil 
transportation industry. The millennium rollover and its 
effects are not an emergency or surprise event. Our awareness 
of the problem has allowed us to plan well in advance, and the 
industry has the knowledge and tools to deal with any problems 
that may arise.
    And I will be happy to answer your questions later.
    [The prepared statement of Mr. Davies can be found in the 
appendix.]
    Chairman Bennett. Thank you very much. Mr. Ingle.

STATEMENT OF MICHAEL INGLE, TREASURER, SERVICE STATION DEALERS 
                           OF AMERICA

    Mr. Ingle. Good morning.
    Chairman Bennett. Good morning.
    Mr. Ingle. Mr. Chairman and members of the Senate Special 
Committee on the Year 2000 Technology Problem, my name is 
Michael J. Ingle, and I appreciate the opportunity to appear 
before you today to present the dealers community views and 
projections concerning gasoline availability on January 1st of 
the Year 2000. I have been a dealer for 30 years and currently 
operate two Amoco stations in Lanham and Bowie, Maryland. I am 
currently serving as the president of the Washington, Maryland, 
and Delaware service station association which represents over 
1,000 small business members. I am also treasurer of the 
Service Station Dealers of America and Allied Trades. SSDA-AT 
is a 53-year-old national association representing 22 state and 
regional associations with a total membership in excess of 
20,000 small businesses in 38 states and individual members in 
all 50 states, the District of Columbia, Puerto Rico, and Guam.
    Like the motoring public, we too are concerned about 
product availability and distribution on January 1, 2000. While 
dealers are dependent on their suppliers, we are in the front 
lines when consumers have concerns, and we are dependent on the 
sale of the motor fuel.
    The petroleum industry has been actively addressing the 
Year 2000 challenges for the past several years. While 
individual service stations are at varying levels of 
compliance, the major petroleum companies have not identified 
any Y2K challenges that cannot be overcome. In particular, oil 
companies and their service stations have reached out to 
business partners, customers, and suppliers in order to develop 
compatible solutions that share best practices.
    Throughout the country, seminars have been presented to the 
retailing end of the industry. We have one such meeting 
scheduled for May 20th in Annapolis, Maryland. Just as 
petroleum marketers are used to preparing contingency plans for 
supply disruptions and natural disasters, preparation for the 
arrival of the Year 2000 has been no different. Special 
contingency plans and backup suppliers and systems are in place 
to allow for uninterrupted service to consumers.
    Based on recent industry surveys by the Natural Gas Council 
and the American Petroleum Institute, the petroleum industry as 
a whole is well on its way to being Y2K ready. In fact, almost 
all companies surveyed indicated that they will be Y2K ready by 
September 30, 1999.
    The following are some commonly asked questions by the 
public regarding our industry and this issue:
    Will service stations be open December 31, 1999 and January 
1, 2000? Yes, depending upon the store's usual hours. The Year 
2000 is not expected to be a factor in unscheduled store 
closings.
    Will I be able to use my credit card at a service station 
during the Year 2000? Credit cards were one of the first Y2K 
issues widely recognized and publicized, therefore service 
stations along with the entire retail industry have been 
analyzing, replacing, and testing credit card systems to ensure 
the Year 2000 compliance. They have also been working closely 
with credit card companies in order to guarantee that business 
processes are not compromised with rollover to the new 
millennium. In isolated incidents, computers would have 
problems with some credit cards. The result would mean that 
some of these credit card's automated tasks would have to be 
done manually.
    What are retailers doing to ensure that gasoline will be 
available and fuel pumps will be functioning in the Year 2000? 
Most service station lights, fuel pumps, and registers rely on 
electricity in order to work, thus service stations are working 
closely with the utility providers to ensure a smooth 
transition to the Year 2000. In particular, the electric 
utility industry is preparing for the new millennium in aiming 
for 100 percent reliability and electric power on January 1, 
2000.
    According to a North American Electric Reliability Council 
report, virtually all electric power systems in North America 
will be ready for the Year 2000 by the target date of June 30, 
1999. Consumers can expect few, if any, shortages of petroleum-
based fuels in the Year 2000.
    Service stations are working to ensure reliable, 
uninterrupted service. Even if there are some isolated supply 
interruptions, the impact on consumers will be minimal as 
service stations generally have backup suppliers. So if these 
primary suppliers experiences Year 2000-related problems, 
service stations have additional suppliers that they can 
contact.
    Should I be stockpiling gasoline in the preparation for the 
Year 2000? There is absolutely no reason to stockpile gasoline 
in anticipation of the Year 2000. The petroleum industry is not 
anticipating any supply distribution disruptions. The latest 
survey, mentioned previously, shows that the industry is more 
than 90 percent ready. While there may be brief, isolated 
incidents or localized problems or circumstances beyond the 
industry's control, fuel should remain widely available. 
Therefore, the industry urges consumers not to risk their 
safety and the safety of their neighbors by storing unnecessary 
and possibly unsafe quantities of gasoline in the preparation 
for the Year 2000.
    Will environmental monitoring systems at service stations 
be working properly in the Year 2000? Most environmental 
monitoring systems are time and date sensitive, therefore 
service stations have been working aggressively to fix computer 
systems, equipment, and software that may be sensitive to the 
Year 2000 rollover. Although the petroleum industry is not 
anticipating any disruptions in this area, it should be noted 
that since monitoring systems are equipped for fail-safe 
checks, if the equipment experiences problems related to the 
Year 2000, at the worst, the tank will simply shut down.
    SSDA-AT believes that the industry will be ready for the 
new millennium, that product will be available, and that 
consumers need not panic. In fact, we are betting our 
livelihood on it. Thank you.
    [The prepared statement of Mr. Ingle can be found in the 
appendix.]
    Chairman Bennett. Thank you very much.
    Mr. Malone, you gave us some dates that, in the overall 
context of this committee, sound quite late, and you said the 
dates were deliberately chosen. Will you explain why you are 
choosing dates that are so close to the actual millennium turn?
    Mr. Malone. Well, let me start with the contingency, Mr. 
Chairman. We are, by design, waiting as late as we can, not 
with designing. We will have a lot of it done, but the formal 
implementation and closure of it, we are waiting as late as 
possible to make sure there is nothing more that we need to 
include in that contingency plan. So I did not want to leave 
the impression that we have not done anything. We are working 
that right now. It is going to be finalized this November.
    Chairman Bennett. You did not leave that impression, but I 
have never heard anybody say this will be done in November by 
design. Usually, we hear people saying this will be done by the 
end of June, and we will deliberately get everything done as 
fast as possible. Here is the impression that you have 
deliberately picked November.
    Mr. Malone. Again, Mr. Chairman, just to make sure that we 
have got everything included before we formalize that 
contingency plan. So it will be ready, and it will just be left 
open until November.
    The two other control systems that were talked about, we 
are waiting on a final engineering design and to look at 
whether--we know the remediation. We have a workaround if we 
need to. What we are working right now is to see if we can get 
a delivery on two of our meters. If not, we will do a 
workaround, and it will be in compliance. So by design means we 
have got a solution, but we are waiting on delivery of a part. 
If that does not occur, then we will do it at the end of 
September by workaround.
    Chairman Bennett. I see.
    Now, both Admiral Naccara and Captain Davies, you heard Mr. 
Malone talk about the people that are going to be physically 
out on the pipeline getting a little chillier than they might 
otherwise be on New Year's Eve, and you talk about the ability 
of the oil tankers to handle things manually. Are there plans 
for larger crews? Will there be people who would otherwise be 
home in their beds or celebrating over the time who are going 
to have their holiday period interrupted because they are going 
to be on the ships, or can the existing size crew handle the 
manual operation? Either one of you or both.
    Mr. Davies. OK. Mr. Chairman, yes, in general, our own 
ships, and here, generally, I will talk about Chevron itself, 
although I do know how many of our competitors work and the 
independent tanker owners that we use. Over the years, yes, the 
automation on ships has increased, but what is tended to happen 
is that the technical staff size has stayed the same. So though 
we now have unmanned engine rooms at sea and fully automated, 
we do have the staff on board because we do our own maintenance 
on board the ships, and that has continued to be a function.
    Those same engineers, generally the electricians and 
electronics officers who are doing the maintenance, are also 
available on board to do watches. So when we get to the 
millennium, rather than having an unmanned engine room, we will 
have people on watch down in the engine room, and yes, we still 
do have sufficient manning on the ship to do that.
    Chairman Bennett. OK.
    Admiral Naccara. Sir, it is conceivable that the U.S. Coast 
Guard may require supplemental crews in some cases when vessels 
are entering U.S. waters. It will be one of the variables that 
the Captain of the Port can control. We have broad authority, 
certainly, and can restrict movement. We can prohibit entry of 
the vessel, or we would require additional crew if we thought 
that was necessary.
    But the important element here will be the exchange of 
information before they reach the sea buoy, before they are 
about to enter U.S. waters, and we hope that we will have 
exchanged information so that we can have a good appreciation 
for the preparedness of that vessel and the port facility to 
which it will offload, and at that point, we can make a 
decision, and if the vessel is prepared, and we feel they have 
had a good history in complying with international and domestic 
regulations, probably the vessel would be able to come in 
unhindered. If we have some particular cause for concern, for 
example if their contingency plans require additional people at 
certain key places, if the crew can resolve that, that would be 
fine, but if they need additional people, that is conceivable.
    Chairman Bennett. Mr. Malone, you were here and heard me 
read the example of what happened in Iraq when there was a 
breakdown of data. Even though it had nothing to do with the 
physical operation of the pipeline, it produced the same 
effect. How susceptible are pipeline control systems in the 
United States? Not just yours, but whatever you may know about 
other pipelines, what are the chances of a repeat circumstance 
like the one I described?
    Mr. Malone. Well, Mr. Chairman, I could not comment on 
other pipeline systems that are used.
    Chairman Bennett. All right.
    Mr. Malone. If I could, I will comment on ours.
    Chairman Bennett. All right. Fine.
    Mr. Malone. Alyeska, we do use repeaters. It is a primary 
communication link. So if we were to lose that communication, 
our immediate response, my policy is to begin to limit 
production and take the line down until we can re-establish 
communication. We have, though, two redundant--three systems: 
the repeaters, and we also have two backup satellite systems, 
and I would also say hopefully by then we will have cut over to 
a fiber-optic system, but the repeater is our primary one, so 
we would go down the minute we lose communication until we 
could move over to the satellites.
    Chairman Bennett. Let me ask you a question that you 
probably get a lot, but given the amount of hysteria that has 
been whipped up on some web sites about Y2K, here is an 
opportunity for you to set the record straight. Some people say 
that if the Alaskan pipeline is forced to shut down--and I 
wrote down you just used the phrase ``take the line down''--
that it will somehow freeze or congeal or whatever, and one 
shut down in the pipeline means the entire pipeline from Alaska 
down to the lower 48 becomes inoperable for all time. Do you 
want to deal with that particular suggestion?
    Mr. Malone. Mr. Chairman, I would love to. Let me clarify 
the record.
    Chairman Bennett. I thought you might be prepared for that 
one.
    Mr. Malone. Yes, sir. First of all, we have nine million 
barrels of storage in Valdez, crude storage. So we could 
continue loading tankers. Second of all, the pipeline does not 
congeal. It does not freeze up. We have taken the line down 
numerous times in minus 40, minus 50-degree-weather for as long 
as 5 days, and early studies that were done showed that the 
line--this was the 1977 time period--that the line could be 
down for as long as 20 to 40 days, and the oil inside the 
pipeline, which is insulated, would have to get below minus 20 
degrees to get any phase change or jelling.
    We also, though, have just completed tests. With the new 
crude mix that we have and the injection of natural gas 
liquids, preliminary data shows that it would not congeal at 
all over any length of time.
    Chairman Bennett. I am glad to have that on the record 
because that is one of the things we hear all the time: Gee, we 
are going to get an embedded chip somewhere in the Alaskan 
pipeline, and it is going to turn into a giant fudgecicle. We 
will never get any more oil.
    Mr. Ingle, the most recent survey in the oil and gas 
service captured 48 percent of the service station sector, and 
I assume you are responding with your information out of that 
survey or some of the information about that survey. The 
obvious question will be, well, what about the other 52 
percent, and are not we in a situation where the people who are 
going to be ready are responding and the people who have 
problems are not responding, and does not this really show that 
half of the service stations are not ready?
    In the same spirit that I gave Mr. Malone the opportunity 
to deal with the doomsday scenario in his area, I give you this 
question so that you can respond yourself.
    Mr. Ingle. In our industry, in our network that we have, we 
have different types of service station owners and so forth, 
but in our--like in my situation, I am a dealer, and I am 
supplied by a major oil company, the Amoco Oil Company. Most of 
all the systems that I have are controlled by the oil companies 
and the computerization and monitoring systems that we have for 
EPA and everything that we have.
    You know, I have other problems in my industry that I need 
to worry about as far as car repairs and things like that. I am 
more worried about that than I am about the gasoline part, and 
I guess I will tell you that because we are pretty much assured 
by the oil companies that everything is going to be taken care 
of, and it already is because they have been working on it for 
years.
    And I guess an analogy would be this is the business 
sector, and there is multi, multi-billions of dollars at stake 
here, and our business sector is probably--like that pipeline 
over there, like the human being, if it has cutoff its blood 
supply or had a heart attack, it is going to die, and we have 
got a pipeline over here on this drawing that we have, this 
picture over here, and if something happens to that, the blood 
is our fuel, and if the fuel does not come, the industry, one, 
is going to be totally embarrassed the oil companies as well as 
the dealers, as well as I will have gas lines at my pumps, and 
I do not want to do that again like I did back in the 
seventies.
    I just cannot imagine this happening, because there is just 
too many billions of dollars at stake here, and no one is going 
to be embarrassed enough the let that happen, as well as the 
fact that all the contingency plans that I have talked to 
different people at Amoco, as well as the industry experts, 
that there is all types of backup plans and everything else 
that they have in place if this were to happen, because there 
is just too much at stake.
    Chairman Bennett. Well, if I hear what you are saying, the 
fact that only half of the service station owners responded to 
the survey is not an indication of the amount of information 
you have, that the major oil companies upon whom you depend for 
your product have covered 100 percent of the service stations. 
Is that basically what you are saying?
    Mr. Ingle. Yes. I have had those forms come in, and I am 
going to fill them out, but basically what you have got there 
is the oil companies are taking care of all that problem, and 
as dealers and talking to the other dealers, when we look at 
this, and we discuss it, we say, well, we are not in control of 
this. There is nothing we can do about it, but we surely will 
be on the telephone if we have a problem at our station where 
we are concerned ourselves with the front line with the 
customers, and we do not have supply or something is shut down. 
We are going to be right on the phones.
    But we know that the oil companies are taking care of that 
problem, and the dealers have no control over that, other than 
if something happens, they are going to hear from us.
    Chairman Bennett. Well, will an oil company come in to you 
and say, OK, the ATM-type machine that you now have currently 
in your pump has got to be checked, or is that your 
responsibility to check that?
    Mr. Ingle. The oil companies do come in and check that, 
yes. And we have all these systems, and I know in particular 
with Amoco Oil, in our system, they have gone state-of-the-art, 
new system, new computer system, and just in the last few 
years, that has been a major, major project to put these 
systems in that we have now at each one of our facilities, and 
because of all that, I am sure that a lot of the concern was 
Y2K.
    I know credit cards concern me a lot. You know, when I look 
at this problem, I do not think that pipeline is going to shut 
off. I am, you know, 95 percent, 98 percent sure it is all 
going to be fine. There might be an occasional problem here or 
there, but it is not going to be something that is going to be 
long term. I am more concerned about individual credit customer 
coming in trying to use their credit cards at my pump and 
finding out there is a particular problem because this credit 
card company was not really Y2K ready.
    Chairman Bennett. I do not think you will have any problem 
with the credit card company. Our experience in other parts of 
this committee indicates it will be with the reader at your 
pump. We have had the experience where credit card companies 
have done what they needed with their host computers back home 
and then ran into a merchant somewhere whose computers and an 
ATM, for example, in a bank, and the particular computer at the 
ATM could not read a card that said 2000.
    Now, we are quickly going to point where all credit cards 
will be an expiration date of 2000 or later by the time we get 
to the end of the year. If you are not at that point, your card 
is expired. There were some major companies, credit card 
companies, that delayed issuing credit cards with an expiration 
date past 1999 until they could check their network of 
merchants and make sure all of them had their point-of-sale 
machines remediated for just that reason. But we are beyond 
that point now.
    Mr. Ingle. Well, we have these back up systems. You know, 
my businesses are completely computerized, but for instance, we 
used to have to stick our tanks on a regular basis, on a daily 
basis, and do all of that and call up and order our gasoline. 
We are all completely computerized now, at least most of us, 
and that is all done by monitoring electronic systems, which is 
fabulous, but if it comes down to it where it is a problem, I 
will get the old stick out and I will go out and I will stick 
the tanks. I will call it in by telephone. Hopefully the 
telephone is working, and we will get all of that taken care 
of.
    So I think that is where we have got to come down to 
basics, to where if we have to go back to manual ways of doing 
business, we are all prepared to do that. But I pretty much can 
assure you that I do not think the pipeline and the fuel is 
going to be shut down. There is too much at stake here, way too 
much at stake.
    Chairman Bennett. I cannot resist. My first memory of a 
service station in the situation you have described is filling 
a glass bottle that has calibrations printed on it, and then 
you open the pump and watch the gas come down the glass bottle. 
I hope we do not have to go back to that.
    Mr. Ingle. I hope not, because I do not know how to do 
that.
    Chairman Bennett. You do not know how? It is really very 
simple. It is really very simple.
    Unless any of you have an final comment you wish to make, 
let me thank you all for being here. This has been a productive 
hearing, and we hope that not only have we added--we know we 
have added to the committee's knowledge about the level of 
preparedness, but we hope as a result of your being here, we 
have added to the public awareness of how far along we are here 
so that no one will feel the necessity to fill their garage 
with five-gallon cans filled with flammable material.
    Thank you again. The hearing is adjourned.
    [Whereupon, at 11:12 a.m., the committee was adjourned.]
                            A P P E N D I X

                                ------                                


              ALPHABETICAL LISTING AND MATERIAL SUBMITTED

                                 ______
                                 

            Prepared Statement of Chairman Robert F. Bennett

    Good morning and welcome to our hearing on Y2K and the oil 
industry. When Senate Resolution 208 was passed on April 2, 1998, 
establishing this Committee, our first course of action was to prepare 
a hearing on the energy sector of our Nation's economy which was held 
on June 12, 1998. The repercussions of a computer glitch affecting the 
energy business are painfully obvious.
    In that first June hearing, I focused on the fact that all 
utilities are highly dependent on services, suppliers, and other 
upstream sources. Even power distribution companies are dependent on 
foreign oil imports. Consider for a moment what else is affected by 
oil. Automobiles always come to mind first--our ability to get from 
point A to point B. The price of gas affects how people perceive the 
health of our economy--and in return the perception of our economy 
affects the economy itself. Americans have recently seen a sharp 
increase in gasoline prices resulting from a unified reduction 
agreement among gasoline manufacturers. In March, OPEC announced that 
it would cut production by 2.104 million barrels of oil per day. Though 
under this agreement by OPEC companies the amount of oil available to 
the world market would only be reduced by 2.6 percent, the effect is 
much greater. Literally overnight, this announcement resulted in a 20% 
increase in gasoline prices, with prices surging by 20 to even 40 cents 
per gallon. Clearly a minimal reduction in world supply can have 
disproportionate effects on price. A reduction in the amount of 
available oil resulting from Y2K related mishaps poses a serious 
problem, and the potential for this happening is worth investigating.
    When the price of gas increases, everyone is affected--whether you 
happen to drive a car or not. Consider who bears the cost of heightened 
shipping costs when product manufacturers must increase prices to 
offset an increase in distribution costs. When gas prices go up, 
virtually all prices go up. We are interested to learn whether or not 
this is a likelihood due to Y2K, because of the tremendous effect this 
may have on the economy, and on the wallets of average Americans.
    Cost is not the only concern--availability is an even greater 
concern. The gas lines of the 1970s are still vividly on the minds of 
Americans who were driving at the time. A gas line in and of itself is 
a symbol of economic difficulty. No one wants to revisit that event. 
There are over 180,000 gas stations nationwide, of which 114 are right 
here in Washington, DC. With traffic the way it is in the District, a 
gas line in Georgetown or on Capitol Hill would surely bring all the 
beltway pundits out of the woodwork in speculation of global economic 
ruin. That is why we are here today. That is why we have invited our 
witnesses, and we thank them beforehand for their testimony.
    Inherent to the availability of oil is the readiness of 
transportation systems and ports. It continues to be the chief priority 
of the Special Committee to continue to receive accurate and 
comprehensive information concerning the Y2K readiness status of all 
sectors of our infrastructure. However, getting accurate and 
comprehensive information from other countries presents a much more 
difficult dilemma. When we look for information on the status of 
transportation systems of countries that ship petroleum products, we 
are deeply concerned about what we have been able to find; information 
has been extremely limited. According to an anonymous reliable report 
the Committee received, there is an apparent lack of information 
characterizing the confidence of key nations about the Y2K status of 
their shipping services. Take for example the top three U.S. oil import 
sources--Canada, Venezuela and Saudi Arabia. Information on the 
transportation systems of these three countries, which has an obvious 
effect on oil distribution, has been extremely limited. In fact, only 
Canada appears to have at least some information, and there is 
virtually nothing known about the status of the other two countries.
    Additionally, should the oil exporting countries be able to produce 
and transport oil, will port readiness become a factor? Will tankers be 
able to dock and deliver their product? All of these questions need to 
be answered.
    This issue is extremely complicated, and cannot be simplified by 
assuming that an oil shortage due to Y2K problems in one place will be 
offset by production and distribution in another. The United States is 
the largest producer of petroleum products, and Saudi Arabia remains 
the number one source of crude petroleum, yet there are literally 
dozens of other countries that participate in this global trade 
business, and it is a difficult task to ascertain how problems or 
shortages in one place might affect oil trade elsewhere in the global 
market.
    More importantly, and something that is a fundamental problem in 
addressing Y2K issues for a single oil company, is the fact that myriad 
date sensitive systems exist within every organization. Flow meters, 
transmitters and smart valves all have embedded chips and are key to 
pipeline operation. These embedded chips are found in drilling and 
production platforms, whether they are earthbound or offshore. The 
export terminal must function, and the tanker must successfully 
navigate and cross the ocean. Finally, the receiving platform must 
operate efficiently, and all this is just to transport the crude oil 
from the source to the refinery. The refinery with all of its systems 
must function properly. Then assuming domestic transportation services 
and point-of-purchase services are up to speed, there should be no 
shortage--no lines. We are here today to find out if that's going to be 
the case.
                               __________

                   Prepared Statement of Red Cavaney

    Mr. Chairman and members of the Committee: My name is Red Cavaney, 
and I am president and CEO of the American Petroleum Institute. API 
represents over 400 member companies in every aspect of the oil and 
natural gas industry, including exploration and production, 
transportation, refining, and marketing. I am pleased to testify before 
you today on our industry's preparations for the Year 2000.
    I want to assure this committee and the American people that the 
oil and gas industry is working intensively to prepare for the Year 
2000 and feels it will be ready to supply our customers at that time. 
We have a responsibility to our shareholders, to our customers, and to 
our employees to be prepared. We will meet that responsibility. To do 
so, we have been engaged in a variety of efforts.
    We have long anticipated the challenge of Year 2000 computer 
conversions, and the industry has been working hard on this problem for 
more than 5 years. Our members asked API to create a special Year 2000 
Task Force to coordinate the industry's efforts and to share technical 
information directly among more than 50 participating oil and gas 
companies, and indirectly through an Internet Web site and by other 
means with thousands of others. Our Task Force is also sharing 
information with the electric power and telecommunications industries 
because of our interrelationship with them and our reliance on their 
Y2K preparations. And, we are a leading participant of the President's 
Council on Year 2000 Conversion where we represent 10 allied industry 
associations and work closely with many others. The industry's efforts 
are coordinated with those of the President's Council and with the 
Federal Energy Regulatory Commission (FERC).
    Within our member companies, our industry's computer experts have 
been assessing, repairing, and testing software, hardware, and embedded 
processors. They have validated their work by testing that equipment 
both online and offline. And, they have been preparing contingency 
plans to ensure that there are responses to virtually any eventuality. 
Recent evidence demonstrates that all of this work is paying off.
    In January, API and the Natural Gas Council surveyed the domestic 
oil and gas industry's Y2K readiness. This evaluation included 
companies of every size. We explored several facets of the domestic 
industry's readiness-including planning, inventory, assessment, 
remediation, and validation. Our survey covered both information 
systems and embedded chips. The 1,000 companies that responded supply 
88 percent of the oil and natural gas the Nation consumes. Here is what 
they reported:
    (The overwhelming majority of companies responding-94 percent-said 
they would be Y2K ready by September 30, 1999, (More than four-fifths-
86 percent-of the companies are in the final stages of fixing and 
testing their business information systems, (Seventy-eight percent of 
the respondents are in the final stages of fixing and testing hardware 
and embedded systems to ensure their operational integrity, (Embedded 
chips, once seen as a major obstacle in preparing for Y2K, are not the 
problem earlier anticipated; and (Ninety-seven percent of the companies 
said they expect to have their Y2K contingency plans in place and 
tested before October 1, 1999.
    These figures, which show an improvement in the industry's 
readiness, update survey data from last year. We believe it is 
important that the latest data be part of the official Senate record, 
because they show the industry's progress and also help ease any 
consumer concerns that are based on outdated information.
    Our survey results are only one reason for our confidence in the 
industry's ability to meet the challenge of Y2K. Because of the nature 
of our industry, crisis planning is a fundamental part of any company's 
daily business plan. Companies must have the means available to get the 
job done, even if some systems fail unexpectedly. It is within that 
framework that our companies have been building contingency plans for 
Y2K into their operations. Much of the oil and gas industry's equipment 
already has mechanical and manual backups, so that in the event of a 
computer malfunction, a company can still run its equipment using 
mechanical devices or through manual operations. The industry often 
operates this way in the face of hurricanes, lightning, and snowstorms. 
Oil and gas companies are used to meeting challenges, and successfully 
handling Y2K-as large as it is-is well within our scope of competency. 
Still, we are taking nothing for granted and are doing all we can to 
assure that we are not surprised and that our systems function smoothly 
on January 1st and thereafter.
    That said, let me turn to the source of much of our supply. The 
U.S. is largely self-sufficient in natural gas. In 1998, the Nation 
imported less than 14 percent of the natural gas we consumed. Canada 
was by far the leading foreign supplier, with Mexico and Algeria 
providing only small fractions of our natural gas imports.
    Oil, however, is another matter. Last year, the Nation imported 56 
percent of the crude oil consumed in the United States. That is an 
average rate of 10.4 million barrels of oil imports a day, according to 
the U.S. Department of Energy. Those supplying most of that oil in 1998 
were Venezuela, Canada, Saudi Arabia, Mexico, Nigeria, Angola, Iraq, 
Colombia, the Virgin Islands, and Algeria.
    The Department of Energy (DOE) has indicated that the four largest 
exporters to the United States-Venezuela, Canada, Saudi Arabia, and 
Mexico-are preparing their computers for Y2K and expect all critical 
systems to be Y2K compliant by the end of 1999. In Venezuela, PDVSA, 
the state oil company, is addressing the problem of computer programs 
and embedded chips with a clearly defined program that is moving ``at 
an accelerated pace.'' Saudi Aramco has targeted mid-1999 as the 
deadline for its Y2K remediation problem. And PEMEX, Mexico's state 
owned oil company, is meeting its deadline to make its information 
systems Y2K ready, and appears to be on target in preparing its 
industrial systems for the millennium. Its goal is to be Y2K compliant 
by the third quarter of 1999.
    In addition, Indonesia's state oil and gas company has said its 
computer systems will be Y2K compliant by September. Two other 
providers, Colombia and Algeria, are evaluating their systems and are 
reportedly beginning efforts to be Y2K ready. And, the United Kingdom, 
Kuwait, and Norway expect to be Y2K compliant, according to DOE.
    Moreover, petroleum associations from the United Kingdom, Canada, 
Japan, and Australia are participating either directly or indirectly in 
API's Task Force on the Year 2000. They have access to the technical 
information on Y2K that our companies are sharing with one another.
    American oil companies are in business all over the world. API 
members are indicating that their operating divisions abroad are on 
track to be Y2K ready. They are operated according to American 
standards, and they have contingency plans in place to deal with 
problems.
    Still, to improve Y2K readiness abroad, and to determine the 
international oil industry's ability to meet the U.S. demand for 
energy, API's International Oil Y2K Work Group joined with FERC, DOE, 
other Federal agencies, and the International Energy Agency to create 
an International Oil Coordination Council. Council members exchange 
information on industry and government efforts and are working to 
assess the industry's Y2K readiness on an international scale.
    What if things abroad do go awry because of Y2K? There are a number 
of factors to consider in evaluating the impact. First, there is a 
great deal of crude oil production capacity in the world. If one 
country cannot export, another may be able to compensate. Second, even 
if a number of suppliers experience Y2K problems, imports into the U.S. 
would not stop instantly. There is always some crude oil enroute to the 
U.S. via tankers, some of which can take 5 weeks to cross the seas. If 
foreign suppliers have production problems, we will know this the day 
it happens. It will be an early warning alert that will give the 
industry time to move supplies around and compensate for lost 
production. The industry intends to be prepared to minimize the impact 
of any failures abroad. If they can be remedied in a short period of 
time, then the disruption should be manageable, since inventories can 
buffer short delays in securing imports. Third, as for oil and gas 
industry equipment itself, we do have experience in what would have to 
be done to redress Y2K problems. Finally, beyond private resources, the 
Federal Government owns and operates the Strategic Petroleum Reserve 
(SPR). We regard the SPR as an essential buffer to protect the economy 
in the event of a serious interruption in foreign oil supplies-such as 
the two disruptions that occurred in the 1970's. In our view, the SPR 
is a resource that could be used if Y2K conditions eventually warrant 
their use.
    The petroleum industry's Year 2000 efforts are designed to ensure 
that products will continue flowing to consumers as usual on January 1, 
2000, and thereafter. Although the industry has never experienced a 
challenge quite like this, there have been other disruptions to the 
flow of oil, and there is a record of our industry's response.
    In a 1989 report to the Secretary of Energy, the National Petroleum 
Council said it had made 10 inventory studies over the past 50 years to 
help the Federal Government in its emergency preparedness. The NPC 
noted that ``since the end of World War II, no serious petroleum 
shortages have occurred at the consumer level except gasoline lines in 
the era of price and allocation controls.'' Yet, NPC said, the system 
has experienced repeated stress, including refinery problems that led 
to reduced gasoline production in 1988, fuel-switching by electric 
utilities from natural gas to oil at the time of a heat wave in 1986, 
and a cold wave that reduced both crude and refinery production in 
1983-84.
    The oil and gas industry was able to overcome the stresses to its 
systems because contingency planning and crisis management are a 
fundamental part of each company's business plan. Most recently, this 
industry's flexibility enabled it to serve its customers during the 
hurricanes of 1998 that disrupted offshore production in the Gulf of 
Mexico and caused problems at some refineries. It has continuously 
brought its products to market despite actions like the Persian Gulf 
crisis and the gasoline supply difficulties of the summer of 1997. The 
industry seamlessly drew on inventory, or used alternate routing to 
deliver its products, or coped with supply problems when refineries 
were offline for maintenance by asking other refineries to step up 
operations to pick up the demand.
    The NPC study also evaluated the impact of six hypothetical stress 
scenarios on the industry's ability to deliver. NPC considered a 
disruption of oil imports, colder-than-normal weather, a disruption of 
natural gas imports from Canada, a disruption in the flow of products 
in a Midwestern pipeline, a 30-day shutdown of the Trans-Alaska 
Pipeline System and a 30-day disruption of oil imports from Canada. 
While the study did not include a Y2K problem, it showed the industry's 
ability to respond and what might happen if supplies were disrupted. 
NPC reported that ``each of these disruptions could be handled with 
varying degrees of problems, but without major hardship, because of the 
resiliency and flexibility of the nation's supply system.'' At the end 
of the day, the critical question is: ``Can we give you a 100 percent 
guarantee that absolutely no problems will occur and consumers, without 
exception, will find what they want when they want it?'' No one can 
make such a blanket assurance because we live in an interdependent 
world. But we can guarantee that the domestic oil and natural gas 
industry is well prepared to serve our customers and keep energizing 
our economy. We can guarantee that the domestic oil and natural gas 
industry has been and is working very intensively on many fronts to 
prevent Y2K problems from arising and to successfully handle those 
problems that do arise.
    The process of manufacturing gasoline, heating oil, diesel fuel, 
motor oil and the feedstocks from which essential products are made is 
not a real-time event. We are used to managing our way around 
inconveniences and interruptions at our facilities. We are used to 
responding to outages by redirecting the flow of products and by 
drawing on inventories as necessary. We believe that capability will 
enable the industry to handle whatever situations arise with minimum 
inconvenience to our customers.
    We know that some who remember the gasoline lines of the 1970's may 
question our resolve. But every competent analysis of that era 
concluded that those lines were the result of government price and 
allocation controls, not a shortage of gasoline.
    A well-informed consumer is our best ally. That is why we are 
concerned about misinformation on the impact of the Year 2000 
conversion being trafficked in the public domain. We are concerned that 
some who may mean well but are nonetheless uninformed are inviting 
unintended consequences in the marketplace when they recommend that 
consumers should take their money out of the bank, or fill their 
gasoline tank, or horde gasoline and groceries. Such changes in 
behavior could produce consequences that are totally apart from how 
well our industry and other industries are doing the job of preparing 
for the future. Congress can help by putting out factual information 
about industry preparedness to deal with Y2K, and by avoiding any 
unnecessary constraints on the private sector, which has a direct 
commercial interest in assuring a continuous flow of products and 
services to consumers. Congress can also use its oversight role to 
assure the Y2K readiness of the SPR, should it be needed.
    The Year 2000 conversion has a very high priority at API and 
throughout the oil and gas industry. We are service industry, and we 
fully expect to meet the tests of the millennium. What I have presented 
here represents the highlights of what we are doing. Additional 
information is available on the API Web site at www.api.org/y2k. It 
includes a Y2K data base created to foster the sharing of critical 
information on testing software, hardware, embedded systems, and 
related components. Our site also includes information on what 
government is doing and what our companies are doing as they prepare 
now to meet consumer needs next year, and thereafter.
    We appreciate the opportunity to testify today and to update and 
enhance the public record on the oil and gas industry's preparations 
for the Year 2000.
    Thank you.
                               __________

           Responses of Red Cavaney to Questions Submitted by

                            Chairman Bennett

    Question 1. You mentioned in your testimony that API represents 
over 400 member companies in every aspect of the oil and natural gas 
industry. You also indicated that API has created a special Y2K task 
force with more than 50 participating oil and gas companies. Can you 
explain what is being done to ensure that the remaining 350 companies 
are also coordinating their efforts to become Y2K compliant?
    Answer. While it is true that only 50 companies actively 
participate in API's Year 2000 task force, these 50 companies represent 
the overwhelming majority of the U.S. petroleum industry. Specifically, 
these companies represent:
      80 percent of U.S. oil and natural gas production.
      73 percent of U.S. refining capacity.
      70 percent of U.S. pipeline deliveries.
      43 percent of U.S. retail service stations.
    In the upstream area in particular, many of the companies that are 
not participating in our task force are likely to be joint venture (JV) 
partners in various exploration and production efforts with one or more 
of the 50 companies that are participating in task force meetings and 
workshops. The commercial integrity efforts within these JVs that are 
driven by task force member companies would make non-member companies 
fully aware of their potential Y2K problems and would quite likely spur 
them to address those problems. The interdependency of a partnership is 
encouraging this.
    Similarly, those 350 companies have customers and suppliers that 
are concerned about their own commercial integrity and are encouraging 
those oil companies to develop robust Y2K programs as a matter of self-
defense.
    Equally important, the free enterprise system has nurtured the 
development of a Y2K industry. There are consulting firms, Y2K-specific 
publications and Y2K computer experts who are actively marketing their 
services. This new Y2K industry is not only working with some of the 50 
companies that are participating in the task force, but it is 
undoubtedly working with a portion of the 350 companies that are not 
task force members.
    Question 2. The results of your survey are very reassuring and 
impressive. API's efforts are to be commended. You even noted that 97% 
of the companies expect to have their Y2K contingency plans in place 
and tested before October 1, 1999. Will you please describe how this 
testing is going to be done? What kind of business continuity and 
contingency plans are in place? What happens to the companies that fail 
to meet this deadline? And to those who did not respond to the survey?
    Answer. The petroleum industry in the United States is extremely 
competitive. Moreover, the United States government has very strict 
laws in place to prevent anti-competitive collaboration among oil 
companies. As far as I know, there is no industry-wide contingency plan 
in place. I want to emphasize, however, that our companies have a clear 
understanding of the additional business risk that Year 2000 problems 
present to them. They understand that they have a duty to serve their 
customers, to protect their shareholders, to preserve their brand 
images and to maintain their reputations. That is why Year 2000 
preparations in this industry began five years ago. That is why the 
investment in Y2K preparations by oil and gas companies now exceeds $2 
billion. I do not know a single CEO in this industry who would stand by 
and let so highly publicized and highly predictable an event as the 
computer changeover damage the company that he or she leads. These 
companies have prioritized their risks and have put contingency plans 
in place to address them.
    Contingency planning is a fundamental part of the oil and gas 
business. From exploration to production to transportation and 
refining, this is inherently a risk management business. Oil companies 
have proven over the years that they are excellent at understanding and 
managing their risk portfolio. The Year 2000 issue merely adds another 
facet to the risk management dimension.
    Industry contingency plans are routinely tested (or ``exercised'') 
in the oil industry through the use of what are called ``table-top'' 
and ``real-time'' drills. These drills are designed with specifically 
identified objectives in mind for whatever aspect of the contingency 
plan is to be tested. To prepare for the Year 2000, these contingency 
plans are being retested by individual companies via simulated Y2K 
scenarios that test response capabilities and processes--some on a 
worldwide basis.
    For those companies that fail to meet the October 1, 1999 date by 
which 97 percent of the industry expects to have contingency plans in 
place, several things could happen:
    (1) Nothing. It might not be a problem in some cases. Companies 
could get their plans in place between October 1 and the end of the 
year. Or they might not be highly automated or use systems that are 
date dependent. Or they may not have one of the very few embedded 
systems we're seeing that have a significant impact on safety, the 
environment or production effectiveness. Or they may not have key 
suppliers or customers that fail or would be interrupted. Under those 
circumstances, a company might not see an impact on their business.
    (2) If they are publicly traded companies that have to file an SEC 
10 disclosure, and they disclose as required, their market value could 
be negatively impacted when investors realize the additional risk 
associated with owning shares in a company that lacks Y2K contingency 
plans.
    (3) If a company fails to put appropriate contingency plans in 
place, and events at key dates cause problems, they potentially won't 
be able to deal effectively with failures and interruptions. If these 
are significant, either in magnitude or duration a company could 
potentially lose market share and suffer the consequences.
    At the end of the day, preparing for Y2K is about preparing for 
business continuity. It is about survival and that is driving companies 
to develop appropriate Y2K contingency plans, over and above the 
activity sponsored by API and the President's Council on Y2K 
Conversion.
    Question 3. The National Petroleum Council (NPC) study covering the 
six hypothetical scenarios on the industry's ability to deliver oil and 
gas seems fairly thorough as it assesses variables that are seemingly 
unrelated. But each of these scenarios was distinct and finite in its 
disruption possibility. What will happen in the gas and oil industry 
if, as a result of Y2K, more than one of the scenarios happens 
simultaneously or the disruptions create an aggregate bigger than the 
singular previously studied?
    Answer. We believe that the likelihood of significant simultaneous 
disruptions in the Year 2000 is not much higher than likelihood of 
simultaneous disruptions today. As I said in response to question 
Number Two, our member companies deal with risks on a daily basis and 
are prepared to cope with any number of risks simultaneously.
    Question 4. Your testimony mentions specific contingencies for the 
transportation of oil and gas. However, I am interested to know more 
about what is being done to ensure the readiness of oil refineries for 
Y2K. Will you explain how oil refineries are doing in their efforts to 
become Y2K compliant?
    Answer. Like many others in process control industries, we 
originally believed that Year 2000 problems posed by ``embedded chips'' 
would have an adverse impact on our refineries. After a significant 
amount of testing and impact analysis, we recognize that the Year 2000 
impact of ``embedded chip'' microprocessors at our plants will be 
minimal.
    In addition to our industry's extensive work in the embedded 
systems area, our refineries have also focused on three additional 
areas: Remediation of our business information technology (IT) systems; 
analysis of our suppliers and customers; and development of contingency 
plans. The vast majority of our member firms will have completed the 
remediation of their highly critical business IT systems, and the 
replacement of the small number of systems containing affected 
``embedded chips,'' by June 30. In addition, after having analyzed the 
Year 2000 readiness of their key suppliers and customers, refiners will 
have in place contingency plans that will be exercised in case of a 
failure of any of their key suppliers or customers.
    Question 5. You mentioned that the four largest oil exporters to 
the U.S.-Venezuela, Canada, Saudi Arabia and Mexico, anticipate having 
all critical systems compliant by the end of the year. The largest 
supplier of oil to the U.S. is Venezuela. In our report released on 
March 5, we compiled data that Venezuela was 9 to 15 months behind the 
U.S. in its Y2K preparation. Furthermore, many countries have 
underestimated the Y2K impact and have under-prepared. Although you 
state that oil companies will be prepared for the Year 2000, have there 
been any surveys conducted, or research done, to verify that the oil 
companies' critical systems will not be affected if other industries, 
such as power, are not prepared? Would you comment on business 
continuity and contingency planning within these countries?
    Answer. Many API member companies operate facilities in countries 
where basic infrastructure support, such as electrical power and 
telecommunications, is not reliable. Our companies have learned to deal 
with those interruptions, sometimes by developing their own generating 
and communications systems. Our companies are used to working their way 
around those disruptions and minimizing their impact on operations. 
Accordingly, one more disruption because of the Year 2000 will not have 
a serious impact on operations.
    As for those countries that are reported to be significantly behind 
the U.S. in their progress, there are two factors at play. First, they 
may not be as automated and as technologically sophisticated as is the 
U.S., Western Europe, Canada and Australia, and thus may not have the 
problems that we in the West have identified. Second, they may actually 
be able to correct their Y2K problems more efficiently and cost 
effectively than did U.S. companies because as ``fast followers'' they 
can benefit from what the ``pace setter'' countries and ``pace setter'' 
companies have done.
    This sharing and leveraging of knowledge is taking place at a pace 
that is amazing. We have an Internet and e-mail literate, globally 
focused workforce addressing Y2K issues not only in the oil industry, 
but in most industries. Information, best practices, testing results, 
and knowledge is being shared, literally at the speed of 
telecommunications.
    Moreover, the inter-related nature of our industry means that key 
suppliers and customers must remain healthy so that we stay healthy. 
That is why companies are pushing each other to complete their Y2K 
programs. Those nations that are further behind are getting input, 
advice and sometimes assistance from their U.S. Western European, 
Canadian and Australian investors, from colleagues and even from 
competitors.
    Finally, organizations such as the World Bank, the International 
Energy Agency and API are catalyzing awareness and assistance programs 
all over the world.
    Question 6. The development of effective contingency plans involves 
the participation of all stakeholders and parties who will be called 
upon to execute the contingency plans should the need arise. Would you 
describe how the petroleum industry is involving its workforce in the 
development of contingency plans? Is employee awareness raising and 
training widespread as a part of the efforts? How about community and 
emergency service provider involvement?
    Answer. Most of our member firms have in place, as part of their 
normal business process, contingency plans that are exercised 
frequently. These same companies are simply utilizing the existing 
contingency planning ``network of experts'' and providing them 
additional background on the special nature of the Year 2000 problem. 
It is the very workforce that operates the fields, the transportation 
systems, the refineries and the retail outlets that do the contingency 
planning. Workforce ownership of contingency plans is critical to the 
potential success of the plans. Their involvement in identifying where 
plans are needed, developing the plans, testing these plans through 
drills and refining them based on what they learn from the drills is 
mandatory in companies with healthy contingency planning processes.
    The workforce in the oil industry is highly motivated to keep their 
working environment safe and reliable. They realize that to do this 
effectively, contingency plans are necessary. The workforce realizes 
that Y2K is just one more operational and business risk to be 
recognized and to be managed.
    Also, as part of our support for the President's Council on Y2K 
Conversion, API is proactively urging Year 2000 experts in its member 
companies to become involved in the ``Community Action'' awareness 
program. We have seen a good number of these people become involved at 
the community level.
                               __________

                 Prepared Statement of Philip M. Davies

    Good day, Mr. Chairman, and members of the Committee.
    My name is Captain Phil Davies. Today, I am testifying on behalf of 
the American Petroleum Institute (API). API is a national trade 
association representing over 400 companies involved in all aspects of 
the petroleum industry. A significant number of API companies own, 
operate, or charter substantial tanker fleets.
    I am currently Area Operations Manager for Chevron Shipping Co. LLC 
(CSC). We operate 35 oil tankers on trade routes throughout the world, 
and we have a similar number of third-party ships under charter at any 
particular time. I am responsible for CSC operations throughout the 
eastern and southeastern United States. Prior to this assignment, I was 
Year 2000 (Y2K) program manager for Chevron Shipping. In addition to my 
duties within the company, I have participated at several conferences 
around the world to raise the awareness of Y2K within the marine 
community.
    I am happy to say that since these conferences and, particularly 
over the last several months, my opinion of the readiness of the oil 
shipping industry to meet the challenges of Y2K has changed 
considerably. We have generally prepared well, and we do not expect 
major problems at the turn of the millennium.
    Through industry organizations such as API, the Protection and 
Indemnity clubs, ship classification societies and the efforts of the 
U.S. Coast Guard and other international government organizations, 
there has been a sharing of data on an unprecedented scale. This 
information has been shared among major oil companies, independent 
tanker operators and manufacturers. Various sites on the Internet 
provide a wealth of information for those looking for compliance data 
for equipment fitted to their vessels.
    Process--Vessels Most companies involved in Y2K assessment follow a 
phased approach that consists of:
    * Identifying equipment, systems, and system integration on board 
ship, which could be adversely affected by date changes.
    * Determining the level of risk to the vessel that could result 
from failure of each system.
    * Prioritizing systems based on level of risk and obtaining 
manufacturers' advice on compliance and/or test procedures.
    * Developing contingency plans for those systems where compliance 
cannot be reasonably confirmed. This may include system replacement, 
alternative operational modes, or operational restrictions to ensure 
safe operations.
    Equipment that is critical to the ship's operation tends to fall 
into four areas: Propulsion, Steering, Navigation/Communication and 
Cargo. Most problems to date have been found in either control 
processors or in the communications equipment. Both of these areas 
employ a high degree of PC-based computer control, which are generally 
easy to repair or replace.
    Though the majority of systems will be repaired or replaced in the 
lead up to December 31, 1999, there will always be some potential for 
equipment to fail onboard due to a Y2K malfunction. Within Chevron 
Shipping, vessel staff has developed contingency plans to address these 
failures, and onboard routine is developed around them. In the case of 
Y2K, vessels will generally set watch routines to monitor equipment 
where the compliance is not known. This coverage is a part of most 
vessel contingency plans.
    Seafarers are trained to deal with emergencies and contingencies, 
and face adversities daily such as we can expect could arise from the 
Y2K problem. Seafarers are a resourceful lot, and our ships are 
routinely designed with redundancies and manual workarounds for 
critical systems and, in the case of navigation, to utilize traditional 
methods.
    Vessel Availability In the marine oil transportation industry 
today, crude and products are transported in either oil company vessels 
or tonnage chartered on behalf of oil companies. A key role in this 
chartering of vessels is the inspection and vetting process, which 
ensures the vessel is in acceptable operating condition and is in 
compliance with applicable rules and regulations. In conjunction with 
this inspection, Chevron and other companies have been including vessel 
assessments and the owner/operator's commitment to Y2K compliance 
efforts. This assessment includes appropriate equipment audits, 
necessary remediation, crew awareness, and the existence of contingency 
plans. In order to ensure a continued supply of crude and products, 
Chevron will charter only those vessels that are compliant and have 
contingency plans in place. Fortunately, over the last few months most 
of the operators that we use have realized the potential implications 
of the Y2K problem and have instituted programs to address the 
concerns.
    In addition to the oil companies' program, the U.S. Coast Guard is 
now including Y2K awareness efforts in its onboard inspection program. 
This further helps to focus the attention of owners and operators.
    Contingency Planning Contingency planning is a key step in the Y2K 
process. It takes two forms:
    * Preparing to operate the vessel with equipment that may fail.
    * Positioning the vessel such that the effects of Y2K failure 
either onboard or on another vessel or facility will have minimal 
impact on the safety of the vessel, crew, environment, and the cargo.
    The operation of equipment has been covered above and will be 
covered as a part of normal vessel operating procedures. In order to 
minimize any external effects on the vessel, there are various steps 
that Chevron is taking to minimize the risk:
    * Keep vessels at sea or alongside in port.
    * Suspend cargo operations during critical periods.
    * Increase awareness onboard vessels.
    We believe other companies are addressing contingency planning in a 
similar fashion.
    API and its member companies support the U.S. Coast Guard effort to 
develop national guidance to ensure key elements are addressed in local 
government contingency plans for ports. Such guidance should provide 
sufficient flexibility to allow individual ports to address their own 
specific needs. The U.S. Coast Guard, through the Captains of the Ports 
or District Commanders, should take the lead in all major ports to 
convene stakeholder groups that would be charged with assessing port 
readiness, addressing potential areas of deficiency, and preparing 
appropriate contingency plans. For example, most ports already sponsor 
port safety committees that have broad membership from government, 
industry, citizen, and public interest groups. Stakeholder groups can 
help each port assess the safety measures necessary to ensure continued 
port operations during the critical dates of concern. These groups, 
with U.S. Coast Guard leadership, will be able to ensure the 
compatibility of individual stakeholder contingency plans within the 
port contingency plan.
    In conclusion, due to the leadership of the U.S. Coast Guard and 
the initiative of API and its member companies, the level of awareness 
of the Y2K problem is such that the impact on the oil transportation 
infrastructure is expected to be minimal. Of course, Chevron and API 
members will continue to develop contingency plans with the U.S. Coast 
Guard and the oil transportation industry. The millennium rollover and 
its effects are not an emergency or surprise event. Our awareness of 
the problem has allowed us to plan well in advance, and the industry 
has the knowledge and tools to deal with any problems that may arise.
    I would be happy to answer your questions.
                               __________

        Responses of Phillip M. Davies to Questions Submitted by

                            Chairman Bennett

    Question 1. In your testimony you stated that you did not expect 
any major Y2K problems to occur. You also stated that ``over the last 
few months'' most of the operators of your chartered vessels have 
realized the potential Y2K implications and have established programs 
to address the concerns. Is it realistic to be so optimistic when you 
chartered vessel operators only became fully aware of the problem over 
the last few months? Can you explain how it will be possible to 
complete all assessments and testing with the little time remaining?
    Answer. Fortunately in the shipping industry, though our business 
is very widespread we rely upon a limited number of suppliers for both 
our vessels and the equipment on them. If a single entity were starting 
their remediation program today, then it is unlikely that sufficient 
time would exist to complete the program. However, in the marine 
industry companies have been able to leverage from those who started 
early. This has been made possible by both the myriad of web sites and 
by the sharing of information in industry forums and conferences. In 
addition to the data sharing, manufacturers have become far more 
proactive in their approach to Y2K and its effect on their equipment.
    Question 2. You also mentioned the various steps Chevron is taking 
to minimize risks, such as keeping vessels at sea or alongside in port, 
and suspending cargo operations during critical periods. I applaud your 
efforts to be prudent in your preparedness. Do you feel there are 
competitive pressures on other shipping companies not to take the same 
steps as Chevron, for fear of losing business? For example, shipping 
companies switching to other ranker fleets?
    Answer. Chevron Shipping is fortunate to operate in an environment 
that nurtures Protecting People and the Environment, hence our ability 
to take the prudent measures outlined in my testimony. However, we 
believe that many other operators are taking similar measures and that 
those who act otherwise will still have to comply with Port State 
Control through measures such as those contained in IMO circular 2121, 
Year 2000--Code Of Good Practice.
    Question 3. The maritime insurance industry is critical to 
shipping, and has been for hundreds of years. What are they doing at 
this point in time to minimize their risks and client's liability in 
relation to Y2K?
    Answer. This is not my area of expertise, however the Protection 
and Indemnity (P&I) clubs in particular are to be commended for their 
efforts to both promulgate information on Y2K and their help to the 
maritime industry in developing Y2K mitigation and contingency plans. 
Two web sites which may give the committee greater insight in answering 
this question are:
    Ship 2000: http://www.ship2000.com
    UK P and I Club: http://www.ukpandi.com
    Question 4. You are an international shipping company and operate 
in many foreign ports. Has Chevron or API conducted any surveys 
regarding the status of international ports? What can you tell us about 
the preparedness status of the foreign ports where Chevron operates?
    Question 5. As a leading shipping company, what has been the extent 
of Chevron's dialogue with host governments in foreign countries? What 
have you learned about the readiness of foreign ports?
    Answer (Questions 4 and 5). Chevron has had little contact with 
outside governments on their readiness for Y2K. However, many of the 
terminals at which we load are operated by the Chevron Overseas 
production company. These terminals have completed similar projects to 
our own and are Y2K ready. Outside of these terminals, we have received 
notice from Saudi Aramco that they are Y2K ready.
    Question 6. Does Chevron support the Year 2000 Code of Good 
Practice and key elements of Y2K contingency plans for ships, ports and 
terminals that were developed as a result of meetings held at IMO 
headquarters on March 3-4, 1999? What is the best method to get 
information about them to the myriad stakeholders in the maritime 
industry for appropriate action?
    Answer. Chevron supports both the IMO Circular 2121, Year 2000 Code 
Of Good Practice, and the US Coast Guard in its efforts to develop 
contingency plans for US ports in readiness for this period. We are 
working closely with both the US Coast Guard and port user groups in 
those areas to which we trade to develop and implement contingency 
plans. In terms of IMO Circular 2121, we believe that through Port 
State Control, International & National Maritime groups, and P&I clubs 
that the IMO circular will reach a broad audience. In addition, 
industry publications such as Lloyds List and Fairplay have also given 
wide coverage to the Millenium Bug, and it is hard to conceive that in 
the wider maritime community anyone is unaware of the problem.
                               __________

               Prepared Statement of Christopher J. Dodd

    Mr. Chairman, thank you for holding this hearing today.
    The world oil supply faces a series of Y2K risks from the well in 
the ground to the gas station in your neighborhood. In addition to the 
immediate Y2K problems that oil companies face, the readiness of the 
shipping industry and international ports presents an even more 
difficult challenge. A breakdown in the international shipping industry 
could have a crippling effect on the oil industry. More than 80,000 
visits are made to U.S. ports by over 7,000 foreign vessels in any 
given year. And yet we have little information on the readiness of 
these ships and foreign ports.
    Like other global sectors the Committee has examined, we find that 
the oil industry is highly dependent upon maritime shipping. Oil 
tankers for example depend on reliable on-board navigation, 
communication and safety systems, all of which are vulnerable to Y2K 
problems. In 1998, Shell Oil examined one of its crude carriers, which 
was built in 1996. Y2K testing revealed failures in seven areas, 
including radar system mapping, ballast monitoring and ship performance 
monitoring. According to Shell, ``Not one of these failures would stop 
the ship, but they might if they all happened together.'' Overall, when 
Shell assessed their fleet, it found approximately 3,000 embedded chips 
on its 50 vessels. Embedded microchips play an important economic role 
in modern shipping because they allow even the largest tankers to 
operate with very small crews. The highly automated functions make it 
difficult for a small crew to manually operate the ship in an 
emergency.
    Even if oil tanker crews can ``work around'' their Y2K problems, 
the crews could quickly become overworked, compromising safety. 
Passenger cruise and container ships are more reliant on technology 
than oil tankers. Y2K failures on these ships would be even more 
difficult to correct.
    Ships that experience Y2K-related failures could begin to clog 
ports, denying accessibility to other ships and creating serious 
logistical problems.
    With the exception of North America and Northern Europe, the actual 
Y2K readiness of the international ports remains a virtual unknown. 
When a ship arrives in port, Y2K related failures could prevent cargo 
from being unloaded and oil from being pumped out of tankers. Y2K 
difficulties in ports could include the failure of the giant cranes 
used to offload containers from ships and could also create congestion. 
According to the International Energy Agency, one oil company found 
that a dockside crane refused to operate because an embedded chip 
determined that it was overdue for a technical inspection.
    Some companies, such as British Petroleum (BP), are taking a very 
proactive approach to Y2K. BP is very influential in the shipping 
business and is the world's third largest user of oil carrying vessels. 
In May 1998, BP surveyed 650 companies from which it chartered tankers. 
BP made it clear that failing to respond to the questionnaire would 
result in termination of charters with the oil company. The response 
was disappointing. Half of the companies that BP had used in the 
previous two years were unable or unwilling to disclose the Y2K 
readiness of their vessels. Beginning in January 1999, BP started 
refusing to employ vessels that could not offer an assurance of Y2K 
readiness. The shipping companies' failure to prepare for Y2K has put 
not only their individual businesses at risk but also the livelihood of 
their employees. We have seen evidence of this ``flight to quality'' in 
other industries and it will likely continue into the Year 2000. But 
while BP and other companies might be able to obtain Y2K ready charter 
vessels, they cannot make international ports compliant. This will take 
a concerted worldwide outreach to raise awareness and promote realistic 
contingency plans.
    In the event there were to be a problem, the U.S. has over 540 
million barrels of oil in reserve. In 1975, the Strategic Petroleum 
Reserve was created as a buffer to ensure that Americans do not suffer 
the inconvenience and disruption that the oil crisis of the 1970's 
caused. So, despite the fact that we rely on imported oil for over 50% 
of our oil usage, the strategic oil reserve can replace imports for up 
to 60 days. Should Y2K spark an interruption in the oil supply, the 
Strategic Petroleum Reserve could be used to stabilize markets, reduce 
sudden price spikes and buy time to resolve any lingering problems. The 
oil industry is working hard to solve its Y2K problems and is trying to 
achieve Y2K readiness by September of 1999. However, Y2K failures in 
maritime shipping and foreign ports still pose serious threats to the 
flow of oil and our economic well being.
                               __________

                 Prepared Statement of Michael J. Ingle

    Mr. Chairman and Members of the Senate Special Committee on the 
Year 2000 Technology Problem, my name is Michael J. Ingle and I 
appreciate the opportunity to appear before you today to present the 
dealer community's views and projections concerning gasoline 
availability on January 1, 2000.
    I have been a dealer for 30 years and currently operate 2 Amoco 
stations--in Lanham and Bowie, Maryland. I am currently serving as 
President of the Washington/Maryland/Delaware Association which 
represents over 1,000 small business members. I am also Treasurer of 
the Service Station Dealers of America and Allied Trades (SSDA-AT). 
SSDA-T is a 53 year-old national association representing 22 state and 
regional associations with a total membership in excess of 20,000 small 
businesses in 38 states; and individual members in all 50 states, the 
District of Columbia, Puerto Rico, and Guam.
    Like the motoring public, we too are concerned about product 
availability and distribution on January 1, 2000. While dealers are 
dependent on their suppliers, we are on the front lines when consumers 
have concerns. And we are dependent on the sale of motor fuel.
    The petroleum industry has been actively addressing Year 2000 
challenges for the past several years. While individual service 
stations are at varying levels of compliance, the major petroleum 
companies have not identified any Y2K challenges that cannot be 
overcome. In particular, oil companies and their service stations have 
reached out to business partners, customers and suppliers in order to 
develop compatible solutions and share best practices. Throughout the 
country, seminars have been presented to the retailing end of the 
industry. We have one such meeting scheduled for May 20 in Annapolis, 
Maryland.
    Just as petroleum marketers are used to preparing contingency plans 
for supply disruptions and natural disasters, preparation for the 
arrival of the Year 2000 has been no different. Special contingency 
plans and back-up suppliers and systems are in place to allow for 
uninterrupted service to consumers. Based on recent industry surveys by 
the Natural Gas Council and the American Petroleum Institute, the 
petroleum industry as a whole is well on its way to being Y2K ready. In 
fact, almost all companies surveyed indicated that they will be Y2K 
ready by September 30, 1999.
    Following are some commonly asked questions by the public regarding 
our industry and this issue.
    Will service stations be open December 31, 1999 and January 1, 
2000?
    Yes, depending upon the store's usual hours. The Year 2000 is not 
expected to be a factor in unscheduled store closings.
    Will I be able to use my credit car at a service station on or 
during the Year 2000?
    Credit cards were one of the first Y2K issues widely recognized and 
publicized. Therefore, service stations, along with the entire retail 
industry, have been analyzing, replacing and testing credit card 
systems to ensure Year 2000 compliance. They have also been working 
closely with credit card companies in order to guarantee that business 
processes are not compromised with the rollover to the new millennium. 
In isolated incidents, computers could have problems with some credit 
cards. The result would mean that some of these credit card automated 
tasks would have to be done manually.
    What are retailers doing to ensure that gasoline will be available 
and fuel pumps will be functioning in the Year 2000?
    Most service stations' lights, fuel pumps, and registers rely on 
electricity in order to work. Thus, service stations are working 
closely with their utility providers to ensure a smooth transition to 
the Year 2000. In particular, the electric utility industry is 
preparing for the new millennium and aiming for 100 percent reliability 
of electric power on January 1, 2000. According to a North American 
Electric Reliability Council (NERC) report, virtually all-electric 
power systems in North American will be ready for the Year 2000 by the 
target date of June 30, 1999.
    Consumers can expect few, if any, shortages of petroleum-based 
fuels in the Year 2000. Service stations are working to ensure 
reliable, uninterrupted service. Even if there are some isolated supply 
interruptions, the impact on consumers will be minimal, as service 
stations generally have back-up suppliers. So, if their primary 
supplier experiences Year 2000-related problems, service stations have 
additional suppliers they can contact.
    Should I be stockpiling gasoline in preparation for the Year 2000?
    There is absolutely no reason to stockpile gasoline in anticipation 
of the Year 2000. The petroleum industry is not anticipating any supply 
or distribution disruptions. The latest survey mentioned previously 
shows that the industry is more than 90 percent ready.
    While there may be brief, isolated incidents of localized problems 
or circumstances beyond the industry's control, fuel should remain 
widely available. Therefore, the industry urges consumers not to risk 
their safety and the safety of their neighbors by storing unnecessary 
and possibly unsafe quantities of gasoline in preparation for the Year 
2000.
    Will environmental monitoring systems at service stations be 
working properly in the Year 2000?
    Most environmental monitoring systems are time and date sensitive. 
Therefore, service stations have been working aggressively to fix 
computer systems, equipment and software that may be sensitive to the 
Year 2000 rollover. Although the petroleum industry is not anticipating 
any disruptions in this area, it should be noted that since monitoring 
systems are equipped with fail-safe checks, if the equipment 
experiences problems related to the Year 2000, at the worst, the tank 
will simply shut down.
    SSDA-AT believes that the industry will be ready for the new 
millennium; that product will be available; that consumers need not 
panic. In fact, we are betting our livelihood on it.
                               __________

        Responses of Michael J. Ingle to Questions Submitted by

                            Chairman Bennett

    Question 1. In your testimony, you addressed issues related to the 
availability of gasoline at the pumps. Given your experience, are there 
elements of Y2K that would indicate to you that there may be an impact 
on gasoline prices at the pump? Could you please describe them?
    Answer. No, we do not anticipate shortages of product that would 
lead to increases in prices more than any normal fluctuations due to 
the marketplace.
    Question 2. As we have looked at other industry sectors, we have 
found that small and medium sized businesses tend to be lagging in 
their Y2K efforts. You note in your testimony that as President of the 
Washington/Maryland/Delaware Association you represent over 1,000 small 
businesses. You also noted that the petroleum industry began actively 
addressing Y2K several years ago. When would you say that your members 
began? Also, please briefly describe the current activities and general 
preparedness of your members?
    Answer. Our members have been actively working with their suppliers 
in anticipation of Y2K for the last year. They have attended seminars 
on the subject and received ample literature from our association. In 
addition, our supplier representatives have personally visited many 
stations in addressing Y2K to ensure that our systems meet the 
requirements necessary.
    Question 3. I understand that a majority of your members actually 
lease the pumps (including the integrated credit card readers that many 
pumps have today) at their gas stations. Would you please briefly 
describe the equipment at a station that is leased and what is owned? 
Who has responsibility for maintenance of the leased equipment? What 
type of end-to-end testing is being done?
    Answer. The majority of equipment at our members' facilities is 
leased from the major oil companies. This includes the pumps, card 
readers, etc. The oil company has the responsibility of maintaining the 
equipment. They are actively conducting testing at the local level for 
compliance.
    Question 4. Your testimony refers to the American Petroleum 
Institute's (API) industry survey. API's survey profile shows that only 
48% of US service stations were represented. This was the lowest rate 
among the industries surveyed. Would you please help the committee 
understand why service stations had such a low representation? With 
over half of the service stations represented, how confident should we 
be that the positive picture painted by the survey is a reflection of 
reality and applies to service stations?
    Answer. As explained in our testimony and also in API's, the 
industry began its Y2K readiness at the top and has worked it down to 
the local service station, where testing is being currently conducted. 
We are confident that the industry will be ready on January 1, 2000 and 
product will be available.
    Question 5. Service Station Dealers of America's (SSDA) annual 
convention is scheduled for the week of June 9-12 in Nashville. This 
seems like an opportune time to address this critical pressing problem. 
Are you planning on addressing Y2K as part of the convention? What type 
of participation do you expect from your members and the large 
companies that lease equipment to your members?
    Answer. We had a seminar at our convention (held jointly with the 
International Tire and Rubber Association) addressing Y2K and the topic 
was brought up in other meetings at the convention. We had several 
exhibitors that are involved in computer software and equipment that 
are very active in Y2K issues.
    Question 6. Your testimony indicates that Y2k seminars have been 
presented to the retailing end of the industry throughout the country 
and one such meeting is scheduled for May 20th in Annapolis. Is SSDA 
sponsoring these meetings? What is the focus of these meetings, the 
general attendance, and participation?
    Answer. SSDA-AT and its state and regional affiliates co-sponsor 
these seminars along with the API and other industry groups. They are 
open to all members of these industry organizations. The focus is to 
educate members on Y2K issues and increase awareness of potential 
problems and what issues need to be addressed when dealing with their 
suppliers.
    Question 7. What are the types of key activities service stations 
should be including within the areas of independent verification and 
validation (IV&V), end-to-end testing as well as business continuity 
and contingency planning?
    Answer. Service station dealers are working with their landlords/
suppliers (i.e., major oil companies) to ensure proper planning and 
conduct proper testing. This is being done under the direction of the 
oil companies, who own the equipment in the stations.
                               __________

               Prepared Statement of Robert S. Kripowicz

    Mr. Chairman and Members of the Committee:
    The Department of Energy is working with the President's Council on 
Year 2000 Conversion and our nation's energy industry to ensure 
readiness for the Year 2000. As a member of the President's Council and 
as part of our overall energy readiness responsibilities, we are 
monitoring the Y2K compliance efforts of the domestic energy sector 
(including electric power, nuclear power, and the oil and gas industry) 
and selected international energy sectors (including oil and nuclear 
power). We are reviewing industry assessments, identifying potential 
assistance the Department can provide, and coordinating with industry 
on contingency planning.
    As we get closer to the millennium transition period, the 
Department will be monitoring and analyzing any Y2K events and 
incidents, and will be working with industry on response actions as 
appropriate. The Department will also take an active role in providing 
public information concerning Y2K and the energy sector.
    Before I address these activities as they relate to concern over 
the future oil imports, I would also like to note that DOE is making 
excellent progress in converting its own systems to be Year 2000 
compliant. As of March 31, 1999, 98 percent of DOE's mission critical 
systems were Y2K
    ready, including all of the mission critical systems of DOE's power 
administrations.
    The President's Council on Year 2000 Conversion International Oil 
Aspects The Department's Deputy Secretary is a member of the 
President's Council on Year 2000 Conversion. Within the Council, DOE 
was initially assigned responsibility for the electric power sector, 
and the Federal Energy Regulatory Commission (FERC) was assigned 
responsibility for international oil and gas. Since the group's 
formation, DOE has worked closely with the FERC
    and the American Petroleum Institute on Y2K issues related to both 
the domestic and international flow of oil. Last month, by mutual 
agreement, the lead responsibility for international oil Y2K 
preparedness was transferred to DOE.
    In this role, DOE will head the International Oil Coordination 
Council which includes membership from the U.S. Department of State, 
the National Security Council, the American Petroleum Institute (API), 
and others. Our coordination with API in this manner is comparable to 
our coordination with the North American Electric Reliability Council 
in our lead role on the Electric Power Working Group of the President's 
Council.
    DOE Actions To Date DOE has discussed Y2K extensively with the 
international oil industry and with major oil producing nations at 
every opportunity through our bilateral energy policy discussions and 
other regular contacts. We have also worked to put energy sector (and 
oil industry) Y2K issues on the agendas of international energy 
organizations and multilateral energy forums such as the International 
Energy Agency, the Asia-Pacific Economic Cooperation (APEC) Energy 
Working Group, and the Steering Committee of the Western Hemisphere 
Energy Initiative.
    The DOE and the Government of Japan also provided the International 
Energy Agency (IEA)
    with voluntary contributions to organize regional seminars on the 
Year 2000 problem and the oil industry. To date, seminars have been 
held in Caracas, Venezuela on March 11-12, and in Singapore on March 
25-26. A third will be conducted in Abu Dhabi, United Arab Emirates on 
May 4-5, and more may be held. These seminars are attracting widespread 
regional government and private sector participation. Mr. William 
Ramsay from the IEA is here today to discuss the outcome of these 
seminars.
    Also, the Department asked the APEC Energy Regulators Forum to 
report on the Y2K
    preparedness of APEC economies at the meeting of the APEC Energy 
Working Group in April 1999. In addition, APEC energy ministers 
instructed the Energy Working Group to prepare actions that may assist 
member economies and business in the remedial and contingency steps 
they are taking. (A detailed report, Year 2000 Computer Date Problem 
Effects on Short-Term Energy Security in APEC Economies was issued this 
month and is available.)
    Current Situation Based on our extensive discussions, data 
gathering, and monitoring of the Y2K situation in the international oil 
industry to date, we believe a great deal of progress has been made in 
key producing countries and in the key worldwide systems and networks 
of the major international oil companies.
    While more needs to be done, and while our information is far from 
complete, we believe there is room for cautious optimism at this point. 
Our reasons for saying this are as follows:
    The four largest suppliers of imported oil to the U.S. Venezuela, 
Canada, Saudi Arabia, and Mexico are in the process of converting their 
systems and expect their petroleum sectors to be fully prepared by the 
end of the year, and in some cases before.
    Kuwait, Norway, and the United Kingdom expect their systems to be 
fully compliant by the end of the year, and Colombia and Algeria are 
actively assessing their systems and pursuing remediation efforts.
    While less is known about Y2K preparations in other major producing 
countries (like Nigeria, Angola, Iran and Iraq), major international 
oil companies operating there (or purchasing there) have system-wide 
programs in place to counter the Y2K problem and provide for 
contingency planning.
    The petroleum associations from many countries and several of the 
largest state-owned companies are participating directly or indirectly 
(through the operating companies) with API in the International Y2K 
Work Group and the International Oil Coordination Council.
    There are several other reasons for our cautious optimism at this 
point and they include:
    The flexibility demonstrated by the oil industry over the years to 
deal with unforseen circumstances such as accidents, unscheduled down 
time for strikes, severe weather extremes, natural disasters such as 
hurricanes and floods, political instability, war, and economic 
sanctions.
    The enormous financial incentive to keep the oil flowing both for 
private industry and for governments of oil producing countries whose 
revenues depend considerably on oil.
    The flexibility built into the system in the form of commercial and 
strategic stockpiles of oil and the existence of spare crude oil 
production capacity in several countries. If one country experiences a 
problem, another may be able to compensate, or companies could rely on 
reserves (inventories).
    And finally, in the United States we have the Strategic Petroleum 
Reserve:
    The Reserve currently holds an inventory of 561 million barrels of 
crude oil. If a Presidential decision is made to utilize the Reserve in 
an energy emergency, that inventory can be withdrawn at a maximum rate 
of 4.1 million barrels per day.
    The Reserve is capable of distributing crude oil by out loading 
tankers or by intra-state and interstate pipeline systems. The Reserve 
is connected by pipeline alone to almost 50 percent of the Nation's 
refining capacity.
    The Reserve is Y2K compliant. If necessary, drawdown systems can be 
operated in a manual mode. The system was designed this way for reasons 
other than Y2K, i.e., security.
    Ongoing Concerns In spite of the reasons for cautious optimism, 
there are gaps in our information and causes for concern. While we know 
much more today about the Y2K activities of the major international oil 
companies and our principal suppliers, much less is known about the Y2K 
condition of infrastructure that the oil industry is dependent upon in 
many countries, such as electric power, telecommunications, ports and 
shipping, and security systems. A failure of any of these systems could 
affect the oil industry's ability to operate.
    Moreover, given that the world oil market today is a global market, 
tied together by instantaneous trading systems, it is not enough to 
worry only about countries that export oil to the United States. A 
disruption of world oil supply anywhere, if uncompensated for, will 
affect oil prices everywhere. As a rough and ready rule of thumb, the 
Energy Information Administration, an independent agency within the 
Department that collects and analyses energy data, estimates that a one 
million barrel per day loss of supply that is uncompensated for by an 
increase in production elsewhere or by a drawdown of stocks, and that 
continues for a year, will cause world oil prices to rise by $3-5.00 
per barrel. This translates into roughly 7 to 12 cents a gallon at the 
pump.
    However, if the length of the supply disruption is expected to last 
no more than a few days, the impact would be much less, if any. An 
example of this was when a relay station in Iraq used to measure the 
flow of oil in their pipeline, among other uses, was hit by an Allied 
attack in February. The inability to monitor the flow of oil removed 
nearly 1 million barrels per day for a week or so. But since the oil 
industry correctly gauged the length of the disruption, and there were 
storage supplies that were available to make up for some of the 
disrupted oil, there was no notable change in oil prices due to this 
significant, yet brief loss of oil supply to the world oil market.
    Contingency Planning Because of our concerns, we will continue to 
monitor domestic and international oil developments very closely. We 
also believe that it is important to keep consumers and the public at 
large informed with the latest and the best information. A major part 
of the public information component of our contingency planning will be 
designed to prevent panic buying that, experience shows, and a self-
fulfilling prophecy.
    While we see no cause for panic or alarm at this point, consumers 
who are dependent on oil should always be prudent in planning for their 
heating requirements, and should not wait until the last minute to fill 
their home heating oil tanks. Similarly, power generators and large 
industrial consumers may want to purchase some additional inventory 
well in advance of the year-end as a contingency or hedge against price 
increases.
    And finally, we will be watching the situation closely and, if 
circumstances warrant, we will be prepared to sell oil from the 
Strategic Petroleum Reserve to calm the market.
    Thank you Mr. Chairman.
                               __________

       Responses of Robert S. Kripowicz to Questions Submitted by

                            Chairman Bennett

    Suppliers of Imported Oil
    Question 1. You mentioned that the four largest suppliers of 
imported oil to the U.S.-Venezuela, Canada, Saudi Arabia, and Mexico 
are in the process of converting their systems and expect their 
petroleum sectors to be fully prepared by the end of the year. Has the 
Department of Energy or another independent source verified or seen 
data that would support this statement?
    Answer. Department of Energy's assessment of Y2K preparedness of 
the petroleum sectors of the four major suppliers of imported oil to 
the U.S. is based upon a broad range of information gathered from 
bilateral meetings with the energy ministries of these countries, 
contacts with the major multinational oil companies that both operate 
in these countries and are their major customers, discussions in 
multilateral forums such as the Regional Energy Seminars on Y2K 
organized by the International Energy Agency, and by reporting from the 
individual Embassies in these countries. Given national sovereignty 
concerns as well as individual company proprietary considerations, we 
are not aware of any mechanism that would enable a systematic 
independent auditing or verification of Y2K preparedness of the oil 
sectors in these countries. While we are unaware of any independent 
audited or verified data on these country's preparedness, all the 
information that we have received from a variety of independent sources 
is consistent with our conclusion that they will be fully prepared by 
the end of the year.
    Stragegic Petroleum Reserve
    Question 2. The United States Strategic Petroleum Reserve currently 
holds an inventory of 561 million barrels of crude oil. If a decision 
is made to utilize the Reserve in an emergency, that inventory can be 
withdrawn at a maximum rate of 4.1 million barrels per day. How long 
will it take to begin withdrawing crude oil from the Reserve and how 
long will it take for the Reserve to reach its maximum rate of 4.1 
million barrels per day?
    Answer. Under normal conditions, the Reserve is always ready to 
begin drawdown within 15 days of a declaration of emergency by the 
President. However, knowing that the current threat will happen at a 
specific point in time may allow that schedule to be shortened by a few 
days. We intend to have all physical systems ready to perform before 
the end of the year, and will be ready to draw down immediately upon 
notice from the President. Nevertheless, time will be required to 
receive bids, make awards, and allow buyers to arrange transportation; 
and the schedule for those activities can only be slightly compressed. 
It is likely that this activity will take between eleven and thirteen 
days.
    The Reserve can achieve its maximum rate of 4.1 million barrels per 
day within the first day of drawdown. In the early days of any drawdown 
the actual rate will depend upon the successful bidders ability to 
receive and transport the oil. This is generally contingent upon their 
nominating, and scheduling pipeline, and tank farm capacity as well as 
in some cases, the scheduling and repositioning of tankers and barges.
    U.S. Oil Supply
    Question 3. What efforts, if any has DOE made to assess the 
readiness of maritime shipping and its impact on the oil supply?
    Answer. The Department is in close contact with the Department of 
Transportation, the agency that is in direct discussions with shipping 
companies and their associations. The Coast Guard is continuing to 
monitor and report on progress toward year 2000 compliance in the 
tanker industry. The Department of Energy is deferring to 
Transportation in assessing the readiness of the industry, however, the 
Department of Energy is treating a potential maritime disruption as 
similar to a producer/exporter disruption for purposes of contingency 
response planning.
    Strategic Petroleum Reserve
    Question 4. You said that if circumstance warrant, you would be 
prepared to sell oil from the Strategic Petroleum Reserve to calm the 
market. Has DOE clearly defined what circumstances or threshold would 
trigger the selling of oil from the Strategic Petroleum Reserve?
    Answer. No, it is has been the policy of every Administration since 
the creation of Strategic Petroleum Reserve that the Government will 
not define a disruption threshold or trigger price for activating the 
Reserve, but will evaluate every disruption based on its unique 
circumstances.
    Oil Market
    Question 5. The Middle Eastern oil producing nations are now 
seriously addressing Y2K and its impact on oil production. Because of 
their late start, what is the likelihood that we will see Y2K-related 
disruptions and price fluctuations in the oil market?
    Answer. The Y2K remediation and contingency planning programs being 
implemented by the Middle Eastern oil producing nations and the 
multinational oil companies that operate there will contribute 
significantly to reducing the potential for Y2K related disruptions. 
Oil price fluctuations are an integral part of the oil market day in 
and day out. Given the flexibility built into the global oil system in 
the form of producer and consumer commercial stockpiles, national 
strategic stockpiles, and a relatively high level of spare production 
capacity in a number of countries, should one country experience a 
problem, either a normal operating occurrence or Y2K related, the 
ability to alternatively supply oil from these sources suggest that any 
price fluctuations will be relatively minor and of short duration.
    Oil for Heating
    Question 6. You mentioned that consumers dependent upon oil for 
heating should not wait until the last minute to fill their heating 
tanks. Can you recommend a particular time frame in which consumers 
should top off their oil tank?
    Answer. Rather than ``topping off'' their tanks in anticipation of 
January 1, 2000, we recommend that consumers should follow their 
customary practices for filling heating tanks. The timing of filling a 
tank will depend on the size of the tank, the usage rate (reflecting 
weather), and, in many cases, the contractual fill program they have 
with their heating oil supplier.
    Y2K and U.S. Oil Supply
    Question 7. If Y2K is somehow much more severe than is being 
projected by the oil industry and it produces significant simultaneous 
problems in multiple production sites. Has DOE developed a policy to 
respond to such consequences if they begin to impact U.S. oil supply? 
For example, I would expect that companies would naturally fix their 
own problems. However, because of infrastructure problems in some 
nations, companies might require special assistance. At what point does 
the problem become significant enough to trigger DOE concerns or 
responses?
    Answer. U.S. policy recognizes the best and perhaps only effective 
way to mitigate the impacts resulting from a severe oil supply 
disruption is to introduce additional supplies into the market. Should 
a severe oil supply disruption be caused by Y2K related production or 
distribution problems the U.S. will be prepared to supplement available 
petroleum supplies by the sale and drawdown of oil from the Strategic 
Petroleum Reserve (SPR). A fundamental precept of DOE's energy policy 
is reliance on market forces to distribute supply. We believe that the 
most economically and operationally efficient way to distribute oil 
from the SPR is to allow the companies to exercise their individual 
preferences. Given the interdependence of our energy market with that 
of other major oil consuming nations and the fact that the benefits of 
any individual action taken by the United States will be enhanced 
considerably by coordination with these nations, a drawdown of the SPR 
would be carried out in coordination with our allies in the 
International Energy Agency (IEA).
    Refined Gasoline and Fuel Oil
    Question 8. If the supply of unrefined oil in the U.S. was 
completely stopped, how much refined product (gasoline and fuel oil for 
personal consumption) is in the system and how long would that supply 
last?
    Answer. Products are held in inventory at several locations, 
categorized as primary, secondary, and tertiary storage. Primary 
storage inventories are located at refineries, pipelines, and bulk 
terminals (wholesale marketing facilities having at least 50,000 
barrels of storage capacity or receiving products by barge, tanker, or 
pipelines). Secondary storage inventories are held at numerous bulk 
plants (smaller storage facilities and receiving products by rail or 
truck only) and retail establishments. Tertiary storage consists of the 
inventories held in vehicle tanks, homes, or businesses. Products on 
the ocean, moving in barges, or in offshore tankage are not included in 
any inventory category until they reach an onshore location. On the 
other hand, some portion of inventory is not readily available to meet 
consumer demand because it is working inventory (tank bottoms, pipeline 
fill).
    Primary storage locations are the source of the weekly, monthly and 
annual inventory numbers provided by the Department of Energy and the 
industry. Few estimates of the inventory in secondary and tertiary 
storage exist. The most recent estimate was prepared by the National 
Petroleum Council as of March 31, 1988. At that time they estimated 
that primary gasoline inventory was about 2/3 of total gasoline 
inventory and primary distillate inventory was about 2/5 of total 
distillate inventory.
    An estimate of the days-of-supply for a given product can be 
calculated by dividing the usable inventory level at a point in time by 
the level of demand--(barrels in primary inventory less some measure of 
operating inventory) divided by demand (in barrels/day) = number of 
days. General demand levels for next winter will be a function of the 
economy and the weather at that time. Inventory numbers will be 
measured as primary inventory levels next winter. Better forecasts of 
those numbers should be available next fall. The Energy Information 
Administration, for example, will release forecasts of demand and 
supply, incorporating the winter weather forecast as part of the EIA 
Winter Fuels Conference in October.
    A days-of-supply calculation should not be used as an absolute 
measure of product availability. One concern is that sometime during 
December gasoline and distillate product will shift from primary to 
secondary or tertiary storage to an unusual extent if consumers hoard 
product. In that case, the days of supply numbers would not necessarily 
reflect true product availability for consumer use. Hoarding could lead 
to misperceptions of supply as well as contribute to spot outages or 
price runups in the system.
                               __________

                    Prepared Statement of Bob Malone

    Chairman Bennett, Members of the Committee,
    Good morning. My name is Bob Malone and I am the President and 
Chief Executive Officer of Alyeska Pipeline Service Company. I am 
honored to be invited to join you here today to talk about how the 
pipeline industry is addressing the Y2K problem. I am also pleased to 
be here to assure you that Alyeska Pipeline Service Company will be 
ready when the clock turns over to January 1, 2000, and that the Trans 
Alaska Pipeline System (TAPS) is fully prepared to meet the challenges 
of the new millennium.
    As President of the company responsible for delivering 20% of the 
nation's domestic crude oil supply, I assure you that we will ready to 
transport a continuous supply of oil on January 1, 2000 and beyond. The 
west coast of the United States relies on North Slope crude oil for 
some 45 to 50 percent of its gasoline supply. We will not let our 
neighbors down.
    Before I speak about the specific steps we are taking to address 
the Y2K problem, I'd like bring you up-to-date on Alyeska and the Trans 
Alaska Pipeline System. Alyeska Pipeline is an 800-mile long common 
carrier pipeline system that transports approximately 1.2 million 
barrels per day. Alyeska loads an average of 42 tankers per month at 
our Valdez Marine Terminal, and provides oil spill prevention and 
response services to the tankers transiting Prince William Sound. Since 
1977, TAPS has supplied approximately 20 percent of the nation's 
domestic crude oil production. Alyeska Pipeline is owned by seven major 
oil companies, with BP Amoco, ARCO and Exxon holding the majority 
interest. These companies have been actively supporting our Y2K effort.
    Alyeska's Plan for the Y2K Problem
    TAPS is a complex system that is critical to our nation's domestic 
energy supply. We recognize that this vital link must be in place as we 
approach the Year 2000, and so we have taken the Y2K issue very 
seriously. We have been actively addressing the potential problem since 
1996, to ensure it will not be a problem for our customers or consumers 
of the product we transport. I am confident that you will be confident 
in our ability to transport oil as I share with you our Y2K program.
    Alyeska has a comprehensive Y2K program with a clear objective: To 
ensure that oil continues to flow in a safe and environmentally 
responsible manner. Our program is being managed with a single point of 
accountability. Our Vice President and Chief Information Officer, Dave 
Laurence, is here with me today. The structure I have in place gives me 
the assurance I need to know where we are, whether we are meeting the 
deadlines I have set, and what obstacles are standing in the way of our 
success. It also gives me the assurance to tell you that we are well 
into the process of having inventoried, assessed, remediated and tested 
those systems that will ensure our objective.
    Y2K History
    We started our initial assessment and evaluation of the Y2K problem 
on TAPS in 1996. This was followed by an assessment of computing 
infrastructure and key applications in 1997. We used a triage process 
to categorize systems in terms of mission and business critical 
functions--those functions that we must be able to perform to operate 
TAPS safely and reliably with the start of the new year.
    In early 1998, we expanded our Y2K program to include control 
systems, network and communications systems, and vendor readiness. Our 
program revealed that some of the original systems installed on the 
Trans Alaska Pipeline System pre-date the Y2K issue, and do not require 
major remediation.
    In excess of 110,000 devices were inventoried as potentially Y2K 
sensitive on the pipeline and at the Valdez Marine Terminal. One of 
these, approximately 27,000 devices required detailed assessment. But 
only a small number of these, 132 devices, required remediation or 
replacement.
    Our control systems inventory found 11 areas that needed 
remediation. For instance, our Ballast Water Treatment Facility needed 
upgrades to the control system in order to continue to process ballast 
from the tankers that call on Port Valdez. We also included a review of 
our infrastructure providers, such as utility companies, and are 
working to minimize the degree of disruption that they can cause 
Alyeska.
    In 1999, we have devoted our efforts to finalizing remediation and 
testing by the end of June. A few systems will require additional work 
into the third quarter, and our business contingency planning will be 
complete by the end of November.
    We learned that our main concern should be on systems that we 
installed in the past ten years, and that is where we began focusing 
our effort. We think in terms of mission and business critical 
functions--those functions that must be able to perform with the start 
of the new year.
    Our team consists of 70 people devoted exclusively to the Y2K 
issue. They, in turn, are supported by many of the 900 Alyeska 
employees who work on TAPS. We have teams in operations and engineering 
to ensure that the crude oil continues to flow. Other support teams are 
working on issues like safety, security and environmental protection. 
We are also actively sharing information and lessons learned with our 
owner companies.
    We estimate that the final Y2K cost for TAPS will be in the $30 
million range. It is money well-spent to provide assurance to the 
country that we are in a good position today because we have dedicated 
the necessary resources to responding to this problem.
    Alyeska's Y2K Program
    Alyeska decided early in the planning process that in order to 
ensure our success we would follow the industry standard methodology. 
Therefore, the program I'm about to describe is similar to that of 
other pipeline and oil facilities. It involves three major steps:
      Assessment of the system, which includes taking inventory 
and evaluating what remediation is necessary.
      Remediation or replacement, which includes testing the 
fixes and changes that have been made.
      Contingency Planning, which will further reduce the risk 
of a problem.
    Assessment
    At Alyeska Pipeline, our initial assessment was thorough and 
complete. Every system of the pipeline, terminal and our tanker escort 
system was analyzed to determine the work that was necessary to ensure 
safe, reliable oil flow. As we have remediated, we continue to re-
assess our earlier assumptions and findings. And we have found that we 
have done the right work at the right time. Some of the larger systems 
we've addressed include:
      Communication and Control Systems, which include our 
Operations Control Center in Valdez and our communications with remote 
gate valves.
      Mainline Turbines and Pumps that keep the oil flowing.
      Leak Detection System, which helps us determine if there 
is a leak in the system.
    Remediation
    Like many others in the oil industry, Alyeska has complex, inter-
related systems that require detailed remediation. Our remediation 
efforts have included everything from re-coding of software to address 
the double zero date, to changes in hardware such as the programmable 
logic controllers that monitor security at four critical river 
crossings. As the Y2K Team replaces one system or device, the inter-
dependent systems related to that device have to be re-tested. With 
each fix we make, we look up and down that system to ensure overall 
success. We only consider remediation complete when we have completed 
testing of the fix and the inter-related systems.
    You will find it reassuring to know that over 90% of our mission-
critical system work will be complete by June 30, 1999. Our business-
critical systems, such as our payroll system, will be complete by 
September 30, 1999.
    Contingency Planning
    Our efforts are now focusing on completing our contingency 
planning, which is an essential step in the Y2K preparation effort. 
This planning will minimize the risk in the event that we do experience 
Y2K failures in our mission and business critical systems. We are 
working in three major areas:
      Assessment of individual operational assets and support 
groups.
      Evaluation of company-wide operations, business functions 
and key vendors.
      Development of mutual understanding and agreements with 
external stakeholders and third parties on how to respond and recover 
from Y2K failures. For example, we are working with the oil producers 
on the North Slope, the shipping companies that operate tankers in 
Prince William Sound, our regulators, such as the U.S. Coast Guard, and 
our critical vendors.
    Our plan will assure continuity in our operation and address any 
possible failures. For instance, we may stage individuals at areas of 
high risk along the pipeline system where they will be able to manually 
operate key systems. We are mobilizing our Incident Command System, 
which is a well-oiled team of people who handle emergencies along the 
pipeline system. Key Alyeska leadership will be on site and prepared to 
respond as many around the world are celebrating the new century. 
Alyeska Pipeline, as operator of the Trans Alaska Pipeline System, will 
be ready to assure the flow of oil from the North Slope of Alaska to 
Valdez and the lower 48.
    Domestic Pipeline Readiness
    I'd like to say a few words about the other pipelines across this 
nation that are critical links in our domestic energy supply. As a 
member of the Association of Oil Pipe Lines (AOPL), I can assure you 
that the companies who operate the vast network of pipelines across 
this nation are ready for the Year 2000. AOPL is a trade association of 
common carrier oil pipelines whose members transport over 80 percent of 
the crude oil and petroleum products that travel by pipeline in the 
United States. We have coordinated our effort to ensure success to all 
sectors of the pipeline industry. Our approach has been three-fold:
      Senior level sponsorship and commitment that ensures 
commitment at all levels in the organization.
      Business ownership and accountability, from the top down 
through all the functional areas, including the information systems 
experts.
      Tight management within the corporate environment using 
normal business processes.
    The pipeline industry has relied on alliances to address the Y2K 
problem. For instance, AOPL has held workshops each year for the past 
three years to educate and share information about Y2K efforts. As a 
member of the American Petroleum Institute, the trade association that 
represents 400 oil and gas companies, I am aware of the Y2K task force 
that has been in place since 1997 to assist the industry. This sharing 
of information allows each one of us to educate others about the 
lessons we have learned as we remediate and test our systems. As an 
industry, we have replaced equipment, rewritten computer programs, 
tested components of our system and developed contingency plans so that 
we are prepared.
    AOPL has been conducting surveys of the industry to determine if 
concern exists as we move toward the end of the year. These can be 
categorized in three areas:
      Vendor issues, such as concern over software and system 
certification.
      Resource issues, such as a lack of people and funding.
      Supply chain issues, such as the readiness of customers 
and suppliers.
    These three issues lead me to make this final point about the 
industry in general--We can ensure that we are prepared, and we can ask 
others to prepare as well, but in the end a small risk exists. Let me 
assure you that in the unlikely event that a problem occurs, the 
pipeline industry is ready, willing and able to handle it.
    CONCLUSION
    In closing, I want to state again that Alyeska Pipeline has 
anticipated the problem, remediated the problem and we are prepared. We 
have engaged highly talented people and have allocated the necessary 
resources to tackle the Y2K challenge. I can assure you that we are 
taking the necessary steps to have the Trans Alaska Pipeline System 
ready for the transition into the year 2000. When the cold and darkness 
of December has settled on Alaska, at Alyeska we will be warm and 
confident in our ability to handle the final crisis of the century.
                               __________

           Responses of Bob Malone to Questions Submitted by

                            Chairman Bennett

    Question 1. What degree of confidence do you have in the ability of 
local supplier utilities to Alyeska to be up and running in the Year 
2000? And what does this mean for other Alaskans who may be in need of 
the services of those utilities?
    Answer. We have carried out a detailed evaluation of all our 
mission and business critical utility providers. Based on the 
information we have obtained on them through correspondence, telephone 
conversations, research on the Web and other public sources, we have 
established an acceptable level of confidence that they will be Y2K 
Ready. Not withstanding their commitment and efforts to become Y2K 
ready, we are in the process of developing contingency plans that 
assume some level of failure and disruption to their services. Where 
appropriate we will develop joint contingency plans with utility 
providers. With respect to power supplies and communication systems, we 
have adequate independent back up systems that mitigate most utility 
failures.
    Question 2. What effect could the failure of any governmental 
systems upon which you rely have on your readiness for the year 2000?
    Answer. Failure of some governmental systems could have a serious 
impact on Alyeska. Our primary area of concern is with the Coast Guard 
who are in the process of completing Y2K evaluations, remediations and 
replacements of navigation and communications equipment in Prince 
William Sound. Their failure to be Y2K Ready could seriously impact the 
safe movement of oil tankers entering and leaving Prince William Sound.
    Other governmental failures that could impact Alyeska include 
systems used by Federal and State agencies in the Joint Pipeline Office 
(JPO) that provides oversight of the Pipeline. These agencies, 
including the Department of Transportation, are responsible for issuing 
permits and other notices to Alyeska for regulated activities. Our 
internal contingency planning efforts include developing joint plans 
with the JPO to ensure emergency response and recovery work can be 
carried out without unnecessary delay. The failure of any emergency 
services (911), emergency response organizations and other governmental 
groups involved in Mutual Aid services pose some risk to Alyeska and 
the Alaskan community as a whole.
    Question 3. Have you hired an IV & V contractor?
    Answer. Alyeska has chosen not to employ an Independent Validation 
& Verification (IV&V) contractor to review its Y2K work. Alyeska's Y2K 
program incorporates the checks and balances of external review through 
its resourcing strategy for its Y2K Team and its regular interactions 
with the Pipeline Owners. It is normally only beneficial to consider 
using a IV&V contractor when a Y2K program is internally driven by 
employees both during the development and implementation phases of the 
work. Alyeska took a different approach by developing and implementing 
its Y2K program using multiple external contractors engaged in Y2K work 
programs with other major oil companies. This enabled us to learn from 
others mistakes and ensured that the methodology we adopted was well 
proven across industry. Our Y2K implementation team had a peak of 70 
full time staff who predominantly came from specialized contracting 
organizations supporting Alyeska's business. We also adopted a 
philosophy of peer review with our Owner Companies and have actively 
exchanged information and experiences during each phase of our program.
    Our Contingency Planning program has been implemented a little 
differently. It is essential that the process of Contingency Planning 
is owned and implemented by our internal organization because they 
fully understand our operational, technical and business functions. 
However, we are using limited external resources to help develop, 
manage and coordinate our program, and to help facilitate resolution of 
issues that cut across asset boundaries.
    Question 4. Are there any plans for end-to-end testing either 
within your system or across system lines?
    Answer. Whenever possible, we are conducting end to end testing of 
complete systems including the full integration testing of applications 
on our enterprise server. Often it is technically difficult, or 
impossible to conduct date roll over tests on controls systems that do 
not have a master clock to input a date change. We have a team of 
engineers devoted to conducting system integration and interface tests. 
They are specifically targeting systems that have distinct interfaces 
between different technologies such as the hardware and software found 
at interfaces between traditional IT and controls systems.
    Question 5. On page 5 of your testimony, you state that ``the vast 
network of pipelines across this nation are currently ready for the 
Year 2000.'' Does that mean they are currently ready or that you are 
confident that they will be ready? What empirical information can you 
provide the committee that supports your view of the industry's 
condition?
    Answer. Based on recently compiled industry survey information, oil 
pipelines have generally completed testing and remediation of Year 2000 
related problems on their systems and are focusing on their contingency 
plans and coordination with their suppliers and customers. The industry 
survey indicates that pipelines--both oil and gas--will be ready for 
2000 well before the end of the year. Pipelines are, in fact, in the 
final stages of their Y2K readiness programs for all phases of their 
operations. They are also making sure that infrastructure providers, 
such as telecommunications and electric power, will also be ready on 
January 1. While the interdependencies with telecommunications and 
power suppliers could potentially cause problems, redundant computer 
systems and communications paths permit simulation and testing.
    Question 6. Could you provide the Association of Oil Pipe Lines' 
surveys for the record of this hearing?
    Answer. The oil industry Year 2000 Readiness surveys are not in the 
possession of Alyeska Service Company nor is Alyeska privy to the 
individual survey information. The oil pipeline industry surveys were 
collected and assimilated by the American Petroleum Institute as part 
of its cooperative effort with the President's Council on Year 2000 
Compliance to assess oil industry preparedness. Each oil company, 
including pipelines, submits the survey information to API on a 
confidential basis. We understand that once the survey information is 
assimilated into the API database, the individual surveys are not 
retained.
                               __________

          Prepared Statement of Rear Admiral George N. Naccara



    Good afternoon, Mr. Chairman and distinguished members of the 
Committee. I am Rear Admiral George Naccara, the Coast Guard's Chief 
Information Officer. I have responsibility for the Coast Guard's Year 
2000 (Y2K) project.
    The Coast Guard is certainly aware of the potential for disruption 
posed by the so-called millennium bug, both to Coast Guard readiness 
and to all segments of the marine transportation system (MTS). The 
Coast Guard is working diligently to ensure its own information 
technology systems are prepared for the millennium, since an important 
component of the Y2K readiness of our domestic ports will be the 
readiness of the Coast Guard to respond to any disruptions that may 
occur. Our motto is ``Semper Paratus''--Always Ready--and therefore, we 
must similarly ensure that the systems and equipment with which we 
deliver our marine safety, environmental protection, search and rescue, 
and maritime law enforcement services to the public are also ready.
    We are also keenly interested in the Y2K readiness of the industry 
we regulate. We have been working intensely since our first Y2K 
Conference with the Maritime Association of the Port of New York/New 
Jersey in February 1998 to alert all segments of the MTS industry to 
the threat of Y2K. I will address a number of the awareness-building 
measures we have taken specifically a bit later. Concurrent with our 
awareness-building initiatives, we have focused our attention on 
assessing the Y2K readiness of the MTS, both ships and ports, domestic 
and international.
    Needless to say, the companies that transport, store, refine, and 
pump oil play a prominent role in both these realms. To gain a better 
understanding of their readiness, we have engaged with a number of them 
directly, and in some cases through their representative trade 
associations. We have shared the podium at a number of conferences with 
several of them, including organizations represented here at this 
table. What we have learned from them is that, as in other industries, 
larger and well-resourced companies take Y2K very seriously, have 
robust Y2K projects in place, and expect to be ready for the 
millennium. In particular, large, horizontally integrated oil companies 
have demonstrated very comprehensive Y2K projects, including thorough 
contingency planning. In a recent Lloyds of London Press survey of 
about 4,500 shipowners/operators and port authorities/operators 
resident in 40 countries, 80-90 percent reported awareness of the Y2K 
problem; 50 percent expected to be Y2K-ready by the end of the second 
quarter of 1999, with the balance ready by the end of the year.
    While this news appears to be good, in a fragmented industry it is 
very difficult to assess whether progress is meeting projections, and 
whether optimism is justified. Significant unknowns remain--the degree 
to which the embedded chip problem on ships will cause disruptions, for 
example. At a conference sponsored by the International Energy Agency 
which I attended in Caracas, Venezuela, I heard troubling assessments 
of the Y2K readiness of other parts of the infrastructure that support 
ports and facilities in Central and South America, such as power and 
communications. Since Venezuela is the largest supplier of foreign oil 
to the United States, I take these concerns seriously, and they lead me 
to conclude that we must continue to push all stakeholders in the MTS 
to continue working, testing, and contingency planning.
    I mentioned that the Coast Guard and others are taking measures to 
help prepare the industry for the Year 2000. These measures include the 
following:
      An aggressive Coast Guard Y2K awareness campaign, which 
has included conferences and industry sessions on three coasts, the 
Great Lakes, and the inland rivers; and the distribution of over 50,000 
Y2K brochures, which contain information, Web sites, and an (800) 
number, to ships calling at U.S. ports. Also, I have attended a large 
number of speaking engagements in both domestic and international 
locations. These efforts are ongoing; in fact I was to have addressed 
the National Association of Waterfront Employers in Bermuda this 
morning--this has been rescheduled to tomorrow morning.
      A Coast Guard study of the best Y2K readiness practices 
in the 48 major inland and coastal ports in the United States. These 
practices will be shared widely among all the Coast Guard Captains of 
the Port, as well as with MTS stakeholders around the country. The 
study includes a highly flexible risk assessment matrix that the Coast 
Guard and MTS stakeholders can use to assess their own or their 
partners' Y2K readiness.
      A speech I presented on the international MTS to 120 
national Y2K coordinators at a Y2K session at the United Nations (UN) 
on December 11, 1998. Among other issues, the speech directed 
delegates' attention to the vulnerability of the international oil 
transport industry to Y2K disruptions. This speech led to the Coast 
Guard being asked by Mr. Koskinen and Ambassador Kamal of the UN to 
lead an international effort to address the Y2K readiness of the global 
MTS. The result was a March 3-4 meeting of 16 international MTS trade 
associations at the headquarters of the International Maritime 
Organization (IMO) in London, jointly sponsored by the U.S. Coast Guard 
and the UK Maritime and Coastguard Agency. In preparation for the 
meeting, representatives from nine of the trade associations, including 
Intertanko (which represents 75 percent of the world's independent 
tankship operators), met and drafted a Year 2000 Code of Good Practice 
for the MTS. After modifications by the meeting attendees (including 
very essential contingency planning guidance and a list of ship and 
port-critical systems that I urged them to add), the Code was issued 
immediately by the IMO as IMO Circular 2121. It is the intent of the 
Coast Guard and the IMO that the document will become the basis for Y2K 
information exchange, assessment, risk management, and enforcement 
policies by ships and ports worldwide. It must form the template for 
flag state and port state enforcement efforts to ensure consistency 
among nations.
      The May 1999 meeting of the Maritime Safety Committee of 
the IMO will focus on IMO Circular 2121, and its implementation 
worldwide as the standard for Y2K risk assessment and enforcement. It 
should be noted that both the IMO and the U.S. Coast Guard are urging 
cooperation on the adoption of the IMO Code, but have no power to 
enforce its adoption internationally, as we are dealing with sovereign 
states and a large percentage of foreign flag vessels.
      One June 21 and 22 there will be another meeting at the 
United Nations of the national Y2K coordinators, with a focus on all 
segments of the world economy, including in the Y2K readiness of the 
international MTS. At that meeting, the Coast Guard will not only urge 
worldwide acceptance of the IMO document as the basis for Y2K policy by 
port state control states, but will also distribute its own Y2K 
enforcement policy and the Port Operations Y2K Guidelines. The 
guidelines, which include the risk assessment matrix, will go hand-in-
hand with the IMO Code to assist states to address their ships' and 
ports' Y2K readiness.
      The Coast Guard is providing a representative to several 
international forums on a range of Y2K issues, including an Asian 
Pacific Economic Cooperation (APEC) symposium in Singapore, an 
International Telecommunications Union (ITU) global cross-sector 
meeting in Geneva, an African regional Y2K conference, the second South 
American Y2K forum here in Washington, D.C., and an International 
Energy Agency-sponsored Middle East/Africa oil seminar in Abu Dhabi, 
United Arab Emirates.
    I have been asked to offer an assessment of areas around the world 
where Y2K problems may impede the steady production and transport of 
oil. Clearly, others seated here at the table are better qualified to 
address the issue of production. Regarding transport, let me make two 
points:
      The Gartner Group and the Department of State have both 
published unclassified regional and economic sector assessments of 
international Y2K readiness. The CIA has also done some assessment 
studies, which are classified. These studies permit some inferences as 
to what regional Y2K impacts on the MTS might be, with the caveat that 
the MTS is a global industry in which the readiness of MTS companies is 
not always the same as that of the countries in which they do business. 
I will not attempt to review these regional findings here, as they are 
readily available. Nevertheless, I want to stress that the oil 
transport companies will be subject both to the uncertainties of the 
embedded chip problem on ships and in ports, and to a range of 
potential disruptions in the interlinkages of the industry with supply 
chains and supporting infrastructures.
      Despite these cautions, the Coast Guard is actively 
trying to improve its data on the international readiness of the MTS. 
We are currently partnering with the United States Transportation 
Command in a data gathering effort on the Y2K readiness of over 50 key 
international ports and critical choke points. We hope to have 
considerable data on these ports collected and analyzed by summer, 
which will give us a reasonable picture of global readiness in the MTS. 
This will allow time to take corrective measures, or further develop 
contingency plans.
    I have been invited to comment on actions the Congress or others 
should take to address Y2K issues impacting the importation of foreign 
oil. It would seem prudent for Members of Congress to join with all 
those concerned about fuel supplies in taking a message of caution to 
the American public, caution against hoarding petroleum products, or 
topping-off tanks a day or two before the century change, as we 
understand that that act alone, repeated nationwide, could lead to 
shortages. To assist the Coast Guard in its preparations for Y2K, I 
would also appeal for mindfulness regarding the tremendous amount of 
information being requested from us on a near-daily basis.
    Thank you for the opportunity to appear before you today. I will be 
happy to answer any questions you may have.
                               __________

 Responses of Rear Admiral George N. Naccara to Questions Submitted by

                            Chairman Bennett

                         Y2K ENFORCEMENT POLICY

    Question 1. You stated that the Coast Guard will disseminate its 
Y2K enforcement policy this coming June at the United Nations Y2K 
coordinators meeting. It's good to hear that the Coast Guard will put 
out a definite policy on this topic. Are similar policies being issued 
to your knowledge elsewhere in the world? If so, are there emerging 
problems with policy differences that may interfere with shipping? If 
there aren't any such policies, what is that telling us about the 
preparations at foreign ports?
    Answer. The U.S. Coast Guard and the United Kingdom Maritime and 
Coastguard Agency co-hosted a meeting of 16 international maritime 
trade associations at the Headquarters of the International Maritime 
Organization (IMO) in London on March 3 and 4, 1999. The meeting 
produced a Year 2000 Code of Good Practice for the Marine 
Transportation System (MTS) that was promptly issued by the IMO as IMO 
Circular Letter 2121. The Code contains questionnaires for the exchange 
of Y2K readiness information between ships, ports, and terminals, as 
well as contingency planning guidance, and lists of critical systems 
for ships and ports. The intent of the U.S. Coast Guard and the other 
participants at the meeting is that the Code will become the basis for 
a consistent international approach to vessel entry and risk assessment 
during critical Y2K periods. The U.S. Coast Guard enforcement policy to 
be issued by the end of June, and published shortly thereafter in the 
Federal Register, will be closely aligned with the IMO document. We 
have been encouraged to hear that the Canadians will closely align 
their policy with the IMO document, and the Australian government has 
actually retracted earlier policy pronouncements and reissued their 
maritime Y2K policy, closely aligning with the IMO document. We do not 
have a complete list of other nations' policies at this time, but we 
anticipate that most, if not all, maritime nations will follow suit. To 
further this trend and offer practical guidance in the implementation 
of the IMO document, the U.S. Coast Guard exercised its approach with 
some commercial shipping lines and the Port of Los Angeles/Long Beach 
on June 14 and 15, 1999. The results will be compiled into a 
``template'' to be distributed to national Y2K coordinators at the 
United Nations on June 23, 1999.

                     LLOYD'S OF LONDON PRESS SURVEY

    Question 2. You referred to the Lloyd's of London Press survey of 
4,500 ship owners and operators. As you are well aware, there haven't 
been many incidents in the past of false reporting and mis-
certification in the maritime industry. It has often been that 
certification was available for a fixed fee and incidents have occurred 
with property loss and environmental damage. You said yourself that 
this is a fragmented industry that is difficult to assess. How much 
confidence should we put in this survey? Is there any way to check or 
verify even a sample of the results? Do you have suggestions in this 
regard?
    Answer. The value of such surveys may be limited. We have learned 
that legal and public relations concerns have diluted the value of 
self-reported Y2K readiness information. Nevertheless, we do feel that 
the Lloyd's survey (and others conducted by industry associations like 
the International Chamber of Shipping (ICS) and the American 
Associations of Port Authorities (AAPA)) reflects that the majority of 
the industry is seriously addressing the Y2K problem. Our many contacts 
with major companies and trade associations in the industry confirm 
this. Though the responses tell us less about small and medium size 
companies, we recognize that size is not automatically a factor in how 
seriously the Y2K issue is being addressed. The U.S. Coast Guard cannot 
directly validate the survey results. However, the U.S. Coast Guard is 
continuing to collect data about the readiness of U.S. ports and 
companies, as well as the major stakeholders in the ports. Further, we 
are gathering information available from other government sources about 
the readiness of the global industry.

                 ASSESSMENT OF KEY INTERNATIONAL PORTS

    Question 3. You mentioned that the Coast Guard and the U.S. 
Transportation Command are assessing the readiness of 50 key 
international ports and expect the analysis to be done this summer. 
This will allow time to take corrective action and develop contingency 
plans. Would you please describe typical corrections that could be 
taken with regard to a foreign port? Also, what would be contained in a 
business continuity and contingency plan such as you referred to? Is 
there enough time remaining to accomplish this?
    Answer. There is little the United States or the U.S. Coast Guard 
can do to directly correct Y2K problems in foreign ports. However, we 
have been working with other key stakeholders in the international 
Marine Transportation System (MTS) to achieve a cooperative approach to 
making a global industry Y2K-ready. Our program to assist foreign ports 
has three major components:
    Outreach. Planned speaking engagements, both in this country and 
abroad, to international organizations, such as the International 
Energy Agency, the American Association of Port Authorities, and the 
Western Hemispheric Transportation Sector Regional Work Group. These 
presentations will strongly urge all MTS stakeholders to continue 
preparing their own technology for Y2K and to work with other 
stakeholders in all ports, domestic and international, toward a maximum 
state of readiness for potential Y2K disruptions.
    Establishment of an international standard for ship/port 
communications and Y2K risk assessment. This important initiative 
culminated in the Year 2000 Code of Good Practice, International 
Maritime Organization (IMO) Circular 2121. Issuance of this document by 
IMO to the member nations will raise the visibility of the Y2K and 
contribute greatly to a balanced, consistent approach to the 
communications, risk assessment, and contingency planning needed on the 
part of all maritime nations to minimize disruptions to global MTS 
commerce.
    Contingency Planning. Effective contingency planning is a strong 
and constant theme in U.S. Coast Guard presentations, as well as in 
virtually all presentations given by other organizations at 
international meetings on Y2K. Effective contingency planning is needed 
as the most effective antidote to foreseeable disruptions in the MTS 
due toY2K. The U.S. Coast Guard has continued to advocate strongly for 
a focus on contingency planning in all public statements about Y2K, and 
in most of its published Y2K materials.
    The above program components represent ongoing corrective measures 
that apply to the entire international MTS. If assessment information 
on international ports reveals particularly insufficient progress in 
Y2K preparations in some country, affecting the readiness of their 
ports, action can be taken to assist them. Numerous organizations, 
ranging from the State Department, to the World Bank, to the 
international MTS trade associations, to the U.S. Coast Guard, can 
assist with professional advice, model contingency plans, risk 
assessment tools, even financial assistance to help them with their 
preparations, which at this late date will be primarily focused on 
contingency planning.
    It is unrealistic to give an adequate description of such a 
Business Continuity and Contingency Plan (BCCP). However, the U.S. 
Coast Guard has now submitted its own BCCP to the Department of 
Transportation. Though the document is U.S. Coast Guard specific, much 
of the information, particularly the planning principles and 
assumptions, has universal application.
    Clearly, there is time enough remaining to accomplish BCCP planning 
and to design plans that will ensure the continuity of core business 
functions of any organization in some manner.

                    Y2K PROJECTS FOR SMALL COMPANIES

    Question 4. You mentioned that ``large and well-resourced companies 
take Y2K very seriously, have robust Y2K projects in place, and expect 
to be ready for the millennium.'' What about smaller and less-resourced 
companies? Even if they are not critical to the supply of oil, they 
certainly can do a lot of damage when they have an accident.
    Answer. The international Marine Transportation System is a 
tremendously interlinked industry and we acknowledge that very small 
participants can play pivotal roles. Failure of a small supplier to a 
pipeline company might conceivably halt operations of a pipeline, which 
in turn could back up tankships in a port. And, of course, a small 
petroleum company could have a serious spill. To date, we have only 
anecdotal information about smaller companies and this limited 
information reveals that some companies have made serious efforts to 
address their Y2K issues, while others have adopted a ``fix on 
failure'' approach. For this reason, the U.S. Coast Guard has:
    a. Urged companies individually to communicate with their key 
business partners, large and small, not only to ensure that they are 
making serious preparations for Y2K, but to ensure that their own 
contingency plans provide for alternative methods of obtaining the 
services that these partners provide, should they become unavailable.
    b. Directed Captains of the Port to foster the formation of local 
and regional Y2K readiness committees, made up of key stakeholders, who 
will work together for the overall Y2K readiness of the port.
    c. Directed Captains of the Port to assess the Y2K readiness of 
companies doing business in their port zone. Should they determine that 
any company, large or small, appears to have made insufficient 
preparations for Y2K and may present a risk to the environment, they 
will assess this risk using the U.S. Coast Guard Y2K risk assessment 
matrix. If necessary, they may then take appropriate measures to have 
the problem corrected, or place limitations on the operations of the 
company.
                               __________

                Prepared Statement of William C. Ramsay

    Introduction

    Mr. Chairman, thank you for the opportunity to speak before this 
Committee about the implications of the year 2000 problem for the 
international oil industry.

    The Paris-based International Energy Agency (IEA) is an 
intergovernmental body within the framework of the Organization for 
Economic Cooperation and Development (OECD). It carries out a 
comprehensive program of energy security and policy cooperation among 
its twenty-four member countries, which include the United States, 
Canada, Japan and the countries of the European Union. I am the 
Director of the Office of non-Member Countries, which handles relations 
with non-OECD countries, especially those large energy producers and 
consumers that can have an impact on the world oil market and thus on 
the energy security of our members.

    In October 1998 our member countries gave the IEA Secretariat a 
mandate to examine the possible impacts of the year 2000 problem on the 
oil industry and the implications for the energy security of IEA member 
countries. (Most IEA member countries are net oil importers.) The US 
Department of Energy can be credited to a large degree for encouraging 
the IEA's increased effort on Y2K, both substantially and financially. 
The government of Japan has provided additional financial support.

    I will first describe the IEA project, then cover what we have 
learned from it so far.

    Awareness Raising and Information Gathering

    The IEA year 2000 project in the oil sector has two main 
components: 1) awareness raising, and 2) information gathering

    The IEA is pursuing the ``awareness raising'' component by 
organizing a series of seminars in several of the world's most 
important oil producing and refining regions. The seminars bring 
together year-2000 coordinators and other officials from governments, 
oil companies and the infrastructure providers on which the industry 
depends (such as electricity grids, pipelines, the shipping industry 
and ports), with the aim of raising awareness of the problem and 
facilitating the sharing of information, experience and ideas about 
solutions. Both remediation and contingency planning are covered, 
though there is an emphasis on the latter.

    We have made a special effort to include the large state-owned oil 
companies from developing countries--which account for a large part of 
the world's oil production--while participation by the major 
international oil companies helps promote a cross-fertilization of 
experience and ideas.

    By raising awareness and providing a forum for the exchange of 
information, the IEA hopes to prevent at least some possible oil market 
bottlenecks related to the year 2000 problem.

      The first seminar was held for the Latin America region 
on 11-12 March in Caracas, Venezuela. It was attended by 
representatives from about a dozen countries, including a broad range 
of Venezuelan state and joint venture producers. The meeting was co-
hosted by the Venezuelan state oil company, PDVSA.

      The seminar for the Asia-Pacific region took place on 25-
26 March in Singapore. It was also attended by representatives of about 
a dozen countries and was held with some assistance from ASCOPE, the 
ASEAN organization of state oil companies.

      The third seminar, which will cover the Middle East/
Africa region, is scheduled to take place on 4-5 May in Abu Dhabi, and 
will be co-hosted by the Emirates Center for Strategic Studies and 
Research.

      We are examining the possibility of holding a fourth 
seminar for Europe and the former Soviet Union.

    The second aspect of the IEA's project is information gathering and 
source identification. This is facilitated significantly by the 
seminars, which bring together some of the major players on the 
international oil market.

    The objective of our information gathering activity is to be in a 
position to advise our member governments what action, if any, 
collective or individual, they should take in response to the possible 
threat posed by the year 2000 problem in the oil sector.

    In order to draw conclusions about the possible effects of the year 
2000 problem in the oil sector, we have been trying to develop an 
aggregate picture of the situation. Too few people are looking at the 
cumulative effect of small probability events across sectors on 
collective activities. This is probably because everyone, 
understandably, is more concerned about their own micro-situation; and 
to the extent that they look beyond this, it is generally only to 
suppliers and infrastructure providers upon which they directly depend. 
However, it is the aggregate result that will effect the oil market. 
Thus the IEA, which is mandated by its members to look after energy 
security, may have a unique role to play in trying to develop an 
appreciation for this aggregate picture.

    Drawing a macro picture requires piecing together the various micro 
pictures along the supply chain and across companies and regions. This 
is extremely difficult because the micro information is scarce and very 
often unreliable. We have found that many of our target companies are 
reluctant to share a lot of meaningful information because many of them 
are concerned about the legal and commercial implications of doing so, 
or about their national image of reliability. Nevertheless, after two 
seminars and discussions with various participants in the oil industry 
and in the support industries on which it depends, we have come to some 
preliminary conclusions, which we plan to refine over the next few 
months.

    Preliminary Conclusions

    - As in other industries, Y2K is not just an IT problem. For one 
thing, in the technologically advanced oil industry, it is less of a 
computer problem than one of microchips embedded in industrial 
equipment used for production, transportation, monitoring and control. 
And since there are so many chips (a typical oil platform has 10,000), 
companies must make a business decision on how much effort to put into 
remediation and then to prioritize their search and replacement 
activities based on the criticality of systems to the supply chain. As 
in other industries, this means Y2K is a management problem.

    - The good news is that, after exhaustive testing, a number of oil 
companies say they have found fewer problems at critical points than 
anticipated. But it still takes as much effort to find one critical 
problem as it does to find 10. Fortunately, less advanced companies can 
learn from the experience of companies that are farther ahead. The 
American Petroleum Institute (API) maintains a data base of equipment 
its members have found to be Y2K compliant and non-compliant. We would 
encourage the API in its recent efforts to provide access to this data 
base to non-API members. This could help some companies save a 
considerable amount of time re-checking components already tested by 
the major international companies. Even if companies do not have time 
or resources to replace many of the defective components identified, 
they can at least have a better idea about where problems are likely to 
occur, and this could aid them in their contingency planning.

    - Low oil prices have been a particular burden for oil companies. 
Although we do not have evidence that this has caused firms to cut Y2K 
budgets, there is reason to believe there will be pressure to spend 
less.

    - As a general rule, the state oil companies--especially those in 
developing countries--probably lag the majors in addressing the 
problem. A number have openly stated to us that they only began 
seriously looking at the problem around mid-1998, while most majors 
started some two years earlier. However, the largest state-owned 
companies, which supply most of the oil imported by the US, generally 
started somewhat earlier and appear to be more advanced. Contacts with 
Saudi Aramco and PDVSA in particular lead us to believe that these key 
suppliers to the US market take their preparations quite seriously. 
Obviously, many oil producing countries outside the OECD rely so 
heavily on oil for their national revenue that they have considerable 
incentive to look after their industry. Although most governments 
understand this imperative, it is not yet clear to us whether all are 
taking or are capable of taking the necessary action.

    - Most oil companies probably have a fair chance of handling the 
major Y2K problems in their own organizations. This is because oil 
companies are used to contingency planning, especially in the third 
world. Moreover, some of the less advanced state-owned oil companies 
are less dependent upon technology prone to year 2000 problems.

    - Similar to the situation in other industries, what could be a 
greater threat to the oil industry is breakdown in infrastructure 
outside oil companies' control, for example, in electricity grids, 
telecommunications and shipping. Such service infrastructure risks are 
probably more pronounced in less developed countries, though as stated 
before, are mitigated somewhat by less dependence upon Y2K-prone 
technology and greater experience in contingency planning from having 
to deal with it on more of a daily basis. There is also some concern 
about the large amount of ``outsourcing'' for various services, which 
has increased in recent years. Many oil service companies are small or 
medium-sized enterprises, and it is generally believed that SMEs are 
more likely to lag large companies in Y2K preparations.

    - Oil companies have learned from Y2K gaming exercises that a few 
minor glitches can compound to create bottlenecks, and that what starts 
as a minor Y2K glitch can cascade into conventional failures. Moreover, 
the likelihood of this happening is aggravated by the fact that such 
glitches could occur simultaneously. Flexibility in contingency plans 
will be crucial. Although one may never face the situation simulated, 
simulation exercises undoubtably make contingency plans and teams more 
flexible. Unfortunately, it appears that only some of the majors are 
now at the point in their Y2K programs of engaging in simulation 
exercises.

    - The duration of any overall disturbance is unclear. Though 
fortunately, unlike the electricity sector, the oil industry does not 
operate in ``real time'', and therefore has some margin to bring things 
back to speed. One of the reasons for this is that there is generally a 
large amount of oil in storage and en route, and there is currently a 
fair amount of surge capacity among producers. According to some 
experts we have talked to, knock-on effects of Y2K in the oil industry 
could last into Q2 as problems compound down the supply chain over 
time. Although such problems are likely to be mostly in the area of 
delayed shipment and payment problems, they could still affect oil 
supplies and markets.

    - The oil market effect of Y2K is uncertain, especially since Y2K 
effects on the world economy could lower energy demand. However, the 
oil market actually acts upon the expectation of supply and demand. 
This means that any nervousness in oil markets about the availability 
of oil due to year 2000 problems could lead to an increase in demand in 
the run up to the year 2000 because of stock building, including down 
to ordinary citizens filling jerry cans with gasoline.

    I might add that IEA governments, with the participation of a 
number of oil companies, are planning a test of their emergency 
response mechanism, simulating a response to possible Y2K-related 
disruptions. We are now planning such scenarios.

    The IEA will be refining its conclusions over the course of the 
year and provide updates to its member countries.

    We cannot speculate at this time on whether there is anything the 
IEA might do collectively, for instance, in an effort to calm markets 
or respond to supply disruptions. Our concern is that, unless carefully 
orchestrated, any such efforts can just as easily have the opposite 
effect on market attitudes if our preparations are read as a clear 
indication that there is a serious problem, perhaps perversely 
stimulating consumer disquiet. It may well be that national level 
public information would be more effective in this case. IEA Members 
will consider what measure might be appropriate either collectively or 
individually. As a first step, Ministers of energy from the 24-member 
countries of the IEA will address Y2K issues at their bi-annual meeting 
in May.

    Our efforts over the next weeks will be directed at identifying how 
we might structure a fourth seminar to address the various operating 
entities in the oil sector of Eastern Europe and the former Soviet 
Union. As our efforts progress in looking for the weakest links in the 
oil supply chain, we are increasingly alert to non-oil ``real-time'' 
phenomena which could seriously impede energy delivery systems, such as 
electricity and gas. More of these considerations will figure in our 
fourth seminar.

    Finally, I would like to direct your attention to the IEA's web 
site, which contains pages on the year 2000 problem. These provide 
information on our seminars, IEA work on the year 2000 problem in the 
oil industry, and hyper-links to many relevant web sites dealing with 
this issue. The IEA's web pages on the year 2000 problem in the oil 
industry may be found at: http://www.iea.org/ieay2k/y2khome

    Thank you Mr. Chairman.
                               __________

        Responses of William C. Ramsay to Questions Submitted by

                            Chairman Bennett

    Question 1. You mentioned that the American Petroleum Institute 
(API) is maintaining a database of equipment that its members have 
found to be either Y2K Compliant or non-Compliant. You say the 
International Energy Agency is encouraging API to make this database 
available to non-members.
    Would you be more explicit about why you think this is not 
happening? Are there steps that can be taken by the Administration to 
open up this information? What steps could Congress take to make this 
information more available?
    Answer. .  .  . ``We would encourage the API in its recent efforts 
to provide this database on a more general basis beyond API members if 
they can .  .  .''
    The API operates a membership system that was in place before Y2K 
became an issue of general concern. We are aware that they have already 
made efforts to extend the availability of this database to non-
members, but they quote a fee of U.S. $6000 for the privilege. Free 
access or access subsidised by the Government would obviously widen the 
potential audience. The information would also be more generally 
accessible if it was not listed as a ``members only'' service and was 
given more prominence on the site.
    Question 2. I'm very concerned to hear that some of the state owned 
companies (especially in the developing countries) have only begun 
looking into the Y2K problem in mid 1998. This would seem to imply that 
they have little chance of completing remediation by December 31st of 
this year.
    Would you say this conclusion is correct? Are there actions that 
the U.N. or other international organizations should be taking that 
could help minimize the problems these countries will face? What about 
action on the part of the U.S. Government?
    Answer. .  .  . ``As a general rule, the state oil companies, 
especially those in developing countries, probably lag the majors in 
addressing the problem. However, the largest state oil companies which 
represent the supply most important to the United States started 
relatively earlier and appeared to be more advanced.  .  .''
    This is probably true. The state of readiness by December 31st 
depends on many factors unique to each company. The way in which they 
close to tackle the issue, the resources involved, the relative 
vulnerability of the company's systems and the local infrastructure 
will all contribute to the outcome. Offers of technical help and 
information sharing are key to resolving the issue within the 
timeframe. A practical offer of hands-on technical assistance/
consultancy advise would be more effective. In the limited time 
available direct assistance by their key customers is preferable to 
financial assistance which has little chance of filtering through 
bureaucracies in time.
    Question 3. I believe that you are quite correct in your statement 
that much can be learned about contingency plan credibility through 
simulations, drills, and exercises. It is unfortunate that more 
organizations than the major international oil companies are doing 
this.
    Can you suggest actions that can be taken by Governmental and 
industry organizations that would improve this situation quickly?
    Answer. .  .  . ``no relevant quote from Ambassador Ramsay is 
evident in the copy of the testimony received for review .  .  .''
    Companies are in many ways constrained by anti-trust concerns and 
see considerable risk of liability which causes their lawyers to 
recommend caution on public statements or on collaboration with others 
who might be party to a liability case at a later moment. If the 
Government wants to expedite remediation it must take rapid and 
positive action. Companies should not only be offered protection in law 
when sharing Y2K data, they should be encouraged to share it. (The API 
has recently made available a model for contingency planning in the oil 
industry).
    Question 4. The test of the IEA emergency response mechanism, 
``with the participation of a number of oil companies'', to simulate a 
response to Y2K-related disruptions sounds intriguing. This is the 
first time that the committee has heard of this exercise.
    Would you please provide more detail on what the response mechanism 
is and how it will operate? When will this test occur? How open and 
public will it be?
    Answer. The exercise, planned for late September will involve major 
oil companies as well as energy security experts from the IEA's 24 
Member governments. One element of the exercise will address the 
potential impact on world oil supply of computer problems in the first 
days and weeks of the year 2000--now widely known as the Y2K problem.
    The IEA, founded in the aftermath of the 1973-74 oil shock, is 
dedicated to maintaining worldwide security of energy supplies. To this 
end, the Agency maintains a wide range of response measures, including 
emergency oil stocks, sharing of oil among members and programmers to 
restrain demand.
    Over the past few months, the IEA has held seminars on Y2K in 
Caracas, Singapore, and Abu Dhabi. In these seminars oil producers, the 
energy industry, and Y2K experts have shared information and discussed 
preparations for the millennium rollover. A fourth such seminar will be 
held in Moscow in July. The Y2K element in September's simulation 
exercise will reflect lessons learned in these seminars.
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              ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

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                     Prepared Statement of Ken Gunn

    My name is Ken Gunn, President of Caliber Consulting. I was asked 
to provide a statement for the record on the Y2K activities and 
preparedness of the petroleum industry at the wholesale level of 
distribution. Before proceeding, I will briefly discuss my background 
and qualifications in addition to a summary of Y2K activities I have 
been involved in with the petroleum industry.
    Prior to starting my own consulting business, I was employed by 
Chevron Products Company in their marketing organization. I started 
work in their company owned and operated service stations. During the 
14 years I worked with Chevron Products Co., I moved through numerous 
assignments. In my last assignment as a wholesale coordinator I was 
responsible for the wholesale distributors, also commonly referred to 
as jobbers, for the geographic area of El Paso west through Southern 
California. The oversight covered contracts, marketing programs, 
product integrity and supply issues.
    My Y2K activities over the last 18 months have been directed 
towards supporting various petroleum and convenience store state 
associations in educating their membership on Y2K. I have done seminars 
and workshops for these associations in over 30 states. In addition to 
state association, I have provided support to the National Association 
of Convenience Stores, the Society of Independent Gasoline Marketers of 
America, the Oil Price Information Service and Conoco. The comments I 
will provide in this statement are based on my ``hands-on'' 
observations and discussions with wholesale distributors around the 
country.
    As industry background information, wholesale distributors are 
independent companies that typically have contracts with one or more 
supplier/refiner companies. In many cases they also have authority by 
contract to use the supplier/refiners trademark in the marketing of 
fuel products. Many convenience stores and service stations in the 
country receive fuel through wholesale distributors.
    The wholesale distributors market over 50% of gasoline, more than 
60% of diesel fuel and more than 90% of fuel oil sold in the United 
States. Clearly, they are a key component to the effective distribution 
of petroleum refined products in this country.
    During my sessions with distributors, I inquire of their Y2K status 
by asking whether someone in the company is assigned to Y2K, if they 
have a written plan, and if they have spent any money. Rarely do I get 
a response with more than 50% of the distributors indicating they have 
assigned someone to Y2K. There are even fewer responses indicating 
there is a written plan or that money has been spent.
    The lack of spending money is probably the most telling. Companies 
I have done on site Y2K engagements with generally have budgets ranging 
from $100,000 to $500,000 and networks of convenience stores ranging in 
numbers from 10 to 50. The dollars spent have been for company office 
business systems and store upgrades, such as software for point of sale 
terminals and the card readers at the pump islands.
    There are a number of reasons why Y2K activity is not at a higher 
level for wholesalers. The December 22, 1998 tank upgrade deadline had 
considerable resources applied to it last year for many wholesalers. 
Wholesalers are tending to wait before spending resources on Y2K 
because of the continued merger activity within the industry. In 
addition to mergers at the refiner level, considerable acquisition 
activity is happening at the wholesale level. Finally, I have had a 
limited number of people indicate they foresee Y2K as nothing but smoke 
and mirrors. They intend to wait until January to see what needs to be 
fixed.
    In general, some of my concerns and issues are as follows:
    1. I believe there will be some business disruptions at some 
wholesaler offices which will cause problems in day to day business 
activities. For example, during one on-site engagement, a wholesaler 
asked the vendor who sold them their computing system, software and 
hardware, if the system was Y2K compliant. They received a verbal 
response that it was. During our work with them, we asked the vendor 
specific Y2K questions regarding the system and discovered that the 
hardware, operating system and some software applications were not 
compliant. The fix cost approximately $20,000 and took six weeks to get 
scheduled. Asking the right questions about compliancy is critical, 
along with time allowed to remediate.
    2. Assuming the scenario above occurs, in January you may find a 
lack of resources to handle the problems encountered in the 
marketplace. It is imperative that companies have contingency plans 
developed in order to deal with the unexpected. At this time few 
wholesalers have contingency plans in place.
    3. Concerning convenience stores, problems could occur with Point 
of Sale terminals. This problem can be alleviated by switching to a 
manual mode of operation. The key is being prepared to switch if 
needed. Gasoline dispensers should not experience Y2K problems.
    4. For the wholesalers of diesel fuel to commercial accounts, truck 
stops, etc., the Y2K exposure is at the customer level. If a 
manufacturing company has problems with embedded chips in their 
machinery and ceases to operate for a few days or weeks, the wholesaler 
will feel a financial impact. Particularly if the customer is a large 
account or if multiple customers have difficulties.
    In discussions with a financial lender about loan portfolios and 
the cause for a loan to have a missed payment, we received this 
comment. When the lender did a root cause analysis as to why a loan 
payment was missed or delayed, often it was due to the borrower having 
disruption of business of only one day.
    5. I have had numerous wholesalers indicate that commercial 
customers, particularly hospitals and in one case a utility company, 
have requested that a tanker(s) of diesel fuel be dedicated for their 
needs during the transition to the new year. The use would be for back-
up generators or fuel to keep their trucks on the road.
    My concern is the strain this would put on the distribution system 
because of the limited number of available trucks. Trucks assigned to 
one account cannot service other customers. Lastly, I am concerned 
about whether enough fuel will be in inventory at a product terminal to 
handle a spike in demand the last couple of days of December.
    6. While the issue of commercial accounts storing additional diesel 
is of concern, a far greater exposure exists from the general public. 
People may want to fill their gas tanks the last couple days of 
December. If this were to happen in mass, the amount of available 
gasoline in a market would dry-up in a short period of time. Recovering 
from this situation would take time because some markets are 
considerable distances from product terminals/refineries. Another 
potential problem can be caused by having to prioritize customers or 
market areas for re-supply.
    The big challenge, for supplier/refiners and wholesalers of whether 
to have increased levels of fuel inventories on hand in December for 
the potential spike in demand, is from a cost basis and acquiring 
additional fuel. The current fuel distribution network in the country 
operates in a just-in-time mode. To work on increasing inventories at 
terminals and convenience stores will require planning starting as 
early as September.
    7. In addition to spikes in demand during December, the price of 
fuel is also in question. Past experience, such as refinery fires 
causing drops in fuel inventories, indicates that prices will rise.
    I advise my audiences that I feel Y2K is a business problem. While 
spot outages of power, etc., may happen, it should be limited. However, 
a misinformed consumer can make Y2K a personnel problem if they 
overreact and hoard fuel, money and food in a short period of time. I 
am concerned that the media reporting on Y2K has too often been on the 
extreme side on the issue. I see a lack of investigative work done to 
clarify what is being said by individuals interviewed.
    In closing, I offer these comments:
      A proactive outreach to the consumer, clarifying what Y2K 
is and what it is not, is critical to minimize the potential scenarios 
described above. Credible spokespersons must be educated on the topic 
and actively work to get the accurate information out.
      I believe there should be media outreach that better 
educates people on Y2K issues.
      I anticipate business disruptions with wholesalers may 
cause some to incur financial losses, and in some cases to go out of 
business. The nature of the market is that a competitor will see this 
as an opportunity and fill the void.
      It must be recognized that some far right groups will use 
lack of information or fear to their advantage. For example, I attended 
a community meeting on Y2K here in Bozeman, Montana. The meeting was 
organized by a neighborhood group to start raising people's awareness 
on Y2K. More than 200 people attended. During the Q & A portion of the 
meeting, a gentleman stood waving a manila envelope and stated; ``I 
have enclosed in this envelope copies of secret legislation from 
Washington, D.C. that martial law will be imposed January 1, 2000.''
    As crazy as it sounds, I observed that people were paying attention 
and several clapped.
    On that note, I appreciate this opportunity to offer my thoughts 
and information on Y2K for the petroleum industry at the wholesale 
business level. If anyone has any questions, I can be contacted at 1-
800-811-4866 or [email protected].

                                
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