[Senate Hearing 109-766]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-766
 
                          BP PIPELINE FAILURE

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                                   TO

RECEIVE TESTIMONY RELATING TO THE EFFECTS OF THE BP PIPELINE FAILURE IN 
THE PRUDHOE BAY OIL FIELD ON U.S. OIL SUPPLY AND TO EXAMINE WHAT STEPS 
         MAY BE TAKEN TO PREVENT A RECURRENCE OF SUCH AN EVENT

                               __________

                           SEPTEMBER 12, 2006


                       Printed for the use of the
               Committee on Energy and Natural Resources


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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                 PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho                JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming                DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee           BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
RICHARD M. BURR, North Carolina,     TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida                MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri            DIANNE FEINSTEIN, California
CONRAD BURNS, Montana                MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia               KEN SALAZAR, Colorado
GORDON SMITH, Oregon                 ROBERT MENENDEZ, New Jersey
JIM BUNNING, Kentucky

                   Frank Macchiarola, Staff Director
                   Judith K. Pensabene, Chief Counsel
                  Bob Simon, Democratic Staff Director
                  Sam Fowler, Democratic Chief Counsel
                 Dick Bouts, Professional Staff Member
                   Deborah Estes, Democratic Counsel


                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Akaka, Hon. Daniel K., U.S. Senator from Hawaii..................     4
Barrett, Thomas, Vice Admiral (Retired), U.S. Coast Guard, 
  Administrator, Pipeline and Hazardous Materials Safety 
  Administration, Department of Transportation...................     6
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     3
Bunning, Hon. Jim, U.S. Senator from Kentucky....................    62
Davies, Peter, Vice President and Chief Economist, BP, P.L.C., 
  London, UK.....................................................    16
Devens, John S., Ph.D., Executive Director, Prince William Sound 
  Regional Citizens Advisory Council, Anchorage, AK..............    78
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     1
Dorgan, Hon. Byron L., U.S. Senator from North Dakota............     4
Gruenspecht, Howard, Ph.D., Deputy Administrator, Energy 
  Information Administration, Department of Energy...............    11
Hostler, Kevin, President and CEO, Alyeska Pipeline Service 
  Company, Anchorage, AK.........................................    26
Landrieu, Hon. Mary L., U.S. Senator from Louisiana..............    64
Malone, Robert, President and Chairman, BP America, Inc., 
  Houston, TX....................................................    16
Marshall, Steve, President, BP Exploration (Alaska), Anchorage, 
  AK.............................................................    16
Murkowski, Hon. Lisa, U.S. Senator from Alaska...................    55
Talent, Hon. James M., U.S. Senator from Missouri................     5
Thomas, Hon. Craig, U.S. Senator from Wyoming....................     5
Van Tuyn, Peter, Partner, Bessenyey & Van Tuyn, Inc., Anchorage, 
  AK.............................................................    29

                                APPENDIX

Responses to additional questions................................    83


                          BP PIPELINE FAILURE

                              ----------                              


                           SEPTEMBER 12, 2006

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:37 a.m., in 
room SD-106, Dirksen Senate Office Building, Hon. Pete V. 
Domenici, chairman, presiding.

          OPENING STATEMENT OF HON. PETE V. DOMENICI, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. The hearing will please come to order. Can 
you hear me in the back of the room? Yes, OK.
    Before we begin the opening statements, in accordance with 
rule 11 of the committee's rules, I'll ask all the witnesses to 
please rise to be sworn in, in connection with the testimony 
that they're going to be giving today. I'll ask each of you to 
please reply individually to the following, beginning with 
Admiral Barrett, and I will start by asking you to raise your 
right hand.
    Do you solemnly swear that the testimony you are about to 
give to the Senate Committee on Energy and Natural Resources 
shall be the truth, the whole truth, and nothing but the truth? 
Admiral Barrett?
    Admiral Barrett. I do.
    The Chairman. Mr. Gruenspecht? Is that how you say your 
name?
    Mr. Gruenspecht. That's fine.
    The Chairman. I didn't hear your response.
    Mr. Gruenspecht. Yes.
    The Chairman. Mr. Malone?
    Mr. Malone. Yes, sir.
    The Chairman. Mr. Marshall?
    Mr. Marshall. Yes, sir.
    The Chairman. Mr. Davies?
    Mr. Davies. I do.
    The Chairman. Mr. Hostler?
    Mr. Hostler. I do.
    The Chairman. Mr. Van Tuyn?
    Mr. Van Tuyn. I do.
    The Chairman. Thank you all. Please sit down. We will now 
proceed with opening statements.
    Good morning, everyone. Five weeks ago, BP, British 
Petroleum, announced a suspension of production in the Prudhoe 
oil field as a result of a pipeline failure in Alaska. 
Initially, reports estimated that this shutdown could mean the 
loss of as much as 400,000 barrels of oil per day, about 8 
percent of the total U.S. oil production and 2.8 percent of 
U.S. supply. As Americans prepared to take to the roads at the 
height of the holiday driving season, as the tensions in 
Lebanon drive up fears of a larger Middle East unrest, and as 
militant attacks and kidnappings have continued to depress oil 
production and exportation from Nigeria, the news of disruption 
in our domestic supply of oil came at a most inopportune time. 
Everyone understands that unfortunate situation.
    The effects of this news were felt immediately in the 
boardrooms and breakfast tables around the country and at 
trading desks in New York and hearing rooms in Washington. On 
the day of the announcement, U.S. crude oil futures increased 
sharply, by $2.13, to $76.89 a barrel on the NYMEX. Analysts 
and energy policymakers took to the airways announcing the 
potential for the very worst and Americans demanded answers to 
the following questions, very simple ones: First, how could 
this happen? Second, what did this mean for the price that they 
would now pay at the pump?
    Five weeks later, we do not have a sufficient answer to the 
first question. I trust that this committee will gain some 
adequate insight into this over the course of the morning and, 
if not, into the afternoon. For the record, I find this 
incident inexcusable. I'm not in the oil business, but this 
much I know: The cost of running the appropriate standard 
maintenance on energy infrastructure is greatly outweighed by 
the cost that this incident has brought to bear in real 
dollars, in goodwill, and in business brand name. This is a 
black eye on BP and the American people and the committee 
demands answers today.
    The second question may be refined since many of our 
initial fears from 5 weeks ago were thankfully not realized. 
Perhaps that question is better phrased today as: What could 
happen to prices at the pump if we had lost all the oil that 
was initially anticipated for an extended time period?
    Finally, a third question faces this committee: What can we 
do and what can be done and what is at present being done to 
ensure that we do not face this problem again?
    By way of background, it is important to note that this 
severe pipeline corrosion and resulting oil spill was 
discovered only because of inspections ordered by Federal 
regulators following a March 2006 spill of approximately 5,000 
barrels of oil from other pipelines operated by British 
Petroleum. The March and August spills were allegedly the 
result of years of failure by British Petroleum to conduct the 
most basic of corrosion inspections--techniques, I should say, 
the most basic of corrosion inspection techniques.
    I find this very distressing and I am sure it is 
distressing to you, Mr. Robert Malone, as you sit before us 
thinking about it, versus your company's way of doing business 
in the past and what you are known for.
    This time we were fortunate. The environmental damage was 
relatively minimal and no persons were injured as a result of 
these spills, and actual production from Alaska never dropped 
below 510,000 barrels. But that is still well under the 800,000 
barrels to which U.S. markets are accustomed. As of today, 
production has returned to approximately 650,000 barrels per 
day.
    The correlation that we all feared between prices at the 
pump and BP's action thankfully did not materialize. 
Nevertheless, this state of affairs was a wake-up call to the 
fact that improper maintenance of our domestic facilities could 
be just as serious a threat to our economy as a foreign 
country's turning off the spigot or a gulf hurricane shutting 
down producing wells.
    It's one thing for this country to be adversely affected by 
events over which it has little or no control. It is quite 
another to have adverse consequences that could have been 
prevented inflicted on it by companies like BP. That is simply 
egregious, no doubt about it.
    At our hearing today we are primarily addressing four 
issues: One, we need to learn more about what happened on BP's 
pipelines and the effects that this type of disruption could 
have on supply and price. Second, we need to gain assurances 
that our Alaska North Slope oil delivery system will remain 
secure and reliable. Third, we need to know when full 
production will resume. And fourth, we need to know what 
actions are being taken to ensure that this does not happen 
again.
    I look forward to the witnesses' testimony. We have a large 
number of witnesses and we want to have time for members' 
questions, so I encourage members to open with remarks that are 
as brief as possible. Your full statements will of course be 
included in the record.
    With that, I will turn now to Senator Bingaman for his 
opening remarks and whatever he sees fit to do. Senator 
Bingaman.

         STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR 
                        FROM NEW MEXICO

    Senator Bingaman. Thank you very much, Mr. Chairman. Thanks 
for scheduling the hearing. Obviously it's a subject that this 
committee needs to be vitally involved in and to understand 
better, to understand what did occur that caused the 
interruption or reduction in supply from Prudhoe Bay, but also 
understand, as you point out, what actions Congress can take 
and what actions the private sector can take to prevent the 
recurrence of such an event.
    I think we're all clear that this committee does not have 
jurisdiction over the issue of pipeline safety, but we do have 
jurisdiction over infrastructure reliability. Frankly, it's 
hard to sort those two out and separate them. I think clearly 
we have a great interest in understanding and dealing with this 
issue.
    As you point out, the poor maintenance and inadequate 
inspections that evidently were present there in Prudhoe Bay 
are a very real concern to all of us. The U.S. lost something 
like, as I understand it, 4 percent of its supply for a period 
of time, an indeterminate period of time. I hope we can get a 
good explanation from BP as to how this incident could have 
happened and what steps they have taken, and are taking, to 
prevent it in the future.
    I also hope that Admiral Barrett and Mr. Van Tuyn and other 
witnesses can give us a full picture of the Federal and State 
regulatory regime that applies on the North Slope and, in 
particular, why these pipelines were exempt from Federal 
regulation and what oversight did State regulators perform on 
this infrastructure.
    Finally, I just point out that this does raise questions 
that need to be addressed also as to the adequacy of the 
infrastructure that we are constructing and maintaining on the 
North Slope for additional developments. One particular 
development that I have joined with many others in writing to 
Secretary Kempthorne about is this planned leasing with regard 
to this 200,000 acres near Teshekpuk Lake. This is an area that 
some of us have had concerns about. And understanding the 
adequacy of the infrastructure, the confidence that we have 
with regard to not having spills in that area would be very 
important as well.
    Thank you again for having the hearing.
    The Chairman. Yes, sir, Senator.
    [The prepared statements of Senators Akaka, Dorgan, Talent, 
and Thomas follow:]

  Prepared Statement of Hon. Daniel K. Akaka, U.S. Senator From Hawaii

    I would like to begin today by thanking Chairman Domenici 
and Ranking Member Bingaman for calling this timely and 
important hearing regarding the impact of BP's pipeline failure 
in the Prudhoe Bay oil field in Alaska. As the largest oil 
field in the United States with daily production of 
approximately 400,000 barrels of oil per day, Prudhoe Bay is 
critical to this nation's ability to successfully meet its 
energy needs.
    I am angered that BP failed to conduct the standard tests 
for pipeline corrosion. It is my understanding that these 
corrosion problems could have been mitigated by thorough and 
regular inspection and maintenance of the pipes. I am also 
bothered by allegations that BP executives failed to respond to 
concerns raised by its employees regarding pipeline safety and 
other environmental issues prior to the March 2006 oil spill.
    We, as government leaders, need to take a close look at the 
ways in which the energy infrastructure is regulated and ask 
ourselves if new requirements are necessary to ensure its 
overall reliability. Hopefully, this hearing will be a first 
step in the process of discovering what is currently being done 
and what more needs to be done to prevent future pipeline 
failures. While I believe that domestic oil production is an 
important part of a larger national strategy to ensure energy 
security and independence, it must be done taking precautions 
necessary to minimize harm to the environment.
    I look forward to hearing your testimony.
                                ------                                


       Prepared Statement of Hon. Byron L. Dorgan, U.S. Senator 
                           From North Dakota

    Mr. Chairman, thank you for holding this hearing today. I 
believe it is important to figure out what happened and how we 
can ensure that it does not happen again.
    BP is a big oil company and it recorded second quarter 
profits this year of $7.27B, which was 30 percent higher than 
second quarter profits in 2005. According to one news source, 
these profits represented $2.5M an hour.
    I say that because this was not a small company that cut 
corners because of economics. This is a large company that cut 
corners because . . . well, I can't give you that answer. Maybe 
the witnesses will be able to tell us.
    I don't believe it does anyone any good to come here and 
only testify about how they will ensure this does not happen 
again. This should have never happened in the first place and I 
believe the witnesses have an obligation and responsibility to 
tell the Committee and others what led to this systematic 
failure.
    After this incident, while I was in North Dakota, I asked 
some oil and gas people how do you not pig a line for 15 years? 
Everyone I asked had the same look--mostly a scratch of the 
head and a response that they were asking themselves the same 
question.
    Well, we are all scratching our heads up here and wondering 
how do you, as a major oil company, not do basic and essential 
things to check the integrity of your infrastructure? Whether, 
under current law, you are required to or not, it seems that 
ensuring the integrity of the infrastructure for your product 
is the most fundamental and basic thing that you can do.
    And the sad part is this--your company is not the real ones 
that suffered here. After the announcement to shut down the 
pipeline came out, the price of oil increased over $2.00 a 
barrel. So while on the one hand you had a loss, the other hand 
showed a win.
    I guess that is just the nature of the game when you have 5 
oil companies in the U.S. that have such a substantial share of 
the oil market.
    Again Mr. Chairman, I thank you for holding this hearing 
and look forward to knowing why BP did not consistently test 
and maintain its infrastructure. I am also looking forward to 
knowing when they knew there was a problem and what corrective 
measures they, and the industry, are putting in place to ensure 
this does not happen again.
                                ------                                


   Prepared Statement of Hon. Jim Talent, U.S. Senator From Missouri

    Mr. Chairman. Thank you for holding this important and 
timely hearing. I requested this hearing in August and I'm glad 
that we have this opportunity to examine the shutdown, both the 
events leading up to the announcement and the impacts on supply 
and price.
    Last month, I was extremely concerned over BP's 
announcement to suspend production at its Prudhoe Bay oilfield 
due to a spill and corrosion of BP's pipelines. This pipeline 
supplies as much as 400,000 barrels of oil per day, which is 8 
percent of U.S. oil production and 2.6 percent of U.S. supply, 
including imports.
    Missourians, myself included, have been extremely 
frustrated with the current high price of both oil and 
gasoline. It seems to me that this shutdown could have been 
prevented and consumers could have been spared the slight 
increase in prices following the announcement. As you know, 
August is always high time for family vacations and I am 
concerned about the high cost of gasoline on families in 
Missouri and across the country.
    Additionally, our economy relies on affordable and reliable 
energy supplies. Every time the cost of oil and gasoline 
increases, it puts pressure on the American economy. BP and 
other oil companies should take every possible measure to 
ensure that these shutdowns are avoided.
    Mr. Chairman, as you know, I strongly support efforts to 
expand domestic production of oil and natural gas. However, I 
also expect the private sector to sharply step up its 
investment in its own critical infrastructure. Earlier this 
year, BP announced that its second quarter earnings rose 30 
percent to a record $7.32 billion.
    Yet at the same time, they did not make the needed 
investments into critical infrastructure. Extensive corrosion 
to a pipeline of such importance to our economy is unacceptable 
and could easily been avoided if BP had taken even minimal 
steps to maintain the pipeline.
    I understand that the Department of Transportation is 
drafting proposed legislation to regulate low stress hazardous 
liquid lines--like the BP line in question. I look forward to 
reviewing that legislation; it is clear that we can not rely on 
industry to self regulate. They were given the opportunity, and 
failed miserably.
                                ------                                


   Prepared Statement of Hon. Craig Thomas, U.S. Senator From Wyoming

    Good morning. I'd like to thank the Chairman for convening 
this important hearing and I appreciate the witnesses appearing 
before us today.
    What has happened on the North Slope of Alaska is bad, 
there is no question about it. British Petroleum is a 
successful company with huge profits. They have failed to re-
invest that money into safety and maintenance, however. This 
pipeline failure comes on the heels of several black eyes and 
tragic events for the company. There were 15 workers killed 
last year in an accident at a BP refinery in Texas. Traders 
from this company have pleaded guilty to cornering the propane 
market and manipulating prices during the 2004 winter; the same 
time of year when Americans need cheap energy most. We all know 
what BP has done recently. I want to know what's going to be 
done to fix it, I want to know what you're doing to ensure that 
these things don't happen again, and I want to be sure that 
these things will not happen in my state.
    My support for energy development in Wyoming is based on 
trust. Your industry is a part of the community, economy and 
social fabric of Wyoming. When I'm told that you're doing the 
right thing, I have trusted you. Your companies behavior in the 
last year makes me question that trust.
    I'll make one other point. Congress will soon consider the 
reauthorization of pipeline safety legislation. That 
legislation is outside the purview of this Committee. I do hope 
that our conversations today can help inform that debate, 
however. We must not over-reach in our effort to craft pipeline 
safety legislation. The situation in Prudhoe Bay is unique. The 
pipelines there are low-pressure but they're 3 feet in 
diameter. Most of these low-pressure pipelines are smaller, and 
they're connected to marginal wells.
    Prudhoe Bay provides 8% of domestic supply, but marginal 
wells provide nearly twice that amount. The economics of these 
wells is tenuous. If we go too far in regulating the pipelines 
connected to them, those marginal wells become uneconomic. 
Producers will shut them in and we'll have two Prudhoe Bay 
disasters on our hands. We need to make sure that does not 
happen.
    Again, I thank the Chairman for holding this hearing and I 
look forward to hearing from the witnesses.

    The Chairman. With that, Senators, you understand we're 
going to proceed to the witnesses and then back to us, so that 
we can include in our opening remarks our approach to 
questions. Unless Senators want to change that approach, I will 
proceed on that basis, and time of arrival will be the time in 
which you're called upon. That means, from what I have seen 
here, that the chairman, Bingaman, Thomas, Wyden, Murkowski, 
Feinstein, Bunning is the order of arrival and calling on each 
other.
    Now we're going to proceed. You've all been sworn in and 
we're going to start with Admiral Thomas Barrett.

  STATEMENT OF VICE ADMIRAL THOMAS BARRETT, U.S. COAST GUARD 
  [RETIRED], ADMINISTRATOR, PIPELINE AND HAZARDOUS MATERIALS 
      SAFETY ADMINISTRATION, DEPARTMENT OF TRANSPORTATION

    Admiral Barrett. Chairman Domenici, Ranking Member 
Bingaman, members of the committee, thank you for the 
opportunity to discuss the actions of the Pipeline and 
Hazardous Materials Safety Administration of the Department of 
Transportation to oversee safe operations of BP exploration 
pipelines at Prudhoe Bay and steps that can be taken to prevent 
recurrence of such pipeline failures. Our mission is achieving 
and maintaining safe, environmentally sound and reliable 
operation of the Nation's pipeline transportation system. In 
practice, this requires understanding conditions of pipelines 
and ensuring operators take actions to prevent and address 
unsafe conditions. Pipelines that are safe provide reliable 
transportation service.
    Following BP's March 2 crude oil spill from a low-stress 
line at Prudhoe Bay, we used our statutory authority to assert 
jurisdiction over the failed line and other BP unregulated, 
low-stress transit lines at Prudhoe Bay. We subsequently issued 
a series of orders to the operator to perform long overdue 
inspections and maintenance and implement measures for safe 
restoration of operations. We ordered BP to run cleaning pigs 
to remove solids from the lines and perform in-line inspections 
to understand the condition of the lines from the inside out. 
We directed an extensive ultrasound testing and enhanced 
corrosion management plan, external surveillance using 
infrastructure detectors to detect leaks, and development of 
plans to manage solids in ways that prevent risk to the Trans-
Alaska Pipeline. As a result of the pigging we ordered, BP 
discovered the wall loss and leaks on a line segment in the 
eastern operating area on August 6 and subsequently shut down 
that line.
    We also put an inspection team on the Trans-Alaska Pipeline 
System and updated our evaluations of the integrity and 
reliability of other regulated transmission lines on the North 
Slope to minimize risks from any additional impacts of the BP 
pipeline failures.
    We have been on the job overseeing and directing these 
actions since March. Along with my western regional director, 
Mr. Chris Hoidal, and my chief safety officer, Stacey Gerard, I 
visited Anchorage and Prudhoe Bay in July to meet with my field 
inspectors, BP and Alyeska executives, State officials, and the 
Joint Pipeline Office to assess conditions and actions 
firsthand. Acting Transportation Secretary Maria Cino visited 
in August and I went back on August 31 to reassess progress and 
compliance with our orders.
    We do not understand why BP did not more aggressively 
address corrosion problems that led to these leaks much 
earlier. We have found most pipeline operators demonstrate a 
higher standard of care than this, regardless of whether or not 
they are federally regulated.
    The Chairman. Regardless of what?
    Admiral Barrett. Regardless of whether they are federally 
regulated or not. Most operators, whether they're under our 
regulations or not, exercise more care than we've seen here.
    We presently are addressing two separate immediate issues 
with BP's major Prudhoe Bay transfer lines: first, the 
conditions under which the western area transfer line can 
continue to operate; and second, safe restoration of production 
on the shut-down eastern line. Each line, as you noted, carries 
about 200,000 barrels of crude oil a day, or a total of 400,000 
barrels for both lines.
    On the western line, we've required continuous ultrasonic 
testing and directed an enhanced corrosion management plan and 
external surveillance. We continue to monitor these results on 
a daily basis. On the eastern line, our focus is restoring the 
line so that it can be pigged, as a precursor to allowing it to 
return to full service. Flow must be restored to allow the 
pigging. We will allow this limited restart when we are assured 
it can be done safely, and restoration of normal production 
flow will be dependent on the pigging results.
    We are working with BP to prepare for a possibility that 
the eastern line may not be in good condition. If pigging 
reveals serious problems with the remaining segments of the 
eastern line, we understand BP is developing options to bypass 
segments of the line and reroute production to other existing 
transmission lines until the lines can be replaced.
    As unfortunate as these incidents are, they are not a 
bellwether for the health of the majority of the energy 
pipeline infrastructure. As a result of integrity management 
programs we have required since the early 2000 series, over 
57,000 defects system-wide, which could have grown to failure 
and possibly caused energy disruptions, have been found and 
fixed. The overall safety record of the U.S. industry is 
getting progressively better.
    On August 31 the administration proposed new safety 
requirements for rural low-stress pipelines, including the BP 
lines at Prudhoe Bay. The proposal was under development since 
2004, well in advance of these spills, and will protect 
unusually sensitive environmental locations. Lines of this type 
in populated areas and impacting navigable waters are already 
regulated. As this is a proposal, we are seeking public input, 
including the scope of coverage and requirements proposed.
    The Secretary of Transportation also submitted to Congress 
the administration's legislative proposal to reauthorize the 
2002 Pipeline Safety Improvement Act. This proposal would 
strengthen State programs to prevent external damage to gas 
distribution lines, a serious life safety risk and the only 
area where accidents are trending upward. The proposal also 
includes a provision that would enhance both safety and energy 
supply by implementing a risk-based approach for retesting 
intervals on natural gas pipelines rather than a mandatory 7-
year interval regardless of risk. A recent GAO report endorsed 
the system risk-based approach.
    The natural gas transmission industry warned that supply 
shortages could occur, depending on gas demand, if operators 
are required to shut down one-seventh of their systems for 
assessments in the same years in which they are conducting 
mandatory baseline testing.
    Mr. Chairman, I want to assure you and members of the 
committee that the administration, the Acting Secretary, and 
the dedicated men and women of PHMSA share your strong 
commitment to improving the safety, reliability, and public 
confidence in our pipeline transportation system. Like you, we 
understand the importance of our safety mission to our citizens 
and the energy security and continued economic growth of our 
Nation.
    With your permission, I'll submit my written statement for 
the record and be pleased to answer any questions that you may 
have.
    [The prepared statement of Admiral Barrett follows:]

 Prepared Statement of Vice Admiral Thomas J. Barrett, USCG (Retired), 
Administrator, Pipeline and Hazardous Materials Safety Administration, 
                      Department of Transportation

    Chairman Domenici, Ranking Member Bingaman, members of the 
Committee: Thank you for the opportunity to discuss recent actions of 
the Pipeline and Hazardous Material Safety Administration to oversee 
safe and reliable operations of BP Exploration (BPXA) pipelines at 
Prudhoe Bay, Alaska, and steps that can be taken to prevent recurrence 
of such pipeline failures.
    Our agency mission is achieving and maintaining safe, 
environmentally sound, and reliable operation of the nation's pipeline 
transportation system. In practice, this requires understanding the 
condition of pipelines and ensuring that operators take actions to 
prevent and address any unsafe conditions. As you know the first 
responsibility for safe and reliable operation rests with the pipeline 
operator.
    Since the spill of approximately x,000 barrels of crude oil from a 
BPXA-operated low stress line at Prudhoe Bay on March 2, PHMSA has been 
on the job aggressively to ensure safe and reliable operations. Because 
the BPXA line where the spill occurred was a low stress line, operating 
at less than 20 percent of its maximum strength, it had not been 
federally regulated. In mid-March, using our statutory authority, we 
asserted federal jurisdiction over the failed line and other BPXA 
unregulated low stress lines at Prudhoe Bay, a total of 22 miles of 
transit pipeline. We subsequently issued a serves of orders to the 
operator to perform long overdue inspections and maintenance on its low 
stress lines and implement measures for the safe restoration of 
operations. These included measures to understand the conditions of the 
lines and take all necessary measures to assure safety and reliability. 
In addition, PHMSA recently proposed regulations for these types of 
pipelines, which have been under development since 2004.
    We ordered BPXA to run cleaning pigs to remove solids from the 
lines and perform in line inspections (smart pigging) to understand the 
condition of the lines from the inside out. We directed extensive ultra 
sound testing and an enhanced corrosion management plan. We directed 
external surveillance using infra-red detectors to detect leaks and the 
development of plans to manage solids in a way that prevented risks to 
the Trans-Alaska pipeline. It was as a result of pigging we ordered 
that BPXA discovered the wall loss and leaks on a line segment in the 
Eastern Operating Area that led to the production shutdown on August 
6th.
    Our personnel have been on the job tirelessly since March 
overseeing and directing these actions. We brought on additional 
technical resources from Oak Ridge National Laboratories. Along with my 
western region director, Mr. Chris Hoidal and my chief safety officer, 
Ms Stacey Gerard I visited Anchorage and Prudhoe Bay in early July to 
assess the situation first hand and meet with my field inspectors, BP 
and Alyeska executives, state officials and the Joint Pipeline Office. 
The Acting Secretary of Transportation, Maria Cino visited in August 
and I went back on August 31st to reassess progress and compliance with 
our orders.
    While this was progressing we put an inspection team on the Trans-
Alaska Pipeline System and updated our evaluation of the integrity and 
reliability of all the regulated transmission lines on the North Slope 
to minimize the risks to transportation from any additional impacts of 
the BP pipeline failures.
    We do not understand why BPXA did not more aggressively address the 
corrosion problems that led to these leaks much earlier. Given the 
multiple risk factors for corrosion in the Prudhoe Bay environment and 
the low velocities on these lines, it is mystifying that BPXA did not 
run cleaning pigs regularly on these transit lines. We have found most 
pipeline operators demonstrate a higher standard of care than this, 
regardless of whether they are federally regulated or not.
    While the operator's management of the lines in the years leading 
up to the March incident is a disappointment, BPXA is finally making 
progress in addressing our concerns and we are actively working with 
them to safely increase pipeline throughput back to previous levels. 
Our first concern was whether we could allow the Western area transfer 
line, which carries about 190,000 barrels of daily throughput to 
continue to operate. To do so, we required continuous ultrasonic 
testing. This requirement will continue until BPXA complies with our 
order to internally inspect the line with a smart pig. Further, we 
directed ultrasonic testing in all elevation changes and low spots to 
identify any other potential failure locations, and this testing is 
almost complete. We are allowing this ling to continue to operate based 
on BPXA completion of about 25 percent of exterior, ultrasonic testing. 
We continue to monitor these results on a daily basis. Operator records 
show that BPXA inspected this line with a smart pigged in 1998. The 
line has twice the flow velocity of the Eastern Operating Area, making 
it less susceptible to corrosion.
    Our other primary focus has been on getting the Eastern operating 
line ready for pigging as a precursor to allowing it to return to full 
service. The line had been carrying about 200,000 barrels of daily 
throughput. To pig this line, flow must be restored to allow the pig to 
travel the line. We recognize the importance of these pipelines to the 
Nation's oil supply and are working to help ensure that action is taken 
expeditiously, but at the same time we must be assured that even a 
temporary, limited restart can be operated safely, before it can 
proceed. We have asked BPXA to provide a credible corrosion hypothesis, 
validated by testing, so that we know they understand the potential 
corrosion on the line and can manage corrosion going forward. We will 
require a risk mitigation plan for pigging and restart, and a dry run 
of the restart, pigging and bypass operation needed to carry the solids 
to a safe storage tank to permanent handling. Finally, we have required 
additional personnel and equipment for rapid response in case of a 
spill. These requirements are additional to those identified in our 
Corrective Action Order and Amendments. Once pigged, PBXA must identify 
and remediate any defects prior to full production. This line could 
then operate until it is replaced entirely in 2007.
    We are also working with BP to prepare for the possibility that the 
Eastern line may not be in good condition and may not be able to be 
restarted. If smart pigging reveals serious problems with remaining 
segments of the Eastern line, BPXA is developing an option to bypass 
large segments of the Eastern transit line and re-route product to 
existing transmission lines. ``Jumper'' lines to accomplish this will 
also require our approval.
    The BPXA transit lines failures are not indicative of the state of 
the rest of the U.S. energy infrastructure. Based on our observations, 
other major companies are investing more consistently in the integrity 
of their pipeline systems and generally have much greater system 
reliability as a result. Integrity management procedures, required by 
our oversight regulations, require regular assessment and repair of 
identified risks. As a result of integrity management programs we have 
required, over 57,000 defects system wide, which could have grown to 
failure and possibly caused energy disruptions, have been found and 
fixed, at the earliest possible stage. The overall safety record of the 
U.S. pipeline industry is good and getting progressively fetter. The 
liquid pipeline industry is nearing completion of their baseline 
testing programs. We are seeing a steady decline in the number of 
pipeline incidents that cause serious harm to people or the 
environment. Pipelines that are safe also provide reliable 
transportation service.
    Comparing the five year periods before and after integrity 
management programs were implemented on hazardous liquid pipelines, 
spill frequency dropped 18 percent and volumes spilled dropped 35 
percent.
    On August 31st the Administration proposed robust new safety 
requirements for rural low stress pipelines including the BP lines at 
Prudhoe Bay. The proposal has been in development since 2004, well in 
advance of these spills. The proposal would protect unusually sensitive 
environmental locations in rural areas, covering about 22% of lines of 
this type nationwide. Most of the lines the proposed rule addresses are 
far smaller than the BP Prudhoe Bay low stress lines, but still provide 
critical transportation of energy products. Low stress lines in 
populated areas and near navigable waterways are already overseen by 
PHMSA. As this is a proposal we are seeking public and stakeholder 
input, including comments addressing the scope of coverage and the 
requirements included.
    As you may know, the pipeline safety program is due for 
reauthorization and the Committees with oversight have been actively 
considering a range of provisions this spring and summer to build on 
the success of the 2002 Pipeline Safety Improvement Act. Of greatest 
interest to most stakeholders are provisions designed to address the 
leading cause of serious pipeline accidents, construction-related 
damage. The Administration's proposal would address this problem by 
authorizing civil enforcement authority of one call notification laws 
and financial incentives for states to improve damage prevention 
programs.
    The Administration's proposal also includes a provision to use a 
risk-based approach for the management of natural gas transmission 
lines, which should minimize energy supply interruptions. The current 
statute requires operators of natural has transmission lines to perform 
baseline integrity tests of their pipelines over a ten-year period and 
retest those lines every seven years regardless of the line's condition 
and risk profile. Repairs following testing may require shutdown of the 
gas transmission lines. The Administration has proposed removing this 
provision and replacing it with a risk based approach to determine 
appropriate retest intervals. This will improve risk management and 
safety. Just recently, the General Accountability Office (GAO) issued a 
report supporting repeal of seven-year retest requirements.
    Like the GAO, we believe that safety testing should be performed as 
often as necessary to detect problems and prevent accidents, not on a 
fixed, one-size-fits-all schedule. This is not simply a question of 
operating costs. Because these tests can be performed only when the 
line is shut down, testing necessarily will have direct impacts on 
natural gas supply. A risk-based approach, implemented through 
rulemaking, will have less of an impact on gas flow and, at the same 
time, not sacrifice safety.
    The Administration's proposal also would prevent supply shortages 
that could result from overlapping testing requirements in the last 
three years of the ten-year baseline testing. The natural gas 
transmission industry has warned that supply shortages could occur, 
depending on gas demand, if operators are required to shut down one-
seventh of their systems for mandatory retesting in the same years in 
which they are conducting mandatory baseline testing on other lines. We 
want to bring this issue to your attention.
    Mr. Chairman, I want to assure you and members of the Committee 
that the Administration, the Acting Secretary, and the dedicated men 
and women of PHMSA, whose work at Prudhoe Bay by the way I am 
enormously proud of, share your strong commitment to improving the 
safety, reliability, and public confidence in our pipeline 
transportation system.
    Like you, we understand the importance of our mission to the 
citizens, communities and the energy security and continued economic 
growth of America. Thank you.

    The Chairman. Thank you very much, Admiral. Your written 
statement will be made a part of the record as if read and we 
will ask you questions as we see fit in due course.
    What is the committee's pleasure? I assume that we should 
now go to the next witness, as we had planned.
    All right, the next witness will proceed. Would you 
introduce yourself to the committee and tell us what you do and 
then proceed to give your testimony.

 STATEMENT OF HOWARD GRUENSPECHT, DEPUTY ADMINISTRATOR, ENERGY 
        INFORMATION ADMINISTRATION, DEPARTMENT OF ENERGY

    Mr. Gruenspecht. Yes, my name is Howard Gruenspecht and I'm 
the Deputy Administrator of the Energy Information 
Administration. Thank you, Mr. Chairman, and members of the 
committee. I appreciate the opportunity to appear before you 
today to discuss the role of Alaska North Slope oil in U.S. 
energy markets. EIA is the independent statistical and 
analytical agency in the Department of Energy. We do not 
promote, formulate, or take positions on policy issues and our 
views should not be construed as representing those of the 
Department or the administration.
    In 2005, Alaskan crude oil represented about 17 percent of 
total U.S. crude oil production and about 6 percent of all 
crude oil processed in the United States. While still an 
important part of U.S. supply, Alaskan oil production, of which 
Prudhoe Bay is the most important source, has declined from its 
1988 peak of just over 2 million barrels a day to 864,000 
barrels per day in 2005.
    On August 6--the reason we're here--BP Exploration Alaska, 
which operates the Prudhoe Bay field, announced that it would 
suspend its production pending acquisition of further 
information on the integrity of the transit pipelines that 
carry produced oil to the Trans-Alaska Pipeline System. It was 
subsequently determined that only part of production would need 
to be taken offline for an extended period. According to the 
State of Alaska, Prudhoe Bay production for the month of August 
averaged 189,000 barrels per day, about half its August 2005 
level.
    West coast refineries have been the primary market for 
Alaskan crude oil since the inception of North Slope 
production. However, as production in Alaska has declined since 
1988, the share of crude input to West Coast refineries that is 
supplied by Alaskan oil has fallen, as shown by figure 2 in my 
written testimony. In 2005, oil refineries in California and 
Washington received 32 percent of their total crude oil input 
from Alaska, while imports provided 38 percent. A decade 
earlier, in 1996, refineries in these two States received an 
average of 1.16 million barrels a day of crude from Alaska, 
accounting for half of their total crude supply, while imports 
provided only 13 percent.
    Although the loss of any crude supply has a ripple effect 
throughout the world oil market, as supplies are shifted to 
fill gaps affecting a specific region, the current disposition 
of Alaskan oil suggests that West Coast refineries would be 
most immediately impacted by a cutback in the flow of oil from 
Alaska. However, as discussed in my written testimony, the 
cushion provided by relatively high crude oil inventories in 
advance of the recent production loss and the modest size of 
the reduction in flow that's actually occurred here precluded 
any major problems to date. EIA weekly refinery data through 
the week ending September 1 do not show any detectable impact 
on crude runs along the West Coast since the production 
cutbacks began.
    The response to an extended disruption in supply from 
Alaska would likely involve some increase in crude oil imports, 
especially since West Coast refineries are among the world's 
most sophisticated, with the capability to process different 
types of crude oil from many sources. Current major import 
sources for the West Coast are Saudi Arabia, Ecuador, Iraq, and 
Canada. Figure 3 in my written testimony provides additional 
detail.
    Timing considerations might favor an initial surge in 
imports from nearby suppliers, such as Ecuador, Canada, and 
Colombia, with more distant make-up volumes arriving later as a 
result of companies taking precautions to cover their supply 
needs. Complete import data are not yet available for August, 
but there is some preliminary evidence of increased imports.
    I was asked to consider the possible impacts of a 
hypothetical supply disruption involving more or even all of 
Alaska's crude oil supply. This is really very difficult to 
assess in general terms because the extent of those impacts 
would depend on many factors, such as the level of West Coast 
crude and product stocks, world surplus capacity, seasonal 
factors, and the perceived duration of the hypothetical 
disruption.
    Looking just at the global upstream balance in the world 
oil market, EIA estimates that current excess production 
capacity worldwide is only about 1 million to 1.5 million 
barrels per day, with all of this residing in Saudi Arabia. The 
loss of over 800,000 barrels per day--that would be the 
complete Alaska supply--for an extended period, given the 
current low level of surplus capacity, could trigger a 
noticeable rise in the world oil price.
    To conclude my testimony, I'd like to briefly summarize our 
latest short-term outlook for petroleum markets, which we are 
releasing this morning. While August, as we all know, began 
with a price surge, prices for both crude oil and gasoline have 
been falling steadily over the last 5 weeks. The average retail 
price of regular motor gasoline fell from $3.04 a gallon on 
August 7 to $2.62 per gallon yesterday, and we expect it to 
continue falling, with the monthly average of about $2.55 per 
gallon in January of next year, before rising again into next 
summer.
    Total motor gasoline stocks, which during the month of 
August in the last 5 years fell by an average of 10 million 
barrels, fell by only 2 million barrels this August. This 
modest decline in stocks, the expected seasonal drop in 
gasoline demand, and the changeover from summer to winter 
gasoline--the winter gasoline being less expensive to produce--
are all contributing to lower gasoline prices. At the present 
time the spread in price between a barrel of conventional 
gasoline and a barrel of WTI crude oil has shrunk to between $1 
and $2 per barrel. That's welcome news for consumers, but it's 
a gap that's unlikely to remain that small for a long period.
    In terms of distillate stocks, they were almost 10 million 
barrels above the previous 5-year average at the end of August, 
but diesel fuel prices have not fallen as much as gasoline 
prices. Global demand for distillate fuels, particularly in 
Europe and Asia, is keeping this market tight. While diesel 
fuel prices are expected to decline over the next few months, 
prices are projected to increase again as winter demand for 
heating fuel grows.
    Mr. Chairman and members of the committee, this completes 
my testimony. I'd be happy to answer any questions that you 
might have.
    [The prepared statement of Mr. Gruenspecht follows:]

Prepared Statement of Howard Gruenspecht, Deputy Administrator, Energy 
            Information Administration, Department of Energy

    Mr. Chairman and Members of the Committee: I appreciate the 
opportunity to appear before you today. The Energy Information 
Administration (EIA) is the independent statistical and analytical 
agency within the Department of Energy. We are charged with providing 
objective, timely, and relevant data, analysis, and projections for the 
use of the Congress, the Administration, and the public. While we do 
not take positions on policy issues, our work can assist energy 
policymakers in their energy policy deliberations. Because we have an 
element of statutory independence with respect to our activities, our 
views are strictly those of EIA and should not be construed as 
representing those of the Department of Energy or the Administration.
    My testimony today focuses on the role of Alaska North Slope oil in 
U.S. energy markets. The recent reduction in crude oil production from 
Alaska's Prudhoe Bay Field due to concerns over pipeline integrity and 
the reductions in Gulf of Mexico production as a result of Hurricanes 
Ivan, Katrina, and Rita in 2004 and 2005 provide reminders that 
domestic supplies of crude oil, not just foreign supplies, are subject 
to unexpected interruptions.

                           ALASKAN CRUDE OIL

    In 2005, Alaskan crude oil represented about 17 percent of total 
U.S. crude production and about 6 percent of all crude oil processed in 
the United States. While still an important part of U.S. supply, 
Alaskan oil production has declined from its 1988 peak of just over 2 
million barrels per day to 864 thousand barrels per day in 2005, with 
all but 20 thousand barrels per day produced on the North Slope. The 
Prudhoe Bay Field, which has provided the bulk of North Slope 
production, averaged about 370 thousand barrels per day in 2005, down 
from a peak of almost 1.6 million barrels per day in 1988.
    The Trans-Alaska Pipeline System (TAPS) conveys North Slope 
production 800 miles south to the ice-free port at Valdez, on the 
Prince William Sound. (Figure 1*) TAPS is owned and operated by a 
consortium called the Alyeska Pipeline Service Company, the current 
shareholders of which are BP, ConocoPhillips, ExxonMobil, Koch, and 
Unocal, with ownership shares of 46.93, 28.29, 20.34, 3.08 and 1.36 
percent respectively. While TAPS shipped as much as 2.1 million barrels 
per day at peak flow in 1988, the average 2006 flow has been about 780 
thousand barrels per day. Alyeska has stated that the pipeline can 
operate at rates as low as 400 thousand barrels per day.
---------------------------------------------------------------------------
    * All figures have been retained in committee files.
---------------------------------------------------------------------------
    On August 6, BP Exploration Alaska, Inc., which operates the 
Prudhoe Bay Field on behalf of itself and the other interest owners, 
announced that it would have to cut production from the field, pending 
acquisition of further information on the integrity of the transit 
pipelines that carry the produced oil to TAPS. (BP has a 26.3 percent 
ownership interest in the Prudhoe Bay Field, and its share of 
production in the field represented about one-third of BP's total 
Alaskan production in 2005.) Initially, concerns were raised that 
Prudhoe Bay production might be stopped altogether, but it was soon 
determined that only a part of production would have to be taken 
offline for an extended period. According to the State of Alaska, 
Prudhoe Bay production for the month of August averaged 189 thousand 
barrels per day, which is about half of its August 2005 level.

       MARKETS FOR ALASKAN CRUDE AND POTENTIAL DISRUPTION IMPACTS

    West Coast refineries in California and Washington have been the 
primary market for Alaskan crude since the inception of North Slope 
production. Before 1995, when the prohibition on the export of Alaskan 
crude was lifted by Congress, any Alaskan crude that was not used in 
Alaska, Hawaii, or the U.S. West Coast was shipped to other U.S. 
markets, mainly the U.S. Gulf Coast. Following the lifting of the 
export ban, the West Coast remained by far the dominant market for 
Alaskan crude, although some Alaska oil was exported through April 
2000. Since 2000, with the exception of a single export shipment made 
in 2004, all Alaska crude not consumed within the state has been 
shipped to U.S. refiners on the West Coast and in Hawaii.
    As production in Alaska has declined, the share of crude input to 
West Coast refineries that is supplied by Alaska oil has also fallen 
(Figure 2). In 2005, oil refineries in California and Washington 
received an average of 748 thousand barrels per day from Alaska, 32 
percent of their total crude oil receipts of 2.368 million barrels per 
day. Other domestic production, primarily from California, provided 30 
percent of crude receipts, and imports provided 38 percent. This 
reflects a substantial reduction in the role of Alaska crude compared 
to 1996, when refineries in these two states received an average of 
1.164 million barrels per day of crude from Alaska, accounting for 50 
percent of their total crude supply. A decade ago, imports provided 
only 13 percent of crude supply to California and Washington 
refineries.
    Given the current disposition of Alaskan oil, West Coast refineries 
are the most immediately impacted by a cutback in the flow of oil from 
Alaska, although loss of any crude supply has a ripple effect 
throughout the world market as supplies are shifted to fill gaps 
affecting a specific region. However, the cushion provided by 
relatively high crude oil inventories in advance of the recent 
production loss and the modest size of the reduction in flows has kept 
the present Alaskan supply shortfall from creating any major problems. 
Since the cutbacks of Alaskan crude oil production began in early 
August, we have not seen any significant impact on crude runs in 
California or Washington refineries.
    West Coast (Petroleum Administration for Defense District V (PADD 
V)) crude oil inventories were at the high end of the typical range at 
the beginning of the month before the announcement, and would be 
expected to drop by 2.4 million barrels during August. In actuality, 
they fell 3.8 million barrels between July 28 and August 18, but 
remained within the typical range for that time of year. Because 
Alaskan crude oil produced prior to August would still have been 
arriving on the West Coast during part of this time, it is not clear 
that the inventory reduction was associated with the August Alaskan 
production reduction. From August 18 through September 1, West Coast 
inventories have increased slightly to a level in the middle of the 
typical range.
    The response to an extended disruption in supply from Alaska will 
likely involve some increase in crude oil imports. One factor that 
would tend to mitigate the impacts of a disruption in supply from 
Alaska on West Coast petroleum product markets is that West Coast 
refineries are among the world's most sophisticated, in part due to the 
very stringent clean fuel requirements in the California market. These 
refineries have the capability to process different types of crude oil 
from many sources, providing them with more flexibility than so-called 
simple refineries, which require a relatively narrow range of crude oil 
types in order to produce their preferred product mix.
    Current major import sources for California and Washington 
refineries are Saudi Arabia, Ecuador, Iraq, and Canada. (Figure 3) 
While increased imports could ultimately flow from a variety of 
sources, timing considerations might favor an initial surge in imports 
from nearby suppliers, such as Ecuador, Canada, and Colombia, with more 
distant makeup volumes arriving later as a result of companies taking 
precautions to cover their supply needs. Complete import data are not 
yet available for August, but there is some preliminary evidence of 
increased imports.
    Although EIA has been asked to provide some insights into the 
possible impacts of a hypothetical disruption affecting more, or even 
all, of Alaska's crude oil supply, it is very difficult to generalize, 
because the extent of any impacts would depend on myriad factors, such 
as the level of PADD V crude and product stocks, world surplus 
capacity, seasonal factors, and the perceived duration of the 
hypothetical disruption. Looking just at the global upstream balance, 
EIA estimates the current excess production capacity worldwide is only 
about 1.0 to 1.5 million barrels per day, with all of this residing in 
Saudi Arabia. At the current low level of worldwide surplus production 
capacity, the loss of around 800 thousand barrels per day of supply 
from Alaska for an extended period could trigger a noticeable rise in 
the world oil price. Initial responses by West Coast refiners would 
likely include both some drawdown of crude oil stocks and efforts to 
increase crude imports, as described above.

                       SHORT-TERM ENERGY OUTLOOK

    To conclude my testimony, I would like to summarize the short-term 
outlook for petroleum markets, which we released today as part of our 
September Short-Term Energy Outlook (STEO).
    While August began with a surge in petroleum prices, prices for 
both crude oil and gasoline have been falling steadily over the last 
five weeks. The U.S. average retail price of regular motor gasoline 
fell from $3.04 per gallon on August 7, 2006, to $2.73 per gallon on 
September 4, 2006, and prices are expected to fall to an average of 
$2.55 per gallon in January 2007 before rising again into next summer. 
In 2006 and 2007, we expect the West Texas Intermediate (WTI) crude oil 
spot price to average around $70 per barrel and we expect retail 
regular gasoline prices to average about $2.66 per gallon in both 2006 
and 2007.
    Projected world petroleum consumption growth is 1.2 million barrels 
per day in 2006 and 1.7 million barrels per day in 2007, 
notwithstanding recent price levels. However, EIA has reduced expected 
oil demand for 2006 and 2007 downwards for the second consecutive 
monthly STEO in response to slower demand growth in the Organization 
for Economic Cooperation and Development (OECD) countries.
    Surplus world crude oil production capacity is expected to increase 
slightly in 2007, but will remain low enough that existing and 
potential supply problems in Alaska, Iran, Iraq, Nigeria, and Venezuela 
may continue to raise concern. Because of these factors, as well as the 
continued tight supply-demand balance, EIA expects little relief from 
current pricing patterns.
    First-half 2006 production data show non-OPEC production growth of 
around 0.3 million barrels per day compared to the same period last 
year, and annual growth for 2006 will likely total around 0.6 million 
barrels per day, reflecting both new projects and the recovery from 
hurricane impacts that affected production during the last four months 
of 2005. Non-OPEC production is projected to increase by 1.4 million 
barrels per day in 2007, with new projects in the Caspian Region, 
Africa, and Brazil expected to add more than 0.9 million barrels per 
day of new production.
    OECD inventories began the second quarter 2006 at the upper end of 
their past 5-year range for this time of year. However, when measured 
on the basis of how many days of demand the current supply could meet, 
OECD inventories were only in the middle of their observed 5-year 
range. By the end of 2007, EIA projects days of supply of OECD 
inventories to finish at the bottom of their 5-year range for that time 
of year, which is expected to make the market even tighter.
    Average domestic crude oil production is expected to decrease by 23 
thousand barrels per day, or 0.4 percent in 2006, to a level slightly 
under 5.1 million barrels per day. For 2007, a 7.6 percent increase is 
expected, resulting in an average production rate of about 5.5 million 
barrels per day for the year.
    Total U.S. petroleum consumption is projected to be unchanged in 
2006 compared with 2005. In 2007, total consumption is expected to 
increase by 2.0 percent. While motor gasoline consumption exhibited 
almost no growth in 2005, it is projected to grow 1.0 percent in 2006 
and 1.2 percent in 2007, reflecting anticipated continued U.S. economic 
growth. Distillate (diesel fuel and heating oil) consumption, having 
increased 1.3 percent in 2005, is projected to increase 1.8 percent in 
2006 and 2.2 percent in 2007.
    Total U.S. primary motor gasoline stocks at the end of August were 
8 million barrels above the previous 5-year average. Total motor 
gasoline stocks, which fell by an average of 10 million barrels in 
August in the last 5-year period, fell by only 2 million barrels this 
August. The moderate decline in stocks, the expected seasonal decline 
in gasoline demand, and the changeover from summer-grade to winter-
grade gasoline this month--which is less expensive to produce--all 
combined to lower gasoline prices in August. Although distillate stocks 
were 10 million barrels above the previous 5-year average at the end of 
August, diesel fuel prices have not fallen as much as gasoline prices 
have. Global demand for distillate fuels, particularly in Europe and 
Asia, are expected to keep this market tight. While diesel fuel prices 
are expected to decline over the next few months, heating oil prices 
are projected to increase as winter demand for this heating fuel grows.
    Mr. Chairman and members of the Committee, this completes my 
testimony. I would be happy to answer any questions that you might 
have.

    The Chairman. Before we go to the next witness, I just 
wanted to ask, for the record, would you give us, if you recall 
it, the highest price per barrel for oil in the past 6 months 
and the low?
    Mr. Gruenspecht. I think around $77, $78 a barrel for West 
Texas Intermediate was the peak. Now we're I think at $65 and a 
little bit. And this is the low point in recent history, 
although far above, obviously, prices that we were used to for 
quite a long time.
    The Chairman. Yes, but that's a big drop.
    Mr. Gruenspecht. That's a big drop.
    The Chairman. What percent?
    Mr. Gruenspecht. Well, let's say 15, 16 percent is about 
right. And gasoline has dropped over 40 cents a gallon in the 
past 5 weeks.
    The Chairman. Your record reflected it, but let's emphasize 
it here. It appears that the OPEC cartel has fed that situation 
by increasing production, not decreasing it; right?
    Mr. Gruenspecht. My understanding of the OPEC statements is 
that they have no plans to cut back production.
    The Chairman. All right, very well. Thank you.
    Now we're going to go to the BP side of the ledger here, 
Mr. Robert Malone, president and chairman of BP America. He is 
accompanied by two people. We're going to have their presence 
noted. Mr. Steve Marshall is the president of BP Exploration 
(Alaska) Inc., Anchorage, AK; is that correct?
    Mr. Marshall. That's correct, yes.
    The Chairman. And you have with you, Mr. Malone, and your 
vice president and chief economist, Mr. Peter Davies--or is it 
``Dae-Vees''?
    Mr. Davies. It's ``Dae-viss,'' yes indeed, sir.
    The Chairman. Thank you.
    Now, you have asked me, if there's an economic question 
that we ask and you need an answer, if you can ask your 
economist, and I agreed to that. And if you want to in some way 
question Mr. Steve Marshall, who has more longevity in some of 
these areas and would know an answer, rather than leave it open 
and vague, we will agree to that too at this point.
    So would you now proceed to give us your background with 
the company and your record statement, please.

   STATEMENT OF ROBERT A. MALONE, PRESIDENT AND CHAIRMAN, BP 
  AMERICA, INC., HOUSTON, TX; ACCOMPANIED BY STEVE MARSHALL, 
  PRESIDENT, BP EXPLORATION (ALASKA) INC., ANCHORAGE, AK; AND 
 PETER DAVIES, VICE PRESIDENT AND CHIEF ECONOMIST, BP, P.L.C., 
                           LONDON, UK

    Mr. Malone. Thank you. Mr. Chairman and members of the 
committee, good morning. My name is Bob Malone and I'm the 
chairman and president of BP America.
    BP America's recent operating failures are unacceptable. 
They have fallen short of what you and the American people 
expect from BP and they have fallen short of what we expect of 
ourselves. We know we will be measured by what we do, not what 
we say, and we are in action to fix the problems, and in doing 
so, regain the trust of you and the American people.
    On August 6 I received word of severe corrosion in one of 
our eastern operating area transit lines in Alaska. The 
decision was made to shut down these transit lines to avert any 
possibility of an oil spill and to protect the environment. We 
fully recognize this decision was not without consequences, but 
it was the right thing to do.
    We immediately initiated extensive testing of the transit 
lines on the western side of the field, assured ourselves that 
they were fit for continued service, and thus retained the 
production of about 200,000 barrels a day. Many were concerned 
about the impact on crude supply and gasoline prices. BP 
brought in cargoes of crude oil from around the world, some 3.5 
million barrels. Other suppliers did the same. There have been 
no crude shortages and both crude oil and gasoline prices have 
steadily declined since the incident. BP continues to acquire 
stocks to replace the production that remains shut down.
    BP is committed to fully restoring production as soon as we 
are confident that it can be done in a safe and environmentally 
responsible way. Continued inspections of the eastern operating 
area lines have shown little corrosion. We plan to submit a 
request to DOT to resume operations very soon.
    Across BP, we have taken a number of actions to ensure that 
our businesses are run in a manner that meets our expectations 
and yours. Many of these were announced by John Browne on July 
1 and they included my appointment. I'd like to highlight the 
following.
    I've retained three of the foremost experts in the world on 
corrosion and infrastructure management to evaluate and make 
recommendations for improving the corrosion management program 
in Alaska. We will apply these learnings to the rest of our 
pipeline operations in America and around the world. We have 
added an additional $1 billion to the $6 billion already 
earmarked to upgrade all aspects of safety at our U.S. 
refineries and for integrity management in Alaska. Over $550 
million, and that's net to us, will be spent on integrity 
management improvements in Alaska over the next 2 years.
    We have initiated a review of our U.S. trading business by 
independent external auditors. They will examine the design of 
the trading organization, delegations of authority, standards 
and guidelines, resources, and the effectiveness of our 
controls and our compliance.
    I've appointed former U.S. district judge Stanley Sporkin 
as an independent ombudsman reporting directly to me and I've 
asked him to conduct a review of all worker allegations that 
have been raised on the North Slope since 2000. I've 
established an operational advisory board that's composed of 15 
business leaders in BP America to advise me on safety, 
operational integrity, and compliance. I'm in the process of 
recruiting an external advisory board to assist and advise me 
in monitoring BP's U.S. businesses, with particular focus again 
on safety, operational integrity, compliance, and ethics. I'm 
also building an internal team of experts that will work in the 
area of process safety, personnel safety, integrity, and 
compliance and ethics.
    I continue to meet with employees to reinforce our 
expectations to them to ensure that BP's operations are safe, 
that they have the right and the responsibility to shut down 
any process they feel is unsafe or lacks appropriate integrity, 
and to raise any concern on any issue.
    I am personally committed to rebuilding the public's 
confidence in BP America. I have the full support of our chief 
executive, John Browne, our executive leadership, and the 
entire BP Group, and I have been given all the authority 
necessary to accomplish this task. Bringing our operations to 
the level of excellence that you expect and we will demand is 
going to take time, and I would offer to this committee that 
I'd be happy to come back and report on our progress in 6 
months and regularly thereafter.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Malone follows:]

    Prepared Statement of Robert A. Malone, Chairman and President, 
                            BP America Inc.

    My name is Bob Malone and I am Chairman and President of BP America 
Inc. BP America is the U.S. holding company for all subsidiary 
companies operating in the United States. BP America, through its 
subsidiaries employs more than 36,000 people and produces 666,000 
barrels of crude oil and 2.7 billion cubic feet of natural gas per day. 
We operate five refineries that process nearly 1.5 million barrels a 
day of crude oil, and a system of pipelines and terminals throughout 
the United States that supply over 70 million gallons per day of 
gasoline and distillate fuels to customers in 35 states.
    BP Exploration Alaska (BPXA) is the operator of the largest oil 
field in North America--Prudhoe Bay on Alaska's North Slope. Our charge 
is to operate this field in a safe, efficient and environmentally 
responsible way for the benefit of the State of Alaska, our business 
partners, our customers, our employees and our shareholders. The 
public's faith in BP has been tested recently by corrosion discovered 
in the pipeline oil transit system that conveys processed crude oil 
from the North Slope gathering centers to Alaska's Trans Alaska 
Pipeline System (TAPS).
    BP has fallen short of the high standards we hold for ourselves, 
and the expectations that others have for us. I commit that BP America 
will work closely with the State of Alaska, our employees, our 
regulators and Congress to take the necessary steps to restore your 
confidence in BP.
    I will outline what I know of the operational incident at Prudhoe 
Bay and discuss several other operational challenges BP has experienced 
over the last 18 months and address many of the questions members of 
the Committee, regulators and others have raised. Most importantly, I 
will outline the steps that BP has taken or is committed to undertaking 
to address these challenges and enhance the public's confidence in our 
company.

                              PRUDHOE BAY

    The Prudhoe Bay field is located 650 miles north of Anchorage and 
400 miles north of Fairbanks. It is 1200 miles from the North Pole and 
250 miles north of the Arctic Circle. Pump Station 1 , the beginning of 
the Trans Alaska Pipeline System (TAPS), is located within the 
perimeter of the Prudhoe Bay field. For additional detail on Prudhoe 
Bay operations please refer to Exhibit 1 in the appendix.*
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    * All exhibits have been retained in committee files.
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    Prior to 2000 the Prudhoe Bay field comprised the East Operating 
Area, operated by Atlantic Richfield Company (ARCO), and the West 
Operating Area, operated by BPXA. Upon acquisition of ARCO by BP, BPXA 
became the sole operator of Greater Prudhoe Bay. Although BPXA operates 
the field, a total of nine companies have a so-called ``working 
interest'' in the field leases. The costs and production are shared 
amongst the working interest owners, according to their ownership.
    In March of 2006, BPXA discovered a leak along the GC-21 line in 
the Western Operating Area (Exhibit 2). This is a 34" line that carries 
processed sales quality crude oil to a central gathering center for 
ultimate delivery into TAPS at pump station 1. The leak was 
approximately 5,000 barrels, the largest spill ever on the Alaskan 
North Slope. Shortly thereafter, the U.S. Department of Transportation 
(DOT) issued a Corrective Action Order (CAO) to BPXA ordering it to 
perform ``smart pig'' in-line inspection (ILI) tests along with other 
inspection methods along both the Western and Eastern Oil Transit Lines 
(OTLs). There were a number of complex technical issues to resolve 
before the tests could be conducted, including developing a solution 
for managing the solids generated during the pigging operation.
    BPXA began pigging operations along the Lisburne OTL in June. ILI 
testing of the Lisburne OTL showed good results and affirmed our 
confidence that the lines were fit for service. BPXA began pigging 
operations along the Eastern OTL in early July. Analyses of these 
``smart pig'' inspections were received on Friday, August 4 and 
indicated 16 significant anomalies at 12 different locations along the 
upstream segment of the Eastern OTL. BPXA began immediate physical and 
ultrasonic testing of these anomalies and verified the presence of 
additional corrosion. BPXA's inspections also revealed insulation 
staining along a segment of the Eastern OTL. With the knowledge of 
these results, BPXA immediately shut down production at Flow Station 2 
as a precautionary measure and BPXA technicians subsequently discovered 
a small leak after close visual inspection along the FS-2 to FS-1 
pipeline segment.
    The smart pig results along the Eastern OTL were unexpected. 
Because the exact cause of the corrosion mechanism was unknown, BPXA 
was concerned over the condition of the Western OTL. Thus, BPXA took 
the prudent step on the morning of August 6 of announcing our intent to 
systematically shut-down both sides of the Prudhoe Bay field until 
existing inspection data could be further assessed and verified with 
follow up inspections.
    Some have questioned whether BPXA made a rash decision to shut down 
the field over a small leak. To me, the decision to shut-down was a 
reaffirmation of BP's values and was the responsible thing to do. We 
took this step to prevent a potential release from occurring.

          BP CORROSION PREVENTION PROGRAM FOR THE NORTH SLOPE

    Corrosion is the natural degradation of a material, like steel 
pipe, that results from a reaction with its environment. While 
corrosion cannot be eliminated, it can be effectively managed through a 
combination of monitoring and mitigation treatments. The goal of 
corrosion mitigation programs is to control corrosion rates to 
acceptable levels.
    Corrosion rates are not static, however, and they can increase or 
decrease depending on fluid properties or changes in conditions that 
affect the efficacy of corrosion inhibitors. For that reason, locations 
that are prone to corrosion damage, or where damage has been 
identified, are inspected as often as every three to six months.
    BPXA uses pigging, ultrasonic testing (UT), visual inspections, 
corrosion inhibitors and other techniques as appropriate for each 
individual oil field's characteristics. We employ a risk-based 
management program whereby resources and activities are concentrated in 
areas where corrosion is expected to occur. Exhibits 3 and 4 describe 
the operations of a gathering center in producing, separating and 
pumping oil and show a graphical representation of a producing field.
    BPXA's program was designed to control corrosion, extending the 
useful life of valuable North Slope infrastructure. The 2006 annual 
budget for BPXA's corrosion monitoring and mitigation program is $74 
million, an increase of 15 percent from 2005, and 80% from 2001. As 
Exhibit 5 demonstrates, corrosion management ``spend'' has increased 
significantly over the last 5 years despite the reduction in Prudhoe 
Bay oil production volumes.

                               INHIBITION

    A key element of the program is widespread continuous chemical 
corrosion inhibitor injection. In short, the best way to address 
corrosion is to prevent it from happening in the first place. Our 
commitment to effectively managing corrosion on the North Slope is 
reflected in our corrosion inhibitor injection rates. Exhibit 6 is a 
diagram of the inhibitor concentrations and the corresponding corrosion 
rates achieved as measured by corrosion coupons.
    We continuously monitor the effectiveness of the inhibition 
programs with corrosion coupons and electrical resistance (ER) probes. 
The ER probes take readings every 4 hours of the corrosion potential of 
the fluids and allow us to make adjustments to corrosion inhibitor 
injection rates on a weekly basis. Exhibit 7 is a typical configuration 
of a corrosion coupon and ER probe.

                       MONITORING AND INSPECTIONS

    BPXA's North Slope pipeline monitoring and inspection program 
incorporates combinations of ultrasonic, radiographic, magnetic flux, 
guided wave and electromagnetic inspection techniques. Ultrasonic and 
radiographic testing are used as an indicator to trigger further action 
and is sound for pipelines that are accessible above-ground.
    BPXA's overall annual inspection program includes inspections at 
about 100,000 locations on pipelines in Prudhoe Bay. Of these 
inspections, approximately 60,000 are for internal corrosion inspection 
and approximately 40,000 are for external corrosion inspection.
    BPXA runs approximately 370 maintenance pigs per year on the North 
Slope. In addition, we utilize coupon monitoring, smart pigging, leak 
detection systems and surveillance by personnel to provide integrity 
assurance and maintain safe operations (See Exhibit 8 for detail 
regarding pigging operations).
    Lines are pigged in Prudhoe Bay either because of mechanical issues 
or because corrosion monitoring suggests it. The frequency of pigging 
is specific to each pipeline and varies significantly across the North 
Slope and the industry. For example, the Northstar oil pipeline is 
pigged every two weeks to prevent paraffin buildup.
    Another technology is ultrasonic testing (UT) which involves the 
use of a high frequency sound wave to produce a precise measurement of 
the thickness of a material. Our UT inspections are not simply one 
reading at one location on the pipe. Rather, they are an inspection of 
the full circumference of the pipe over a one foot length. So when we 
count one UT inspection, it is really hundreds of individual readings 
over a one foot length of pipe. The technology is a proven diagnostic 
tool routinely used for corrosion monitoring.
    We also use corrosion coupons (see Exhibit 7) throughout our 
operations in order to obtain additional information about any 
corrosive conditions that might exist in our systems that escaped other 
inhibition and monitoring programs. The majority of our coupons are 
read on a three to four month basis.
    Important components of pipeline inspections also include regular 
visual inspections and the use of Forward Looking Infrared (FLIR) 
devices. FLIR technology is used to spot heat signatures of crude oil 
and is especially useful during winter months.

                        MITIGATION OF CORROSION

    In the design of pipelines, many corrosion mitigation methods are 
considered. The selection of material from which to manufacture pipe, 
such as corrosion resistant alloys like stainless steel, is one 
consideration. Another option is the use of various coatings and 
linings that provide pipelines protection against corrosive agents.
    Technology used to protect metal structures from corrosion includes 
cathodic protection, a technique that is usually used in buried 
pipelines and takes advantage of electrochemical properties to reduce a 
metal structure's corrosion potential.
    Mitigation also involves the application of corrosion inhibitors 
and biocides in conjunction with preventative maintenance such as 
pigging and physical repair of external damage.
    External corrosion is mitigated by removal of the source for the 
water, drying, cleaning and buffing of the damage area and application 
of new insulation and/or coatings. If external corrosion limits the 
integrity of the pipeline, then repair techniques are used such as 
sleeves, clock springs, clamps and or composite wraps.

            IF THE PROGRAM WAS COMPREHENSIVE, WHAT HAPPENED?

    The recent leaks were on the oil transit lines, which are the last 
pipelines before the sales quality processed crude oil flows into TAPS. 
By this point, the major corrosion battles have already been fought. 
General corrosion and pitting in the OTLs were monitored by corrosion 
coupons on a quarterly basis, and consistently showed very low 
corrosive conditions, always below the BP targeted wall thickness loss 
of less than .002 inches per year. Exhibit 9 shows coupon results in 
the OTLs. Similarly, UT monitoring results have consistently revealed 
corrosion to be under control.
    The first indication of a growth in corrosion came from our 
corrosion monitoring program in the facilities upstream of the WOA 
OTLs. An increase in facility corrosion upstream of the WOA OTLs, 
detected during the 2005 UT inspection cycle, while not alarming, 
caused BPXA to perform additional UT inspections of the OTLs. The 
results of these inspections led us to schedule another ILI of the WOA 
OTL for mid-2006. The March release occurred before that pig run was 
conducted.
    Based on the available test data, no evidence of general corrosion 
(i.e. wall loss throughout the pipe) along the OTLs has been found. 
Instead, the OTLs have widely spaced, mostly isolated dime-sized pits 
about 5 to 10 feet apart. The corrosion is more serious on the upstream 
segments of these lines, which have the lowest flow velocities.
    Why wasn't the pitting corrosion detected by BP's monitoring 
program? While BP had an active inspection program for these lines, the 
isolated pits were too widely spaced to be detected by that program. 
For example, there was an inspection site adjacent to the point where a 
leak occurred. The inspection did not detect any corrosion--just a few 
feet away from a pit.
    We initially believed that the corrosion along the WOA had 
developed due to certain operational changes in the WOA, and that the 
EOA was not similarly affected. However, these conclusions were 
premature and made before the latest inspections were completed. The 
inspection of the EOA OTL revealed that the pattern of corrosion damage 
is similar in both the EOA and WOA, although the precise corrosion 
mechanism remains under study.

                             COFFMAN REPORT

    Mention has been made recently of the annual reports that have been 
submitted by Coffman Engineers, which reviewed BPXA's inspection and 
maintenance program on behalf of the State of Alaska. Drafts of these 
reports suggested several deficiencies in BPXA's program. The 
implication is that if these deficiencies had been addressed, then the 
recent pipeline incidents would have been prevented.
    Previous Coffman reports have noted there were isolated pockets of 
accelerated corrosion in BPXA's North Slope infrastructure. Notably, 
Coffman also stated those problem areas were discovered during the 
regular course of inspection. When discussing internal corrosion on oil 
lines, the Coffman reports focus attention on the ``production system'' 
of well lines and flow lines, the ``three-phase'' lines that carry a 
mix of oil, water and gas. These are the lines where corrosion is more 
of a known threat than in the transit lines that carry ``processed 
oil''. Coffman did not specifically discuss the oil transit lines in 
any of its reports.
    Thus, while there were areas in Coffman's reports recommending 
additional inspection and maintenance activities, on balance they 
offered support for the efficacy of BPXA's corrosion management 
program.
    Excerpts from recent Coffman reports are shown below:

   The 2003 report states: ``From a global perspective of oil 
        and gas production, Greater Prudhoe Bay (GPB) and related 
        facilities have an aggressively managed corrosion control 
        program. This suggests an adequate long-term commitment to 
        preserving facilities for future production and sensitivity to 
        environmental consequences.''
   The 2004 report credits BP with transparency and candor, and 
        for maintaining a corrosion program in which there is no 
        ``acceptable'' risk. It said BP's program ``is effective and 
        exceeds common industry practice,'' and that ``Corrosion in 
        most of the pipeline system has been reduced to a negligible 
        level.''

                              PATH FORWARD

    BPXA's incident analysis is underway, but we have already taken 
steps to characterize the problem and assess the integrity of all the 
OTL lines. This information has been submitted to the Office of 
Pipeline Safety (OPS), whose staff is currently reviewing it. We also 
have outside experts who are reviewing the data and who will provide 
independent opinions about its adequacy.
    We have been working in cooperation with OPS and the State of 
Alaska to ensure the safety and integrity of these systems. We pledge 
to continue working in cooperation with DOT and other interested 
stakeholders to ensure that these lines, and all our pipeline 
operations on the North Slope, are operated to a high standard of 
operational excellence.
    Now we must focus our attention on the future--and what we will do 
to mitigate the risk of future leaks occurring in these oil transit 
lines. We have committed to undertake seven key actions:

          1. Run an in-line inspection tool in each of the Prudhoe Bay 
        Oil Transit Lines that are returned to service.
          2. Confirm through testing the exact corrosion mechanism that 
        caused this problem and modify our mitigation programs 
        accordingly.
          3. Implement maintenance pigging in all Oil Transit Lines.
          4. Include all BP operated Oil Transit Lines on the North 
        Slope into DOT's Pipeline Integrity Management Program. This 
        will cover all 122 miles of BP Oil Transit Lines in Alaska, not 
        just those in the Prudhoe Bay field.
          5. Replace 16 miles of WOA / EOA oil transit lines with 
        smaller diameter lines to increase their flow velocity and help 
        prevent this problem in the future. The estimated cost of this 
        is in excess of $150 million.
          6. Change the BPXA organizational structure has been changed 
        with the addition of a Technical Director to provide 
        independent assurance of our integrity management efforts.
          7. Increase spending on Prudhoe Bay major maintenance will 
        increase to $195 million in 2007, a nearly four fold increase 
        from 2004 spending levels. This increase is in addition to the 
        investment in replacement pipe.

    In addition to these physical changes we remain committed to work 
collaboratively and proactively with the DOT and State regulators.

                        BUSINESS RESUMPTION PLAN

Western Operating Area
    BPXA has conducted more than 4,876 UT tests of the Western 
Operating Area OTLs subsequent to the August 6th announcement. These 
subsequent inspection results have not indicated any wall thickness 
loss greater than 39%. In addition, BPXA has begun a surveillance 
effort that includes daily over-flights using infrared cameras, as well 
as the use of hand-held infrared cameras on the ground. The cameras can 
detect small leaks by sensing changes in pipeline surface temperatures. 
Two vehicles with spill response equipment and carrying observers with 
infra-red leak detection equipment are patrolling the line 24 hours a 
day. They will be teamed with pipeline walkers who will visually 
inspect the line 10 times a day.
    Production had been reduced by 90,000 barrels/day due to a 
maintenance turnaround and a compressor malfunction in GC-2. 
Replacement of the compressor was completed on Sunday, August 27 and 
production in the WOA has been restored to approximately 220,000 
barrels/day.

Eastern Operating Area
    Work continues on removal of insulation from pipe; line inspections 
and testing are underway. We are averaging 200 to 300 inspections per 
day. About 160 workers are dedicated to this inspection effort.
    We are currently focusing inspections on the 34" segment that runs 
from FS-1 to Skid 50 (see Exhibit 2). If the inspection results show 
that the line has integrity, we will request permission to re-start 
that line from the DOT. We are currently working through a process with 
DOT to make that request once we can provide assurance that the line 
can be safely re-started and pigged. We expect to make that request 
this week. Restart will allow us to quickly conduct both maintenance 
and smart pigging of these lines, in line with the DOT CAO.
    This will allow resumption of partial production from Flow stations 
1 and 3. After re-start, these line segments will need to be inspected 
with a smart pig to meet requirements imposed by the DOT. If inspection 
results indicate that these EOA OTLs are not fit for service, then by-
pass options will be completed as soon as practicable.
    Regarding the leak along the FS-2 transit line, the estimated 23 
barrels of oil spilled has been cleaned up. The line currently holds 
about 13,000 barrels of crude. Metal sleeves have been installed on 
those sections of the transit line with severe corrosion. BPXA has 
submitted a plan to the U.S. Department of Transportation for de-oiling 
this segment of line.
    Concurrent with our inspection activities and in case these 
activities indicate that the lines are not fit for service, by-pass 
options are being pursued to restore as much production as possible in 
an environmentally safe manner. The focus is largely on the EOA and 
includes new options to divert production from each of the existing 
Flow Stations to Skid 50 (see Exhibit 2).

   The production from FS-2 is being engineered to route to the 
        Endicott production line through new piping.
   The production from FS-1 is being engineered to route to the 
        Endicott production line through new piping.
   The production from FS-3 is being engineered to route 
        through Drill Site 15 and then to a jumper into the Lisburne 
        OTL.

    Work on these options is expected to be completed by the end of 
October.
    All of this work is taking place as BPXA prepares for ultimate 
replacement of the 16 miles of WOA/EOA oil transit lines. Sixteen miles 
of pipe has been ordered from U.S. mills and is expected on the slope 
during the fourth quarter. We are hopeful that work can be completed 
during the winter construction season.
    At this point, we do not have a schedule for restoring all or a 
portion of EOA production and can't speculate on how long it's going to 
take.
    While many of the circumstances surrounding the incidents at 
Prudhoe Bay are known there is much more that needs to be done to fully 
understand the corrosion mechanism we experienced. These results will 
be known in due course and will be shared in a fully transparent way. 
In the meantime, BPXA is committed to restoring full production to the 
EOA as soon as we are confident it can be done in a safe and 
environmentally responsible way.

New Pipeline Safety Regulations
    Historically, certain pipelines that operate at low stress were 
exempt from U.S. DOT oversight. This exemption applied to onshore 
pipelines such as oil transit lines on the Alaskan North Slope.
    However, since the March 2, 2006 spill from BP's Western OTL (a 
low-stress system); DOT has accelerated its on-going rulemaking 
activity and recently proposed a rule to revise the low-stress 
exemption. Upon completion of its rulemaking process, it is likely that 
any low-stress pipeline that is in an ``unusually sensitive area'' as 
defined by DOT rules will become a regulated pipeline under DOT 
jurisdiction. The proposed rulemaking would encompass all of the OTL's 
on the North Slope. These proposed regulatory changes are strongly 
supported by BP.

Employee Concerns
    As soon as I was named head of BP America in July 2006, I took a 
tour of as many of our facilities as I could reasonably visit--to find 
out what our people were saying. I visited plants and offices across 
America from Alaska to Texas with many stops in between. I can tell you 
that the solution to many issues that BP America faces rests right at 
home--with those who are our BP employees.
    I made it clear that they had three obligations----

   Workers must feel that operations are safe and the integrity 
        of our infrastructure is sound at our facilities
   If they don't feel safe or if process integrity is in 
        question--they have the authority to shut operations down
   Workers must feel comfortable raising concerns

    I know that BP has processes in place to address employee concerns. 
People can raise concerns through line management, they can raise 
concerns through our safety committees, and they can call in to a world 
wide anonymous hot line. Alaska has had its own hotline for worker 
concerns. We believe, in fact, that most of the concerns have been 
raised through one or more of these systems. The problem has not been 
in workers raising concerns--sometimes it's been our responsiveness.
    In recognizing that the current situation may not provide complete 
assurance--I have created a new position of ombudsman, reporting 
directly to me. Former U.S. District Court Judge Stanley Sporkin has 
agreed to fill this role and provide an independent team to assess and 
to bring to resolution any safety-related operational concerns raised 
to his office. I expect Judge Sporkin will call them as he sees them. 
This is critical, as workers are going to speak out. We encourage it.
    I have also asked Judge Sporkin to initiate a full review of all 
the worker allegations that have been raised on the North Slope since 
the acquisition of ARCO in 2000. I want to determine if the problems 
have been addressed and rectified to BP's standard, with appropriate 
feedback to the worker.
    BP America is committed to finding out about and acting on 
operational and other issues. This is why we have created the new 
ombudsman role to help facilitate this information gathering and 
exchange.

Supply/Price and Consumer Impacts
    Upon the August 6, 2006 announcement that BPXA intended to shut 
down the Prudhoe Bay field, concerns were expressed about the impact 
this decision would have on crude supplies and gasoline prices to the 
West Coast. Early estimates that the entire production from Prudhoe Bay 
of approximately 400,000 barrels/day would be shut-in proved wrong. 
Extensive ultrasonic testing of the western oil transit lines provided 
BPXA with sufficient data to determine that production in the Western 
Operating Area could continue in a safe and environmentally responsible 
manner.
    The loss of crude shipments to the Trans Alaska Pipeline was thus 
limited to roughly 200,000 barrels per day.
    In light of this supply gap, many policymakers voiced concerns that 
West Coast refiners would be unable to find alternative sources of 
crude to keep their refineries operating and the gasoline market 
supplied. At the time of the incident, West Coast inventory levels for 
both crude and products were seasonally high, near record levels in 
some cases.
    On news of the curtailment in production, BP and others in the 
Industry made moves to source incremental barrels from alternative 
sources including West Africa (WAF), the Middle East and South America 
(see Exhibit 10). BP's activity was focused largely on meeting the 
crude oil and refined product demands of our refineries and customers. 
To this end, BP has secured an incremental 3.5 million barrels of crude 
oil for delivery to the West Coast in September and October.
    The company has also agreed to take steps that will ensure the 
continued flow of oil to both Flint Hills Resources and Petro Star 
refineries in Alaska which depend on North Slope oil for their 
operations.
    How have these incremental supplies impacted the price structure of 
the West Coast markets? As shown in Exhibits 11 and 12 the market 
reaction was relatively benign over the period due to the availability 
of alternative crude and product supplies. The few impacts that have 
been seen in the product markets were largely the result of local 
refinery issues rather than disruption in Alaska crude deliveries 
(Exhibit 13). Nevertheless, in the two weeks after the incident both 
crude and product prices were lower than the levels of August 6.
    A few people have alleged that BP engineered the shutdown of 
Prudhoe Bay as a way to manipulate prices. I am here to assure you that 
nothing could be further from the truth. BPXA took the extraordinary 
step to shut down production because we saw unexpectedly severe 
corrosion that couldn't be explained and which caused us to question 
the condition of other transit lines serving the oil field. We were 
simply not willing to risk worker safety or the potential for a further 
oil spill. Further, BP has gone to great lengths to not only guarantee 
supplies to Alaska refiners but also secure incremental crude for 
delivery to the West Coast.
    BP's commitment to ensuring product supply to the market and its 
customers is not a new phenomenon. Immediately following Hurricanes 
Katrina and Rita, BP also took extraordinary steps to ensure product 
supplies to the United States. Some of these activities are listed 
below:

   Importing more than 29.5 million barrels of gasoline, diesel 
        and jet fuel for delivery into markets in the Northeast, 
        Florida and Gulf Coast through October of 2005.
   Transporting additional supplies to Florida, where this fuel 
        can then be used in supply-short areas typically served by the 
        Colonial Pipeline.
   Reversing the pipeline on the Texas City marine dock to 
        accept vessel shipments and deliver product into Colonial 
        pipeline.
   Extending supplies by utilizing the adjustments in 
        environmental regulations (RVP and sulfur) that will help 
        increase the overall supply of gasoline and aid distribution 
        flexibility. This brought millions of extra barrels into the 
        Midwest, Northeast and Southeast markets.
   Reaching an agreement with DoE to draw, on an exchange 
        basis, up to 2 million barrels of sweet crude from the 
        Strategic Petroleum Reserve for use in its Midwestern 
        refineries. BP has drawn down 200,000 barrels of this loan 
        amount. Additionally in an SPR auction held the week of 
        September 12, we bid for and won 2.7 million barrels of sweet 
        crude.
   Obtaining a Jones Act Waiver to enable a foreign flag vessel 
        to shuttle crude oil from a platform to onshore facilities. 
        This action enables an additional 50k BOPD and 200 MSCF of gas 
        per day to be delivered to our U.S. system.

    BP America will continue to play an active role in securing the 
crude and product supplies necessary to meet our refinery and customer 
demands. The market has shown great resiliency in its ability to 
quickly respond to supply disruptions and thus minimize impacts to the 
consumer. BP America is confident that market dynamics will 
successfully meet West Coast needs until full production is restored in 
Prudhoe Bay.

Other Matters
    Over the last 18 months, BP America has also experienced a major 
tragedy, followed by a string of other incidents that cause some to 
question our U.S. operations. I have been brought in to help address 
these and other issues. I would like to briefly comment on the 
incidents and explain our plan moving forward.
    In Texas City, a March 2005 explosion at one of our facilities was 
the greatest tragedy ever experienced by the BP family. The harm it 
caused and the lessons learned from it will never be forgotten. In the 
aftermath of this tragedy we made and continue to make significant 
changes in our approach to process safety and in the way we operate and 
monitor operations at Texas City and our other U.S. refining 
facilities. We are committed to attaining the highest levels of safety, 
reliability and environmental performance.
    BP has publicly accepted responsibility for the March 23rd 
explosion and for the management system failures and employee mistakes 
which contributed to or caused it. Immediately following the incident, 
BP Products North America (BPPNA), the subsidiary that owns the U.S. 
refining assets, promised to fully investigate the explosion, make 
public the findings of its investigation and take action to prevent a 
recurrence. The company also promised its full cooperation to 
government agencies investigating the incident and said it would assist 
workers and families harmed by the company's mistakes.
    BP has fully cooperated with the U.S. Chemical Safety and Hazard 
Investigation Board (CSB), the U.S. Environmental Protection Agency and 
the Texas Commission on Environmental Quality regarding their 
investigations of the Texas City explosion.
    On the recommendation of the CSB, BP has voluntarily appointed an 
independent panel to assess and make recommendations for improvement of 
process safety management and safety culture at the company's five U.S. 
refineries. Former U.S. Secretary of State James A. Baker, III is 
chairman of the panel. The panel has visited each of BPPNA's five U.S. 
refineries in Texas City, TX; Carson, CA and Whiting, IN, Oregon 
(Toledo), OH and Cherry Point, WA. BPPNA looks forward to receiving the 
Panel's final report and improvement recommendations later this year.
    BP has put a new management team in place at Texas City, simplified 
the organization, improved communication, clarified roles and 
responsibilities and taken steps to update and verify compliance with 
procedures.
    BP expects to invest an estimated additional $1 billion to improve 
and maintain the Texas City site over the next five years.
    BP operations and maintenance personnel have reviewed and updated 
operating and maintenance procedures and received training on process 
safety management, hazard recognition, process control, process trouble 
shooting and control of work. Site employees have completed over 
300,000 man hours of operational and process safety related training 
since March 23, 2005.
    The company has set aside $1.2 billion to compensate victims of the 
explosion and has worked to resolve claims arising from the incident 
without the need for lengthy litigation.
    Settlements have been achieved with nearly all family members of 
every worker who died. The company has also agreed to compensation with 
more than 500 injured workers.
    The Thunder Horse platform is the largest semi-submersible oil 
production platform in the world, at 130,000 tons displacement, and is 
designed to process 250,000 barrels of oil and 200 million cubic feet 
of natural gas per day. The Thunder Horse field is located in 6000 ft. 
of water and involves extremely challenging high pressure and high 
temperature hydrocarbon reservoirs. Much of the technology being 
utilized on the project is industry-first involving new metallurgy, new 
engineering designs and `serial number one' equipment. Thunder Horse is 
operated by BP, with a 75 percent working interest. ExxonMobil owns the 
remaining 25 percent interest.
    In April 2005, the platform was towed to its location in 
Mississippi Canyon Block 778 in the deepwater Gulf of Mexico, 150 miles 
southeast of New Orleans.
    Upon the approach of Hurricane Dennis in July 2005, all personnel 
evacuated the Thunder Horse platform in conformance with standard BP 
safety procedures. Following passage of the storm, the Coast Guard 
Marine Safety Unit Morgan City was notified that the Thunder Horse 
platform was listing.
    A BP investigation was begun to determine the cause of the 
stability imbalance that saw the Thunder Horse platform list to port at 
an estimated 20 degrees. The U.S. Coast Guard and the Department of the 
Interior's Minerals Management Service also opened a joint 
investigation to determine the cause of the listing and their 
investigation is continuing. BP is cooperating fully with this 
investigation.
    On August 1, 2006, the Thunder Horse platform completed major 
repairs and was declared ready for the introduction of hydrocarbons. 
This massive undertaking was completed on schedule and safely, with 
zero days away from work cases.
    Some of BP's U.S. Trading operations have come under scrutiny by 
federal regulators. BP is cooperating with the Commodity Futures 
Trading Commission and the Department of Justice in their 
investigations by providing responsive documents, data and witness 
testimony.
    BP has initiated a review by independent external auditors of the 
compliance systems in its U.S. trading business. The auditors will 
examine the design of the trading organization, delegations of 
authority, standards and guidelines, resources and the effectiveness of 
control and compliance. The results of the review will be shared with 
relevant U.S. regulatory authorities and the auditors' recommendations 
will be acted upon by BP.
    Some policymakers and regulators have begun to question whether 
these operational problems at BP are symptoms of a systemic problem. 
Clearly, BP has had its share of issues from which we've taken 
important learnings. I believe BP is, overall, a well-managed company 
with a solid long-term record. We recognize that there has been a 
series of troubling problems that are unacceptable to us and contrary 
to our values. We want to understand why they have occurred and do 
whatever it takes to set them right.
    I don't believe in bad luck. We need to understand these issues and 
then translate the lessons we learn across all of our operations.

                               CONCLUSION

    For many, the shine has come off of BP over the last year as we 
have stumbled operationally. Some have questioned our environmental 
credentials while others have accused BP of profiteering at the expense 
of employee safety. BP holds itself to a higher standard and 
consequently expects the scrutiny that comes when we fall. Part of my 
job as Chairman and President of BP America is to ensure that the 
standards we have set are met. My commitment is to make it happen.
    In response to the specific challenges that we have faced in the 
U.S., BP has announced several specific actions that it will be taking. 
These include:

   U.S. refining--a major increase in expenditure on refining 
        maintenance, turnarounds, inspections and staff training and 
        the upgrade of our process safety management system.
   Alaska--major additional investment in pipeline integrity.
   Trading--a detailed review by independent external auditors 
        of the compliance system in the U.S. trading business.
   Organization--the creation of a new outside advisory board 
        to assist and advise BP America Inc.

    As this critical work unfolds, BP won't lose sight of the 
opportunities to create a different kind of company. We will continue 
to invest in emerging technologies like hydrogen, wind, solar and 
biofuels. Because it is only in doing so that BP can aspire to be an 
energy company for the 21st century. We will also continue our work on 
important policy issues of the day such as climate change and offer our 
expertise and ideas as options are formulated.
    I was sent to the U.S. by our Group CEO, John Browne, with some 
advice and a set of principles that will guide me and our work in the 
U.S. He says the real measure of a great company is not the absence of 
challenges but how they are dealt with.
    I commit to members of Congress that I have been given the 
authority, the resources and the people to assure you that BP America 
will overcome and ultimately be strengthened by this challenge.

    The Chairman. Thank you very much.
    We will now go to our next witness. Would you please 
introduce yourself once again and tell us what you do and 
explain what the name of the pipeline service company means 
with reference to this operation up there, please.

STATEMENT OF KEVIN HOSTLER, PRESIDENT AND CEO, ALYESKA PIPELINE 
                        SERVICE COMPANY

    Mr. Hostler. Yes, sir. Mr. Chairman, distinguished members, 
I am Kevin Hostler. I am president and CEO of Alyeska Pipeline 
Service Company. I represent the 1,600 employees and 
contractors who operate and maintain the Trans-Alaska Pipeline 
System, the delivery system from the North Slope to Valdez. 
Today I am prepared to discuss corrosion control on TAPS, the 
thoroughness of our integrity management program, and the 
impact of reduced throughput on our operation.
    We have a team of high-quality people who operate and 
maintain the Trans-Alaska Pipeline System, a system that has 
delivered 15 billion barrels of crude oil to the American 
people. We understand the critical importance of the safe, 
reliable operation of TAPS to the State of Alaska and to the 
Nation. I am confident our employees are capable of dealing 
with the challenges before us and will bring to our attention 
any issue or concern that impacts the integrity of TAPS.
    Mr. Chairman, I am happy to answer any questions the 
committee may have about the Trans-Alaska Pipeline System. I 
have submitted written testimony and I thank the committee for 
this opportunity today.
    [The prepared statement of Mr. Hostler follows:]

         Prepared Statement of Kevin Hostler, President & CEO, 
                    Alyeska Pipeline Service Company

    My name is Kevin Hostler and I am the President & CEO of Alyeska 
Pipeline Service Company. I represent the 1600 people who operate and 
maintain the Trans Alaska Pipeline System--or TAPS. Our company was 
founded in 1970 to design, construct, and operate TAPS to safely and 
efficiently move oil from the North Slope of Alaska through the Valdez 
Marine Terminal 800 miles to the south. Alyeska Pipeline Service 
Company is owned by five pipeline companies: BP Pipelines (Alaska) 
Inc., ConocoPhillips Transportation Alaska, Inc., ExxonMobil Pipeline 
Company, Koch Alaska Pipeline Company, and Unocal Pipeline Company.
    I know that many have questions about the security of the supply of 
oil through Alaska to the rest of the United States. We understand the 
importance of this energy asset. It is the economic pipeline for Alaska 
and a critical transportation link for the nation. We have an integrity 
management program that gives us assurance that our system integrity is 
sound. I am here to provide you with the assurance that the integrity 
of our system is intact and to share the confidence I have in our 
employees in maintaining this asset.
    TAPS was originally designed to move two million barrels of oil per 
day. Prior to the events on the North Slope in August, we were 
operating at 800,000 barrels per day and as we entered September our 
daily throughput has averaged about 625,000 barrels per day. As a 
result of the announcement of possible shutdown. at Prudhoe Bay on 
August 6th, we did investigate the impacts of lower throughputs to TAPS 
and how we would manage them to maintain operations. I will discuss our 
short and long term approach to managing throughput fluctuations.

           CORROSION CONTROL AND INTEGRITY MANAGEMENT ON TAPS

    Since the March 2006 Prudhoe Bay spill--and continuing through the 
August spill and production shutdown, we evaluated many aspects of our 
system to ensure ourselves and our stakeholders that our approach to 
corrosion control was appropriately rigorous. Alyeska's operations and 
engineering personnel reviewed the corrosion control program and have 
been implementing the following steps to ensure that accelerated 
corrosion is not adversely impacting TAPS:

   We have rescheduled our 2007 inline investigation tool 
        (smart pig) run and are running it this year. These tools 
        provide a comprehensive insight into the integrity of the line 
        and indicate any anomalies. Alyeska normally runs a smart pig 
        every three years. Our last run was in 2004. The pig run for 
        this year is nearly complete and I have requested an expedited 
        review of this data. TAPS has run 60 instrumentation pigs since 
        the start up of operations in 1977. This pig run will be our 
        61st.
   We completed a thorough investigation of the piping at Pump 
        Station 1. As the entry point into the TAPS mainline this was 
        where we believed we may see accelerated corrosion if it was 
        present in TAPS. While the work is ongoing, reports to date 
        indicate no accelerated corrosion in the station piping. We 
        have also reviewed piping at other pump stations and the Valdez 
        Marine Terminal.
   We increased corrosion inhibitor injection throughout the 
        system by 25%. It is added to our pump station and Valdez 
        Marine Terminal piping.
   We are conducting an integrity investigation of the inlet 
        line from Prudhoe Bay to Pump Station 1.

    Corrosion control is a key component of our Integrity Management 
Program. Alyeska's Integrity Management Program meets the expectations 
of the U.S. Department of Transportation Office of Pipeline Safety 
regulations and is subject to periodic review by the DOT. The DOT has 
reviewed or audited Alyeska's execution of the program in 2002, 2003, 
2005 and will do so again this October. Additionally, the Grant and 
Lease Right of Way agreements require Alyeska to have a comprehensive 
corrosion control program which is monitored by the Joint Pipeline 
Office.
    Alyeska's Integrity Management Program has the following 
objectives:

   Prevent leaks to protect public safety and the environment
   Comply with State and Federal regulations
   Manage risks--assess, prevent, or mitigate
   Preserve our assets thus providing reliable oil 
        transportation
   Provide stakeholder assurance

    Security remains the biggest risk to TAPS. We work closely with 
Federal and State Agencies to ensure the safety and security of our 
pipeline. Mechanical Damage, environmental impacts and corrosion are 
other risks.
    Our integrity management program is focused on preventing any 
accidental release to the environment. Should we encounter a pipeline 
discharge however, we have also worked diligently to be prepared to 
respond to an incident. We have an approved oil discharge prevention 
and contingency plan (C-Plan) that guides our response efforts. The 
plan is reviewed and approved by four regulatory agencies: the 
Environmental Protection Agency; the Alaska Department of Environmental 
Conservation; the U.S. Department of Transportation; and the Bureau of 
Land Management.
    We also have contingency repair plain through which we maintain a 
large inventory of contingency repair equipment and materials that 
includes a wide range of replacement piping, stopples, and leak clamps. 
We exercise our personnel and equipment on a regular basis. It remains 
our goal through our Integrity Management program to avoid an oil 
discharge. However, I want the committee to know that we are prepared 
for an incident and can respond in a timely manner.

                  OPERATING TAPS AT REDUCED THROUGHPUT

    We are confident we can operate normally down to 500,000 barrels 
per day. We will face challenges as throughput drops below this rate. 
Among the more significant challenges we are currently evaluating are:

   Managing issues associated with cooler temperatures of the 
        oil, particularly in the winter, and the potential for water 
        and paraffin (i.e., wax) drop out from the oil;
   Managing the efficiency of the biological treatment process 
        of our ballast water plant because of lower ballast water flows 
        due to reduced tanker traffic to the Valdez Marine Terminal; 
        and
   Managing the potential for increased vibration due to slack 
        line conditions at the three mountain passes the pipeline must 
        cross;

    Alyeska technical experts are evaluating all of these issues to 
determine the full extent of the potential impacts upon TAPS. They are 
establishing appropriate mitigating plans for my management team to 
consider.
    It is worth noting that our $500 million dollar pipeline upgrade 
project will introduce significantly more flexibility into our ability 
to manage through a situation like the one we are facing today. It is 
designed to allow us to more efficiently handle throughputs as low as 
300,000 barrels per day and higher than one million barrels per day, 
with the flexibility to operate at even higher throughputs. We can 
increase throughput by adding more pumping power to the pump stations.
    In conclusion, I wish to restate that we have a comprehensive 
integrity management system and have considered the corrosion 
information from the Prudhoe Bay spill into that system. I recognize 
that we have challenges in front of us due to the Prudhoe Bay shutdown. 
We are looking at all of the potential impacts this will have on our 
system and will develop responsible plans to mitigate these impacts. I 
also know that I have some of the best technical resources available 
for this situation. Our decisions will be based upon the safe operation 
of TAPS and with no adverse impacts to the integrity of TAPS. Our daily 
goal is the safe and environmentally responsible management of the 
system.
    I thank you for this opportunity to discuss Alyeska and TAPS 
operations and welcome any questions you may have about our operations.

    The Chairman. Would one of you go to these maps and tell us 
what they show us? Mr. Malone, who would be the one to do that? 
Would you do that, Mr. Marshall? Start on this right-hand side 
and pull these out and show the Senators what it is we're 
talking about.
    Mr. Hostler. Would you like me to hold this up?
    The Chairman. Can we all see or not from there? We'll have 
the map interpreted for us.
    Mr. Marshall. This is a picture of the supply to the West 
Coast of the United States, showing crude oil----
    The Chairman. Everybody has a packet that has that with 
them, in front of them.
    OK, would you please proceed.
    Mr. Marshall. This shot is a representation of BP's view of 
Alaska production over the next 50 years. It shows the history 
starting in 1977 of production on this scale, running out this 
way. The red line there is the introduction of major gas sales 
for Alaska gas pipeline, which really opens up the potential 
for another 50 years of oil production from Alaska.
    The two charts here, one shows the March spill. This shows 
the approximately 1.9 acres of tundra that was affected by the 
March spill. This has since been cleaned up and we expect no 
lasting damage to the environment from this particular case.
    The Chairman. The spill there was 1.9 acres?
    Mr. Marshall. That's correct, yes.
    The Chairman. All right.
    Mr. Marshall. This is the leak from the Flow Station 2 line 
from August 6. It was about 23 barrels and that has all been 
cleaned up also.
    The Chairman. All right, thank you.
    Mr. Marshall. Would you like me to go to these as well?
    The Chairman. Yes, please.
    Mr. Marshall. This is a detailed chart showing the Prudhoe 
Bay field and the distribution pipelines, approximately 1,500 
miles of pipeline systems across here. And in red is shown the 
transit lines, which are the subject of discussion here today.
    Finally, this is a chart showing the major producing 
facilities, the separation facilities here. These are the 
pipelines. The two blue lines represent the lines that 
experienced failures, and these are the lines here which remain 
in operation or we're bringing back into service as soon as we 
possibly can. The dotted red lines here show the bypasses that 
we are currently working on, that we hope to complete by the 
end of October and return Prudhoe Bay to full production no 
later than that point.
    The Chairman. All right, then. Now we will proceed with the 
final witness. Peter, would you please proceed with your 
testimony. Tell us who you are, why you're here, and give us 
your testimony.

  STATEMENT OF PETER VAN TUYN, PARTNER, BESSENYEY & VAN TUYN, 
                      INC., ANCHORAGE, AK

    Mr. Van Tuyn. Chairman Domenici, Ranking Member Bingaman, 
members of the committee, thank you for inviting me to testify. 
My name is Peter Van Tuyn. I'm an environmental lawyer from 
Anchorage, AK, and for the last 15 years I've worked with the 
conservation community, Alaska Native tribes, and others on 
energy issues in Alaska.
    My oral comments will focus on the steps that we can take 
to prevent oil spills and energy supply disruptions. As I 
begin, I would like to note that the Gwich'in Steering 
Committee joins the Alaska-based and national conservation 
groups in supporting my testimony.
    The troubles at Prudhoe Bay are just the most recent 
example of what is wrong in the oilfields. Warning flags have 
been flying high above the North Slope for many years, there to 
see for anyone who is looking. Problems first arose, and have 
been compounded over the years, because those with the power to 
heed the warnings symbolized by those flags, the oil industry 
and State and Federal land managers and regulators, simply 
refused to look.
    By way of example, the State of Alaska has no full-time 
prevention engineer on the North Slope. By way of another 
example, in 1988, the States had asked the Federal Department 
of Transportation to regulate just those lines that failed at 
Prudhoe Bay.
    BP's spilled oil and oilfield shutdown were far from 
accidents. Just as we learned from the Exxon Valdez oil spill 
that a series of events over a long period of time led to that 
tragedy, so too did a long pattern of neglect, complacency, and 
outright ignorance lead to the events at Prudhoe Bay. To ensure 
that this sad history does not repeat itself, we must use all 
the human faculties at our disposal.
    The first challenge before us requires plenty of muscle, 
for we must find the strength to honestly and openly change the 
course of how the oil industry is run. While we know that no 
oil production activity can be rendered completely safe and 
pollution-free, we must move mountains in order to minimize the 
chance that oilspills and supply disruptions occur in the 
future.
    The second challenge before us requires heart, for it is in 
our hearts that we must find the courage finally to stand tall 
and put action to our belief that America is the greatest 
country on Earth. We must have the heart to protect our special 
and environmentally sensitive public lands from the 
industrialization and pollution that inevitably flow from oil 
activities. Rather than demonstrating weakness, such a bold 
act, done with bipartisan support, would signal to the world 
that we, in America, will not sacrifice our public lands' soul 
as we struggle with our addiction to oil.
    The final challenge before us requires vision, for we must 
use our eyes to navigate a path to the future. Our vision can 
guide us on the path, guide us to the path on which our quality 
of life remains high as we transition to new renewable sources 
of energy. We must do this now--right now--just to help us 
avoid obstacles like the recent events at Prudhoe Bay, though 
it can do that as well, but also because we still have the 
ability to focus far down the road. The longer we wait, the 
more immediate crises will wrest our attention away from the 
challenging but necessary journey ahead.
    With that preface, let us now put our muscles to work. 
Congress should authorize an independent audit of maintenance 
and operation practices of oil facilities in Alaska and ensure 
that its findings are followed up with action. Congress should 
create a citizens oversight group modeled after the post-Exxon 
Valdez Prince William Sound Regional Citizens Advisory Council. 
This group would use dedicated oil industry funds to serve as 
an independent watchdog over North Slope and TAPS operations.
    Congress should direct PHMSA, either through legislation or 
persuasion, to improve Federal pipeline regulation to ensure 
that pipelines like those at Prudhoe Bay are actively regulated 
by the United States.
    Let us also put our hearts to work by declaring off-limits 
to oil activities special or especially sensitive public lands 
and waters in the Arctic. For example, Congress should protect 
in perpetuity the coastal plain of the Arctic National Wildlife 
Refuge. We should preserve this last intact ecosystem in 
America's Arctic for its own sake, for the sake of the Gwich'in 
people who rely upon its resources as the very basis for their 
lives, and for the sake of future generations to whom we should 
leave at least one Arctic environment much the same as we found 
it.
    Let us leave well enough alone in the National Petroleum 
Reserve. The spill at Prudhoe Bay, which we have been told time 
and again is one of the least environmentally impacting 
oilfields in the entire world, sinks Interior's baseline 
assumption that locating oil facilities in sensitive areas like 
the Teshekpuk Lake region is an environmentally sound course of 
action. Eleven million acres of the NPRA have been offered for 
lease in recent years and 2.8 million acres are successfully 
leased. Congress should heed the lesson of Prudhoe Bay, the 
voices of scientists, local residents, and the general public, 
and take this area off the leasing block.
    Finally, let us use our vision to chart a path on which we 
can harness clean, renewable, and home-grown energy sources 
like properly-sited wind and solar arrays and farm-based 
biofuels. Let's reduce our dependence on oil by setting 
specific and meaningful targets for that reduction using 
improved gas mileage, better transportation choices, and more 
efficient homes, buildings, and appliances. Let's invest 
significant money and provide valuable long-term tax credits 
for the research, development, and implementation of energy-
saving and renewable energy technologies.
    It is through actions such as these that we can best 
overcome the challenge that Prudhoe Bay has presented to our 
environment and our way of life.
    Thank you for the opportunity to testify. I will ask that 
my written comments be submitted for the record.
    [The prepared statement of Mr. Van Tuyn follows:]

 Prepared Statement of Peter Van Tuyn, Partner, Bessenyey & Van Tuyn, 
L.L.C., on behalf of Alaska Wilderness League, Alaska Coalition, Alaska 
   Forum for Environmental Responsibility, National Audubon Society, 
   Natural Resources Defense Council, Northern Alaska Environmental 
  Center, Republicans for Environmental Protection, Sierra Club, The 
        Wilderness Society, U.S. Public Interest Research Group

                              INTRODUCTION

    Chairman Domenici, Ranking Member Bingaman, Members of the Senate 
Energy and Natural Resources Committee, thank you for inviting me to 
testify on the effects of the BP pipeline failures in the Prudhoe Bay 
Oil Field and what steps may be taken to prevent a recurrence of such 
events.
    Unfortunately, warning flags have been flying above Prudhoe Bay and 
Alaska's North Slope for many years, heralding the possibility that an 
event like the BP pipeline failure and field shutdown could occur. The 
facts demonstrate that BP has had significant management and operation 
failures which BP must fix before its oil fields can have true 
operational integrity. The facts also demonstrate that the type of 
failures that haunt BP could be experienced by other North Slope 
operators as well, both because of deficiencies in their management and 
operation systems and because there has been, in essence, a 
programmatic failure of state and federal governments to effectively 
plan for and regulate against impacts from oil and gas-related 
industrial activities.
    Understanding why the oil industry, and state and federal 
regulators, did not, and regularly do not, heed the warning flags is 
important to understanding what can be done to prevent a recurrence of 
such events. In my testimony I explore those warnings, and make 
recommendations to: minimize the likelihood that a major oil field 
spill and closure would recur; to protect special and especially 
sensitive areas such as the Arctic National Wildlife Refuge and the 
Teshekpuk Lake region of the National Petroleum Reserve--Alaska; and to 
limit the impact of such events on energy supplies, should it recur.
    I provide this testimony as an attorney with nearly 15 years of 
experience working on energy issues, including those related to oil and 
gas, in Alaska.\1\ During this period, I have counseled and represented 
numerous Alaska-based and national conservation organizations, Native 
tribes and villages, and other entities on energy issues. I have 
litigated numerous lawsuits against oil company and federal and state 
agency concerning energy production activities in Alaska. I have 
reviewed, counseled and represented clients on innumerable state and 
federal administrative proposals to authorize and regulate energy 
activities in Alaska. I am also familiar with federal and state 
proposed and enacted legislation concerning energy issues in Alaska and 
elsewhere, and have counseled clients on the intent and legal effect of 
such legislation.
---------------------------------------------------------------------------
    \1\ Mr. Van Tuyn would like to thank the following people for their 
assistance in preparing this testimony: Lois Epstein, Richard Fineberg, 
Mike Frank, Dan Lawn, Pamela A. Miller, Chris Rose, Stan Stephens, Stan 
Senner, Mike Steeves, Justin Tatham, Deborah Williams and others too 
sensitive or numerous to name. Any mistakes or omissions are, of 
course, the sole responsibility of the author.
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                            RECOMMENDATIONS

    Although it is impossible to totally eliminate the risks of major 
spills taking place from the oil fields, the first category of 
recommendations provided here includes proposals aimed at minimizing 
the likelihood that a significant polluting and supply disruption event 
would recur on Alaska's North Slope. These include:

   Authorizing, performing, and implementing the 
        recommendations of an independent audit of maintenance and 
        operation practices of oil facilities in Alaska;
   Creation of a Citizen's Oversight Group, modeled after the 
        post Exxon Valdez Oil Spill Prince William Sound Regional 
        Citizen's Advisory Council, that uses dedicated funds to serve 
        as an independent watchdog over North Slope and TAPS 
        operations;
   Improved Federal pipeline regulation;

    The second category of recommendations includes a call to place 
off-limits to oil activities particularly special or sensitive Arctic 
environments. BP's Prudhoe Bay spill exposes the fallacy that oil 
drilling and a pristine environment can co-exist, and Congress should 
heed this reality by:

   Closing in perpetuity the Coastal Plain of the Arctic 
        National Wildlife Refuge to oil and gas leasing, exploration, 
        development, production or transportation-related activities 
        and permanently designating it as Wilderness;
   Placing off-limits to oil and gas activities particularly 
        sensitive places such as the Teshekpuk Lake region in the 
        Northeast Planning Area of the National Petroleum Reserve--
        Alaska (NPRA or the ``Reserve'').

    The final category of recommendations is a request that Congress 
begin the important and inevitable process of:

   Harnessing clean, renewable, and homegrown, energy sources 
        like properly-sited wind, solar and farm-based bio-fuels;
   Reducing our dependence on oil by setting specific and 
        meaningful targets for that reduction, using improved gas 
        mileage, better transportation choices, and more efficient 
        homes, buildings ands appliances;
   Investing significant money and providing valuable tax 
        credits over a substantial period of time for the research, 
        development and implementation of energy-saving and renewable 
        energy technologies.

                          ``PAST IS PROLOGUE''

    In March 2003 the National Research Council of the National Academy 
of Sciences released a congressionally-requested report on the 
cumulative impact of oil development on Alaska's North Slope.\2\ The 
National Research Council found that there had been little assessment 
of the cumulative impact of such activities, and that information about 
cumulative impacts is ``critical to support informed, long-term 
decision-making about resource management.'' \3\
---------------------------------------------------------------------------
    \2\ National Research Council, Cumulative Environmental Effects of 
Oil and Gas Activities on Alaska's North Slope, National Academies 
Press (2003) (NRC Report).
    \3\ NRC Report at 1.
---------------------------------------------------------------------------
    Just five days ago, a federal district court judge released a 
preliminary ruling indicating that he is likely to halt a federal lease 
sale in the sensitive Teshekpuk Lake region of the Northeast area of 
the Reserve because the U.S. Department of the Interior had ``failed to 
fully consider the cumulative effects of the proposed development . . . 
.'' \4\ The court stated that the Interior Department had represented 
to it in a previous case concerning an oil and gas lease sale in the 
Northwest portion of the Reserve that Interior would analyze the 
cumulative impacts of simultaneous oil development in both of the 
Reserve planning areas as part of its decision to lease the Teshekpuk 
Lake region in Northeast portion of the Reserve.\5\ When Interior yet 
again put off the analysis--this time saying it would do so when 
development actually occurs--the court, at least preliminarily, 
concluded that Interior had violated the law.
---------------------------------------------------------------------------
    \4\ National Audubon Society vs. Kempthorne, Memorandum Decision 
(Preliminary) at 15, September 6, 2006, No. 1:05-cv-00008-JKS (D. Ak.) 
(Audubon Memorandum Decision).
    \5\ Audubon Memorandum Decision at 14.
---------------------------------------------------------------------------
    Consequently, despite the ``critical'' importance of information 
about cumulative impacts to informed agency decision-making,\6\ 
specific and formal agency promises to do so were broken.
---------------------------------------------------------------------------
    \6\ NRC Report at 1.
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    BP's failures at Prudhoe Bay are perfectly analogous to this 
situation. As this quote from 2001 demonstrates, BP has long promised 
that Prudhoe Bay is safe and in good shape:

          We believe Prudhoe Bay is safe and that BP has always had as 
        its number one priority the safety of our employees and 
        contractors and the integrity of the North Slope system.\7\
---------------------------------------------------------------------------
    \7\ Statement of Bob Malone, then-regional president of BP U.S., as 
reported in The Wall Street Journal. Jim Carlton, Oil and Ice, In 
Alaskan Wilderness, Questions About Bush's `Friendlier Technology', The 
Wall Street Journal (April 13, 2001) (emphasis added).

    BP's March 2006 oil spill--the largest in North Slope oil field 
history--and its early August announcement that it was going to shut 
down the largest oil field in the United States due to pipeline 
integrity problems demonstrate the hollow nature of this promise.
    Avid drilling advocate Senator Ted Stevens also bemoaned the broken 
promises:

          I am disturbed not only by the fact that over the years, when 
        I've taken members of Congress up there--particularly senators 
        and people from the administration--we've been briefed that 
        this is the safest area in the world, and how it's been 
        maintained, and how they've got special procedures to check for 
        corrosion and erosion and any sludge inside the pipeline.
          As a matter of fact, it just wasn't done . . . .
          They sold us the fact their processes would perform. And they 
        didn't.\8\
---------------------------------------------------------------------------
    \8\ Richard Mauer, BP Failure ``shocked'' Stevens, Anchorage Daily 
News (August 18, 2006).

    This section of the testimony reviews the broken promises of safe, 
responsible, informed and vigilant oversight of the industrial 
activities of Alaska's oil patch. As the example at the beginning of 
this section portends, this promise is broken not just by BP, but by 
others involved in the oil patch; other oil companies and governments 
alike. This history is recounted here because understanding it is 
critical to crafting and implementing any plan to remedy the problems; 
unless Congress takes the time--right now--to fully analyze and remedy 
the problems that led to the Prudhoe Bay debacle, we will be destined 
to repeat history, and in the process further risk worker safety, the 
environment, and a portion of our nation's energy supply.
BP has a long history of inadequate management and operations
    That BP has been a troubled actor in the oil fields has been 
apparent for some time. For example, in the late 1990's, BP pled guilty 
to felony illegal waste disposal charges. Despite laws prohibiting 
injecting below the tundra anything classified as hazardous, a BP 
contractor had for years been doing just that with barrels of hazardous 
foreign substances, such as glycol and paint thinners. When a worker 
questioned this practice in 1995, BP characterized the re-injection as 
two isolated incidents. But in reality, the illegal disposal was 
ongoing for years and took place under the cover of darkness. After an 
extended investigation, BP, its drilling contractor Doyon Drilling, and 
three workers paid $1.55 million in criminal fines and were placed on 
criminal probation for five years. BP paid an additional $6.5 million 
in civil penalties, while BP and Doyon Drilling agreed to spend an 
additional $17 million to improve their environmental compliance 
programs.\9\
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    \9\ See Eric Nelson, Poisoning the Well: Whistleblower Disclosures 
of Illegal Hazardous Waste Disposal on Alaska's North Slope, The Alaska 
Forum for Environmental Responsibility, January 1997. (http://
www.alaskaforum.org/reports.html). BP's ``isolated incidents'' claim 
was made by Richard C. Campbell (President, BP Exploration [Alaska], 
Inc.), ``URGENT--Response to Alaska Forum Release'' (e-mail communique 
to all BP employees), Jan. 29, 1997. See U.S. Dept. of Justice, Press 
Release ``North Slope Driller Admits Illegal Disposal of Hazardous 
Waste; $3 Million Plea Agreement Announced'' (April 30, 1998) 
(detailing fines and penalties); see also Maureen Clark, Associated 
Press, ``BP to pay $22 million for dumping on slope,'' Fairbanks Daily 
News-Miner ( Sept. 24, 1999).
---------------------------------------------------------------------------
    In 2001, after North Slope workers complained that budget cuts 
forced them to work with worn-out and dangerous equipment, BP insisted 
that its North Slope operations were safer than ever.\10\ In early 
2002, Bill Burkett, a veteran BP Prudhoe Bay worker, warned, ``if they 
continue to cut corners the way they do now I fear a catastrophic event 
is imminent.'' \11\ His warning proved prophetic. In August of that 
year, an explosion and fire at a Prudhoe Bay well house put a veteran 
worker in the hospital with serious bums. BP immediately claimed that 
well inspections prior to the blast had been properly conducted. Later 
admitting that this claim was false, BP again promised to improve its 
field monitoring and safety programs. Four months later, a welder 
repairing a high-pressure line at Prudhoe Bay was tragically killed 
when a plug blew out of the line.\12\
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    \10\ See Kim Clark, ``Danger in the oil patch: Workers say BP is 
violating probation,'' U.S. News & World Report, Aug. 6, 2001, p. 21.
    \11\ Jonathan Rugman, Oilfield Revelations, Channel 4 News, 
Anchorage, AK, March 11, 2002.
    \12\ The Alaska Oil and Gas Conservation Commission eventually 
fined BP $1.3 million for safety violations in this incident, then 
added another $100,000 penalty for failures to execute the new 
procedures. See: Sheila McNulty, ``Well testing is cold comfort for 
Alaskan staff,'' Financial Times, Aug 27, 2002 and ``BP admits test 
lapse at Alaskan well,'' Financial Times, Sept. 11, 2002; and Wesley 
Loy, ``BP to pay $ 1.4 mm for safety violation cases,'' Anchorage Daily 
News, Jan. 8, 2005; Ben Spiess, ``Welder struck by plug, killed--
Prudhoe Bay: Victim, 2 others were working on water pipeline,'' 
Anchorage Daily News, December 22, 2002.
---------------------------------------------------------------------------
    Another BP worker told Congress in 2002 of this telling experience 
on the North Slope:

          [l]ast year . . . Senator [Frank] Murkowski came to Prudhoe 
        with [Interior Secretary] Gail Norton and publicly dared anyone 
        to find oil or contamination in the well house that they were 
        standing in. Before his arrival, we put fresh gravel in the 
        well house, and cleaned the well and manifold buildings on the 
        pad. All the good Senator needed to do was, scrape off the 4 
        inches of clean gravel with his shoe and he would have found 
        some evidence.\13\
---------------------------------------------------------------------------
    \13\ Robert Brian, Instrument Technician for BP Exploration 
(Alaska) Statement before Senators Lieberman and Graham, March 11, 
2002; see also Tony Hopfinger, Second BP Vet Blows the Whistle, 
Anchorage Daily News, March 13, 2002 at A1 (Robert Brian stating that 
``Working for BP is like working for a drunk driver [who] insists on 
driving you home.'')

    With that larger context, independent analyst Richard Fineberg 
---------------------------------------------------------------------------
provides this compelling summary of BP's corrosion-related history:

          For years, BP workers had risked their jobs to send word to 
        the company's top executives that, due to cost-cutting 
        pressures, the nation's largest oil field was in danger of a 
        catastrophic event that could injure or kill workers, harm 
        Alaska's environment and cut off a major portion of the West 
        Coast oil supply and state revenues. These warnings frequently 
        mentioned BP's problems with corrosion . . . .
     In 1999, the dangers of corrosion on non-regulated 
            pipelines were so significant that BP entered into an 
            agreement with the Alaska Department of Environmental 
            Conservation (ADEC) to develop a work plan, hold semiannual 
            work sessions with ADEC and file an annual progress report 
            with the agency . . . .
     In January 2001, corrosion problems again were among the 
            items listed by concerned BP North Slope technicians 
            relayed to BP Chairman Lord John Browne by Charles Hamel of 
            Alexandria, Virginia, who frequently serves as a conduit 
            for the health, safety and environmental concerns of 
            beleaguered North Slope workers. According to that letter, 
            ``(w)e are way behind on our corrosion inspection and 
            repair.''
     In March 2002, BP North Slope worker and health and safety 
            officer Bill Burkett listed his numerous efforts to contact 
            monitoring agencies about his concerns--including 
            corrosion--in a letter to . . . Democratic Senators Joseph 
            Lieberman and Bob Graham. Burkett, then due to retire 
            shortly, also gave a lengthy broadcast interview in which 
            he discussed his numerous concerns.
     In a 2004 letter, Hamel wrote to BP board environmental 
            safety subcommittee chair Walter Massey to warn of ``cost 
            cutting, causing serious corrosion damage'' that 
            contributed to worker fears of ``a catastrophic event.''
     On January 20, 2005, Hamel sent a letter to Senator [Ted] 
            Stevens discussing BP's [] other safety problems on the 
            North Slope. That letter concluded with the warning that 
            ``money saving `Russian Roulette' risks taken are 
            jeopardizing the vital North Slope crude deliveries to the 
            lower 48.'' \14\
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    \14\ See Richard Fineberg, ``Shocking?'' Evidence Mounts from 
Alaska and Elsewhere that BP's Inadequate North Slope Performance 
Should Have Been No Surprise to Public Officials or Monitors (September 
3, 2006) www.finebergresearch.com (footnotes omitted).

    As reported in the media, throughout this time, ``BP ha[d] issued 
rosy annual reports to the Alaska Department of Environmental 
Conservation about how its corrosion monitoring on the North Slope is 
getting better all the time.'' \15\ And, as it turned out, at least the 
first such report, if not the later ones, was doctored to make it 
appear that BP's corrosion control program, including its refusal to 
run maintenance or smart pigs down the lines to clean and assess the 
integrity of the line (respectively), was more substantial and 
comprehensive than was actually the case:
---------------------------------------------------------------------------
    \15\ Dermot Cole, For six years, BP reported progress on corrosion 
inspections, Fairbanks Daily News Miner (August 11, 2006).

          [T]he original version . . . said BP's corrosion-monitoring 
        program ``makes it difficult to develop a qualitative 
        understanding of the basis for their corrosion strategy.'' That 
        reference was replaced by this: ``BP has demonstrated a clear 
        commitment to corrosion control.''\16\
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    \16\ Jim Carlton, U.S. Officials Are Investigating Changes Made to 
Report on BP, Wall Street Journal (August 24, 2006); see also Dow Jones 
Newswires, BP Sought Lenient Assessment Of Alaska Oil Ops (August 24, 
2006) (``BP complained that the Coffman assessment was ``biased and 
unduly negative'' and should be rewritten. In January 2002, Coffman 
released a toned-down report, which included only one of the original 
criticisms . . .''); Matthew Dalton And John M. Biers, Consultant 
Warned BP Of Pipe-Network Corrosion, Wall Street Journal at A-3 (August 
24, 2006) (BP ``pipeline system vulnerable to localized corrosion, with 
large blind spots where problems would be difficult to detect.''). The 
original Coffman documents, as well as an analysis of them prepared by 
former BP worker Glenn Plumlee, are available at http://www.pogo.org/p/
environment/AlaskanPipeline.html.

    And then, in March of 2006, BP caused the largest oil spill in 
North Slope oil field history, during which one of its pipelines at 
Prudhoe Bay corroded and spilled over 200,000--260,000 gallons of crude 
oil onto the tundra.\17\ Fast forward to early August, after BP had 
received orders from the federal Department of Transportation, Pipeline 
And Hazardous Materials Safety Administration (PHMSA) to conduct pig 
tests on its Prudhoe lines, BP ``discovered'' that its pipeline system 
at Prudhoe Bay was at serious risk of failure due to corrosion, and 
literally shut down significant portions of the largest oil field in 
North America.\18\
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    \17\ See http://www.dec.state.ak.us/spar/perp/response/sum_fy06/
060302301/060302301_index.htm (State of Alaska information on spill); 
http://www.finebergresearch.com/pdf/Neport060315Rev.pdf (independent 
analyst's report on March spill); http://www.alaskaforum.org/
news_stories.html (media regarding the spill).
    \18\ See http://www.nytimes.com/aponline/business/AP-Oil-Field-
Shutdown.html?hp&ex=1155009600&en=4ca2929e3a060a67&ei=5094&partner=homep
age; http://www.bp.com/
genericarticle.do?categoryId=2012968&contentId=7020594.
---------------------------------------------------------------------------
    And even with that, and all the attention it brought on (including 
the scheduling of this hearing), BP's risk-taking continued:

          As the week [of August 10] has progressed, BP has shifted its 
        stance and now says it may be able to keep the western half of 
        the field open, a move that would send a reassuring signal to 
        global energy markets and Californian drivers alike. But, 
        company officials here acknowledge that if it decides to keep 
        pumping, it would do so without using the smart pig tests, a 
        move that critics say leaves the company vulnerable to more 
        problems in the western field.\19\
---------------------------------------------------------------------------
    \19\ John Biers, BP Pumping West Prudhoe Bay Would Be Without `Pig' 
Test, Dow Jones Newswires (August 14, 2006); see also Jessica Resnick-
Ault, Wall Street Journal, BP to Keep Some Prudhoe Oil Flowing (August 
12, 2006) (``Over the last five days we have doubled spot inspections 
over a key five-mile segment of the oil transit pipeline serving the 
western side of the field,'' BP America President Bob Malone said in a 
press release. ``The results have been encouraging and have increased 
our confidence in the operational integrity of this pipeline. With 
greatly enhanced surveillance and response capability, I am confident 
we can continue to safely operate the line.'')
---------------------------------------------------------------------------
Other Oil Companies Are Also Risk Takers
    Although BP's North Slope problems have made headlines recently, BP 
is by no means the sole actor in Alaska's oil patch whose substandard 
performance has raised serious health and safety issues while 
jeopardizing a major portion of the west Coast's oil supply. To learn 
and address the lessons from the BP failures, it is therefore necessary 
to consider the patterned behavior of other oil and gas companies and 
partnerships operating in Alaska.
    As an initial matter, BP operates some of the oil fields on behalf 
of ExxonMobil, ConocoPhillips and other more minor company 
leaseholders. Just because these companies are ``absentee landlords'' 
does not absolve them of their legal obligation to ensure that their 
oil fields are being managed with management and operational integrity; 
they too are responsible for the problems at Prudhoe Bay.
    Industry-wide problems were revealed in a series of detailed 
reports by the conservation community in the late 1980's (Oil in the 
Arctic), early 1990's (Tracking Arctic Oil) and late 1990's (Under the 
Influence: Oil and the Industrialization of America's Arctic).\20\ And 
of course the Exxon Valdez oil spill in 1989 revealed to the nation and 
the world that promises to respond to and clean up oil on Alaska's 
coasts were empty. Indeed, oil from that tragedy still soils beaches in 
Prince William Sound; so much so that the state and federal governments 
are pursuing more money from Exxon to continue the clean up. And 17 
years after the spill, Exxon still refuses to pay the civil judgment 
for the lives and livelihoods it soiled.
---------------------------------------------------------------------------
    \20\ See Oil in the Arctic, Trustees for Alaska, NRDC, NWF (1988); 
Tracking Arctic Oil, Trustees for Alaska et al. (1991), http://
www.trustees.org/Supporting%20Documents/Tracking%20Arctic%20Oil.pdf; 
Oil and the Industrialization of America's Arctic, Trustees for Alaska 
(1998), http://www.trustees.org/Supporting%20Documents/
Under%20the%20Influence.pdf.
---------------------------------------------------------------------------
    In August 2004, EPA imposed a $485,000 civil penalty on 
ConocoPhillips for Clean Water Act violations at its drilling platforms 
in Cook Inlet, Alaska. There had been 470 violations of the rig's 
National Pollution Discharge Elimination System Permit over a five-year 
period, and six unauthorized discharges of pollutants. Earlier that 
year the Alaska Department of Environmental Conservation imposed an 
$80,000 civil penalty on ConocoPhillips for Clean Air Act violations at 
the supposedly ``hallmark'' Alpine oil field. High carbon monoxide 
emissions from turbines at the Central Processing Facility used to re-
inject natural gas exceeded the air quality permit over a year-long 
period.\21\
---------------------------------------------------------------------------
    \21\ See Recent Oil Company Fines and Penalties in the North Slope 
Oilfields, and cites therein. http://www.northern.org/artman/uploads/
oil_company_fines_and penalties8-9-
06.pdf#search=%22ConocoPhillips%20Clean%20Air%20Act%20%2480%2C000%22.
---------------------------------------------------------------------------
    This followed a history of Clean Air Act violations at Alpine even 
prior to production. During development drilling in 1999, DEC fined 
ConocoPhillips a total of $24,000 for penalties and damages ($19,500 
suspended) in three cases of permit violations for excess emissions 
sources from the drilling mud plant, and other drilling operations.\22\ 
The Alpine oil field began producing in 2000.\23\ By January 2001, ADEC 
found that the secondary power turbines were not operating as permitted 
and produced high emissions of Nitrogen Oxides (NOX) for 
which ConocoPhillips was fined $16,875 in damages ($11,875 
suspended).\24\
---------------------------------------------------------------------------
    \22\ DEC Compliance Order by Consent No. 99-267-50-1332 to ARCO 
Alaska Inc. (Nov. 7,1999); DEC Compliance Order by Consent No. 99-267-
50-1372 to ARCO Alaska Inc. (Nov. 22, 1999); DEC Compliance Order by 
Consent No. 99-370-50-1381 to ARCO Alaska Inc. (for Doyon Drilling 
Units) (Dec. 20, 1999).
    \23\ Alaska Department of Natural Resources, Alaska Oil and Gas 
Report at pages 3-35 (December 2004), www.dog.dnr.stat.ak.us.
    \24\ DEC Compliance Order by Consent (COBC) No. 00-586-50-1712 to 
Phillips (Jan. 10, 2001).
---------------------------------------------------------------------------
    Further, the Environmental Protection Agency is conducting what is 
apparently still an on-going criminal investigation into intentional 
dumping of drilling wastes contaminated with hazardous material from an 
ice pad into the Beaufort Sea by Pioneer Natural Resources Company. 
Supervisors ordered that thousands of gallons of toxic drilling mud at 
the Oooguruk exploratory well be dumped into the sensitive coastal 
waters near Prudhoe Bay to save costs of proper disposal in March 2003, 
according to workers.\25\
---------------------------------------------------------------------------
    \25\ Jim Carlton, EPA Pursues Report that oil crew dumped polluted 
mud in Alaska, Wall Street Journal (October 19, 2005).
---------------------------------------------------------------------------
    Pursuant to its master plan for oil spill response, Alyeska 
Pipeline Services Company, the operator of the 800-mile Trans-Alaska 
Pipeline System (TAPS) between the North Slope and Valdez, is legally 
required to maintain a variety of spill response equipment that is 
readily available for rapid response to any emergency.\26\ One of the 
listed items is a bullet hole clamp. But when a miscreant shot a hole 
in the pipeline with a high-powered rifle in October 2001, it was 
revealed that the existing bullet hole clamp could not be used. Alyeska 
tardily set about inventing a new bullet hole clamp. As a result, a 
thick stream of crude oil poured into the nearby trees for 36 hours, 
destroying nearly 2\1/2\ acres of trees.\27\
---------------------------------------------------------------------------
    \26\ The major owners of Alyeska are BP (46%), ConocoPhillips (28%) 
and ExxonMobil (20%).
    \27\ Alaska Department of Environmental Conservation, et al., Joint 
After-Action Report for the TAPS Bullet Hole Response (October 2001), 
Feb. 8, 2002, http://www.state.ak.us/dec/dspar/perp/home.htm. For the 
TAPS oil spill contingency plan reference to the bullet hole clamp, see 
Trans Alaska Pipeline System, Pipeline Oil Discharge Prevention and 
Contingency Plan--General Provisions, Dec, 31, 2003 (Ed. 4, Rev. 1), 
pp. 1-375-376. (The version of the TAPS C-plan approved three months 
after the Oct. 4, 2001 spill [Rev. 0, Dec. 31, 2001] contains identical 
language at pp. 179-180.)
---------------------------------------------------------------------------
    Early in 2005, two veteran maintenance engineers left Alyeska after 
30 years of service. Prior to their separate departures, both warned 
that the management was failing to address environmental concerns. 
Later in the year, the company's chief operating officer was removed 
from his position nine days after he presented the TAPS owners with a 
list of 101 serious risks on TAPS.\28\
---------------------------------------------------------------------------
    \28\ See Richard A. Fineberg, ``Documents Reveal Trans-Alaska 
Pipeline In Trouble; Monitors Punt'' (November 2, 2005), http://
www.finebergresearch.com/archives/spilling.html; and Jim Carlton, 
``Alaskan Pipeline Faces Safety Risk, Executive Warned,'' Wall Street 
Journal (September 17, 2005).
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State and Federal Failures
    Alaska and the federal government have also made and broken 
promises, and undertaken risky behavior, both in the planning and 
regulatory arenas. This section provides examples of these failures, 
and demonstrates that there has been a programmatic failure to make 
informed agency decisions and follow through with stringent 
regulations.
    The TAPS right-of-way renewal provides an example applicable to 
both the state and federal governments. Despite numerous examples of 
other performance failures on TAPS, in late 2002 and early 2003 state 
and federal authorities renewed Alyeska's right-of-way agreements, 
issued 30 years earlier, without taking steps to address the numerous 
problems on TAPS expressed by concerned citizens, environmental and 
other public interest groups.\29\
---------------------------------------------------------------------------
    \29\ State renewal of its right-of-way lease agreement was formally 
issued on Nov. 26, 2002; the federal grant was renewed six weeks later. 
For information concerning the performance failures on the TAPS right-
of-way renewal, see Richard A. Fineberg, ``Background Report: TAPS 
Lease Renewal--Opportunity Lost'' (August 2004), http://
www.finebergresearch.com/tapsenviro.html.
---------------------------------------------------------------------------
            State of Alaska
    In past decades, Alaska had stringent planning requirements. These 
came from two primary sources. First, Alaska law required that any 
decision to commit state lands to oil and gas activities would only go 
forward if it was in the ``best interest'' of the State, as determined 
after a thorough analysis of the costs and benefits of going forward. 
Second, the Alaska Coastal Management Program (ACMP) contained 
stringent environmental and community protection standards, developed 
by local communities as well as state agencies, and was applicable to 
development activities in Alaska's ample coastal communities.
    A series of lawsuits successfully challenged Alaska's ``best 
interest'' finding and ACMP compliance in Alaska decisions to proceed 
with, among other things, oil and gas lease sales in the Arctic.\30\ In 
response, the Alaska legislature amended the statutory ``best 
interest'' requirements to get rid of the requirement that full costs 
of a leasing proposal be examined before a lease sale is actually 
held.\31\ Furthermore, Governor Frank Murkowski directed the final 
evisceration of the ACMP.\32\
---------------------------------------------------------------------------
    \30\ See e.g., Trustees for Alaska v. State of Alaska, Dept. of 
Nat. Resources, 865 P.2d 745 (Alaska 1993) (holding that DNR's best 
interest finding regarding oil and gas leasing near Demarcation Point 
was inadequate because it failed to address the risks of transporting 
oil from the sale area to market and it failed to consider impacts on 
the Porcupine caribou herd and on the subsistence users of the herd); 
Trustees for Alaska v. State of Alaska, Dept. of Nat. Resources, 851 
P.2d 1340 (Alaska 1993) (holding that DNR's consistency determination 
regarding the sale of oil and gas leases in Camden Bay violated the 
ACMP by, among other things, inadequately addressing geophysical 
hazards).
    \31\ Compare AS 35.05.035 as it existed in 1990 with AS 35.05.035 
as it exists today.
    \32\ Governor Issues `Streamlining' Executive Orders, Anchorage 
Daily News, B2 (Feb. 13, 2003).
---------------------------------------------------------------------------
    In another controversial move, Governor Murkowski abolished the 
habitat division of the State of Alaska Department of Fish and Game, 
which was responsible for implementing the waterway-based environmental 
protections contained in Title 16 of Alaska's laws. He transferred what 
responsibilities were left to implement Title 16 to the Alaska 
Department of Natural Resources, the resource development agency that 
sits at the top of the state's administrative hierarchy.\33\
---------------------------------------------------------------------------
    \33\ Murkowski issues habitat division order, Fairbanks Daily News-
Miner (February 12, 2003).
---------------------------------------------------------------------------
    On the regulatory front, the State of Alaska cannot claim that it 
was not forewarned about the high level of corrosion risk present in 
the North Slope oil fields, especially Prudhoe Bay. The state DEC was 
the recipient of the above-described original Coffman Report.\34\ 
Rather than heed its warnings and compel BP to implement a more 
thorough corrosion monitoring program, including the routine use of 
maintenance and smart pigs, DEC set aside the concerns raised by its 
well-respected lead oil spill prevention engineer, whose position it 
was that changes should only occur where factual inaccuracies are 
proven,\35\ and allowed the report to be altered.
---------------------------------------------------------------------------
    \34\ See infra footnotes 16-17 and accompanying text.
    \35\ This situation was exposed at the House Energy and Commerce 
Committee, Investigations and Oversight Subcommittee, Hearing on BP's 
Pipeline Spills at Prudhoe Bay: What Went Wrong? (September 7, 2006).
---------------------------------------------------------------------------
    Well before the Coffman report controversy, however, the state was 
on notice that the corrosion monitoring and leak detection systems on 
the North Slope were unnecessarily risky. Administrative comments to 
DEC from Trustees for Alaska on the Prudhoe Bay spill plan (C-Plan) 
from 2002 are particularly telling given BP's September 7, 2006 
testimony in the House Subcommittee on Investigations and Oversight 
that costs are not a factor in field maintenance at Prudhoe Bay:

          In BPA's case, ADEC has confirmed, and BPXA has acknowledged 
        that the crude oil transmission lines do not comply with the 
        leak detection standards for pipelines. See 18 AAC 
        75.055(a)(1); 18 AAC 75.425(e)(4)(A)(iv). Leak detection 
        standards have been in place since 1992--ADEC should not allow 
        any further delay in installing, testing and ensuring that 
        BPXA's transmission lines meet regulatory standards. Further AS 
        46.04.030(e) requires that the applicant use the best available 
        technology at the time the plan was renewed. The technology 
        exists (for example, the use of turbine meters in conjunction 
        with other technology was determined to be best available 
        technology at facilities like Lisburne), yet BPXA has failed to 
        implement such technology at Prudhoe Bay because of the cost of 
        additional meters (estimated at around $10 million). Yet cost 
        is not necessarily an excuse to fail to implement best 
        available technology--especially in the largest oil field in 
        Alaska.\36\
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    \36\ Letter from Trustees for Alaska to DEC re BP Exploration 
(Alaska) (BPXA) Greater Prudhoe Bay Unit, Oil Discharge Prevention and 
Contingency Plan, ADEC Plan Number 014-CP-5079 at page 7 (February 18, 
2002), http://www.trustees.org/Supporting%20Documents/C-Plan/
Greater%20Prudhoe%20Bay%20C-Plan%202002%20Comments.pdf (italics 
emphasis in original, bold emphasis added).

    BP's position on that spill plan, which DEC ultimately accepted, 
appears to directly rebut last week's BP testimony.
    Finally, with respect to low stress pipelines such as those that 
failed or were in danger of failing during 2006 at Prudhoe Bay,\37\ DEC 
regulates BP's faulty pipelines under its ``crude oil transmission 
pipeline'' requirements.\38\ Current DEC requirements do not deal 
specifically with corrosion; however DEC's general oil pollution 
prevention authority\39\ would have allowed inspectors to require 
pipeline operators to take steps to prevent corrosion-related oil 
discharges. That of course never happened.\40\
---------------------------------------------------------------------------
    \37\ ``Low-stress pipeline means a hazardous liquid pipeline that 
is operated in its entirety at a stress level of 20 percent or less of 
the specified minimum yield strength of the line pipe.'' (49 CFR 195.2)
    \38\ 8 AAC 75.055.
    \39\ For example, 18 AAC 75.005, Responsibility states: The owner 
or operator of an oil tank vessel, oil barge, pipeline, oil terminal, 
railroad tank car, exploration facility, or production facility subject 
to the requirements of AS 46.04.030 or AS 46.04.055 (j) is responsible 
for meeting the applicable requirements of this chapter and for 
preventing the discharge of oil into waters or onto land of the state 
(emphasis added).
    \40\ A former DEC air pollution expert identifies problems with the 
air pollution regulatory regime on the North Slope: ``The state, with 
the acquiescence of the federal Environmental Protection Agency, has 
significantly aggravated air pollution by piecemeal permitting of small 
parts of each facility. This is a problem since air pollution is 
regulated by assigning limits to an entire facility. By substituting 
multiple sub-units for a single facility, the allowable emissions have 
been increased many times over.''--Letter from Bill McClarence to 
Anchorage Daily News, (published September 9, 2006).
---------------------------------------------------------------------------
    DEC remarkably takes the position that its primary oil spill-
related ``obligation is to ensure that an operator takes specific 
measures to be prepared to effectively respond to spills from the 
operation once a permit to drill has been issued.'' \41\ Moreover, its 
recent regulatory revision process was designed to ``improve clarity'' 
\42\ although in reality it mirrored an oil industry wish list.\43\
---------------------------------------------------------------------------
    \41\ DEC, Oil Discharge Prevention & Contingency Plan, Regulation 
Revisions, Public Noticed September 8, 2003--October 13, 2003, Response 
To Comments at 5 (May 14, 2004).
    \42\ See id. at 1.
    \43\ See Alaska Oil and Gas Association (AOGA), ``AOGA Briefing 
Paper on Improving the Contingency Plan Process,'' submitted to ADEC on 
October 15, 2002. Meanwhile, the North Slope Borough, which had been 
asking for new, tougher regulation for years, complained to DEC that 
``only one of its proposed regulatory changes was even considered by 
DEC.'' Comment Letter from North Slope Borough Planning Department to 
DEC at 4 (July 3, 2003).
---------------------------------------------------------------------------
    And even the oil spill response focus of the proposed regulations 
was a step back from the existing regulations. As the North Slope 
Borough stated in its comments on the proposed regulations, ``none of 
the proposed regulatory changes will lead to measurable improvements in 
oil spill response capability for the North Slope, a number of these 
proposals will weaken the oil spill prevention and response systems 
currently in place.'' \44\
---------------------------------------------------------------------------
    \44\ Comment Letter from North Slope Borough Planning Department to 
DEC at 2 (July 3, 2003). DEC is also abdicating its responsibility to 
review spill planning for offshore well blowouts. See A Fair Warning: 
Diminished State Oversight Of Oil Spill Contingency Plans at pages 3-9 
(February 2006), http://www.trustees.org/Supporting%2ODocuments/C-Plan/
A%20Fair%20Warning%20C-Plan%20FINAL%202-2006.pdf.
---------------------------------------------------------------------------
    Some experienced oil field workers have speculated as to the causes 
for the lax state oversight of the oil industry. As former BP worker 
Bill Burkett explained ``[a]ny attempts by the State to increase 
environmental protection would be met with threats from the industry to 
take their business elsewhere. So when critics raised any safety or 
environmental concerns through the State Agencies charged with 
oversight, they went nowhere.'' \45\
---------------------------------------------------------------------------
    \45\ William B. Burkett, Statement before Chairman J. Lieberman and 
B. Graham, March 4, 2002.
---------------------------------------------------------------------------
    This dynamic is also recognized by independent energy industry 
analysts:

          [T]he sources of BP's apparent neglect of its pipelines may 
        stem less from the company's own culture than from the 
        regulatory vacuum surrounding feeder pipelines. Although feeder 
        lines are subject to state regulations, it would be delusive to 
        expect Alaska, an oil state heavily dependent on oil and gas 
        investments, to effectively fill the federal regulatory gap 
        when it is struggling to attract billions of dollars in gas 
        pipeline investments from the very companies it is supposed to 
        regulate. If indeed the root cause of BP's problems is 
        regulatory rather than company-specific, pipeline problems 
        might exist undetected at other Alaskan facilities that have 
        not been subject to the scrutiny brought on BP by its recent 
        safety record.\46\
---------------------------------------------------------------------------
    \46\ Antoine Halff, Veronique Lashinski, Beyond Prudhoe, FIMTA 
Energy Research (August 7, 2006).

    While the BP debacle should serve as a wake up call to Alaska to 
overhaul its planning and regulatory programs, statements by Alaska's 
leaders do not bode well for such change. Governor Murkowski recently 
led a tour of reporters to the North Slope. At Prudhoe Bay, he intoned 
``Let me welcome you to the best oil field in the world,'' and then 
touted the quality of the field's operation.\47\
---------------------------------------------------------------------------
    \47\ Wesley Loy, Governor visits the Slope, Anchorage Daily News 
(August 11, 2006).
---------------------------------------------------------------------------
            Federal Government
    The Teshekpuk Lake discussion presented as the introduction to this 
section demonstrates that federal land management and planning efforts 
also suffer from broken promises and risky behavior. In fact, the 
``promise'' of BLM's decision to lease the Teshekpuk Lake region goes 
beyond an analysis of cumulative impacts because it allows pipelines to 
crisscross even those areas it deigns too sensitive for direct drilling 
on the assumption that pipelines are benign elements of the industrial 
infrastructure.\48\ Yet it is the risk posed by the inevitable 
spills\49\ and intensive human activity (e.g., the need to monitor 
pipelines by aircraft) such as that seen at Prudhoe Bay that the 
scientists and local residents tell us will so gravely threaten that 
region's remarkable natural resources.\50\ Consequently, while other 
examples exist, the Teshekpuk Lake situation is sufficiently timely and 
on point to act as the sole illustration of this point.
---------------------------------------------------------------------------
    \48\ See Map, Potential Teshekpuk Lake Development Allowed under 
BLM ROD (January 2006), Alaska Center for the Environment, Conservation 
GIS (map created May 5, 2006) (attached); see also NPRA NE FEIS at 4-17 
(January 2005) (``[N]umerous technological advancements have been made 
during the decades of operations on the North Slope that have allowed 
current development activities to proceed at a lower cost and with less 
environmental impact than previous operations.'')
    \49\ Even staunch drilling proponents such as Representative Don 
Young admit that ``[t]he fact of the matter is that sometimes leaks 
will occur.'' Congressman Don Young, Press Release, House 
Transportation Committee Hearing on Pipeline Safety (March 16, 2006). 
The facts of North Slope oil development, where spills of oil and other 
hazardous substances are on the rise and average well over one a day, 
support his statement. See Facts, North Slope Oil Development, http://
www.northern.org/artman/uploads/northslopefactsspills3-29-05.pdf, and 
cites therein; see also http://www.wilderness.org/Library/Documents/
upload/Facts-
OilSpillsAndFines.pdf#search=%22national%20research%20council%20north%20
slope%20oil%22 (same).
    \50\ See e.g., Letter by Terry Crawforth, Chairman, Pacific Flyway 
Council to Interior Secretary Gale Norton at page 1 (August 2005) 
(BLM's approach ``would allow facilities and infrastructure for oil and 
gas production to impinge on sensitive molting geese . . . [a]nd 
minimizes the value of contiguous undisturbed habitat that is the 
essence of why molting geese have established a strong tradition of 
molting in [this] region''); Letter from Kenneth Able et al. (including 
about 200 ornithologists, wildlife biologists and environmental 
scientists) to BLM's NE NPR-A Amendment Planning Team at page 2 (August 
23, 2004) (``Molting geese will run at the sight of a distant person, 
and disturbance by aircraft overhead--to which brant apparently do not 
habituate--is a major problem''); see also Audubon Alaska, Wildlife and 
Oil Development at Teshekpuk Lake, http://www.audubon.org/chapter/ak/
ak/images/Teshekpuk--low.pdf (providing information on the environment 
of the Teshekpuk Lake region, the threat posed to it by oil 
development, and the opinions of scientific experts; see also Letter 
from North Slope Borough to Interior Secretary Kempthorne (August 31, 
2006) (expressing continued objection to the scheduled September 27, 
2006 oil and gas lease sale for the Northeast Planning Area of the 
Reserve based on the incompatibility of industrial development with the 
critical subsistence resources and harvests of that region).
---------------------------------------------------------------------------
    Turning to the regulatory world, BP's pipeline problems on the 
North Slope amply demonstrate that investing in pipeline safety pays 
off in environmental and economic benefits,\51\ though we are also 
failing to heed this fact. DOT's Pipeline and Hazardous Materials 
Safety Administration (PHMSA) has jurisdiction over BP's pipelines, 
however BP's so-called ``transit'' pipelines currently are exempt from 
federal regulation. This means that other pipelines like BP's have no 
federal corrosion prevention requirements or federal inspectors 
checking on operations. Based on information PHMSA presented at the 
September 7 House Investigations and Oversight Subcommittee hearing, 
there were a very large number, i.e., over 180, locations of 
significant wall thinning from corrosion on BP's Eastern Operating Area 
pipeline. If this pipeline were regulated, these locations of wall 
thinning would require repairs under 49 CFR 195.452(h)(4)(iii).
---------------------------------------------------------------------------
    \51\ For example, among the economic costs of the BP situation was 
the fact that the state of Alaska lost $6.4 million in royalties and 
taxes for each day the oil field was shut-down. Matt Volz, Murkowski 
institutes hiring freeze after shutdown, Anchorage Daily News (August 
9, 2006).
---------------------------------------------------------------------------
    Yet the history of attempts to place federal regulations on low 
stress pipelines is not a pretty one. The following timeline shows 
actions the federal government has taken and not taken to address the 
low-pressure pipeline exemption:

   1969: All low-pressure pipelines exempted from regulation.
   1988: National Association of Pipeline Safety 
        Representatives (state pipeline regulators) sends the U.S. DOT 
        a resolution asking that the low-pressure exemption be 
        eliminated.\52\
---------------------------------------------------------------------------
    \52\ Resolution 1988-1-P1, 20 Percent SMYS, sent to U.S. DOT on 
August 4, 1988.
---------------------------------------------------------------------------
   1990: U.S. DOT asks for comments on ``whether and to what 
        extent'' to remove the low-pressure exemption from its 
        regulations.\53\
---------------------------------------------------------------------------
    \53\ See 55 Federal Register 45822 (October 31, 1990).
---------------------------------------------------------------------------
   1992: Congress passes the Pipeline Safety Act of 1992 (Pub. 
        L. 102-508) and directs U.S. DOT not to exempt pipelines from 
        its regulations ``only because the facility operates at low 
        internal stress.'' \54\
---------------------------------------------------------------------------
    \54\ See 49 USC 60102(k).
---------------------------------------------------------------------------
   1992: Volpe National Transportation Systems Center issues a 
        report for U.S. DOT\55\ estimating that there are 20,000 miles 
        of onshore rural gathering lines and 22,000 miles of 
        unregulated low-pressure transmission pipelines. The Volpe 
        study also estimated that 38% of the 22,000 miles (nearly 7,000 
        miles) were near a populated area or a navigable waterway 
        (leaving 15,000 miles of low-pressure transmission pipelines 
        unregulated.)\56\
---------------------------------------------------------------------------
    \55\ Economic Evaluation of Regulating Certain Hazardous Liquid 
Pipeline Operating at 20% or Less of Specified Minimum Yield Strength, 
Deanna Mirsky of EG&G/Dynatrend and The Hazardous Materials 
Transportation Special Projects Office, Volpe National Transportation 
Special Projects Office, July 21, 1992.
    \56\ In its Notice of Proposed Rulemaking (NOPR) published in the 
Federal Register on September 6, 2006, however, PHMSA used industry 
data--which includes irrelevant offshore gathering line information and 
gathering lines too small to be regulated--to estimate that only 5,000 
miles of low-pressure transmission pipeline currently are unregulated. 
In section 6.1.1 of the Regulatory Evaluation for this NOPR (U.S. 
Department of Transportation Docket Number RSPA-2003-15864-36), PHMSA 
says it used the Association of Oil Pipe Lines' ``Pipeline 101'' 
estimate of 35,000 miles of gathering line mileage which includes 
onshore and offshore gathering lines and gathering lines as small as 
2'' in diameter. Section 6.1.2 of the Regulatory Evaluation describes 
how PHMSA subtracted these 35,000 miles from the approximately 40,000 
miles of unregulated pipelines and concluded that there are only 5,000 
miles of unregulated, low-stress transmission pipelines (i.e., 
disregarding the fact that the 35,000 mile figure contains significant 
offshore and small diameter gathering line mileage).
---------------------------------------------------------------------------
   1993: Notice of Proposed Rulemaking applying pipeline 
        standards to low-pressure transmission pipelines that traverse 
        a populated area or a navigable waterway. U.S. DOT deferred a 
        decision on regulation of low-pressure lines in environmentally 
        sensitive areas awaiting its development of a definition of 
        environmentally sensitive areas.\57\
---------------------------------------------------------------------------
    \57\ See 58 Federal Register 12213 (March 3, 1993).
---------------------------------------------------------------------------
   1994: Final rule applying pipeline standards to low-pressure 
        transmission pipelines located in non-rural areas and areas 
        currently used for commercial navigation.\58\
---------------------------------------------------------------------------
    \58\ See 59 Federal Register 35465 (July 12, 1994).
---------------------------------------------------------------------------
   2006: American Petroleum Institute and the Association of 
        Oil Pipe Lines submit a proposal in June to PHMSA identifying 
        which low-pressure pipelines should be regulated.\59\
---------------------------------------------------------------------------
    \59\ U.S. Department of Transportation Docket Number RSPA-2003-
15864-22.
---------------------------------------------------------------------------
   2006: U.S. House of Representatives Committee on 
        Transportation and Infrastructure marks-up H.R. 5782 in July, 
        closely tracking industry's proposal identifying which low-
        pressure pipelines should be regulated. U.S. House of 
        Representatives Energy and Commerce Committee holds a July 
        hearing on a Discussion Draft for the reauthorized pipeline 
        safety law which does not include details on which low-pressure 
        pipelines should be regulated.
   2006: Notice of Proposed Rulemaking applies limited pipeline 
        standards to low-pressure transmission pipelines and gathering 
        lines within \1/4\ mile of ``unusually sensitive areas,'' which 
        represent only 17% of the unregulated gathering and 
        transmission pipeline universe according to the NOPR and 14% of 
        the unregulated transmission pipeline universe.\60\ Using the 
        figure of 15,000 unregulated miles developed by the Volpe 
        Center, however, less than 5% (684 miles of 15,000 miles) of 
        the low-stress transmission pipeline universe would be 
        regulated under the NOPR.
---------------------------------------------------------------------------
    \60\ See 71 Federal Register 52515 (September 6, 2006).

    Today, 18 years after state pipeline regulators asked U.S. DOT to 
remove the exemption covering low-pressure pipelines entirely, PHMSA 
last week proposed to regulate an incremental sliver of the unregulated 
low-stress transmission pipeline universe. This means that many, many 
miles of low-stress transmission pipelines remain unregulated and 
susceptible to BP-like problems with their corresponding, adverse 
environmental and economic consequences--on the North Slope this may be 
the vast majority of the 1,600 miles of pipelines existing in the North 
Slope oil fields. And PHMSA will never even know about most such 
problems because unregulated pipelines need not report their releases 
to U.S. DOT--out of sight, out of mind.
    The oil industry itself has always enjoyed special treatment in the 
form of exemptions from environmental regulations that apply to the 
exact same pollution originating from different industrial sources. Oil 
industry-specific exemptions exist under the Resource Conservation and 
Recovery Act, the Emergency Planning and Community Right-To-Know Act, 
and the Clean Water Act, among other laws.\61\ The very existence of 
these exemptions belies any assertion that oil industry activities are 
held to the highest possible environmental standards.
---------------------------------------------------------------------------
    \61\ See Testimony of Peter Van Tuyn, House Resources Committee, 
Hearing on H.R. 39, text accompanying endnotes 37 to 43 (March 12, 
2003), http://resourcescommittee.house.gov/archives/108/testimony/
petervantuyn.htm.
---------------------------------------------------------------------------
               THE UNITED STATES CAN CONTROL ITS DESTINY

    There is no question that BP needs to clean up its internal 
management mess. The origin of the culture of intimidation and 
harassment within BP must be found and rooted out--including divorcing 
the performance of good faith but potentially costly system integrity 
functions from whatever bonuses and stock options are granted to 
critical BP employees. Indeed, it would seem prudent that the timely 
and complete performance of these functions be a condition of continued 
employment for such workers.
    That said, the United Sates must stop relying on industry to take 
the lead in doing what is best for this nation. Government can and 
should take the lead in ensuring the short and long-term viability and 
integrity of our energy production and delivery systems. This should be 
done to minimize risk to workers, who put their lives at risk in the 
energy field, as well as to safeguard the environment. It should also 
be done to minimize interruption of our nation's energy supply.
    A good start to doing so would include implementation of the 
following recommendations.
Ensuring the Integrity of Alaska Oil Facilities
    A series of actions could begin the arduous but necessary task of 
ensuring the integrity of Alaska's critical oil and gas industry 
infrastructure including an independent audit of the management and 
operations of such infrastructure, the creation of a citizen's 
oversight group to watchdog the industry and government regulators, and 
the inclusion of low stress pipelines in federal regulation. Each of 
these recommendations is discussed, in turn, below.
            Congress should commission an independent, functional audit 
                    of Alaska North Slope production facilities and 
                    cross-country delivery systems to Valdez
    To ascertain and address the root causes of the circumstances that 
have recently come to light, Congress should authorize and fund an 
independent panel to conduct a functional audit of the North Slope 
delivery system and TAPS.\62\ In order to ensure the operational 
integrity of this system, the personnel conducting this investigation 
must have intimate, ``boots-on-the-ground'' knowledge of Alaska's 
production and transportation system, similar to the expertise and 
independence exhibited by participants in the State of Alaska's 1991 
Exxon Valdez Oil Spill Commission. The audit, which must include a 
follow-up to ensure positive results, should be conducted over a two-
year period, and along the following lines:
---------------------------------------------------------------------------
    \62\ After the 1989 Exxon Valdez oil spill, Congress authorized--
but never funded--an audit of North Slope transportation systems. (See: 
Oil Spill Pollution Act of 1990, Sec. 8103. Presidential Task Force.)
---------------------------------------------------------------------------
    An initial report, to be completed in nine months, should examine 
both the management structures and systems used in Alaska, including 
government oversight, as well as physical hardware. In this regard, the 
first task (taking, perhaps, three months) should be to determine 
whether the North Slope production and delivery system, and its 
operators, provide a reasonable margin of safety in all aspects of its 
operations by:

   Detecting problems critical to safe operations in a timely 
        manner;
   Providing timely response to critical problems, thereby 
        minimizing risk to workers, risk to the environment and 
        interruption of a critical component of this nation's energy 
        supply; and
   Demonstrating the capability to learn from experience and 
        adapt to changing conditions.

    Based on these findings, the panel should assess root causes and 
recommend institutional changes to address the identified problems. The 
initial audit final report should be tendered to Congress within nine 
months.
    As we have seen, an audit without follow-through is not likely to 
result in correction of problems identified in that audit review. 
Therefore, nine months after completion of the initial audit, the panel 
should reconvene to review (1) the status of the management system and 
hardware problems identified in the initial report; (2) actions taken 
to address the institutional problems identified in the initial report; 
and (3) new developments the panel may elect to address. The follow-up 
report should be tendered to Congress six months later, or two years 
after the initial audit commences.
            Congress should establish a Citizens' Oversight Group for 
                    the North Slope oil facilities and TAPS
    Shortly after the Exxon Valdez oil spill, Congress established two 
citizen oversight groups in Alaska--one for Prince William Sound and 
the other for Cook Inlet.\63\ However, no similar group was established 
for the northern two-thirds of TAPS, or for the production complex at 
Prudhoe Bay. At this time Congress should establish a Citizens' 
Oversight Group, with dedicated funding from the North Slope production 
and transportation operations that covers the entirety of this vital 
domestic transportation system. Its function would be to ensure, 
through independent citizen and community involvement, that the 
important North Slope and TAPS energy systems are maintained and 
operated in a manner that safeguards system integrity, the workers and 
the natural resources of Alaska, and ensures the integrity of continued 
oil production and shipment.
---------------------------------------------------------------------------
    \63\ Oil Spill Pollution Act of 1990, Sec. 5002(d).
---------------------------------------------------------------------------
    The structure for the group would best be developed in consultation 
with the individuals and local communities of the affected regions. To 
assure its independence from industry, the new citizens' oversight 
groups must, at a minimum, be:

   Funded at a guaranteed annual level; and
   Made up of individuals appointed (but not employed) by local 
        governments, federally recognized tribes, indigenous groups, 
        environmental groups and other concerned citizens. (Industry 
        and agency regulatory agency personnel could participate 
        actively but in an ex-officio capacity.)

    The creation of a group for the North Slope and all aspects of TAPS 
not covered by the current regional citizens advisory councils would 
help combat systemic operational and oversight problems such as those 
that we are experiencing today. The group would oversee a staff whose 
expertise provides regulators, the industry and the general public with 
a truly independent evaluation of the efforts and accomplishments of 
the North Slope and TAPS oil facility operations. The funding for the 
group could come from external trust or escrow accounts set up to 
ensure the future dismantling and removal of facilities and 
rehabilitation of the land on which these oil facilities rest; thus 
ensuring that another promise of the oil patch is fully met.
    The owners of the TAPS have collected funds for the future 
dismantling, removal and restoration (DR&R) of TAPS from shippers 
through pipeline tariffs. That money, collected on an accelerated 
basis, is currently passed through to the parent companies of the TAPS 
Owners. A 2004 analysis suggested that if TAPS operates through 2034 at 
historical inflation and industry earnings rates, the industry's 
retention of the pre-collected funds will generate income of 
approximately $50 billion after dismantling costs and all taxes are 
paid. Moreover, the TAPS owners have collected sufficient funds to 
cover dismantling expenses in 2034, even if inflation averages an 
historically unprecedented 10% between now and that time.\64\ To 
provide funds to ensure the safe and environmentally sound operation of 
TAPS and promote the integrity of continued North Slope development, 
the TAPS Owners should be required to (a) place funds necessary for 
TAPS dismantling in an escrow account and (b) contribute a portion of 
the excess income that they will earn from past DR&R collections to a 
fund that would generate a minimum of $3 million per year to help 
finance the North Slope and TAPS oversight group.
---------------------------------------------------------------------------
    \64\ See Richard A. Fineberg, Trans-Alaska Pipeline System 
Dismantling, Removal and Restoration (DR&R): Background Report and 
Recommendations, Prince William Sound Regional Citizens' Advisory 
Council, 2004, Appendix Tables 6-8.
---------------------------------------------------------------------------
    The TAPS DR&R provisions apply only to the 800-mile TAPS right-of-
way. On the North Slope, six North Slope common carrier ``feeder'' 
pipelines that carry oil between separate leases also generate DR&R 
funds. These pipelines are much shorter than the 800-mile TAPS and 
their DR&R collections are much smaller. The producing fields 
themselves operate under different leasing terms from the pipeline 
right-of-way leases. The field leases typically contain a requirement 
to restore the land to original condition or to the conditions 
acceptable to the designated agency official but do not specify a 
funding mechanism.\65\ Information on how North Slope field operators 
charge users and account for this long-term liability is not readily 
available.\66\ Congress should investigate this issue and establish 
laws, as necessary, to ensure that funds for future North Slope field 
dismantling will be available as needed, but will not be over-
collected, and that some portion of the interest on this money can be 
directed to the oversight group as well.
---------------------------------------------------------------------------
    \65\ Summarized from documents submitted by the Alaska Departments 
of Environmental Conservation, Law and Natural Resources and the Alaska 
Oil and Gas Conservation Commission to a joint hearing of the Alaska 
State House of Representatives and Senate Resources Committees, Aug. 
18, 2006; and by Vice Adm. Thomas G.Barrett, Administrator, Pipeline 
And Hazardous Materials Safety Administration, to the U.S. House 
Subcommittee on Oversight and Investigations, U.S. House of 
Representatives Committee on Energy and Commerce (September 7, 2006).
    \66\ In its 2003 report on cumulative environmental effects of 
Alaska North Slope oil and gas activities, the National Research 
Council noted that, ``there has been no comprehensive estimate of the 
costs of dismantlement and removal of infrastructure and subsequent 
restoration and rehabilitation (DRR) of affected North Slope areas.'' 
NRC Report at 150.
---------------------------------------------------------------------------
            Congress should mandate regulation of low stress pipelines
    Although this committee does not have in initial jurisdiction over 
pipeline operations, this subject is a critical to ensuring the safety 
of the nation's energy supply. For this reason, the 2006 PHMSA proposed 
rulemaking on low stress pipelines warrants comment here. The proposed 
rules follow national attention to BP's North Slope problems. Moreover, 
in developing its 2006 pipeline regulation rulemaking, PHMSA ignored 
technical and other information provided to it by public interest 
organizations and instead moved forward with industry's proposal 
substantially intact. This reactive, pro-industry posture must change 
to one where federal regulation is proactive in preventing problems 
before they happen.
    The rulemaking proposal includes a patchwork of requirements taken 
from 49 CFR 195 with no credible evidence that the new application of 
these requirements will reduce releases significantly. For example, the 
proposed standards would reduce six pages in the Code of Federal 
Regulations on pipeline integrity management (49 CFR 195.452) to one 
unenforceable paragraph stating that pipeline operators ``may'' choose 
to use smart pigs (or the equivalent).\67\ Additionally, the proposed 
standards for regulated gathering lines do not include any type of 
integrity management whatsoever.
---------------------------------------------------------------------------
    \67\ See 71 Federal Register 52519 (September 6, 2006), proposed 
section 195.12(b)(10).
---------------------------------------------------------------------------
    Moreover, the ``buffer zone'' methodology--covering pipelines in 
unusually sensitive areas plus one-quarter mile--proposed by industry 
and now by PHMSA should be rejected. Based on their dubious performance 
record, all low-pressure pipelines deserve federal regulation and those 
that may affect ``High Consequence Areas'' (as defined in 49 CFR 
195.450) should meet federal integrity management requirements (49 CFR 
195.452).
    Further, in an unprecedented action, PHMSA's proposal allows 
regulated low-pressure transmission pipelines to meet much weaker 
standards than other transmission pipelines. These pipelines should be 
regulated to the higher standards applicable to other transmission 
lines, including the low-pressure transmission pipelines that U.S. DOT 
regulated in 1994 (non-rural pipelines and pipelines near commercially 
navigable waterways).
    Finally, it should be noted that the costs for compliance with a 
more comprehensive regulatory scheme would not be large, particularly 
in comparison. to the high costs to society when pipelines fail. PHMSA 
predicts that its proposal will cost operators only $17 million,\68\  a 
relatively small amount given the likely higher costs when pipelines 
like BP's fail, and a ridiculously low cost when compared to the tens 
of billions of dollars routinely brought in as profits by oil companies 
in recent years.
---------------------------------------------------------------------------
    \68\ See 71 Federal Register 52515 (September 6, 2006).
---------------------------------------------------------------------------
Protecting Special Places
    The North Slope of Alaska is our nation's only arctic ecosystem. A 
balanced approach would give wilderness protection to the coastal plain 
of the Arctic National Wildlife Refuge and permanent protection for the 
most biologically and culturally important areas of NPR-A and the 
Arctic Ocean, while maximizing oil and gas potential in the central 
arctic around Prudhoe Bay and elsewhere in the NPR-A.
    The BP Prudhoe Bay debacle is but the latest example of the 
prudence of this approach. The industrial complex necessary to produce 
oil from Alaska's North Slope includes Prudhoe Bay as well 26 other 
producing oil fields. These oil fields are spread across over 1,000 
square miles of Alaska's North Slope--which is equal to the size of 
Rhode Island. There are nearly 5,000 wells, over 500 miles of roads, 
over 1,800 miles of pipelines on the North Slope, plus the 800 mile-
long Trans Alaska Pipeline, dozens of gravel mines, and multiple 
refineries, airports, power plants and other industrial 
infrastructure.\69\
---------------------------------------------------------------------------
    \69\ See Facts, North Slope Oil Development, http://
www.northern.org/artman/uploads/northslopefactsspills3-29-05.pdf, and 
cites therein; see also http://www.wilderness.org/Library/Documents/
upload/Facts-
OilSpillsAndFines.pdf#search=%22national%20research%20council%20north%20
slope%20oil%22 (same).
---------------------------------------------------------------------------
    Oil and gas drilling is a complicated endeavor and even regulations 
designed with the best of intentions will not prevent pollution. The 
legal and permitted aspects of the oil industry on Alaska's North Slope 
allow for simply massive amounts of air pollution.\70\ Spills of oil 
and other hazardous substances on Alaska's North Slope average well 
over one a day, and are increasing in frequency. As noted above, even 
Alaska's congressional representative Don Young, an ardent drilling 
advocate if ever there was one, recently stated, ``[t]he fact of the 
matter is that sometimes leaks will occur.'' \71\ The facts are 
impossible to escape; oil and gas activities are inherently dirty, and 
fully industrialize the areas in which they occur.
---------------------------------------------------------------------------
    \70\ See Facts, North Slope Oil Development, http://
wwww.northern.org/artman/uploads/northslopefactsspills3-29-05.pdf, and 
cites therein; see also http://www.wilderness.org/Library/Documents/
upload/Facts-
OilSpillsAndFines.pdf#search=%22national%20research%20council%20north%20
slope%20oil%22 (same). This huge industrial complex emits air pollution 
in such a large volume that it can be detected hundreds of miles away. 
The air pollution includes massive amounts of greenhouse gases, as well 
as smog and acid rain-producing Nitrogen Oxide in amounts twice that of 
the D.C. metropolitan area. See id.
    \71\ See infra note 49, citing Congressman Don Young, Press 
Release, House Transportation Committee Hearing on Pipeline Safety 
(March 16, 2006).
---------------------------------------------------------------------------
    There isn't a single federal or state agency evaluating questions 
about which special landscapes and sensitive habitats on the Arctic 
coast should be placed off limits to development. That the integrity of 
the Arctic National Wildlife Refuge is continually under attack to be 
opened to incompatible oil and gas development shows how far the scales 
are already tipped away from conservation on the North Slope. It seems 
that the governments are only interested in what can be opened and how 
fast it can be done.
    Indeed, given the present pace and scope of leasing and proposed 
oil development, it is quite possible that the entire Arctic coast, on-
and offshore, will be crisscrossed with the infrastructure of 
industrial oil development in our life times. This would be a real loss 
for the future generations who would never know a wild Arctic. It would 
also be a loss for science, as the National Research Council 
recommended establishing protected areas--free of the influence of the 
oil industry--to serve as scientific controls for the evaluation of the 
effects of oil and gas activity and climate change.\72\
---------------------------------------------------------------------------
    \72\ See NRC Report at 151.
---------------------------------------------------------------------------
            The Arctic National Wildlife Refuge
    Created by President Dwight Eisenhower in 1960 to protect 
wilderness and wildlife and expanded when President Jimmy Carter signed 
the 1980 Alaska National Interest Lands Conservation Act (ANILCA), 
America's Arctic National Wildlife Refuge has been one of the greatest 
conservation legacies of both Republican and Democratic 
administrations. The Arctic Refuge was established to conserve fish and 
wildlife populations and habitats in their natural diversity; fulfill 
the international treaty obligations of the U.S. with respect to fish 
and wildlife and their habitats, such as migratory waterfowl agreements 
and the Canada-U.S. Porcupine River caribou herd agreement; provide the 
opportunity for local residents to continue their subsistence way of 
life; and to protect water quality and quantity.
    The U.S. Fish and Wildlife Service, which manages the Arctic 
National Wildlife Refuge, today calls it ``the only conservation system 
unit that protects, in an undisturbed condition, a complete spectrum of 
the arctic ecosystems in North America.'' Such a broad spectrum of 
diverse habitats occurring within a single protected unit is 
unparalleled in North America; no other conservation area in the entire 
circumpolar north hosts such abundant and diverse wildlife. Blanketed 
with snow for much of the year, the Coastal Plain explodes with life 
during the brief spring and summer months, earning the nickname of 
``America's Serengeti.''

   The Porcupine River herd of 129,000 caribou gathers annually 
        on the Coastal Plain to bear and nurse their young;
   Polar Bears rely on the Coastal Plain of the Arctic Refuge 
        as their most important on-land denning habitat on American 
        soil;
   Grizzly bears, wolves, wolverines, foxes, golden eagles, and 
        snowy owls gather here to hunt and den.
   In the fall, the Coastal Plain of the Arctic Refuge supports 
        up to 300,000 snow geese which detour to feed from their 
        nesting grounds in Canada.
   Millions of other birds use the Arctic Refuge to nest and as 
        a critical staging area before journeying on to every state in 
        the country, and many countries in the world.

    And the Arctic Refuge supports more than just wildlife. For a 
thousand generations, the Gwich'in people of Northeast Alaska and 
Northwest Canada have depended upon the Porcupine (River) caribou herd 
to sustain their culture. The herd is central to their way of life, 
providing food, clothing, and a critical link to their traditional 
ways. To the Gwich'in people, the Coastal Plain is sacred ground.\73\
---------------------------------------------------------------------------
    \73\ For more background on the Arctic Refuge, see http://
www.alaskawild.org/campaigns--arctic.html#coastal%20plain; http://
www.wilderness.org/OurIssues/Arctic/; http://www.savearcticrefuge.org/
learnmore.html; http://www.savebiogems.org/arctic/; http://
www.sierraclub.org/arctic/.
---------------------------------------------------------------------------
    The inevitable industrialization of the Arctic Refuge that would 
occur were Congress to open it to oil and gas activities is simply not 
compatible with these values of the Refuge. Congress should rebuff any 
attempts to drill the Refuge, and permanently protect it through 
legislation designating the Coastal Plain of the Refuge as designated 
Wilderness.
            Sensitive Areas Within the NPRA
    The National Petroleum Reserve-Alaska is the largest single unit of 
public lands in the Nation. It harbors rich and important wildlife and 
wildlands and a cultural heritage that sustains Inupiaq communities. 
The conservation community recognizes that there will be additional oil 
and gas leasing and development in this area. That said, a balanced 
approach for development in the NPRA requires permanent protection of 
its special places and values and development must adhere to strict 
environmental standards, including those related to operations, cleanup 
and restoration.
    In recent years, the Interior Department has offered 11 million 
acres of the NPR-A for oil and gas leasing, and 2.8 million acres are 
currently under active leases. Of this, 1.3 million acres is in the 
Northeast Planning Area of the Reserve, 87% of which was open to such 
leasing in 1998.
    Absent congressional action, a final court injunction, or an 
administrative retraction, the Interior Department is now scheduled to 
offer 100 % of this area to leasing, most at a September 27 lease sale. 
This would include the sensitive region around Teshekpuk Lake, which 
harbors extremely important waterfowl and caribou habitat. Even James 
Watt did not go this far, as he protected the area north and east of 
Teshekpuk Lake because of its critical, international importance to 
molting geese.
    And Interior's decision is based on an extremely faulty foundation. 
First, as described above, Interior once again deferred a full analysis 
of the impacts of its decision on the environment, leading a federal 
judge to preliminarily rule that Interior violated the law and that the 
lease sale should not go forward.\74\ Further, an underlying premise of 
Interior's decision to open 100% of this area of the Reserve to oil 
leasing was that pipelines are low impact and thus their presence in 
goose molting habitat (areas where geese go to replenish their flight 
feathers, and are thus very sensitive to disturbance of any kind 
because they cannot fly away) would not cause any harm. As the experts 
tell us (and these are the pre-eminent bird biologists in the country) 
the kind of disturbance caused by such intensive human presence in the 
pipeline areas could have population-level impacts on these 
waterfowl.\75\
---------------------------------------------------------------------------
    \74\ See infra notes 3-5 and accompanying text.
    \75\ See e.g., Letter by Terry Crawforth, Chairman, Pacific Flyway 
Council to Interior Secretary Gale Norton at page 1 (August 2005) 
(BLM's approach ``would allow facilities and infrastructure for oil and 
gas production to impinge on sensitive molting geese . . . [a]nd 
minimizes the value of contiguous undisturbed habitat that is the 
essence of why molting geese have established a strong tradition of 
molting in [this] region''); Letter from Kenneth Able et al. (including 
about 200 ornithologists, wildlife biologists and environmental 
scientists) to BLM's NE NPR-A Amendment Planning Team at page 2 (August 
23, 2004) (``Molting geese will run at the sight of a distant person, 
and disturbance by aircraft overhead--to which brant apparently do not 
habituate--is a major problem''); Audubon Alaska, Wildlife and Oil 
Development at Teshekpuk Lake, http://www.audubon.org/chapter/ak/ak/
images/Teshekpuk_low.pdf (summarizing expert opinions on development in 
the Teshekpuk Lake region).
---------------------------------------------------------------------------
    The decision to lease 100% of the Northeast Planning Area ignores 
the voices of leading scientists, sportsmen from across the nation, and 
the Alaska Native people who depend on the wildlife and subsistence 
resources of the region. As Mayor Edward S. Itta of the North Slope 
Borough stated in a recent letter to Interior Secretary Kempthorne:

          We understand the pressures in today's world to expand the 
        lands and waters available for oil and gas leasing, 
        exploration, and development. We must all recognize as well, 
        however, that preservation of the special and sensitive surface 
        values of some discreet areas is simply incompatible with 
        industrial development. The risks posed to such areas by 
        industrialization outweigh the benefits.

    Expressing similar concerns, and well before the full extent of the 
troubles at Prudhoe Bay were known, a bipartisan coalition of senators 
wrote to Interior Secretary with a request to put on hold oil and gas 
leasing in the sensitive areas around Teshekpuk Lake.
    The BP Prudhoe Bay debacle thus provides but the latest in a long 
line of reasons why leasing this region of the NPR-A is a bad idea. 
Congress should therefore put a stop to it.
Diversifying Our Energy Sources
    No amount of domestic drilling will bridge the gap between the oil 
we use and the oil we might have under our soil, or lower gasoline 
prices. The inescapable fact is that the United States consumes 25 
percent of the world's daily oil production, but we sit atop just three 
percent of the world's oil supply.
    To ensure a reliable source of energy for the United States, 
therefore, we simply must diversify our sources of energy. Expert 
analyses demonstrate that an immediate and long term commitment to 
alternative energy can yield significant energy dividends in short 
order. Doing so would also have an insulating effect on our energy 
supply, limiting the impact on supply and prices caused by troubles in 
the oil fields. Further, these investments in alternative energy would 
also help address global warming, providing yet another benefit to 
mankind. Finally, having a growing percentage of our energy portfolio 
in renewable energy resources means stabilizing electric rates for 
consumers. In the world wide energy environment in which we currently 
exist, continued reliance on fossil fuels means higher and higher 
energy costs for these consumers.
    Therefore, developing alternative energy makes sense at every layer 
of the energy debate. The recommendations provided here are just 
examples of what can be done to promote alternative energy; Congress 
should consider all of them and work with due haste to pass an 
alternative energy policy.
    First, when considering developing alternative energies as a 
recommendation in response to BP's Prudhoe Bay debacle, perhaps it is 
most appropriate to use Alaska itself as an example of the 
possibilities afforded by investing in alternative energy. Alaska has 
some of the best renewable energy resources in the world, and has just 
begun to develop them. In our relatively small urban grid connected 
areas Alaska has several opportunities for large-scale wind development 
including the Fire Island proposal (located off of Anchorage in Cook 
Inlet) which could generate between 50-100 MW for Anchorage, thus 
generating 10 to 20% of Anchorage's peak load requirements.
    The utility in the Fairbanks area is also pursuing wind projects 
and has an internal goal of producing 20% of its power from renewables 
by 2014. At least one large geothermal resource (50-100 MW) is located 
near the urban grid near Mt. Spurr, a volcano within sight of 
Anchorage. Alaskans have gone to Iceland to see how that small country 
has become a world leader in geothermal power, and just last month the 
small community of Chena Hot Springs commissioned the first geothermal 
power plant in Alaska using cutting edge technology; it produces 
electricity with the lowest temperature geothermal water in the world 
(165 F).
    In over 200 remote, mostly Alaska Native, communities around the 
state the high price of oil means that the diesel those communities 
rely on to generate electricity is making basic even the basics 
unaffordable. Villagers already pay on average 4-5 times what urban 
Alaskan pay for power. A $200 or $300 monthly electric bill in the 
winter means those communities are just trying to survive, let alone 
prosper. Yet, there are an estimated 60-70 villages that could utilize 
small wind turbines to displace diesel and stabilize electric rates. 
Six villages already have wind-diesel hybrid systems and other villages 
are waiting line for systems.\76\
---------------------------------------------------------------------------
    \76\ Alaska summary above taken from email from Chris Rose, 
executive director, Renewable Energy Alaska Project (REAP), September 
8, 2006 (on file with the author).
---------------------------------------------------------------------------
    As a start to developing these resources, enterprising Alaskans 
prepared an alternative energy atlas of the state. (Attached). This 
atlas was based on a similarly amazing alternative energy atlas of the 
Western United States, which was created by a number of non-
governmental organizations, using private foundation funding. The 
Western U.S. Atlas is an 80-page full color presentation of renewable 
energy sources such as wind, solar, geothermal and biomass power, and 
it is available on-line, thus making for an easy to use reference for 
developers, landowners, and policy-makers.\77\ The United States 
government should support the development of such atlases across the 
country.
---------------------------------------------------------------------------
    \77\ See http://www.energyatlas.org/. The Hewlett Foundation and 
The Energy Foundation sponsored the Atlas, and the following 
organizations joined together to create it: the Land and Water Fund of 
the Rockies, Northwest Sustainable Energy for Economic Development, 
Green Info Network and Integral GIS.
---------------------------------------------------------------------------
    At the same time, no longer can we sit back and just study the 
potential for alternative energy. So while developing a full 
Alternative Energy Atlas of the United States is an important step, we 
must also take action. As an initial matter, a common, and common 
sense, element to the vision for alternative energy is that the U.S. 
Congress pass a law that provides a long-term alternative energy 
production tax credit to help fuel our transition away from fossil 
fuels. Beyond that, the following proposals outline specific action.
    The National Association of State Public Interest Research Groups 
endorses the following set of policies:

   Reduce our dependence on oil and target a savings of one-
        third of the oil we use today by 2025 (7 million barrels per 
        day) through improved gas mileage, better transportation 
        choices and clean fuels;
   Harness clean, renewable homegrown energy sources like 
        properly-sited wind, solar and alternative fuels for at least a 
        quarter of all energy needs by 2025.
   Save energy with high-performance homes, buildings and 
        appliances so that by 2025 we use 10 percent less energy than 
        we do today.
   Invest in the New Energy for America Initiative, which would 
        commit $30 billion over the next ten years to research and 
        development funding for energy-saving and renewable 
        technologies so we can accomplish the goals mentioned 
        above.\78\
---------------------------------------------------------------------------
    \78\ See http://newenergyfuture.com/newenergy.asp?id2=18565; see 
also Rising to the Challenge: Six Steps to Cut Global Warming Pollution 
in the United States, http://uspirg.org/uspirg.asp?id2=26147.

    The Sierra Club emphasizes that we could save over 3 million 
barrels of oil each day if all of the vehicles in the U.S. averaged 40 
miles per gallon,\79\ which is far more than the 400,000 barrels 
provided by Prudhoe Bay. The Sierra Club proposes changes to our 
current energy policy that are quick, clean, cheap and safe:
---------------------------------------------------------------------------
    \79\ http://www.sierraclub.org/globalwarming/biggest_single_step/.

          Quicker--Increasing energy efficiency technology and fuel 
        efficiency will decrease our energy use and help relieve summer 
        shortages immediately. In addition, wind turbines can be 
        installed in six months and new, combined-cycle natural gas 
        plants can begin saving energy and reducing pollution from old, 
        dirty and inefficient plants by next year.
          Cleaner--By choosing energy options such as solar, wind and 
        energy-efficient technologies, we can protect our clean air, 
        clean water and climate.
          Cheaper--Not only do we save energy by using more efficient 
        appliances and technologies, such as compact fluorescent 
        lightbulbs, but we save billions of dollars, too. Raising fuel 
        economy standards for cars, SUVs and other light trucks will 
        save consumers $45 billion a year at the gas pump.
          Safer--An energy plan that provides a strong balance of 
        efficiency, renewable energy and cleaner natural gas production 
        is safer for our public health and environment.\80\
---------------------------------------------------------------------------
    \80\ http://www.sierraclub.org/globalwarming/bush_plan/
factsheet.asp.

    As a final example, the Natural Resources Defense Council has 
proposed a ``responsible Energy Plan for the United States which 
---------------------------------------------------------------------------
includes the following elements and reasoning:

   A commitment to save at least 2.5 million barrels of oil per 
        day in 2015 and 10 million barrels per day by 2025. 
        Technologies exist today that can achieve these savings. We can 
        put American manufacturers to work building the most energy-
        efficient cars and trucks, and we can put American farmers to 
        work growing crops for new biofuels. We can save American 
        consumers money by increasing the efficiency of our cars and 
        trucks and strengthening smart growth policies. All of these 
        steps will reduce dangerous air pollution, including emissions 
        that cause global warming. Congress should set these savings in 
        motion by enacting a national requirement to reduce our oil use 
        by 2.5 million barrels per day.
   The fastest, cleanest, and cheapest way for America to 
        address its growing energy demand is through energy efficiency-
        getting more and better service using less energy. Thanks to 
        readily available technology for improving heating and cooling 
        systems in buildings and increasing the efficiency of everyday 
        appliances, America can make dramatic cuts in energy use 
        without sacrificing comfort or profitability. Indeed, the 
        economic benefits of investing in efficiency measures typically 
        outweigh costs by a ratio of 2 to 1. To tap this underutilized 
        energy resource, NRDC is calling on Congress to extend the 
        performance-based energy tax incentives adopted in the Energy 
        Policy Act of 2005.
   Clean energy such as wind, solar, and biomass provides 
        electricity without damaging the environment or releasing 
        dangerous air pollution. In order to ensure that all Americans 
        can take advantage of these clean resources, NRDC endorses a 
        federal renewable portfolio standard to require electricity 
        providers to include a minimum level of clean energy resources 
        in the electricity mix they deliver to their customers. We also 
        recommend extending the renewable-energy production tax credit 
        to keep renewables on their continued march to cost-
        competitiveness.\81\
---------------------------------------------------------------------------
    \81\ http://www.nrdc.org/air/enemy/rep/execsum.asp.

    The United States Senate has before it right now a bill, introduced 
by Senator Jeffords, to combat global warming, which deserves support 
in its own right and as a way to strengthen our energy future.\82\ This 
bill deserves your vote, and a quick passage.
---------------------------------------------------------------------------
    \82\ See http://jeffords.senate.gov/jeffords/press/06/07/
072006climatebill.html.
---------------------------------------------------------------------------
                               CONCLUSION

    In his book Collapse: How Societies Choose to Fail or Succeed,\83\ 
Pulitzer Prize-winning author Jared Diamond assesses the choices we 
face today in the context of the fate of previous civilizations. He 
traces how the ancient Mayans flourished for over 600 years until 
deforestation and the erosion that followed destroyed their 
agriculture. In contrast, he examined how other societies, such as the 
Icelanders of the 15th century, saw the threat posed to their natural 
resources by overgrazing and, in a practice that continues to this day, 
placed a cap on the number of sheep in their herds so that they could 
sustainably interact with their environment.
---------------------------------------------------------------------------
    \83\ Viking Penguin (2005).
---------------------------------------------------------------------------
    If anything, we face even more dire choices today, as not only is 
our civilization here in the United States at risk, but so is our 
entire world. We can choose to ignore the health, safety, and 
environmental warning flags flying over our country and continue a 
myopic reliance on oil and gas to fuel our society. Or we can begin an 
aggressive transition to alternative, renewable, forms of energy; 
energy that will allow us to interact with our world in a more 
sustainable manner. And do so in a way that protects the special places 
and values that have helped define the United States as a great 
civilization.
    All of this is not to say that we should ignore the most immediate 
lessons taught by the Prudhoe Bay debacle. As we bridge to these 
alternative energy sources we must also struggle against the great 
influence that the oil and gas giants have over our society, and ensure 
that government acts in its proper role as steward of our environment 
and protector of the existing energy supply infrastructure.
    We can meet the short-term challenges by implementing the first 
category of recommendations relayed above. By protecting, and 
respecting, special and especially sensitive places like the Arctic 
Refuge and the area near Teshekpuk Lake, and by pursuing alternative 
energy sources, the United States can also start meeting the long-term 
challenges faced by our society, and do so in a manner that will allow 
future generations to inherit much of that which makes the United 
States of America the greatest country on Earth; our vision and our 
environment.

    The Chairman. They will be made a part of the record as if 
read.
    Now, Senators, we are going to proceed. I'm going to ask a 
couple of questions and then we'll go to Senator Bingaman, 
Senator Thomas, Senator Wyden, and so on.
    Let me start. Admiral Barrett, we have always been told 
that oil and gas operations on the North Slope of Alaska are 
the cleanest and most environmentally friendly in the world. I 
visited many of these sites personally and was very impressed. 
But what I am hearing today is very troubling.
    Your agency looks at pipeline systems across the country. 
How would you describe the condition of the oil delivery system 
today? In terms of the severity of oil spills, where do these 
recent spills rank? When compared to other U.S. spills, are 
they within the top 10, top 50, or just how do you rank them?
    Admiral Barrett. Mr. Chairman, I think the recent spills 
you've seen from the BP lines we're talking about are an 
anomaly in the sense that the lines were unregulated and we 
have not seen--I believe there's only one other spill of 
comparable size, in Arthur Kill, from lines of this type, 
historically. So this, with respect to low-stress lines, would 
certainly be one of the largest.
    We typically do not see incidents like this across the 
United States with lines of this type. They typically have a 
relatively good safety record. For the most part, these low-
stress lines are much smaller in size than the BP lines we're 
talking about here and are much shorter segments as well.
    The Chairman. The BP transit lines that failed at Prudhoe 
Bay were not regulated by DOT. How many other lines are without 
regulation?
    Admiral Barrett. These particular low-stress lines--we do 
regulate extensively on other lines on the North Slope, higher 
stress lines. We oversee about 400 miles of what we call 
carrier lines, if you will, up on the North Slope. We have a 
regular and extensive inspection program on them. So these 
particular lines we're talking about, nationwide we've proposed 
to bring under regulation, most recently with our rulemaking 
proposal, about 600 miles of lines of this type on a national 
basis.
    The Chairman. Why were lines like this not regulated? Would 
you tell us very clearly, so the public understands, why they 
were not covered by any law.
    Admiral Barrett. Mr. Chairman, we applied our highest 
priority to lines that posed a risk to life safety, typically 
high-stress oil and gas lines in populated areas. And we've 
implemented a very aggressive program over the last 5 to 10 
years to bring those lines that threaten people who live in 
their communities with life-threatening problems through 
integrity management programs.
    So, frankly, our highest priority was life safety. These 
lines, lines of this type, historically have had a generally 
good record with respect to spills or other problems. And we 
were moving since 2004 to bring lines of this type under 
regulation. We've implemented over 50 mandates from Congress 
coming out of legislation, going back particularly to the 2002 
pipeline safety reauthorization, with our highest priority 
being on lines that pose the greatest life safety risk. These 
are some of the last pieces of the puzzle, if you will, that we 
were getting on top of.
    The Chairman. How would you describe the condition of the 
TAPS lines? Can the country depend on a 30-year-old pipeline to 
continue to reliably deliver oil?
    Admiral Barrett. Mr. Chairman, you know, with a line that's 
well designed, constructed, and maintained, it can continue in 
service almost indefinitely as long as attention is paid to 
keeping the line from corrosion or external damage problems. As 
I noted, we inspect the Trans-Alaska Pipeline regularly and 
have done so over the years. While we have issues with it from 
time to time, we took another look at it just this past spring 
following the BP failures and we have no immediate concern with 
the operation of that line.
    The Chairman. Let me see if I've got it straight, from your 
standpoint. Why did this happen and who's to blame for it?
    Admiral Barrett. I think it happened because BP 
fundamentally didn't understand the conditions of their lines, 
these low-stress lines on the North Slope, and didn't maintain 
them properly. I think the operator is quite simply accountable 
for what happened. And we do not see conditions like this 
replicated in other lines on the North Slope or typically on 
other lines in the national pipeline transportation system.
    The Chairman. So it was up to them to do a better job of 
maintaining the lines even within the system, as you've 
described it, which gave them an awful lot of autonomy and 
independence in terms of how they did it. And they did it 
insufficiently for sure with reference to the maintenance here; 
is that correct?
    Admiral Barrett. That's essentially correct, sir.
    The Chairman. All right.
    Senator Bingaman.
    Senator Bingaman. Thank you very much.
    Mr. Malone, let me ask you this. My understanding is that 
this line which is the subject of the concern here and that has 
caused the shutdown was not inspected for a period of 15 years. 
Is that an accurate understanding?
    Mr. Malone. Senator, if you will allow me, with the 
committee's approval, I don't want to use the excuse that I'm 
just here for the last 2 months, but there are pieces of this 
history that--Mr. Marshall, who has joined me here today, who 
was on the scene, can answer those questions.
    Senator Bingaman. Maybe you could give us a short version, 
Mr. Marshall. I only have a few minutes here and I don't want a 
long explanation. But my understanding is there was no pig run 
through the line for inspection purposes for a period of 15 
years, is that accurate?
    Mr. Marshall. The eastern line, Senator, was last pigged in 
the early 1990's, and the smart pig that was run by the 
previous operator there, Arco, was unsuccessful in obtaining 
good data. The western lines that BP has operated since 1977 
were pigged and smart pigged in 1990 and 1998. When BP took 
over the eastern side of the field in 2000 and 2001, we 
instituted a program of ultrasonic testing and compared the 
results of that to what we had seen on the western lines.
    On the western lines, from the pigging there were very 
little solids in 1998. The line was fit for service and we saw 
pretty much identical results from there, and on that basis we 
proceeded. It was only in 2005 that our testing program on the 
west started to show increases in corrosion. As a result of 
that, we increased the testing frequency and commissioned a 
smart pig run for 2006.
    Senator Bingaman. But the eastern line was not really 
tested with a pig since 1990--the early 1990's; is that 
accurate?
    Mr. Marshall. Maintenance pigged in 1990 and 1991, I 
believe.
    Senator Bingaman. I guess I would then ask, Admiral 
Barrett, do you have any way of monitoring that kind of thing? 
I mean, there's about a 15-year period there when nobody was 
doing any pig inspection of this line. As I understand it, you 
had no jurisdiction, you had not asserted jurisdiction, this 
was not on your radar screen. I mean, isn't this something that 
there should have been some kind of procedure in place to 
ensure that this not occur?
    Admiral Barrett. Senator, thank you. On regulated lines we 
do require regular cleaning of the lines, which did not take 
place here. We do require regular inspections. But this issue 
was certainly on our radar screen.
    Senator Bingaman. And by ``regular,'' how often are you 
talking about?
    Admiral Barrett. It depends on the condition of the line, 
but cleaning pigs typically would be run from every several 
weeks to every several months. I believe Alyeska runs them 
about every 2 weeks. Then the sensor pigs--the in-line 
inspection pigs, if you will--would be run every several years. 
Typically, our regs would require no less than about 5 years.
    But if I could, sir, this was on our radar. We've been 
working to bring lines like this under oversight since 2004, 
and obviously we've accelerated those efforts recently.
    Senator Bingaman. My understanding is this new regulation 
that you have now put out or your proposed rule came out a 
couple of weeks ago. It would still leave an estimated 78 
percent of the mileage unregulated, without even corrosion 
prevention requirements imposed in that 78 percent. Is that an 
accurate description of your new proposed rule?
    Admiral Barrett. The proposed rule would address lines that 
run through what we've defined as unusually sensitive areas, 
and those are lines that transit--and I would first set aside 
the lines that transit populated areas or could impact 
navigable waters. They are regulated, so we're talking about 
lines in rural areas only here.
    But of those lines, we would regulate any line that would 
transit near a threatened or endangered species, or that 
threatened, for example, the community water supply. And you're 
correct, we do not have accurate maps, so we're using 
estimates, but we think we would bring, with that unusually 
sensitive definition, about 25 percent of the lines into play.
    Our past practice has been, and would be in this case too, 
that once the regulation is in place to get out and rigorously 
inspect and assess lines that would be within or without that 
definition. In the past, when we've done so, we've typically 
found that more lines fall within the scope of what we're 
proposing, and we'll see what happens here, sir.
    Senator Bingaman. My time has expired, Mr. Chairman. Thank 
you.
    Admiral Barrett. Thank you, sir.
    The Chairman. Senator Thomas.
    Senator Thomas. Thank you.
    Mr. Marshall, your company is the operator of the Prudhoe 
Bay Oil Field and owns 26 percent of the shares. Exxon, Conoco, 
Chevron, and others control the remaining shares. It's my 
understanding the majors must agree on how much to spend on 
maintenance and how those dollars are spent. How does this 
decision work then among the various companies?
    Mr. Marshall. Senator, thank you for the question.
    Senator Thomas. Do you have the final say as the operator?
    Mr. Marshall. Absolutely. BP, as operator, will make the 
decision to safely operate within, and recommend budgets every 
year for submission to the co-owners, based on what we believe 
to be the required amount of work for maintenance and capital 
spending.
    Senator Thomas. Much of the feeling is that there were not 
enough maintenance dollars spent and that's the reason for the 
problem.
    Mr. Marshall. Since 2001, when I arrived, the level of 
spending has increased at Prudhoe Bay from $434 million to $787 
million. Our corrosion program has increased by 80 percent over 
that period. Our major repair spending will increase fourfold 
from what we spent in 2004 to what we plan to spend in 2007, 
consistent with the chart to my left, which shows that the----
    Senator Thomas. What could you have done then to have 
avoided this issue? The corrosion, in the pictures we see, it 
is pretty apparent that there were things wrong there, and you 
didn't use pigs, apparently, so how do you maintain those 
pipelines without using pigs?
    Mr. Marshall. We actually use over 350 pigs a year across 
the North Slope. We employ pigging regularly.
    Senator Thomas. In this pipeline?
    Mr. Marshall. Not in this pipeline.
    Senator Thomas. No. Well, this is the one we're talking 
about.
    Mr. Marshall. We have based our program, a very 
comprehensive program of corrosion management, on the areas 
which we believe to have the highest probability of corrosion. 
We inject over two million gallons of corrosion inhibitor a 
year at the wellhead to protect the entire system of flow 
lines, gathering lines, the major facilities, and indeed these 
transit lines.
    We use ultrasonic testing. We use a number of techniques. 
But clearly, in retrospect, looking back, these lines should 
have had maintenance pigs.
    Senator Thomas. The pigs you were using had to be turned 
back in to the company because they weren't working properly, 
isn't that true?
    Mr. Marshall. I'm sorry, I missed the question.
    Senator Thomas. I said, the pigs you were using were 
subsequently recalled by the manufacturer.
    Mr. Marshall. I believe you're referring to the smart pig 
that was run by Arco on the eastern line in 1991 and 1992. The 
data that came back from that smart pig run was not good and I 
believe the pig was ultimately--the technology was actually 
taken off the market.
    Senator Thomas. OK.
    Admiral Barrett, how long had DOT had the authority to 
issue the rule that came out on August 31?
    Admiral Barrett. It's in our organic statute, sir. So we've 
had the basic authority to regulate on these lines for in 
excess of 10 years, I believe, and, in fact, have been moving 
to do so, as I had indicated.
    Senator Thomas. But you did not do so until August 31?
    Admiral Barrett. That's correct, sir. Our highest priority 
in terms of rulemaking was high-stress oil and gas lines that 
pose life safety risks in populated areas. And we moved 
extensively on those lines and those risks.
    Senator Thomas. And you did not consider this to be one of 
those lines?
    Admiral Barrett. The record of problems on these lines is 
of a much lower risk and to my knowledge there have been no 
life safety issues associated with failures on any low-stress 
lines.
    Senator Thomas. Your proposed rule does not mandate the use 
of smart pigs to check for deterioration. It allows operators 
to rely on unsound--ultrasound testing, as it did in Prudhoe 
Bay. Do you think that's the best option for ensuring the 
viability?
    Admiral Barrett. Sir, the proposal would require extensive 
corrosion management programs and also assessments using, about 
every 5 years, a smart pig or an alternative. On any pipeline, 
any large pipeline system, there are segments of the lines 
where you cannot run a smart pig because of the design of the 
line. You can have bends or elevation changes, you can have 
telescoping segments, so you cannot get in a smart pig; and we 
allow alternative inspection methods, which can be 
hydrostatic----
    Senator Thomas. Which apparently haven't worked.
    Admiral Barrett. No, sir, in many cases they do work quite 
well.
    Senator Thomas. Why didn't this one work?
    Admiral Barrett. On this line there was simply no 
maintenance pigging done for many years and there was no 
alternative inspection equivalent to a smart pig. That is where 
I was going.
    Senator Thomas. I see, OK. Thank you.
    The Chairman. Thank you very much, Senator.
    Now we'll proceed to Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman.
    Mr. Marshall, I find your statement that you and BP 
officials didn't know about serious corrosion problems at the 
pipeline until March 2 to just be preposterous, and I want to 
be clear why I've come to that conclusion. In 2004, for 
example, the company transferred its top pipeline inspector, 
Mr. Willums, because there was an outside inquiry that found 
that he had intimidated BP corrosion workers who raised safety 
concerns. So BP knew enough to transfer Mr. Willums because he 
had dismissed these concerns about corrosion, and I can't 
understand why that alone wouldn't set off a serious set of 
warning bells at the company that people should have been 
following up on these concerns.
    If you send somebody to a new position because he's 
retaliated and you know the concern that was raised there, why 
wouldn't that alone have told you about the corrosion problem?
    Mr. Marshall. Senator, thank you for the question. If I 
could, corrosion exists in every--just about every oilfield, 
and we know it's a problem. The question is how effectively do 
we manage it, and BP has a very comprehensive program to do 
just that, as I described earlier. Clearly, in this case, 
looking back, it was not adequate enough.
    The allegations that you raise concerning Mr. Willums were 
first raised in 2003. Any time we receive allegations, I am 
determined that we will investigate, and in this case we did 
both times. In 2003 we brought in--
    Senator Wyden. But how can you say that you didn't know 
about serious corrosion concerns just on the basis of that 
alone? These workers aren't bringing up trivial kind of 
matters. They're putting their careers at risk. It was 
sufficiently serious that you had an outside inquiry. Then you 
transferred Mr. Willums. How can that alone have failed to set 
off the warning bells there at BP about corrosion?
    Mr. Marshall. Senator, we've investigated the specific 
allegations that were raised in connection with Mr. Willums. At 
no time did any of those allegations point to corrosion in 
these particular lines. There were corrosion issues raised 
generally. Where we've been able to look at specifics, we have 
investigated those and taken action. But at no time, through 
the allegations raised here or indeed through any of the other 
reviews that we've had done of our corrosion program----
    Senator Wyden. The workers were just raising trivial 
matters with respect to corrosion?
    Mr. Marshall. Please, I don't want to leave that impression 
with anybody.
    Senator Wyden. Because you have said, and you said it last 
week again, that you didn't know anything about serious 
corrosion until March 2. The Wall Street Journal has documented 
reports going back to 2002. You have an outside enquiry to look 
at one of your top officials, and it seems to me, that alone 
should have signaled that there was reason to follow up.
    Mr. Marshall. Senator, we certainly know that corrosion 
exists in the oil field. We believe the systems--the data we 
were getting on these lines first indicated corrosion with the 
testing we did in the second half of 2005. Looking back at the 
GC-2 line, the OT-21 line, that was the first real indication 
we had of increasing corrosion from ultrasonic testing. That 
was very evident. And before we could actually run the smart 
pig on that line, we unfortunately had the spill.
    Senator Wyden. Mr. Malone, the company has an unfortunate 
and documented history of engaging in anti-competitive 
practices that harm consumers. For example, just recently the 
Commodities Futures Trading Commission has issued a formal 
complaint alleging BP illegally manipulated the propane market. 
A few years ago, internal emails showed up from BP trading 
managers who talked about the benefits of shorting the West 
Coast market to leverage up prices there.
    Again, these aren't made up. These come from BP internal 
documents, documents that show that your company was interested 
in ripping off the people that Senator Feinstein and I 
represent. So, given what the CFTC has found recently, given 
the history that I have pointed to with respect to internal BP 
documents, what do you plan to do in terms of instituting 
changes to stop this kind of anti-consumer conduct in the days 
ahead?
    Mr. Malone. Senator, the events you're talking about with 
propane is 2003, 2004. We had traders, and we have the tapes, 
and it's very clear that they violated our policies, they 
violated our code of conduct. And disciplinary action was 
taken. They were terminated, three of them.
    Since that time, Senator, we have instituted a number of 
guidelines internally, but we recently announced that we're 
doing an external audit looking at all of our procedures, our 
policies, going forward to assure that we're operating within 
the highest standards for trading activity. And that's been 
initiated and is ongoing now.
    Senator Wyden. I also saw allegations with respect to BP 
manipulating crude and gasoline markets. Can you comment on 
that? In other words, we've got the West Coast getting fleeced 
ever since the middle 1990's. We've got the consumer--the 
Commodities Futures Trading Commission already filing a 
complaint. Now there are new reports with respect to the 
manipulation of crude and gasoline markets. What is your 
reaction to those new reports?
    Mr. Malone. Senator, in 2002 and again in 2003 for gasoline 
and crude oil, the CFTC has initiated an investigation. We've 
been cooperating fully with the CFTC in that, in their 
documents, producing documents, and in their investigation. We 
plan to continue to do that. But it is an investigation at this 
time.
    Senator Wyden. My time has expired, Mr. Chairman.
    The Chairman. Thank you very much, Senator.
    Now we'll proceed to this side. The next Senator is Senator 
Murkowski.

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman.
    I have to tell you, gentlemen, this is a painful hearing 
for me as an Alaskan, to be at this point where we are talking 
about corrosion that has allowed for a spill on the North Slope 
of the State of Alaska. And I'm sure that you have heard from 
other Alaskans who are disappointed, frustrated, angry, because 
for years we've been told by the industry and we have stood 
alongside and we have said that the operations on Alaska's 
North Slope are the gold standard. That's what we've been told, 
that's what we believe, and that's what we want to continue to 
believe.
    But that faith has been shattered by what we are seeing up 
north now, and to listen to this testimony, to listen to the 
testimony that was before the House last week, and to 
understand the extent of what we are dealing with is a blow to 
Alaskans, it's a blow to Americans, and I would certainly hope 
it's a blow to British Petroleum and its operations.
    [The prepared statement of Senator Murkowski follows:]

  Prepared Statement of Hon. Lisa Murkowski, U.S. Senator From Alaska

    Mr. Chairman, thank you for holding this hearing.
    As an Alaskan, this hearing and particularly the reasons for it 
being held, are particularly painful.
    Alaskans are generally proud that our Prudhoe Bay oil field has 
provided this nation with more than 15 billion barrels of oil over the 
past 29 years. Until this year, there had never been a major release of 
oil on land in the three decades of operation of the Greater Prudhoe 
Bay oil field.
    When this committee a couple years ago inspected the field, we were 
given ironclad assurances by state and federal officials, plus the 
field operators, that Prudhoe Bay was the best run oil field in America 
and the most stringently regulated. We all saw the ``diapers'' placed 
under every vehicle to prevent oil drips from reaching the tundra. We 
all saw the precautions taken to protect the outside of pipes and to 
prevent leaks. We saw the maintenance operations and care taken in 
exploration to prevent environmental damage. We asked about and were 
given assurances about the size and adequacy of increasing maintenance 
budgets to care for aging pipes and equipment in a land of harsh 
climate conditions. What we could not see was the condition of the 
inside of the miles and miles of pipelines crisscrossing the oil 
fields.
    In the face of complaints over the years about the potential for 
pipe corrosion, we all depended on the assurances of the field 
operators: BP since 2000 for all of the main field, and other companies 
for the surrounding satellite fields, and of federal and state 
regulators. Alaskans are distressed and disappointed by what we have 
learned since March.
    On March 2 our faith was somewhat shaken when BP discovered the 
dime-sized pit that turned into a hole in a transit line on the far 
west side of the field that had allowed nearly 5,000 barrels of oil to 
leak under the snow from an underground pipe segment under a caribou 
crossing. It was a leak that escaped detection by the 34-inch 
pipeline's leak detection system, for a number of days. We thought for 
months that the leak was an isolated problem caused in a low-spot in 
the low-pressure pipeline, perhaps because the line was the first to be 
used to develop ``heavy'' oil in the region--the line thus carrying 
more water and perhaps more bacteria that can generate acids which can 
eat into pipe walls.
    Then came Aug. 4 when detailed tests, ordered after the March 
spill, found similar significant pitting--corrosion--in a similar 
transit line on the far east side of the field. But this time the 
corrosion wasn't just in low spots, but spread occasionally throughout 
the bottom of the line's pipe. BP, after finding 16 spots of corrosion 
including one actual hole that leaked about 27 barrels of oil, showed 
proper caution for the environment and proposed to shut in all 400,000 
barrels of production from the original Prudhoe oil field until the 
cause of the corrosion could be pinpointed. After a crash effort of 
ultra-sound testing, the west field pipe was found healthy enough so it 
was allowed to remain open, the nation being deprived of about 200,000 
barrels of east field production a day.
    That, coming at a time of concern about Iranian oil supplies and 
concerns about gulf hurricanes (none of which has yet materialized) 
drove oil prices back to near all-time highs. We know from briefings, 
inspections, hearings and prepared testimony that:

   BP is trying to get most of that production back up this 
        fall after more ultrasound testing confirms the integrity of 
        other east field lines and/ or through the use of by-pass lines 
        to move oil around any corroded pipe segments.
   That the Prudhoe Bay field owners have ordered pipe to 
        replace all 16 miles of the east and west transit lines--at a 
        cost of more than $150 million--new smaller diameter pipe, 
        which will force higher oil velocities, hopefully preventing 
        water from settling into the bottom of the pipes and stopping 
        similar bacteria-caused corrosion in the future.
   We know that the new pipe will hopefully be installed this 
        winter.
   We know that all the existing spill sites have been cleaned 
        up causing no lasting damage to the environment.
   And we know that the fingerpointing, investigations and 
        soul-searching about what went wrong, whether regulations were 
        broken, whether information was withheld and warning signs and 
        whistleblowers ignored will continue for months longer than the 
        actual equipment problems at the nation's largest oil field.

    What I'm still cloudy about, is why this really happened, what its 
true impacts were, and what we can do to make sure it doesn't happen 
ever again, not in Alaska, and not in any American oil field? The 
latter points are the subject of this hearing.
    It appears the answer to the first question, as it frequently is, 
is the leaks were caused by complacency. We now know that a ``smart'' 
pig examination of the inside of the west line had last been conducted 
by BP in 1998. On the eastern side of the field, the last ``smart'' pig 
inspection, which is a good way to look for corrosion inside the entire 
length of pipes, had not occurred since ARCO did it in 1992 or 1991 or 
perhaps 1990--the date is slightly unclear from recollections and 
statements. And it turns out that test was so plagued by bad data, and 
the fact that the test found that so many flakes of calcium had to be 
scraped off the inside of the pipe walls that it clogged the Alyeska 
pipeline pumps, that industry was in no hurry to repeat the use of 
either maintenance or smart pigging devices in the transit lines. 
Instead industry turned to ultra sound testing, the more accurate way 
to find corrosion inside pipes (provided you spot test in the exact 
spot where corrosion is starting to form). Industry also used 
``coupons''--test strips--that should show corrosion, and increasingly 
relied on chemical corrosion inhibitors to protect the pipes.
    In hindsight it is clear that corrosion inhibitors work best when 
lines are pigged--cleaned out--first to remove sludge and calcium 
deposits that can prevent corrosion inhibitors--chemicals that kill 
bacteria and coat the inside of pipe walls--from reaching the pipe 
walls to protect the metal. But since the chemical tests and coupons 
indicated there should not have been corrosion forming in the transit 
lines, and because corrosion almost never happens in oil field 
pipelines that carry market-ready oil--oil where all the water and 
corrosive carbon dioxide have already been removed--apparently no one 
at BP thought to question whether the corrosion inhibitors were 
actually reaching the inside of pipe walls and killing bacteria hiding 
under the sludge.
    At the very least, complacency in not running the pigs--relatively 
inexpensive test devices--and complacency by regulators--believing 
assurances that the pipes had to be in good shape since corrosion 
should not be forming or delay in imposing new regulations that might 
have forced the pig runs--led to the corrosion not being discovered 
until leaks developed. And complacency in not putting in more 
redundancy in piping systems, led to the nation, so far, needing to 
import million of barrels of additional oil to make up for Prudhoe's 
late summer production shut-ins. I hope the testimony will talk about 
how vulnerable this nation's energy security is when domestic 
production is so constrained.
    Since the Department of Transportation's Pipeline and Hazardous 
Materials Safety Administration has stepped up, since the March 2nd 
leak, and already imposed tight testing and inspection requirements 
that should allow safe oil production at Prudhoe Bay, this hearing in 
my view should be about identifying the root causes of the complacency, 
both among North Slope oil companies, and also among government 
regulators. And Congress and the executive branch likely also are not 
blameless.
    Following a major pipeline explosion in Washington we did pass the 
2002 Pipeline Safety Act reauthorization. That act gave DOT more 
authority to require improvements in pipelines. The agency had been 
working on improving regulations and inspections since 1992, but the 
agency started first to focus on high-pressure pipelines, lines with 
greater risks of leaks and accidents and those in urban areas and near 
particularly unusually sensitive areas (USA's) where leaking oil would 
cause the most environmental damage. So it was only in late August of 
this year that DOT's PHMSA unveiled the regulations that would require 
BP to pig test all low pressure lines on the Slope and perhaps others 
in Alaska--there being another 67 miles of such pipeline in the Cook 
Inlet field alone.
    I am curious whether the delay in increasing inspection efforts for 
low pressure lines like these transit lines at Prudhoe was because we, 
Congress, or the Administration through actions by OMB, had not given 
the agency enough funding, or whether new regulations covering them, 
recently issued, arrived only because there was so many more higher 
priority regulations to issue.
    I am certainly prepared to introduce legislation--it's already 
drafted--to mandate that oil companies use regular maintenance and 
smart pig runs to look for corrosion. But since the Pipeline Safety 
Administration has already issued regulations that make such 
legislation somewhat duplicative, I would like to see if the 
legislation would do anything more than show meaningless movement. Does 
the government need any more authority from us to mandate better 
pipeline inspections, changes that could well be added to the Pipeline 
Safety Act already up for reauthorization? Are we locking the barn 
horse after the horses have run out, if we pass such mandatory 
inspection requirements?
    I'm interested in getting a better handle on how oil fields across 
the country deal with pipe corrosion. If the corrosion in the transit 
oil lines at the Prudhoe Bay field is the result of lowering oil 
production levels, that reduced the amount of oil in pipes, cutting the 
velocity that the oil moved through lines and thus allowing water to 
settle out, helping corrode pipes, most all oil fields in the U.S. are 
in decline and facing lower oil flows. Why haven't we had similar leaks 
elsewhere? Have we had similar problems, but we just don't know it 
because of faulty statistic gathering--or lax reporting requirements?
    In the prepared testimony for this hearing and one held last week 
on the House side, I notice indications that this type of corrosion is 
not found in other fields in America. Is that because other producers 
tend to use more pigs to better clean sludge out of their pipelines or 
could something related to unique Alaska conditions have been the cause 
for the accelerated internal corrosion? I think BP needs to say more 
clearly why it did not feel the need to run maintenance pigs more 
frequently than one eight years ago, on the west side of the field and 
none in 14 years on the east. It has been six years since BP took over 
operation of the east side of Prudhoe from the former ARCO. Certainly 
that is enough time for the company to have installed new maintenance 
requirements?
    Over the weekend, there were news reports that indicated BP was 
quite slow in filling a corrosion strategy specialist position. Why was 
that?
    Was there an effort by companies to specifically reduce or at least 
not increase maintenance spending sufficiently in the past at times of 
lower oil prices, cutting corners on corrosion prevention programs, 
either at BP or from any of the other eight oil companies that own part 
of the Prudhoe Bay leases and have a clear say in the spending approved 
for oil field maintenance? I know BP today will show a chart that shows 
a marked increase in maintenance and corrosion spending at Prudhoe Bay 
in 2005 and 2006. What I'm interested is, is why spending on 
maintenance and corrosion was nearly flat in 2001, 2002, 2003 and 2004 
at about $175 million a year for maintenance and between $35 and $50 
million for corrosion? Was that spending level truly adequate to cover 
the size and complexity of the field and to cover both internal and 
external corrosion given Alaska's climate?
    In hindsight it appears inexcusable for there not to have been more 
of an investigation of the health of the low-pressure pipes in more 
places than the monitoring in fixed locations of corrosion allowed by 
nearly sole reliance on spot ultrasound not continuous or automatic 
ultrasound testing.
    And finally if piping was not adequately inspected, is there any 
other facet of maintenance complacency that could also impact oil 
production in the future at Prudhoe Bay or any of the other satellite 
fields in northern Alaska?
    Really, it is not surprising that pipelines after nearly 30 years 
of use would suffer corrosion in Alaska's harsh climate. The companies 
have routinely replaced miles of pipe in Alaska, as a standard cost of 
doing business. Alyeska has already replaced 8.5 miles of the main 
Trans-Alaska oil pipeline due to external corrosion. Another thing 
surprising about the recent leaks in the Prudhoe Bay field is what they 
reveal about the redundancy of the infrastructure in the nation's 
largest and perhaps most important oil field, and what they reveal 
about maintenance practices and the decision making process that shapes 
those practices, and the real regulatory oversight that infrastructure 
is facing.
    The run up in prices in early to mid August show how important all 
domestic oil production is to the financial health of America's 
economy. When prices in August neared $80 a barrel because of fear that 
the entire original Prudhoe Bay field would have to be shut in, 
Americans were paying hundreds of millions of dollars more for fuel a 
day than what they had been paying under more normal market conditions. 
That is money our economy can't afford, not counting the national 
security and energy security considerations.
    Alaskans are proud to say that Prudhoe Bay is the best run oil 
field in America. I just want to make sure we are doing everything 
humanly possible to make that boast, truly be reality. This is where 
I'll be focusing my questions today. Thank you.

    Senator Murkowski. We're talking today about the corrosion, 
but my question to you, Mr. Malone, Mr. Marshall, is: What else 
are we learning as a result of this level of oversight now by 
the Federal DOT? What else are we learning that we should be 
concerned about? Right now it's corrosion, but are there other 
operational issues that we should be alerted to? Are there 
other maintenance issues, redundancy concerns, that are now on 
your radar screen that we need to know about?
    Mr. Malone. Thank you, Senator. As we look forward, we are 
conducting a review as we speak and, as I mentioned in my oral 
statement, looking back on employee concerns that have been 
raised to see if we can see any issue that we may have missed. 
We're also conducting an integrity audit. We've had some of my 
integrity people up there working with Mr. Marshall's people 
this week, looking across the North Slope to determine if 
there's more that we need to do.
    Senator, just on the corrosion issue, I want to highlight 
this panel that we have that will be working very transparently 
to look at a go-forward program on all of our Alaska pipelines, 
and that information is going to be transferred, not just 
across all of the operators in Alaska of the other systems, but 
also across all of BP.
    Senator Murkowski. So have you hired that corrosion 
engineer or that person to replace the position that Mr. 
Willums had?
    Mr. Malone. Let me yield to Mr. Marshall.
    Mr. Marshall. Senator, yes, we have. That position, Mr. 
Willums' position, was actually filled immediately after he 
departed Alaska in January 2005.
    Senator Murkowski. Can you clarify that, because I thought 
that that position had remained unfilled for 14, 15 months.
    Mr. Marshall. No, no, that's incorrect. The corrosion 
engineering position that Mr. Willums had had previously was 
not filled until July 2005, by Mr. Bill Hedges. Bill was 
nominated for the position in early 2005, but could not be 
released from his obligations in Trinidad. What he did do, 
though, was come to Alaska on a number of occasions to get up 
to speed and actually participated in the Department of 
Environmental Conservation review of our program in the second 
quarter of 2005. So he was very active and was able to get up 
to speed as quickly as he could upon his arrival in 2005.
    Senator Murkowski. Then in terms of other issues that we 
need to be looking to--and I don't mean to get off the 
corrosion issue because that's why we are here today, but are 
there other maintenance issues at play now up on Alaska's North 
Slope that BP, as the operator, is concerned about, that we 
should be concerned about?
    Mr. Marshall. Senator, if I could, we take very seriously--
and I share the regret that this incident has happened on my 
watch. I represent a group of 1,500 dedicated Alaskans who work 
for BP and thousands of contractors who support us in every 
aspect of our operation. I can only reflect their 
disappointment that this has happened. We are determined to do 
everything and anything we can to reestablish confidence and 
trust, working with regulators, not only to adopt but to help 
pioneer what it takes, bring in the technologies we need to 
bear on these lines.
    BP has already committed to replace 16 miles of transit 
lines with lower, small-sized lines to promote higher 
velocities. We are accelerating our renewal program of 
pipelines and infrastructure to support a 50-year future. We're 
increasing investment on those systems every year. We're 
increasing the amount of expense spending we make on 
maintenance, on major repairs, on well refurbishment, on flow 
line repairs. We are determined to do everything we can to 
reset that gold standard not only for BP, but for Alaska.
    Senator Murkowski. I'll have further questions, Mr. 
Chairman. Thank you.
    The Chairman. Thank you very much, Senator.
    Now we're going to proceed to Senator Feinstein on the 
Democrats' side. Would you proceed, Senator.
    Senator Feinstein. Thank you very much, Mr. Chairman.
    Mr. Malone, you were good enough to come in yesterday and 
talk with me, and you explained that you are a new president 
and chairman of BP America. And I appreciate that, but you're 
not unfamiliar with the company. You have been an officer of 
the company.
    Yesterday we discussed the reason for the replacement of 
the 16 miles of pipe, which is substantial corrosion, almost to 
the point where parts of the pipe have been run through. We 
heard that presented just now by Mr. Marshall: ``Oh, we're 
doing a good thing; we're going to replace it with smaller pipe 
for higher velocity.'' The fact is, the reason you're replacing 
it is because of negligent maintenance that has substantially 
corroded that pipeline; is that not true?
    Mr. Malone. Senator, thank you. The answer is we don't know 
all the conditions of those lines with ultrasonic pigging, but 
we do know----
    Senator Feinstein. I'm talking about the 16 miles of line 
that you told me yesterday you're replacing because of 
corrosion and other problems brought about by the lack of 
maintenance.
    Mr. Malone. We are replacing all of those in-field lines, 
transit lines. It's 16 miles. And we are doing that because of 
questions around indeterminate--which is what caused the 
shutdown. We weren't sure--with our data that we were using, we 
weren't sure that we could know that the rest of these lines 
were in good condition, so we made the commitment to put in 16 
miles of new line.
    Senator Feinstein. You're not answering my question, Mr. 
Malone.
    Mr. Malone. Senator, I don't have the data that I think you 
want me to have right now, because I haven't had the 
opportunity to do my investigation.
    Senator Feinstein. All right, fair enough.
    Let me give you another one. Mr. Miller told my staff that 
you knew, BP knew, there were problems on the line in 1998. And 
just a few moments ago we heard that nobody knew there were 
problems on the line. Which is it?
    Mr. Malone. Senator, my knowledge--in 1998, I was running 
the Trans-Alaska Pipeline and I was not involved in BP's 
operations.
    Senator Feinstein. OK. Well, let me just say this and then 
I want to ask questions in another line. I have always 
respected BP. I worked with them when I was mayor. We fast-
tracked a building in which BP leased space in San Francisco. I 
met John Browne. I've always respected him. I thought finally 
there's going to be an oil company that has a sense of 
conscience and is going to be green and wants to work on global 
warming, et cetera.
    I must tell you, I no longer believe that, and it's been a 
very big disillusionment. I agree with Senator Wyden, I think 
it's inexcusable to have an email exchange in which your 
trading managers discuss the benefits of shorting the West 
Coast market to leverage up prices. And I think that it is 
inexcusable to come here today and not admit before the 
American public, ``Yes, we made a mistake, the line was not 
adequately maintained, but, Senators, we're going to change 
that, and I'm a new manager and I'm going to go in there and do 
that.''
    So let me just express my profound dismay. If it were my 
State, I can assure you I wouldn't be as graceful as Senator 
Murkowski has been today.
    Let me ask the Department of Transportation a question. 
It's my understanding that there are approximately 5,000 miles 
of low-pressure pipeline that's unregulated; is that correct, 
sir?
    Admiral Barrett. That's essentially correct, Senator.
    Senator Feinstein. OK. So how can the Department say that 
other companies are acting more appropriately to maintain their 
pipelines when the only reason we know about BP's maintenance 
is because of the spill in March?
    Admiral Barrett. Senator, in conjunction with the 
rulemaking that we've been working on for the past 2 years to 
bring lines like this under regulation, we have had a number of 
public hearings, we've had information surveys in the industry 
to assess, for example, the cost impact of these regulations. 
And our sense is that most of these lines are much smaller than 
BP's. They're shorter segments, but most of them are operated 
with more attention to corrosion, with more attention to 
cleaning, and, frankly, better maintained than what we've seen 
up on the North Slope with BP.
    Senator Feinstein. Well, do you believe BP has been 
negligent in maintaining this line?
    Mr. Malone. What we've seen with BP is they did not keep 
these lines up to the same standard of care we see elsewhere on 
the North Slope and typically elsewhere in the industry.
    Senator Feinstein. Thank you.
    Just one last comment. Senator Wyden indicated some of the 
trading problems, and you know the company has settled ten 
violations. They did go back to 2001 and 2002. You know that in 
June the CFTC filed a civil complaint against you. You know 
that on September 6 a class action lawsuit was filed against BP 
accusing the company of manipulating crude oil prices. And you 
know the Department of Justice is investigating BP on charges 
of manipulating the crude oil and gasoline markets.
    As a West Coaster, those of us on the West Coast, Mr. 
Malone, we're not going to put up with this and I just want you 
to know it. It has got front--in our attention span, it is way 
up there as a high priority. You know, once fooled, shame on 
us; twice fooled, it's a different story. And I really hope 
that you are going to exercise the kind of leadership that's 
necessary, because I think this company is deeply troubled 
today.
    If you'd like to respond, I would be happy to have you do 
it.
    Mr. Malone. Senator, I have two comments I'd like to make. 
I understand, and I said it up front, that this is unacceptable 
to us and that we are going to prove to you and the American 
public that we will get this right. Senator, I have all the 
authority to do this. I have the personal commitment to do 
this, and I am happy to come back and talk to you about this as 
I make progress.
    Second, Senator, I understand your questioning of our green 
credentials, but I would like an opportunity that we--
continuing to move down that agenda, around renewable energy, 
around alternative fuels, around biofuels, we will continue to 
do that, because it's a core of our beliefs and our values.
    Senator Feinstein. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Feinstein.
    I might say, Mr. Malone, we all look at the questions that 
were propounded to you by the Senator from California and we 
all look at the answers that you have given, and the 
expectations have been forthcoming to us based on those 
questions and those answers. And we won't go through each one 
again, but you have told me also in my office just what you 
have said here today: You have all the authority and all the 
resources at your disposal and there's no excuse; right? No 
excuses. It's all doing things right and paying for it. Whether 
you have in the past or not, you're going to have to start 
paying for it now.
    With that, I want to move to a distinguished Senator who 
has been waiting a long time. And he usually doesn't like what 
he is hearing and I would assume he feels the same way today as 
he has on a couple other situations. Senator Bunning.

          STATEMENT OF HON. JIM BUNNING, U.S. SENATOR 
                         FROM KENTUCKY

    Senator Bunning. Thank you, Mr. Chairman. I also would like 
unanimous consent to put my opening statement in the record.
    The Chairman. It will be made a part of the record as if 
read.
    [The prepared statement of Senator Bunning follows:]

   Prepared Statement of Hon. Jim Bunning, U.S. Senator From Kentucky

    Thank you, Mr. Chairman.
    I believe many of us will agree that this pipeline spill and the 
discovery of such extensive corrosion demonstrate a failure on the part 
of BP to properly maintain its pipeline system. This failure is so 
appalling because it could have been prevented if BP had reacted to any 
of the warning signs in the past decade.
    I believe the pressure to drive up profits has played an 
unfortunate role in this accident. As early as 1999, letters from 
employees and inspections by the Alaska Department of Environmental 
Conservation and Federal Department of Transportation have indicated 
serious corrosion problems in the Prudhoe Bay pipelines. Amid record 
profits, the maintenance habits of BP at this oil field have been half-
hearted at best. I hope that we can learn more about how these problems 
were allowed to go unresolved and what additional safety legislation 
may be needed from Congress.
    While BP must accept responsibility, there are other lessons to be 
learned. There are industry-wide deficiencies in the perceived 
maintenance needs of some pipelines. It seems we are only now coming to 
terms with the corrosion that may occur in low-stress or smaller 
pipelines. The Government must also bear some responsibility for 
failing to ensure the safety of these unregulated pipelines. I am 
pleased that the Department of Transportation's Pipeline and Hazardous 
Materials Safety Administration now has regulations in place for many 
low-stress pipelines.
    I am disappointed there is the need for a hearing like this one, 
but I hope that discussing BP's deficient maintenance of the Prudhoe 
Bay pipelines will prevent future spills and ensure that domestic 
production has a reliable pipeline network to reach the marketplace.
    Thank you, Mr. Chairman.

    Senator Bunning. Mr. Malone and Mr. Marshall, it has been 
suggested that BP has put profits ahead of safety of its 
pipeline network. Since 2000 your company has made more than 
$70 billion. I'm repeating that so that the people can hear 
that--$70 billion in profits. I am aware of all the money the 
oil industry reinvests. But you only have 26 percent of the 
Prudhoe Bay, yet you are the controller of Prudhoe Bay. That 
doesn't count all the other profits of the oil industry, Exxon 
Mobil and all the other companies that are partners with you in 
the Prudhoe Bay investment. But most of the money is directed 
to discovering new products. Do you believe that your 
investment has lagged in maintenance at Prudhoe Bay, and why 
wasn't more done? Why wasn't it?
    Mr. Malone. Senator, if I can----
    Senator Bunning. I've heard a lot of explanations, but none 
register.
    Mr. Marshall. Senator, if I can, the budgets for Prudhoe 
Bay have increased----
    Senator Bunning. I've heard that, from $400 million to 
$700-plus million.
    Mr. Marshall. That's correct.
    Senator Bunning. That's chicken feed when you're looking at 
$70 billion in profits.
    Mr. Marshall. We have a program which we are determined to 
focus on the areas we need to focus on, whether it's corrosion, 
whether it's well refurbishment, whether it's pipeline 
replacement. We're in action doing that. We have been doing 
that.
    Senator Bunning. You obviously have not been doing that or 
we wouldn't have a spill, we wouldn't--I was on Prudhoe Bay's 
North Slope--I was on Alaska's North Slope with Senator 
Murkowski, and we went through some of your facilities and you 
bragged--was it 3 years ago, 4 years ago?
    Senator Murkowski. Two years ago.
    Senator Bunning. Two years ago. And you bragged to us how 
good you were doing. Now, don't tell me that you didn't have an 
inkling of the fact that your pipelines might be corroding. The 
people you bought them from, they might not have done a good 
job. The west side is a little different than the east side, 
but you bought the east side from another operator. You 
obviously could have gone and done more with the inspections of 
those pipelines.
    Mr. Marshall. Clearly, looking back, we could.
    Senator Bunning. Hindsight's 20-20, sir.
    Mr. Marshall. We're determined that when we bring in the 
new lines we will implement a full program of maintenance 
pigging, smart pigging, and any other technology we can to make 
sure this doesn't happen again.
    Senator Bunning. Well, we hope so, because if it does 
happen again you may have to shut it all down.
    Mr. Marshall. I understand.
    Mr. Malone. Senator, may I----
    Senator Bunning. No, I'm going to continue on, because I am 
very short on time.
    Mr. Malone, there has been some speculation, as the 
Senators from Oregon and California have talked about, that 
Prudhoe Bay was actually shut down--this was engineered by BP 
and it was shut down was to maximize profits. Given the recent 
allegations pending before the Commodities Future Trading 
Commission that your company attempted to artificially inflate 
propane prices for a profit, I want your assurance to the 
members of this committee that BP did not deliberately enhance 
profits for itself or any subsidiary by the timing of the 
Prudhoe Bay shutdown.
    Mr. Malone. Senator, I was involved in that decision. I can 
assure you that my decision was made around the safety and 
integrity of that pipeline and to prevent a spill. We are 
cooperating with CFTC and providing documents looking at all of 
our trading activities post-disclosure, and to date, I'm 
assured they have found no improper trades take place, sir.
    Senator Bunning. One last question, as time will allow. Mr. 
Malone and Mr. Marshall, as production slows down in older oil 
fields, as it has been nearly 70 percent in Prudhoe Bay, it 
becomes more expensive to operate and maintain pipeline 
networks. Do you believe that the diminished returns on 
investment in older oil fields have led to maintenance problems 
in the industry?
    In other words, as the production we saw on your charts has 
gone down--and it's now only about 30 percent effective in 
bringing the oil out, where it was once at 100 percent--is that 
the reason we're not getting the maintenance that we should 
get?
    Mr. Malone. Senator, for the bigger BP I can address the 
issue and I'll ask Mr. Marshall specifically on Alaska. But in 
the reviews that I've done so far--and it's still the early 
days in the job, but the reviews I've done so far, I'm not 
being told that we had a problem because of the age of the 
field or the lack of funds. But I'll come back and assure you 
of that in short order.
    Senator Bunning. It isn't lack of funds by anyone that's 
pumping oil out of Prudhoe Bay. We all know that. It's lack of 
attention to the maintenance of the pipelines.
    The Chairman. Are you finished, Senator?
    Senator Bunning. Yes.
    The Chairman. We're now going to go to Senator Landrieu.

       STATEMENT OF HON. MARY L. LANDRIEU, U.S. SENATOR 
                         FROM LOUISIANA

    Senator Landrieu. Thank you, Mr. Chairman.
    I'm going to go to a little different line of comment and 
questioning. And I say this--not that there's any excuse for 
what happened. My colleagues on both sides of the aisle have 
pressed that issue I think very well, but there's no excuse for 
what happened and the company has a serious obligation to 
address it and to fix it and to take those steps immediately.
    But I think this record would be absent an important point, 
Mr. Chairman, if I did not raise for the record that one of the 
reasons that a breakdown like this can affect our markets is 
because our markets are so tight, because the demand is rising 
and the supply is sometimes questionable. And Mr. Chairman and 
ranking member, while there is no excuse for what happened in 
Alaska, from an oil-producing State, I have to say that if the 
industry had greater access to less hostile environments--i.e., 
where temperatures are not 50 degrees below zero--that we might 
have a better opportunity to manage the infrastructure 
necessary to produce the oil and gas the country needs.
    Now, there's no excuse for what happened, but it is hard 
for me, from an oil- and gas-producing State, understanding the 
extraordinary technology and effort that goes into tapping into 
these resources, finding them and delivering them safely, and 
the extraordinary effort it takes to maintain these pipelines, 
to have to sit here and be quiet when I know that the Federal 
Government, itself, along with many members, particularly in 
the Democratic Party, and some Republican members, won't allow 
us to drill where it's easy to lay pipelines and to manage the 
infrastructure necessary to produce the oil and gas for the 
Nation.
    So I don't want BP to get off the hook, but I do want to 
add that to the record. And I'm going to submit a statement 
along those lines for the record for this hearing.
    My question is about the maintenance of pipelines. Could 
someone that is representing the company talk about whether you 
do this in-house or through contractors? Are most of your 
workers in-house BP or contractors? If they are in-house, are 
we increasing, and what are we doing to increase the amount of 
money in that budget and how much? And if not, what procedures 
are in place to watch or to monitor or to report your outside 
contractors that are responsible for the maintenance of these 
pipelines? I don't know what----
    Mr. Marshall. Senator, I'll take the response to that 
question. BP employs about 1,500 direct staff. We also have 
somewhere in the range of several thousand contractors working 
across various aspects of our business. With specific reference 
to the maintenance activities, we have a combination of both BP 
staff providing the supervision, the management, and a number 
of the specialized technicians that we rely on to cover 
everything from turbine maintenance to pump maintenance, 
pipeline repair and so on.
    In addition, we have a number of contractor companies which 
provide specialized expertise, whether it's for insulation 
removal, for inspection testing, with specific reference to 
these pipelines. We employ a number of companies to provide 
that.
    The amount of expenditure--before you cover the 
expenditures, we are adding people, have been adding people for 
several years now. This year we're--over the next--this year 
and next we're adding between 80 and 100 technicians as part of 
our renewal program of people. We've added between 200 and 300 
contractors over the last few years to increase the level of 
maintenance activity. As the production drops, the level of 
maintenance requirements increase and the amount of activity 
that we have to take on has also increased. And at the same 
time, since I've arrived in 2001, where quite frankly we didn't 
have the kind of maintenance system that I believe a first-
class company should have, we've been addressing that. We've 
been getting back to basics and eliminating backlogs, 
particularly in safety-critical equipment, working toward 
getting that baseline established so we can actually go ahead 
now and lay in the amount of expenditure, both operating 
expense and capital, that needs to keep that infrastructure 
healthy for the next many years.
    Senator Landrieu. Mr. Chairman, I raise this question 
because I think it's important for our committee to think about 
the answer to this, because if Starbucks doesn't invest in 
their infrastructure, the country might just get a little 
groggier every day because we just can't access the coffee. And 
that's a problem, but it's not a major problem. But when the 
oil industry is not investing properly in its infrastructure, 
it causes major problems for everyone, from the automobile 
manufacturers and the airline manufacturers to the small 
businesses to our farmers. It drives up prices and makes prices 
volatile.
    I'm not one for mandating industries. I believe in the 
competitive market and the free market. But I want to go on the 
record as saying I'm going to consider the solution to this 
dilemma that we find ourselves in is to deal with the 
investment aspect, to make sure that the investments and the 
maintenance of just infrastructure meets the standards of a 
great economy like America and the world that depends on us to 
function regularly and without dramatic situations like this.
    I don't have anything to offer, but I just want to go on 
the record, Mr. Chairman, as thinking that we may have to 
explore some options that would not be appropriate for industry 
generally, but maybe for the energy industry we have to think 
about it to ward off any dramatic effects that are causing a 
shutdown of major pipelines and particular fields, et cetera.
    I'll leave it there and thank you.
    The Chairman. Thank you very much, Senator.
    Now we're going to go to this side with Senator Talent.
    Senator Talent. Thank you, Mr. Chairman.
    Well, you can tell everybody up here is pretty upset. I'm 
going to give you my perspective on this. We have a very 
sophisticated oil company and we have an agency that's supposed 
to be expert in regulating this, and I think those of us in the 
Congress are thinking that the elementary things that need to 
be done to maintain these lines and these pipelines aren't 
being done, and clearly it was not done.
    I read, Mr. Malone, your statement about, ``With a program 
this comprehensive, what happened?'' I think that's the 
question we're all asking. I guess the closest thing to an 
answer is--and you asked the question--why wasn't the corrosion 
detected by BP's monitoring program? You said, while you had an 
active inspection program, the isolated pits were too widely 
spaced to be detected by that program.
    So I guess the question is why didn't you have a program 
that would have inspected and would have discovered the 
isolated pits even though they were widely spaced?
    Admiral Barrett, why don't we have regulations that are 
adequate to make sure that we are protected against disruption 
in supply? It seems to me you've been oriented in the past very 
much toward protecting population and the environment, and of 
course that's very important, but the supply of energy is 
hugely important as well. And I don't think anybody's explained 
yet, given that I think we understand the technology and 
understand how these lines work, why, for example, it was 15 
years--I think your testimony in the House was it was 15 years 
since you've done any pigging on these low-stress lines.
    So, given that that's how you discovered the problem with 
the lines and that that technology was available--it wasn't 
new--why weren't you doing it?
    Mr. Marshall. Senator, with respect to the eastern lines, 
which are the ones that had not been pigged since the early 
1990's--Prudhoe Bay consists of two halves, the east and the 
west. The east is what was formerly operated by Arco. It is 
essentially a mirror image of the west, which BP operated--
three major facilities and 8 miles of transit lines on each 
side.
    BP had run pigs in 1990 and 1998. The smart pig data from 
both results confirmed the line was fit for service. We looked 
when we took over the eastern line, which is the one that you 
referenced had not been pigged. We looked at the data and we 
instituted a testing program, but admittedly ultrasonic 
testing. Those results confirmed the condition of the line to 
be very similar to the line which had been pigged only 2 years 
prior. We had good evidence there were virtually no solids in 
that pig run, less than 2 cubic yards, and the line was 
pronounced fit for service.
    So we viewed that data and saw the lines were in broadly 
similar shape. It was only in 2005, when we were doing the 
testing, that we started to see increases in corrosion, which 
certainly proved to be the pitting type of corrosion that you 
referenced.
    Senator Talent. So are you telling me that this problem 
developed over the course of the last year or two?
    Mr. Marshall. Senator, it's too early to say definitively 
exactly what the cause is. That will only be determined when we 
complete the failure analysis of both sections of failed line. 
That has not been done. We need to get that lab work done to 
really understand accurately what the corrosion mechanism was 
and to be able to make a determination about over what 
timeframe it occurred.
    Certainly there is evidence on the west that there was a 
very rapid deterioration of that line, but right now that is 
still a theory, not a confirmed outcome.
    Senator Talent. Admiral Barrett, can you assure us that 
when you're done with these new regulations that all the 
pipelines which are necessary to protect supply are going to be 
the subject of regulations requiring inspection and that those 
regulations will be designed to protect not just population and 
the environment, as important as that is, but also the supply 
of energy to the country?
    Admiral Barrett. Two comments, sir. First, the lines we're 
talking about, the BP lines, with the regulation we propose, 
the corrosion management program they'll have to put in place 
would have prevented this from occurring, and that's the case 
on their other lines up there that we do regularly. What they 
had in place, particularly the absence of the maintenance 
pigging, would not have been acceptable. And I will certainly 
take into account the point you make that in assessing the 
safety and environmental risk that we focus on that and we look 
at, as well, how our actions can advance the energy security of 
the country.
    Senator Talent. Yes, I would say the energy security of the 
country is worth being the subject of your regulatory review. I 
certainly think we all believe that that was one of the objects 
of your regulation and I certainly hope it is in the future.
    Mr. Chairman, I thank you for holding this hearing. I'll 
just join in the comments that have been made by other Senators 
that this is very unsettling, especially for those of us who 
have been trying so hard to open up new sources of energy. We 
have to have assurance that when we do that, when we get the 
energy, it's not going to be disrupted because of a lack of 
investment in the use of technology that is, if not routine, at 
least commonly used technology. And I appreciate the hearing.
    The Chairman. Thank you very much. Thank you very much, 
Senator. I'm just wondering, do you have any wrap-up questions 
or did you get out what you wanted to ask?
    Senator Talent. I'm fine, Mr. Chairman.
    The Chairman. How about you, Senator?
    Senator Bunning. I have some others, but I'll submit them.
    The Chairman. Let's go right now with them. Give them to 
him.
    Senator Wyden. I have one.
    The Chairman. You have one additional. And, Senator, you 
and I will stay and do whatever we want. Please proceed.
    Senator Bunning. First of all, let me assure the people at 
the table that I am a big supporter of additional exploration 
on our own domestic soil and securing more domestic energy, 
including the exploration and production in ANWR, but I believe 
that this type of situation completely sets back any hope that 
we had to get that bill passed in the Congress of the United 
States. And I can assure you that if we are going to do what 
the President wants to do and get our dependency off foreign 
sources of oil, this is a major setback.
    We were assured when we were up at Prudhoe Bay, at Alpine, 
that this was the gold standard, as Senator Murkowski has said. 
And we went to your new platforms at Alpine, where you had 
seven safety valves on your drilling, but we didn't see any of 
the pipelines. And this is just 2 years ago, so those pipelines 
were corroding at that time badly.
    Why in the world wouldn't you make sure that we weren't 
going to have any kind of spills, if in fact we want to 
discover and be able to drill in other areas in Alaska? Why, 
when it's so essential to rid ourselves of foreign sources of 
oil? I'm asking the president of BP.
    Mr. Malone. Senator, I can't address specifically the 
issues in Alaska, but I can tell you that, Senator, you have 
our commitment to operate Prudhoe Bay at a gold standard and I 
can assure you of that. And as I have said several times, I 
have the financial support, I've got the people and I have the 
resources to assure you of that.
    Senator Bunning. If that be the case, you have set back our 
ability in the Congress to move any type of exploration close 
to Alpine or Prudhoe Bay in the immediate future. It's taken a 
giant step backward. I want you to understand that because of 
the spills and the things--we were assured that nothing like 
this could ever happen in Prudhoe Bay.
    Thank you.
    The Chairman. Senator, we're going to start back.
    Senator Bingaman. Let me ask you, first, Admiral Barrett, 
as I read the statute that sets up your office, your job is to 
look after safety. In particular, that's defined as ``risk to 
life and property posed by the pipeline transportation 
facility.'' You are not directed in this statute to look after 
supply, to ensure the reliability of supply, and accordingly, 
you take into account if this is an area that a lot of people 
live in. You look after the things that you have traditionally 
looked after.
    Senator Talent was asking questions about if you are also 
committed to dealing with the energy security and protecting 
supply and all that. We haven't told you to do that, as I read 
your statute.
    Admiral Barrett. Sir, I think there are two points there. 
One is in our Pipeline Reauthorization Act. The administration 
this year has proposed, in cooperation with the Department of 
Energy, authority to conduct a study of the impact of capacity 
problems on the energy supply. And if that reauthorization 
passes with that provision that the administration has 
requested, we would provide perhaps some basis for you to 
consider what additional action might be necessary.
    Senator Bingaman. But you're saying we should go ahead, 
first of all, and authorize a study before we decide whether or 
not someone, your office presumably, should be responsible for 
looking at the reliability of our energy infrastructure. It 
seems to me that's sort of a no-brainer, that we ought to have 
a Federal agency whose job it is to look after the reliability 
of our infrastructure for purposes of maintaining supply, and 
we don't have that today. I don't really see why we need to 
have another study to decide whether or not that's an 
appropriate thing for someone to do.
    Admiral Barrett. The only other observation, as I noted, is 
that I do believe strongly that if we focus on safety and some 
of the other risks we're talking about, that will improve 
reliability.
    Senator Bingaman. I agree, they're related. And to the 
extent you solve the safety problems, you help solve the 
reliability problems, but you don't necessarily solve the 
reliability problems, as evidenced by the fact that you had 
never asserted jurisdiction over this line because the line is 
a long way from where the public is.
    Admiral Barrett. Well, it posed lower risks than other 
lines.
    Senator Bingaman. Lower risks to the public?
    Admiral Barrett. Yes, sir.
    Senator Bingaman. But not lower risk to interruption of 
supply?
    Admiral Barrett. I understand your point, sir.
    Senator Bingaman. It seems to me we ought to fix that 
problem, Mr. Chairman. I don't know exactly how we get it done, 
but we ought to make sure that the statute clearly directs 
Admiral Barrett's office to look at safety, but also look at 
reliability of supply. That seems to me to be another goal that 
we've given short shrift to.
    Mr. Van Tuyn, let me ask you, there have been a lot of 
statements here that this is an anomaly, that the problem is 
not a more general one on the North Slope or elsewhere in 
Alaska or around the country. I think the statement in Admiral 
Barrett's statement is that these BP transit line failures are 
not indicative of the state of the rest of the U.S. energy 
infrastructure, and I guess then more specifically on the North 
Slope.
    Is that your assessment, as well, or do you feel like you 
know enough about the condition of the infrastructure on the 
North Slope to pass judgment on the condition of it?
    Mr. Van Tuyn. Mr. Chairman, Senator Bingaman, thank you for 
the question. I think the old adage ``If you don't want to know 
the answer, don't ask the question'' applies at every level of 
industry and regulatory review on the North Slope. So I can't 
stand here or sit here today and say that I have an absolute 
understanding of the facilities' integrity or lack of 
integrity.
    I can tell you that I have witnessed, in specific, numerous 
examples, for over 15 years, situations where the questions 
were intentionally not asked. Examples such as the Teshekpuk 
Lake region, where the Federal district court judge last week 
issued a temporary ruling that, despite promises from the 
Interior Department to look at cumulative impacts of oil 
development in that area, that Interior once again put off 
asking the questions.
    I can tell you that the State of Alaska Department of 
Environmental Conservation has not looked at its prevention 
authority as something that it's strong to implement. I can 
tell you the same with DOT. Thank you for the question, but 
that's the reality on the North Slope.
    Senator Bingaman. Thank you, Mr. Chairman.
    The Chairman. Well, Senator Bingaman, I accept your 
thoughts just preceding the answer, when you suggested that 
perhaps we should do something about this, and I think we 
should, in our manner of doing business, ask both our staffs 
collectively to look at that issue and see what it is, and how 
we would fix it easiest and quickest. No use waiting. It's all 
by itself. It could get done if we set ourselves to doing it. 
And, not letting BP off the hook or anything, it's just 
straightening up an anomaly that we find.
    Now, Senators, both of the remaining Senators wanted to 
take time, and I think we'll get by before the floor takes us 
away by following the regular course. So you will be next, 
Senator Murkowski, and then we'll come back to you, Senator 
Wyden, and that will be it, I guess.
    Senator Murkowski. Thank you, Mr. Chairman.
    To follow up, just from the legislative perspective, 
Admiral Barrett, you and I have had a chance to talk about the 
tools that you have at your disposal, and when it comes to the 
compliance orders that you have put before BP, the four 
compliance orders, you have indicated to me that legislatively 
you have what you need, the authority that you need. Is that 
still the situation? What else can we provide you in terms of 
the tools that you need?
    Admiral Barrett. Senator, thank you. In terms of our 
ability to enforce the safety requirements that we feel are 
essential, either by way of orders or by bringing forward 
regulatory packages, which is generally done, I would say that 
our authority in that area is adequate.
    Senator Murkowski. You mentioned in response to a question 
from Senator Domenici--this was as it related to the Trans-
Alaska Pipeline and the soundness of that line itself--you 
indicated that there were issues from time to time, but then 
you stated that you had no immediate concerns with TAPS. That 
raised a red flag with me. You don't have immediate concerns, 
but do you have long-term concerns about the safety and 
soundness of the operation of that line?
    Admiral Barrett. What I meant was we inspect that line on a 
regular basis, and from time to time TAPS and other lines that 
we regulate are required to have a risk management program to 
continually assess and reassess the risks that they face on 
that line. For example, most recently, the drop in production 
would have caused us to look at how they manage the hydraulics 
on the line and was their program adequate for that.
    But from time to time, as they look at their risk and we 
oversee that, we will identify areas where they think--we think 
and believe they need to pay more attention. It may be some 
aspects of their corrosion management or their integrity 
management that we'll identify in the course of our 
inspections, and we will require them to take corrective 
action.
    So what I meant was, based on the recent inspections that 
we've done, there are no actions where we feel we would be 
compelled to order them, to direct them to some immediate 
problem. There is not an immediate hazard on our scope with 
respect to TAPS.
    The Chairman. Mr. Hostler, you have been pretty quiet 
throughout this hearing. I know that there are many who, when 
they learned of the situation up North, assumed that it was a 
shutdown or that there were problems with the Trans-Alaska 
Pipeline itself, and of course we know that that is not the 
case. But you've got the same oil that is causing corrosive 
problems within the BP feeder lines going into the main line. 
What assurances can you give me that we won't have the same 
corrosion issues that you are facing with the BP operations on 
their lines?
    Mr. Hostler. Well, thank you, Senator. Immediately 
following the March 2 spill, we put in a program to accelerate 
and enhance our corrosion monitoring program, the same program 
that Admiral Barrett has been speaking to. And we put steps in 
to look for this accelerated corrosion aspect that BP 
experienced and looked at our pump stations and looked 
throughout our system down to the terminal. But most 
importantly, we looked in the main line, and we are currently 
running an intelligent pig through that line, a year ahead of 
schedule, looking for any potential anomalies as experienced by 
BP.
    But as Admiral Barrett has said, we have quite an extensive 
integrity management program that they oversee, as well as a 
corrosion management program the Joint Pipeline Office, which 
includes BLM and other agencies, also oversees, and we have an 
annual audit of that program. So we've looked back at our past 
and looked at ways we can enhance it. So my assurance to you is 
we've taken all the steps we believe are appropriate to look at 
this problem as it was experienced by BP at Prudhoe Bay.
    Senator Murkowski. Looking at the 50-year vision diagram 
over there for BP and your efforts in Alaska, we want to 
believe that that picture can continue, that that chart, that 
graph, will continue with the levels of oil and with the 
additional level of gas brought on. But we want to make sure 
that you're only going to continue in that capacity if you are 
an operator that is up to the standards that we expect of you 
as Alaskans and that we expect of you as Americans.
    I feel a little bit humbled after Senator Feinstein said 
that my questions to you were too gracious and perhaps I'm 
``not beating up enough on the operators here,'' but our 
reality is we want those that will perform to the level and a 
standard that is acceptable and is above what we are seeing 
from BP, and if BP cannot bring the standards up, I don't know 
that we want that 50-year vision. And that's a very difficult 
statement for me to make, but we can't have it at the expense 
of our environment. And I would certainly hope that this is a 
turn-around for this company, this is a turn-around for every 
employee, from the guy who's working out in the 50 below to 
those of you that are back in London, that there is an attitude 
and a change about how we deal with safety, how we deal with 
maintenance, how we deal with ongoing operations, and that 
there is never, never a reason to back off on those standards.
    Thank you, Mr. Chairman.
    The Chairman. We're about to finish, Senator. If you let me 
go and then you go, then that will be even.
    Senator Wyden. Whatever you think, Mr. Chairman.
    The Chairman. You go ahead, Senator. You've been waiting a 
long time.
    Senator Wyden. Mr. Malone, according to the Government 
Accountability Office, the taxpayers of this country are going 
to lose out on at least $20 billion in royalties that your 
company and others are supposed to be paying for oil and gas 
that is extracted from Federal lands. Now, this has been a 
bipartisan ripoff. What you've had is essentially the Clinton 
Administration in the late 1990's not including price 
thresholds that would protect the taxpayers. Then the new 
Secretary of Interior, Gale Norton, came in and sweetened it up 
even more. And then in the last energy bill, over my 
opposition, it got even sweeter.
    What is your objection to your company paying normal 
royalties on oil that your company extracts from lands that are 
owned by the people of this country?
    Mr. Malone. Senator, we do not object to paying fair rent. 
You may or may not be aware, on the 1998 and 1999, we have 
voluntarily moved forward to negotiate with MMS and we're very 
close to a settlement on that.
    Senator Wyden. Will that settlement involve normal 
royalties? If you're talking about the 1998 and 1999 leases, 
those of course are the ones where the Clinton Administration 
messed up.
    You've used a term ``fair rent,'' which I think is a little 
different than what the statute is talking about. I want to 
know, are you committing this morning to saying that you will 
pay the normal royalty that you would have paid on those 1998-
1999 leases if the Clinton Administration had not fouled up?
    Mr. Malone. Senator, if you'll allow me. I'm sorry, I don't 
have enough detail on exactly what you're speaking about. I 
don't have that level of detail to make that commitment.
    Senator Wyden. Well, it's just a question of whether you're 
going to pay the normal royalties.
    Mr. Malone. Again, if the normal royalties are what are in 
the standards and the law, yes, we'll pay them.
    Senator Wyden. I appreciate the answer, and we're going to 
do everything we can to drain this swamp. It is outrageous that 
there is a prospect now of upwards of $70 billion being the 
final sum here, as you know, if the Kerr-McGee suit is 
successful. But if you will follow through on the pledge you're 
making for the committee now that you will correct those leases 
so that you would pay the normal royalties, as if the Clinton 
Administration had not fouled up in 1998 and 1999, that is a 
constructive step, and I appreciate getting that information 
this morning.
    Thank you, Mr. Chairman.
    The Chairman. Well, let me take that issue, because it 
always gets out of focus. The distinguished Senator is quick to 
have it his way and let it read as if it's his way, but the 
truth of the matter is there are a number of oil companies that 
are negotiating with the Department relative to the royalties 
that were attributable to 2 years during which the Clinton 
Administration quite inappropriately issued leases without 
royalties being required, and those are just as valid and legal 
as anything you can have out there. They don't owe the money. 
You can't go claim they do.
    But I have indicated, and the companies have listened 
carefully, that I believe it's time they all come to the party 
and sit down and solve this problem so that they're not in 
litigation.
    And you're one of the companies that stepped forth rather 
quickly in that round of negotiations to see what could be done 
to get rid of that litigation. That's good. That's going to be 
solid money and it's good for the country.
    Now, before we close, let me make sure that we see a couple 
of other things around here. I don't know how to do this, but 
for me it's pretty easy. Do you see this diagram?
    Mr. Marshall. Yes, sir.
    The Chairman. Mr. Steve Marshall, you can see this. Now, 
can we put it up there so everybody can see it. This is a 
pipeline and it looks like it's got something wrong with it, 
right? What's wrong with it?
    Mr. Marshall. That is an example of the pitting type of 
corrosion that we've experienced here. It's essentially a piece 
of broadly good pipe with something about the size of an almond 
showing where the corrosion has occurred. That's what this 
shows.
    The Chairman. OK. Now, that is the situation where, if you 
had been running a smart pig up and down that pipeline in the 
last few years ,you would have found that. And that smart pig 
is right here. It's this one here. Maybe you can get that and 
put it up and everybody can see it. That's this one right here. 
See, that one down on the right hand, looking at it from this 
side, the bottom right hand. Isn't that the smart pig?
    Mr. Marshall. That's correct, yes.
    The Chairman. You own those, don't you?
    Mr. Marshall. We own some of those. We bring some other 
pigs in that are specialized pieces of equipment from 
suppliers.
    The Chairman. Now, that's the kind of thing we would be 
complaining that you did not use on this 16 miles of pipeline, 
which thus permitted it to go undetected as to what that smart 
pig would otherwise find, right?
    Mr. Marshall. Well, the smart pig was run on the western 
lines in 1998 and 1990.
    The Chairman. Where was it not run?
    Mr. Marshall. The smart pig was attempted on the eastern 
lines, which Arco operated, in the early 1990's, but it was an 
unsuccessful run.
    The Chairman. What does it mean for an unsuccessful pig 
run?
    Mr. Marshall. To the best of my knowledge, the technology 
used in that particular device was not proven to be market-
worthy. It was withdrawn from the market soon after that, that 
pig run.
    The Chairman. So it wasn't a very good product; is that 
what you're saying?
    Mr. Marshall. Apparently that's correct.
    The Chairman. But there must have been a better product 
than you used, that you just didn't get a hold of to run on 
that pipeline or that was running elsewhere; is that not 
correct?
    Mr. Marshall. I don't have the knowledge of what 
conversations might have occurred in Arco at the time once they 
got that data back.
    The Chairman. Well, what are we saying you didn't do then? 
What equipment was around that you didn't use that everybody's 
either saying or implying that you should have used, that the 
Admiral was talking about? Which equipment is it?
    Mr. Marshall. Mr. Chairman, certainly we've reflected 
deeply on that, in light of the incident, since March. Clearly, 
looking back, we should have--as the Admiral has said, we 
should have been maintenance pigging those lines. It would have 
eliminated the solids, which we didn't anticipate to be a 
problem. Smart pigging was scheduled for 2006. It was based on 
the evidence, the data that we've seen coming back from our 
inspections last year. Unfortunately, it was just too late to 
prevent the spill in march.
    The Chairman. So then we don't have any argument over 
whether I'm using the right pig picture here or not. We are 
talking about the fact that there was usable technology that 
should have been used that wasn't during this period of time; 
is that right?
    Mr. Marshall. The technology was available, yes.
    The Chairman. It was available.
    Now, I was going to ask the other gentleman, Mr. Hostler, 
you're part of TAPS, how often was the pig used on TAPS?
    Mr. Hostler. Sir, we run a maintenance or cleaning pig 
every 7 to 14 days and we run an intelligent pig every 3 years. 
And we've run, over the life of this field, the pig I spoke of 
earlier. We are on our 61st intelligent pig.
    The Chairman. On the lines we are talking about, BP's, it 
was 16 years since they'd run one, correct?
    Mr. Hostler. That's my understanding, sir.
    The Chairman. I don't want to beat a dead horse because, 
Mr. Malone, you have come here saying there was a mistake, you 
know it, you knew you'd done wrong, and you've now got all the 
authority and all of the resources and manpower to do it right, 
and that you're going to do it right. The question we have, 
that you have, is you're going to have to prove to some people 
that believed you before, you've got to prove to them that they 
ought to believe you now. That's a tough problem because you 
already had a fragile atmosphere, you can understand.
    I was up there and I was convinced. I saw Alpine. I use 
Alpine as an example--in my mind it is fixed--that you can 
build a full plant out there for 150,000 barrels a day from 
scratch right there on the ice, and when it's all finished and 
everything melts around it, it's self-executing. You've been 
there, haven't you?
    Mr. Malone. Yes.
    The Chairman. They mention Alpine. They don't think I know 
about it. 150,000 barrels a day, that's what comes to my mind.
    But you know what else? I came home from there telling 
everybody that I saw that there was a culture of cleanliness 
the likes of which I had not experienced. Do you know that? 
Here I am, I don't come from there, he took me up there, I come 
back, I'm ready to tell the world, ``Boy, that's perfectly 
clean, they don't make mistakes.''
    Now, I'm not saying you've made them, because you didn't 
make any up there. I'm quite sure Alpine has no mistakes. But 
I'm also sure that we've got to look at this issue of cleaning 
these lines up and we've got to make sure that we reinstate 
credibility into this system that it is safe, or we won't get 
the votes we had already with reference to ANWR, much less move 
ahead, right? We only need a couple of votes, but let's hope 
it's a couple of votes we get and get going in the right 
direction. It might be they go backward with this kind of 
event. So you really carry a lot of weight here.
    Now let me change directions because we've all forgotten. 
Maybe this will bring this very bright, intelligent man, Mr. 
Peter Davies, to talk a little bit. We had an expert sitting 
here for 3 hours and never asked him a word. How come all the 
bad things didn't happen when this spill occurred? We had 
everything go the opposite direction. We didn't have prices go 
up; we had them come down. We didn't have the price of oil go 
up; it came down, tumbling down, still coming down. We had the 
price of a gallon of gasoline come down, even on the West 
Coast, which is the most onerous one and the one most directly 
affected by mistakes where they were allegedly made. The West 
Coast was supposedly affected adversely. It went the other way. 
It then affected it positively.
    Can you tell us, as an expert, what happened? Why did we 
not get all of these shocks to the system, as you see it?
    Mr. Davies. Well, thank you, Mr. Chairman. Thank you for 
the opportunity to speak. I think there's two reasons. First of 
all, the world oil market was adequately supplied at this time. 
It was the time when we have seen increasing levels of both 
crude and product, and as a result there was some flexibility 
in the world market to absorb a shock such as this.
    Second, the actual decline was triggered as a result of 
some other developments as we went forward during the week 
which began on August 7. Most particularly, August 10, on the 
Thursday, there was a terrorist event or there was a warning of 
a terrorist event in London. This had the impact of reducing 
oil prices. The oil market had observed the effect of 9/11 on 
crude markets, where we had a $10 decline in the 2 months after 
September 11th, and there was a fear that air travel would be 
adversely affected and that this would undermine the demand for 
oil.
    The Chairman. Which event was that one?
    Mr. Davies. That was in London, where there was a plot or 
the alleged plot to bomb aircraft coming from the U.K.
    The Chairman. The aircraft going to America.
    Mr. Davies. And the fear was that this would affect air 
travel substantially, like we saw after September 11, when air 
travel was seriously disrupted.
    There was also news that a Nigerian pipeline had been 
restored, one of the pipelines that had been closed as a result 
of disruptions in that country. And there were some other 
trading developments concerning gasoline which led to a 
reduction in the price of gasoline.
    So all these developments had a negative impact on price 
that brought the price down fortuitously, and the result was 
that we ended the week with lower prices for crude oil on the 
West Coast, on the NYMEX, in London, and also the price of 
gasoline around the world. It was a global development.
    The Chairman. A pretty good deal, right?
    Mr. Davies. It was fortuitous timing.
    The Chairman. I guess you couldn't say, ``Let's have a 
spill like this, so we can get a result like this; we'll take 
the spill.'' That's not true, right? They're unrelated?
    Mr. Davies. It's unrelated.
    The Chairman. So we had better not take any spills 
presuming that we'll get this kind of good deal?
    Mr. Davies. Absolutely.
    The Chairman. How long is this downward trend going to go? 
Give us your best thinking.
    Mr. Davies. I have learned never to predict oil markets and 
prices. I think at the present time we're in a downward trend. 
The sentiment is certainly very cautious about prices and there 
is a downward momentum, but there are many uncertainties out 
there which could reverse as we go forward, so we shouldn't 
rely on a continuation of this for a long period of time.
    The Chairman. Dr. Howard, how about you? You guys are 
really the real experts. I mean, your boss isn't here, but he 
doesn't hire people who don't know. You know about as much as 
him.
    Mr. Gruenspecht. Well, I don't know about that. He's out 
talking to OPEC, so he may know more than me.
    The Chairman. Well, OPEC said they were going to keep 
producing. They have, right?
    Mr. Gruenspecht. They did. They did make that statement.
    The Chairman. They made the statement, but did they live up 
to it for a little while?
    Mr. Gruenspecht. Well, we'll see. Again, I discussed the 
short-term outlook in my testimony, and we do see somewhat of a 
downward trend in gasoline prices and diesel prices. But we do 
have a roller-coaster type of scenario in mind and, as I noted 
earlier in the oral statement, the price of wholesale gasoline 
and the price of crude oil have gotten very close and that 
probably won't persist. So there are some factors that could 
cause prices to rise again, hopefully not to the peak that 
we've unfortunately become familiar with, the $3 a gallon area.
    The Chairman. Senator Murkowski, I'm ready to close the 
hearing, unless you have something very important that you want 
to do.
    Senator Murkowski. Mr. Chairman, I just wanted to just make 
sure that I understand, because I had initially heard you say, 
Mr. Marshall, that the reason that the pigging operation and 
the data didn't work was the technology was not up to par at 
that particular time. But is it not correct, Admiral Barrett, 
that everybody else in the industry up north was pigging?
    Admiral Barrett. That's essentially correct, Senator.
    Senator Murkowski. So the technology was there, it was just 
a corporate decision to not do pigging for BP's operation?
    Mr. Marshall. Senator, if I could maybe just provide 
perspective on that. The pigging in question, in 1991, 
thereabouts, that Arco did, that was just related to that 
specific pig run, where the technology did not work for that 
particular device.
    Senator Murkowski. For that particular device.
    Mr. Marshall. For that particular device.
    Senator Murkowski. You could have gotten another device 
similar to what other companies were utilizing.
    Mr. Marshall. Technologies clearly existed at that time to 
do smart pigging. Only 2 years prior to that, BP had 
successfully smart-pigged the western transit lines in 1990, 
and did so again in 1998.
    Senator Murkowski. But then the question remains, why was 
BP the only one on the slope to not do pigging through their 
lines? If others do it, did it, why did BP take another route?
    Mr. Marshall. Well, BP was pigging, smart pigging, the 
western transit lines in 1990, 1998. We planned another pig run 
in 2006 on the eastern lines, which BP did not operate until 
2000. That line had only been pigged once, in 1990 or 1991.
    As I said, the smart pig run was not successful. I cannot 
speak to why a follow-up pig run wasn't made in the 1990's. 
What BP did when we took over those lines in 2000 was institute 
the ultrasonic testing that we had been doing on the west.
    Senator Murkowski. Admiral Barrett, if the testing was done 
every 8 years then on the western one, as Mr. Marshall has 
indicated, what were the other companies doing in terms of 
their pigging and the time period within which they would run a 
pig?
    Admiral Barrett. Senator, there were two things in play. 
One is the type of pigging. One of the things that did not go 
on here was regular maintenance pigging, and that takes place 
typically over several weeks or over several months on those 
lines.
    And by the way, on the other lines BP has up there that we 
regulate, they don't have an option. They have to do it on 
their regulated lines.
    But there are two different things that failed here. One is 
they weren't maintenance pigging the lines, and what happens 
when that occurs is you get sediment, you get calcification on 
the sides of your lines, you get sludge, if you will, build-up 
that can keep your corrosion inhibitors away from the wall of 
the pipe. And then you get the type of--you run the risk of the 
type of biologically induced corrosion that is shown in that 
picture.
    So it was both the maintenance pigging that wasn't taking 
place on this line and then regularly looking on some regular 
basis to do the in-line inspection. The best analogy I can give 
you is probably a dental X-ray: If you don't look inside the 
tooth, you may have a cavity you don't know about. They 
fundamentally, in my view, didn't know enough about the 
condition of the insides of those lines.
    Senator Murkowski. And yet everybody else up north was 
doing a routine maintenance pigging operation.
    Admiral Barrett. Senator, yes. What we saw reflected on 
these particular lines by BP was not typical of the standard of 
care we saw exercised elsewhere on the Slope and elsewhere in 
the industry in this country.
    Senator Murkowski. Thank you. I appreciate it.
    Mr. Chairman, Mr. Van Tuyn had made reference to creating a 
citizens oversight group and I would like to submit for the 
record a letter and a fact sheet from the Prince William Sound 
RCAC, which kind of describes the actual operation of the RCAC 
and how they currently work, just for the record. Thank you.
    The Chairman. Certainly that will be done.
    [The prepared statement of Dr. Devens follows:]

                       Regional Citizens' Advisory Council,
                                 Anchorage, AK, September 12, 2006.
Hon. Lisa Murkowski,
Chairman, Subcommittee on Water and Power, Committee on Energy and 
        Natural Resources, U.S. Senate, Washington, DC.
    Dear Senator Murkowski: As Executive Director of the 
congressionally authorized Prince William Sound Regional Citizens' 
Advisory Council (PWSRCAC), I was interested to hear through a public 
radio broadcast last week your view that, with respect to the feeder 
pipelines on the North Slope, it does make sense to consider additional 
pipeline oversight and that a citizen oversight panel for that purpose 
is worth considering.
    In light of that, I thought that you might find it helpful to have 
a current, short briefing paper on the oversight responsibilities and 
activities of the PWSRCAC, and on how this Council's experience 
fulfilling congressionally mandated oversight activities of certain oil 
operations in Alaska can be easily applied to the North Slope.
    As you know from our work with you and your office in the past, 
citizen oversight plays a unique and crucial role in the often tedious, 
sometimes complicated, detailed and time-consuming task of overseeing 
oil transport activities by the private sector that have potential to 
cause serious adverse effects on people, the environment, and the 
national and state economies.
    As you also are aware, your predecessor, Governor Frank Murkowski, 
played a key role in incorporating the provisions that created the 
PWSRCAC in the Oil Pollution Act of 1990. He studied the experience at 
Sullom Voe in Scotland, the largest oil terminal facility in Europe. He 
recognized that, in light of the Exxon Valdez oil spill, to have 
citizen confidence in and support for continued oil development and 
transportation, the public must be engaged in overseeing that 
development and transportation in a meaningful way.
    Considering that nearly 20 percent of the daily U.S. oil production 
flows through Valdez, the vigorous and effective citizens' oversight of 
the terminal facility to ensure its integrity is of substantial 
national importance. In part as a result of the combined effort of the 
Alaska delegation and others in Congress to establish rigorous 
oversight of the equipment, facilities, procedures and operations at 
the Valdez oil terminal through citizen oversight, today the transport 
of oil from the Valdez terminal is the safest of any similar facility 
anywhere in the world.
    The PWSRCAC has provided substantial results and is now viewed as a 
model for other countries interested in establishing citizens' 
oversight panels. The citizen oversight model that Congress established 
in 1990 is a good one. And, although not perfect, it has made a huge 
difference for the better in terms of effective oversight of the 
terminal and in terms of building the public's confidence in its safe 
operation. If something is not going right, the public knows that the 
chances are very good it will be uncovered through such oversight and 
another potential accident likely averted.
    If Congress decides to establish a citizen panel similar to the one 
it established in 1990 to help oversee other aspects of the oil 
transportation system in Alaska such as on the North Slope, the PWSRCAC 
stands ready to provide information and any other assistance that may 
be helpful to you and your colleagues.
    Thank you for your continuing assistance to the PWSRCAC as it seeks 
to fulfill its mandated responsibilities to and on behalf of the 
public.
            Sincerely,
                                     John S. Devens, Ph.D.,
                                                Executive Director.
[Enclosure.]
                                 ______
                                 
                       Background Briefing Paper

   ROLE OF STATUTORILY ESTABLISHED CITIZEN OVERSIGHT COUNCILS IN THE 
 CONDUCT OF OVERSIGHT OF OIL TRANSPORTATION OPERATIONS, FACILITIES AND 
                               PROCEDURES

    Seventeen years ago, following the Exxon Valdez oil spill in Prince 
William Sound, Alaska, through the efforts of Senator Ted Stevens, 
Senator Frank Murkowski, Congressman Don Young and strong bipartisan 
action in Congress during the Administration of President George H. W. 
Bush, two citizen panels were authorized to help reduce the frequency 
and impacts of oil spills in Alaska's waters through more effective 
oversight: the Prince William Sound Regional Citizens' Advisory Council 
(PWSRCAC) and its counterpart for the Cook Inlet. The genesis of such 
panels came from congressional review of similar panels established in 
Sullom Voe, Scotland, the largest oil terminal in Europe, and from 
citizen concerns following the 1989 oil spill.
    The diverse make up of the PWSRCAC includes:

   Villages of Chenega Bay (ground zero of the impacts of the 
        1989 oil spill) and Tatitlek.
   Cities of Valdez, Seward, Kodiak, Cordova, Homer, Seldovia 
        and Whittier
   Alaska State Chamber of Commerce
   Kenai Peninsula Borough
   Kodiak Island Borough
   Kodiak Village Mayors Association
   Alaska Wilderness Recreation and Tourism Association
   Chugach Alaska Corporation
   Cordova District Fishermen United
   Oil Spill Region Environmental Coalition
   Prince William Sound Aquaculture Corporation

    The accomplishments and effectiveness of this membership and its 
citizen-based approach to oversight have clearly vindicated the 
judgment of including such authorization and direction in the Oil 
Pollution Act of 1990.
    Recent concerns raised by Congress over several incidents on the 
North Slope of Alaska underscore the need for increased and enhanced 
oversight. Considering the record in Alaska of citizen oversight, 
applying best practices from citizens' oversight efforts to the North 
Slope could be similarly beneficial there.

1. Rationale for and Purposes Served by Citizen Oversight
    In the aftermath of the 1989 Exxon Valdez oil spill in Prince 
William Sound, Congress in the Oil Pollution Act of 1990 (OPA 90) 
established citizens' councils to help combat the complacency seen as 
responsible for the 1989 spill and provide a needed layer of scrutiny 
to increase public confidence in the safety of the state's oil 
transportation system. The council role, defined by OPA 90 as purely 
advisory, was to help correct the problems leading to the oil spill by 
fostering partnership among the oil industry, government, and local 
communities in addressing environmental concerns. The responsibilities 
assigned to the PWSRCAC by Congress in OPA 90 include:

   provide advice and recommendations . . . on policies, 
        permits, and site-specific regulations relating to the 
        operation and maintenance of terminal facilities and crude oil 
        tankers which affect or may affect the environment in the 
        vicinity of the terminal facilities;
   monitor . . . the environmental impacts of the operation of 
        the terminal facilities and crude oil tankers;
   monitor those aspects of terminal facilities' and crude oil 
        tankers' operations and maintenance which affect or may affect 
        the environment in the vicinity of the terminal facilities;
   review . . . the adequacy of oil spill prevention and 
        contingency plans for the terminal facilities and the adequacy 
        of oil spill prevention and contingency plans for crude oil 
        tankers operating in Prince William Sound;
   provide advice and recommendations . . . on port operations, 
        policies and practices;
   recommend . . . 

     standards and stipulations for permits and site-specific 
            regulations intended to minimize the impact of the terminal 
            facilities' and crude oil tankers' operations in the 
            vicinity of the terminal facilities;
     modifications of terminal facility operations and 
            maintenance intended to minimize the risk and mitigate the 
            impact of terminal facilities, operations in the vicinity 
            of the terminal facilities and to minimize the risk of oil 
            spills;
     modifications of crude oil tanker operations and 
            maintenance in Prince William Sound intended to minimize 
            the risk and mitigate the impact of oil spills; and
     modifications to the oil spill prevention and contingency 
            plans for terminal facilities and for crude oil tankers in 
            Prince William Sound intended to enhance the ability to 
            prevent and respond to an oil spill.
          Additionally, the Council is authorized to conduct its own 
        scientific research and review the scientific work undertaken 
        by or on behalf of the terminal operators or crude oil tanker 
        operators as a result of a legal requirement to undertake that 
        work. The Council is authorized to review the relevant 
        scientific work undertaken by or on behalf of any government 
        entity relating to the terminal facilities or crude oil 
        tankers.

2. Examples of Tasks Accomplished by the PWSRCAC
    In almost two decades of existence, the PWSRCAC, working closely 
with industry and regulators, has made many contributions to improving 
the environmental safety of oil-industry operations in Alaska waters. A 
few of these include:

   Representatives from the Council worked closely with 
        Congress and the Coast Guard to establish and implement double-
        hull requirements pursuant to OPA90;
   The Council led the effort, and commissioned much of the 
        technical research, that led to the world-class system of 
        tanker escort tugs operating in the Sound today which are vital 
        to the system of transport of oil through the Port which is the 
        safest in the world;
   The Council sponsored research and financed much of the 
        hardware for a radar system that detects glacial icebergs that 
        could threaten tankers and other vessels in the Sound as such 
        icebergs did in connection with the Exxon Valdez oil spill;
   The Council sponsored research the led to the installation 
        of vapor controls on the loading systems at the Valdez tanker 
        terminal to reduce the release of dangerous air pollution.

    In recognition of its work, the PWSRCAC has twice received the 
Legacy Award from the Pacific States-British Columbia Oil Spill Task 
Force.

3. Structural Attributes Needed for a Citizens' Oversight Panel
    Over time, the Council has learned that certain structural 
attributes are necessary for effective and constructive citizen 
oversight. These include:
            Independence
   The panel's independence should be assured if it is to 
        effectively conduct oversight activities and its work to have 
        credibility. In furtherance of that independence, it should be 
        allowed to devise its own system for seating board members. The 
        makeup of a federally mandated panel may be usefully specified 
        in law--for example, a requirement that board representation 
        must include Alaska Natives organizations, local 
        municipalities, the tourism industry, and an environmental 
        seat, from within the group's area, but not representation of 
        government agencies, companies or industries within the panel's 
        oversight responsibilities. The specific details of the manner 
        in which representatives from the designated community 
        interests are chosen and seated on the board are best left up 
        to the panel, rather than being a matter of political 
        appointment and confirmation. In the case of the PWSRCAC, under 
        the regime established under existing law, each member entity 
        selects its representative to the Board; the Board then votes 
        to seat the representative.
   Within reasonable constraints and guidelines provided by law 
        and/or contract, the panel should be able to establish its 
        budget. As long as the panel operates within those guidelines, 
        it is critical that neither industry, regulators, nor 
        government officials have veto authority over council projects 
        or initiatives (although the budgeting process, like all the 
        panel's activities, would be public and open to comment by any 
        interested party).
   The panel should be able to retain technical experts and 
        commission research even if, in some cases, this research may 
        be in the same areas as, or intended to verify, industry or 
        regulator-sponsored research.
   The panel should be able to communicate with the public, 
        news media, regulators, and elected officials as necessary to 
        carry out its mission and inform the public of its work.

          Assured funding: The panel should have adequate, inflation-
        adjusted funding not subject to undue influence that a 
        political process would entail. In PWSRCAC's case, funding is 
        through a long-term contract with industry. Such a funding 
        contract should be mandatory as a matter of law in order for 
        the industry being overseen to be considered in compliance with 
        its oil-spill contingency plans and other regulatory 
        requirements.
          Access: The establishing law, as well as any funding 
        contract, should assure that the panel is provided authority 
        for access to company facilities, personnel, and records on the 
        same basis as regulators. In addition, regulators and companies 
        receiving formal advice or other communications from the panel 
        should be directed to respond in writing to panel requests 
        (though, of course, they would not be required to accept the 
        advice or agree with the communication). In the case of Prince 
        William Sound, OPA 90 requires that federal agencies consult 
        with the PWSRCAC when taking actions in the region that would 
        affect the Council's mission.

4. Conclusion: Compelling Benefits of Citizen Oversight
    Given the long history of responsible achievement by the existing 
Alaska citizens' councils, and today's problems at Prudhoe Bay on the 
North Slope, it is clear that a properly constituted citizen oversight 
panel could materially contribute not only to environmental safety, but 
also to protecting the nation's oil supply from the disruptions caused 
by major spills, breakdowns, and other technical problems.
    Given the increasing challenges of operating in the oil industry, 
and realizing the important role that industry plays in the state and 
national economies, our nation's oil supply and its homeland security, 
instituting a responsible and vigorous citizens' oversight capability 
for the North Slope can substantially bolster public confidence in the 
integrity and safety of ongoing as well as new oil operations.

    Thanks to all of you who are in attendance, we appreciate 
the interest that you've shown and the long period of time that 
you've spent. And the witnesses, thank you, each and every one 
of you. We hope you've been treated fairly, considering the 
seriousness of these hearings.
    And we now are in recess until the chair calls another 
meeting. We stand in recess.
    [Whereupon, at 12:21 p.m., the hearing was adjourned.]
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

      Responses of Ret. Vice Admiral Thomas Barrett to Questions 
                         From Senator Domenici

    Question 1a. We have always been told that oil and gas operations 
on the North Slope of Alaska are the cleanest and most environmentally 
friendly in the world. I've visited many of these sites personally and 
was very impressed, but what I'm hearing today is very troubling. Your 
agency looks at pipeline systems across the country.
    How would you describe the condition of the oil delivery system on 
the North Slope today?
    Answer. Based on our previous inspections, the additional reviews 
which we conducted of all North Slope pipelines following the BP 
incidents, we have no immediate safety concerns beyond those identified 
on the BP low stress lines.
    Question 1b. In terms of the severity of oil spills, where do these 
recent spills rank when compared to other U.S. spills? Are they within 
the top 10 . . . the top 50?
    Answer. At the estimated 205,000 gallon volume, the BP crude oil 
spill discovered March 2, 2006 ranks 94th among the largest 100 
hazardous liquid pipeline spills since 1985. The August 6, 2006 spill 
was much smaller.
    Question 1c. The BP transit lines that failed at Prudhoe Bay were 
not regulated by DOT. How many other lines are without regulation?
    Answer. We estimate there are about 5,000 miles of unregulated low 
stress transmission lines nationwide. We recently proposed rules to 
bring low stress lines that pose risks to unusually sensitive 
environmental areas under federal oversight.
    Question 1d. How would you describe the condition of the TAPS line? 
Can the country depend on a 30-year-old pipeline to continue to 
reliably deliver oil?
    Answer. We believe, based on our past inspections and recent 
inspections conducted since the BP spills, that the TAPS is fit for 
service. TAPS, like most other large pipelines, can be operated safely 
for the foreseeable future if maintained properly in full compliance 
with our regulations.

      Responses of Ret. Vice Admiral Thomas Barrett to Questions 
                          From Senator Thomas

    Question 1. You said in testimony before the House Energy & 
Commerce Committee that, ``the type of problem you've seen with BP, we 
have not seen repeated elsewhere in the country.'' This may be a 
rhetorical question, but, how do you know to be true if we have not 
been checking these pipes?
    Answer. In developing our regulatory proposal for rural low stress 
transmission pipelines PHMSA conducted public meetings, including 
consulting with our Hazardous Liquid Technical Advisory Committee, and 
consulted with state regulators and operators to understand operations 
and maintenance practices currently in use. We also reviewed spill 
incident history on these types of lines. My statements are based on 
this information.
    Question 2. The initial spill of 270,000 gallons of oil in March of 
this year prompted further inspections by your agency. Those 
inspections did not take place until July, however. Why did it take so 
long?
    Answer. Our inspectors have been on the scene at Prudhoe Bay since 
early March. I took over as Administrator in June and personally 
visited Prudhoe Bay in July to assess the situation and what I 
perceived as slow compliance with our orders. We continue to maintain 
on scene presence at Prudhoe Bay, and will continue to do so as long as 
needed to resolve the situation.

       Response of Ret. Vice Admiral Thomas Barrett to Question 
                           From Senator Wyden

    Question 1. Is there any precedent for repeat violators of pipeline 
safety regulations to lose their leases?
    BP employees, Alaska state officials, EPA and the U.S. Public 
Interest Research Group have documented dozens of safety violations at 
BP's Prudhoe Bay operations starting in 1999 with their illegally 
dumping hazardous waste into the groundwater at the Endicott Oil Field. 
EPA fined BP in 2001 for Clean Water Act violations. In 2002, BP was 
fined again for failing to install systems to detect pipeline leaks and 
the costs related to cleaning up a 60,000 gallon spill. In 2003, 
pipeline corrosion caused a 6, 000 gallon spill near a caribou 
crossing. Then in March and August, 2006, corroded pipelines leak more 
crude oil over state lands. How many violations of health, safety or 
environmental regulations does it take before the federal and/or state 
government can revoke BP's North Slope leases and look for someone else 
to manage these vital resources responsibly? Do we need a new law that 
gives DOl and DOT the authority to penalize repeat offenders by 
revoking their leases? Additional authority that provides states 
delegated authority to revoke leases when safety regulations have been 
repeatedly violated?
    Answer. PHMSA does not have the authority to grant or revoke 
leases. The Department of Interior has informed us that the regulations 
of the Minerals Management Service (30 CFR 250.135) provide for 
revocation of a company's designation as a lease operator if their 
safety or environmental performance on a federal lease is deemed 
unacceptable. This prohibits a company from conducting drilling and 
production operations on the specified leases. The State of Alaska 
claims authority to take action under States leases including those at 
Prudhoe Bay.
                                 ______
                                 
 Responses of Dr. Howard Gruenspecht to Questions From Senator Domenici

    Question 1. It appears that the partial shutdown of Prudhoe Bay has 
had little effect on markets.
    a. Why would this be the case?
    b. How might the result have been different in a more volatile 
time?
    Answer. While the initial announcement on Sunday, August 6, 
indicated that 400 thousand barrels per day of crude oil production 
might be curtailed, it was clear as early as Tuesday, August 8, that 
the maximum sustained production curtailment was likely to be half, or 
less, of this amount. Several other factors served to cushion the 
impact and calm markets. U.S. inventories of crude oil and products 
were high for that time of year. In particular, West Coast crude oil 
inventories, where the loss of production would first be felt, were at 
the high end of the typical range at the beginning of the month before 
the announcement. In addition West Coast refineries are among the 
world's most sophisticated, in part due to the very stringent clean 
fuel requirements in the California market. These refineries have the 
capability to process different types of crude oil from many sources, 
providing them with more flexibility to replace lost crude oil than 
less complex refineries.
    A number of other market factors during August also served to 
counter the potential price impacts of the Alaskan supply loss. These 
include the foiled terrorist plot to bomb multiple flights between the 
United Kingdom and the U.S., which raised concerns of a substantial 
drop in demand for air travel and jet fuel, such as occurred following 
the 9111 attacks; counter-seasonal builds in gasoline inventories that 
suggested the availability of surplus supply; and reduced concerns 
regarding the potential for weather-related disruptions in production 
and refining operations during the 2006 hurricane season.
    The results could have been different if the supply loss had 
occurred during a period of very low inventories and when geopolitical 
and other market concerns were high. However, the loss of 200 thousand 
barrels per day can generally be made up, even though the loss of 
nearby supply sources like Alaska can leave a temporary gap until 
alternative supply sources are identified and diverted.
    Question 2. What could happen if we were to lose the full 800, 
800,000 barrels of production from the North Slope at one time?
    Answer. Clearly that would be a much larger problem than the loss 
that actually occurred. It is very difficult to generalize, because the 
extent of any impacts would depend on myriad factors, such as the level 
of West Coast crude and product stocks, world surplus capacity, 
seasonal factors, and the perceived duration of the hypothetical 
disruption. Looking just at the global upstream balance, ETA estimates 
that the current excess production capacity worldwide is only about 1.0 
to 1.5 million barrels per day, with all of this residing in Saudi 
Arabia. At the current low level of worldwide surplus production 
capacity, the loss of around 800 thousand barrels per day of supply 
from Alaska for an extended period could trigger a noticeable rise in 
the world oil price. Initial responses by West Coast refiners would 
likely include both some drawdown of crude oil stocks and efforts to 
increase crude imports, as mentioned in the answer to the previous 
question.
                                 ______
                                 
     Responses of Robert Malone to Questions From Senator Domenici

    Question 1. In your written testimony, you describe corrosion as a 
``natural degradation of pipe that cannot be eliminated but that can be 
effectively managed-through monitoring and mitigation. ``
    How does a company with the global experience of BP fail to find 
and correct this kind of corrosion before suffering an oil spill?
    Answer. BP has nearly a 30 year history and record of safe 
operation of pipelines in Alaska.
    Despite this experience, an unusual combination of circumstances 
and conditions resulted in localized, pitted corrosion in the oil 
transit lines at Prudhoe Bay. This corrosion was not detected by our 
corrosion monitoring efforts and resulted in the leaks that were 
discovered in March and August.
    The OT21 oil transit line in the Western Operating Area (WOA) was 
subjected to a program of monitoring, corrosion inhibition, inspection 
and repair. Under this monitoring and corrosion management program, the 
line was operated for 27 years without a spill or leak. Those tests and 
monitoring procedures were reviewed annually by regulators and 
consultants, and were thought to be appropriate. This line was also 
smart pigged twice (in 1990 and 1998) and after the last smart pig run 
in 1998, BP regularly inspected the OT21 line to monitor the status of 
corrosion. In 2004, BPXA's Corrosion Inspection and Chemicals Group 
(``CIC'') Group noted increased corrosion rates within the Gathering 
Center 2 facility. As a result of that observed increase, BPXA 
substantially increased the number of inspections in 2005, which led to 
the discovery of increased rates of corrosion within the oil transit 
lines between GC2 and Pump Station 1. As a result of this emerging 
data, BPXA scheduled a smart pig run for the OT21 line for 2006, but 
the March leak in the line occurred before the smart pig run could be 
executed.
    Protecting its operations against the harsh effects of corrosion 
present on the North Slope is accorded a high priority within BPXA. 
This is evident in the steadily increasing budgets for BPXA's CIC group 
over the last 5 years. BPXA deeply regrets that this leak occurred 
despite all of these efforts and expenditures. In retrospect, BPXA's 
program had a gap that allowed the corrosion in the oil transit lines 
to escape discovery until it resulted in the leaks in March and August. 
BPXA's corrosion monitoring programs will, therefore, be supplemented 
with additional use of cleaning and intelligent pigs in the future.
    Question 2. Some have argued that ifBP had pigged these pipelines 
this mishap could have been avoided. Others have accused BP of cutting 
corners to save on costs.
    In comparison to the overall costs associated with operating an oil 
field the size of Prudhoe Bay, how costly can it be to routinely run 
pipeline cleaning pigs and intelligence collecting pigs?
    Answer. BPXA routinely runs in excess of 370 pigs per year in our 
Prudhoe Bay operations. Pig runs vary in cost depending upon the type 
of operation being performed (cleaning vs. inspection) as well as the 
length of the pipeline segment. As a general rule, internal line 
inspection (i.e., smart) pigs cost between $15,000 and $20,000 per mile 
of pipe.
    The frequency of pig runs on the oil transit lines was not 
determined based on cost. It was based primarily on the results of 
prior pig runs, inspection and monitoring data, and engineering 
analyses, which, in the aggregate, indicated that the conditions of the 
oil transit lines did not warrant more frequent pig runs. Many other 
lines are routinely pigged on the North Slope by BPXA because they 
transport substances with a higher potential for corrosion and operate 
at high pressures that present greater risks to personnel and to the 
environment when corrosion events occur. We have found no indication 
that a recommendation to conduct a pig run was ever dismissed over 
concerns regarding its cost. BPXA further notes that over the last 5 
years, its maintenance and corrosion spend on Prudhoe Bay has increased 
by 45% while oil production has declined by 23%.
    Question 3. For some of those that are opposed to opening the 
Arctic National Wildlife Refuge, this situation has provided a new 
argument for not drilling in ANWR. How would you respond?
    Answer. This is the first spill from this line in the almost 30 
years that Prudhoe Bay has been in operation. BP deeply regrets its 
occurrence but we don't believe the ecological impacts of this incident 
supports suspension of development in the Arctic region. In all, the 
spilled crude oil impacted less than 2 acres of the North Slope. BPXA 
responded immediately and has expended significant efforts to remove 
the spilled oil and to begin the steps to restore this roughly 2-acre 
area. No animals were harmed by or exposed to the spilled oil before 
cleanup was complete. We will continue to monitor the area to assess 
any impacts to the tundra.
    BP believes that its response to the spills in the Eastern 
Operating Area reflects a commitment to the environment that should 
reassure those concerned about operating in the Arctic. In August, BPXA 
shut down its entire Prudhoe Bay eastern area operation because of our 
concern about possible impacts to the environment.
    Question 4. While visiting the North Slope 2 years ago, I had the 
opportunity to visit some of your facilities at Prudhoe Bay. Quite 
frankly, I was very impressed. As I recall, we were told at that time 
that BP has sufficient resources to sustain production for more than 30 
years.
    Wouldn't that make it prudent to invest more in maintaining 
delivery infrastructure?
    Answer. The Prudhoe Bay Unit presents complex and evolving 
conditions. Over the years, BPXA's maintenance and integrity management 
program has successfully identified and mitigated or addressed these 
complex challenges. Unfortunately, the recent incidents exposed a gap 
in that program, despite the fact that BPXA had devoted significant 
resources to it. Over the last 5 years, BPXA's inspection, corrosion 
inhibition and maintenance and corrosion management spend on Prudhoe 
Bay has increased by 45% while oil production has declined by 23%. Each 
year, additional resources are spent to repair or replace lines that 
are found to be no longer fit for service. For example, in April 2005, 
BP devoted substantial resources to replacing approximately 5000 feet 
of production pipe from Milne Point based on corrosion degradation that 
it discovered on the lines.
    BP is committed to closing the gap in our integrity management 
program and restoring public confidence in our Alaskan pipeline 
operations. We have announced plans to replace 16 miles of oil transit 
lines and BP has retained three of the foremost experts in the world on 
corrosion and infrastructure management to evaluate and make 
recommendations for improving the corrosion management program in 
Alaska. BP will apply their recommendations throughout its pipeline 
operations in the U.S.
    Further, BP has added an additional $1 billion to the $6 billion 
already earmarked to upgrade all aspects of safety at its U.S. 
refineries and for integrity management in Alaska. Over $550 million 
(net) will be spent on integrity management improvements in Alaska over 
the next two years.
    Question 5. Your testimony refers several times to your business 
partners in the Prudhoe Bay field. You stated that the costs and 
production are shared by nine companies.
    a. Who are the other companies?
    b. To what extent do the other companies participate in decisions 
made with respect to maintenance?
    Answer. Prior to 2000, the owners of Greater Prudhoe Bay included: 
Amerada Hess, ARCO, BPXA, Chevron, Exxon, Forest Oil, Mobil, Phillips 
and Texaco. After several recent company mergers and owner sales of 
their Prudhoe interests, the leasehold owners of the field are 
currently: ExxonMobil: 36.4%, ConocoPhillips: 36.1%, BP: 26.4% and 
ChevronTexaco: 1.2%.*
---------------------------------------------------------------------------
    * Equities add to 100.1% due to rounding.
---------------------------------------------------------------------------
    Budgets are agreed annually among the three major owners of Prudhoe 
Bay (ExxonMobil (36.4%), ConocoPhillips (36.1%), and BPXA (26.4%)) in 
November for the following year. (In August 2006, Forest Oil sold its 
share to ExxonMobil, ConocoPhillips and BPXA.) The Prudhoe Bay 
Operating Agreement requires BPXA as operator to put forward a 
preliminary budget in August and a final budget in October which the 
major owners approve in November. With the exception of emergency 
spending, the agreed budget constitutes a spending limit.
    Typically, discussions between the major owners begin in the second 
or third quarters of each year to evaluate the maintenance priorities 
and scope of work for the following year. As Operator, BPXA then 
formalizes the budget request in August and October. As Operator, BPXA 
generally has the authority to determine, on its own and without the 
agreement of the other owners, whether equipment and elements of the 
Prudhoe Bay Unit's infrastructure are safe to operate. Additionally, as 
the Operator of the unit, BPXA has authority to spend up to $1.25 
million on individual items without seeking the approval of the other 
owners. Items that require spending above this limit typically must 
receive approval from ExxonMobil and ConocoPhillips although there are 
provisions for emergency expenditures. Most major maintenance and 
repair items would require approval however.

       Response of Robert Malone to Question From Senator Thomas

    Question 1. BP has invested a significant number of dollars in my 
home state of Wyoming. The state has benefited from that investment and 
your company has profited. What are you doing in Wyoming to ensure that 
my state does not have to endure the consequences of irresponsible 
acts?
    Answer. BP believes that it is a responsible corporate citizen in 
all communities where it operates including Wyoming. BP has a core 
commitment to safety in its operations not only to provide a safe 
workplace for its employees but also to avoid any adverse impacts to 
its neighbors or the environment. BP's history of operating in Wyoming 
dates back to the early 1900's through our heritage companies. As one 
of the state's leading gas producers, BP continues to be a major 
contributor to Wyoming's economy where we contribute approximately $100 
million in state and local taxes.
    We have ongoing drilling and field improvement programs at the 
Jonah natural gas field and are expanding operations in the Wamsutter 
natural gas field. We will invest over $2 billion to double production 
from our acreage in Wamsutter. This multi-year drilling program is 
expected to increase BP's share of ultimate recovery from the field by 
450 million barrels of oil equivalent and increase our daily net 
production from 125 to 250 million standard cubic feet per day by the 
end of the decade. This will include drilling of 2,000 wells over the 
next 15 years and a two-year, $120 million technology field trial 
program which could lead to additional field development in the future.
    Recently, we took responsibility for cleaning up areas impacted by 
legacy refinery operations which facilitated the redevelopment of the 
site in concert with the State and local community. This site, now 
known as Platte River Commons, is a mixed-use development that 
comprises an office complex, an 18-hole golf course designed by Robert 
Trent Jones, an industrial development area, pedestrian trails and a 
whitewater course along the Platte River.
    At BP we take the privilege of developing natural resources 
seriously. We are guided by important environmental and business 
performance values and principles--our health, safety and environmental 
goals are to have no accidents and do no harm to people or the 
environment.
    In response to the spills in Alaska and other events, BP is taking 
affirmative actions to ensure that all BP operations throughout the 
United States are run in a manner that meets our operational 
expectations. For instance, we are currently reviewing our pipeline 
monitoring, maintenance and corrosion management practices. In doing 
so, we have retained three of the world's leading experts in corrosion 
and infrastructure management.
    These individuals will evaluate our existing systems and make 
recommendations for improving our operations. We will apply the 
relevant lessons learned from these reviews and the Prudhoe Bay oil 
transit line experience throughout our operations in the U.S.
                                 ______
                                 
      Responses of Steve Marshall to Questions From Senator Thomas

    Question 1. It is my understanding that the pig used in your 
transit lines during the early 90's produced faulty data. That 
particular model of pig, however, was subsequently taken off the market 
because it was poorly designed. Assuming you knew that the faulty data 
produced by that particular pig was the result of a faulty product and 
not a shortcoming of the pigging process itself, why then did BP not 
subsequently employ the use of a pig that actually worked?
    Answer. The event in question refers to a pig run that was 
conducted by ARCO Alaska when it was the operator of the Eastern 
Operating Area of Prudhoe Bay. Our knowledge of ARCO Alaska's historic 
operating practices is incomplete. BP has been informed by individuals 
who were employed by ARCO Alaska at that time that the pig that was 
used did not provide accurate data and subsequently was taken off the 
market. Our inquiry into these matters continues and has we learn more 
we will provide you with an update.
    BPXA operated the oil transit lines in the Western Operating Area 
since their installation and BPXA maintenance pigged and smart pigged 
those lines in 1990 and 1998. When BPXA took over the Eastern Operating 
Area from ARCO Alaska in 2000 and 2001, it substantially increased the 
level of corrosion monitoring on those lines and instituted a program 
of ultrasonic testing. BPXA then compared the results of that testing 
to the data it had developed on the Western Operating Area oil transit 
lines, which had been smart pigged two years earlier. The 1998 pigging 
of the Western Operating Area oil transit lines produced a very small 
volume of solids, revealed very little corrosion activity, and 
indicated that the lines were fit for service. Because the lines on the 
eastern side of the field were nearly identical and carried virtually 
identical sales quality crude oil, and because the ultrasonic test 
results were consistent with what BPXA obtained on the western side of 
the field, BPXA. concluded that the oil transit lines on the eastern 
side of the field were, likewise, free from either significant solids 
or corrosion and were fit for service. Therefore, BPXA did not believe 
a pig run of the Eastern Operating Area was necessary. Even with this 
increased scrutiny, in retrospect, and in light of what we have learned 
from this incident, we regret that we did not schedule a baseline pig 
run when BPXA assumed operations in 2001.
    Question 2. Your company is the operator in Prudhoe Bay and owns a 
26% share. ExxonMobil, ConocoPhillips, Chevron and Forest Oil Group 
control the remaining shares there. Its my understanding that the 
majors must agree on how much to spend on maintenance and how those 
dollars are spent. Can you please explain exactly how that process 
works and how those decisions are made? As operator of the field, do 
you have final say on how and where money is spent on maintenance or is 
there a more inclusive process in place?
    Answer. Budgets are agreed annually between the three major owners 
of Prudhoe Bay--ExxonMobil (36.4%), ConocoPhillips (36.1%), and BPXA 
(26.4%)--in November for the following year. The Prudhoe Bay Operating 
Agreement requires BPXA as operator to put forward a preliminary budget 
in August and a final budget in October which the major owners approve 
in November. With the exception of emergency spending, the agreed 
budget constitutes a spending limit.
    Typically, discussions between the major owners begin in the second 
or third quarters of each year to evaluate the maintenance priorities 
and scope of work for the following year. As Operator, BPXA then 
formalizes the budget request in August and October. As
    Operator, BPXA generally has the authority to determine, on its own 
and without the agreement of the other owners, whether equipment and 
elements of the Prudhoe Bay Unit's infrastructure are safe to operate. 
Additionally, as the Operator of the unit, BPXA has authority to spend 
up to $1.25 million on individual items without seeking the approval of 
the other owners. Items that require spending above this limit 
typically must receive approval from ExxonMobil and ConocoPhillips 
although there are provisions for emergency expenditures. Most major 
maintenance and repair items would require approval however.
                                 ______
                                 
        Response of Peter Davies to Question From Senator Thomas

    Question 1. The low-pressure pipelines involved in the Prudhoe Bay 
incident have generally been left un-regulated because of a belief that 
it is in the best interest of the companies that operate them, 
economically and otherwise, to maintain them. Can you explain the 
situation in Prudhoe Bay as a business decision? It must be more 
expensive to install a new pipeline than to clean the one that is 
already there, is it not?
    The costs of maintaining a pipeline, including any inspection or 
cleaning costs, are far less than installing a new pipeline. As a 
general rule, internal line inspection (i.e., smart) pigs cost between 
$15,000 and $20,000 per mile of pipe. In retrospect, maintenance and 
smart pigging these lines some time before 2006 would have been the 
right thing to do.
    However, the oil transit lines in the Western Operating Area were 
pigged in 1998, two years before the ARCO merger, and follow-up 
inspection using ultrasonic techniques had confirmed the results of the 
testing. The observed corrosion rates in both oil transit lines were 
within ranges for safe operation. Moreover, the documents from 1998 
suggest that only a small amount of solids were recovered in connection 
with the pigging of the oil transit line in the western operating area.
    It was the judgment of the BPXA CIC group that the oil transit 
lines did not pose a high risk of aggressive corrosion that would lead 
to the type of pitting that actually occurred. The important 
considerations include the fact that they transport processed oil (from 
which the water has largely been removed) and which do not present the 
same high corrosion risk as other fluids on Prudhoe Bay (i.e., three-
phase fluids); the data being developed on a yearly basis from the 
coupons (the corrosivity of the fluid) and through the ultrasonic 
testing that did not show high corrosion rates; and from the data about 
the amounts of solids in the line after the 1998 pigging.
    When ultrasonic inspection in 2004 found some increasing rates of 
corrosion in pipelines within GC2 that carried processed oil, BPXA 
significantly expanded its inspection program for the oil transit lines 
in the western operating area to monitor for corrosion.
    When that inspection determined that there were increasing rates of 
corrosion within the line, BPXA scheduled a smart pig for 2006. 
Unfortunately, the leak occurred before this pig run was conducted.
    As a result of these incidents, BP has announced that it will 
replace 16 miles of oil transit lines.
                                 ______
                                 
     Responses of Kevin Hostler to Questions From Senator Domenici

    Question 1. Since the Trans Alaska Pipeline System provides a 
significant percentage of America's energy security and will for some 
time to come, do we need to be worried that the TAPS line is also 
developing serious corrosion problems?
    Answer. No. As referenced in our testimony to the committee, we 
have not seen indications of accelerated corrosion on TAPS. Adverse 
conditions on any one line connecting into TAPS are partly mitigated 
because the oil from all of the fields is-combined at Pump Station One. 
Further, Alyeska Pipeline Service Company maintains a corrosion control 
program that is part of our overall Integrity Management Program (IMP) 
and uses multiple techniques to prevent, identify, and repair corrosion 
in the mainline, storage tanks throughout the system, and pump station 
and terminal piping. This IMP is audited by the U.S. Department of 
Transportation Office of Pipeline Safety and monitored annually by the 
Joint Pipeline Office. Our top priority is safe operations and 
maintenance of this asset.
    Question 1a. What is your primary issue with respect to managing 
corrosion and other pipeline integrity matters on the TAPS system?
    Answer. Managing corrosion, as part of overall integrity management 
program, is critical for the future operation of TAPS. Our primary 
corrosion issues on TAPS are external corrosion on the mainline and 
internal corrosion in facilities piping, both at the pump stations and 
at the Valdez Marine Terminal. Alyeska uses cathodic protection for the 
below ground segments of the pipeline. We are currently working with 
the DOT to resolve low cathodic protection performance in the last 
southern 20 miles of the pipeline. For our facilities piping, Alyeska 
is reviewing our inspection practices to determine if we need to change 
our monitoring approach for some of the harder to reach facility 
piping. For example, we are conducting inspection digs at PS 1 this 
Fall to examine a buried line that connects the Prudhoe Bay field into 
TAPS. We are also reviewing corrosion inspection practices at the 
Valdez Marine Terminal.
    Alyeska runs instrumentation pigs through the pipeline to gather 
data about corrosion, mechanical damage, pipe curvature, and 
settlement. We use the data from all instrument pig runs to make 
calculations about investigating the integrity of the pipeline. When we 
find an anomaly that exceeds one of seven criteria (e.g., wall loss, 
remaining strength, curvature, dents, gouges) listed in our Pipeline 
Integrity Pigging Procedure (MP-166-3.04, Table 1), we schedule the 
location for inspection. These physical investigations then help us 
determine if repairs or some other remedy is required to address the 
anomaly. In many cases, our criteria are more conservative than 
required by regulation (e.g., Alyeska digs corrosion calls greater than 
40% whereas DOT regulations require investigation at 50% because the 
corrosion pig error tolerance is +/^10%).
    We continue to challenge ourselves to ensure we are taking the 
appropriate steps to manage corrosion on TAPS. Going forward we have 
taken the lessons learned from the North Slop incidents and are 
incorporating them into our integrity management program. It should be 
noted that security and mechanical damage remain greater threats to 
system integrity than corrosion. Both are important pieces of our 
overall integrity management program.
    Question 1b. When was the last time TAPS had a smart pig 
inspection?
    Answer. We concluded our 61st instrumentation pig run on September 
1e, 2006. We had previously planned on running this pig in 2007 and 
made the decision to move it up on year as part of the action plan we 
prepared after the March spill on the North Slope. As a result of 
waxing issues associated with lower throughput, we did not meet our 
data standards for this pig run (on the southern part of the line) and 
plan to repeat it in late October if BP is able to restore full 
production-by then. In addition to corrosion pigs, Alyeska runs 
instrumentation pigs that look for pipe curvature and settlement. 
Alyeska also runs a cleaning pig every seven to fourteen days.
    Question 1c. What does it cost to run a smart pig through TAPS?
    Answer. Cost is primarily determined by length of the pig run. For 
TAPS, it costs approximately $2 million dollars to run a smart pig the 
entire 800 miles. This includes staff time, pig transit time, and data 
analysis.
    Question 2. With diminishing amounts of oil coming through TAPS, 
does this create technical problems in your operation of the line?
    Answer. Should short term throughput drop below 500,000 barrels per 
day (as a result of additional suspension of production on the North 
Slope) under our current configuration, we will face technical 
challenges. Our engineering and technical staff are currently analyzing 
the impacts of these challenges could present. Among the more 
significant issues we are evaluating are: the challenges associated 
with cooler temperatures of the oil, particularly in winter, and the 
potential for water and paraffin drop out from the oil; the potential 
for increased vibration due to slack line conditions at the three 
mountain passes the pipeline must cross; and the efficiency of the 
biological treatment process of our ballast water plant because of 
lower ballast water flows due to reduced tanker traffic to the Valdez 
Marine Terminal. Alyeska has some of the best technical resources 
available for analyzing these conditions. We are also establishing 
appropriate mitigation plans for my management team to consider. It is 
worth noting that our $500 million dollar pipeline upgrade project will 
introduce significantly more flexibility into our ability to manage 
through variations in pipeline throughput.
    Once full production has been restored on the North Slope, Alyeska 
will continue with its long range planning process to identify and 
address operational challenges associated with the slow decline of 
North Slope production.
    Question 3a. There are many concerns that have been raised about 
the pipeline shutting down in the dead of winter for a significant 
period of time.
    What contingency plans do you have for restarting the pipeline and 
dealing with the impacts from cold weather?
    Answer. Alyeska has had contingency plans in place to restart the 
pipeline in the event of a cold restart situation since operations 
began in 1977. Cold restart refers to restarting the pipeline after a 
pipeline shutdown for a prolonged period of time during extremely cold 
winter conditions. Our current studies and plan indicate that if the 
pipeline is shutdown during continuous ^40 F temperatures, we will 
need to restart within 14 days to avoid significant problems. If BP 
reduces throughput this winter to 500,000 barrels or less, we may only 
have 9 days to restart after a cold temperature shut down.
    There are four issues about cold restart that concern us: the crude 
oil develops a gel strength that is too strong to allow pipeline start-
up; water drops out of the crude oil, collects in low spots, and 
freezes; ice in the pipeline upon restart could plug the mainline pump 
suction piping and custody transfer flow meter strainers, causing 
restart to fail; and the pipe steel temperature cools to ^40 F or ^50 
F, making pipe welds susceptible to fracture. Given the current lower 
throughputs that we're faced with for this winter, we have also 
undertaken a full effort to insure we are prepared for any situation 
this winter. Alyeska is evaluating whether some contingency piping 
should be preinstalled due to a shorter restart window as a result of 
colder oil temperatures.
    I'm including a fact sheet we prepared about this issue for your 
review. It's important to stress that we are continuously evaluating 
our cold restart plan. We work on this issue with the Joint Pipeline 
Office. It's also worth nothing that in nearly 30 years of operation we 
have never needed to enact our cold restart plan. The longest the 
pipeline was shutdown was during the November 2002 earthquake when the 
system was down for 66 hours.
    Question 4. The primary federal agency that oversees TAPS is DOT.
    Answer. As part of the regulatory framework established by the 
passage of the Trans Alaska Pipeline Authorization Act and the 
establishment of the Federal Grant of Right of Way (the state manages 
their piece of the TAPS corridor via the State Lease of Right of Way), 
the Bureau of Land Management also has a significant role to play in 
the oversight of TAPS as the lead agency for the Joint Pipeline Office. 
The JPO mission is to ensure the safety, integrity and environmental 
protection of TAPS. The BLM also coordinates agency regulatory activity 
within the JPO.
    Question 4a. How rigorous and detailed has their oversight been?
    Answer. DOT oversight of TAPS is consistently rigorous and 
detailed. TAPS has been subject to rigorous inspections and audits by 
the DOT. The DOT has conducted an inspection of Alyeska's Integrity 
Management Program three of the past four years (2002, 2004, 2005); and 
an additional inspection is scheduled for October.
    Standard DOT inspections have taken place every year (most 
pipelines are inspected every two years), with additional inspections 
occurring for such items in the recent past as Integrity Management and 
Operator Qualifications. Notices of Amendment (requests to change our 
procedures) or Probably Violation (failure to follow regulation) 
usually result. During standard inspections, TAPS has been divided into 
4 or 5 sections, with a week spent in each segment. TAPS operations and 
maintenance practices were inspected via a task force in August. This 
group will review findings and recommendations with Alyeska as their 
work is completed.
    DOT also conducted a routine inspection of the TAPS SCADA and 
Controls systems and the Operations Control Center (OCC) in September.
    Question 5. How many other State or Federal agencies provide 
oversight?
    Answer. Over 60 federal, state, and local agencies provide some 
level of oversight on TAPS activities. The activities of 12 major 
oversight agencies (the Alaska Department of Natural Resources, Alaska 
Department of Environmental Conservation, Alaska Department of Fish and 
Game, Alaska Department of Public Safety Division of Fire Prevention, 
Alaska Department of Transportation and Public Facilities, Alaska 
Department of Labor and Workforce Development, the Bureau of Land 
Management, the Department of Transportation Office of Pipeline Safety, 
and U.S. Army Corps of Engineers, the U.S. Coast Guard, the Minerals 
Management Service, and the Environmental Protection Agency) are 
coordinated through the JPO. The JPO currently has approximately 70 
full time staff employees. On average, Alyeska receives four or five 
letters from a government agency each work day.
    Question 5a. Has the Joint Pipeline Office arrangement (in which 12 
agencies regulate activities of the Trans Alaska Pipeline System) been 
effective in overseeing the 800 miles of 48 inch pipeline?
    Answer. Yes, the JPO has been very effective in its oversight role 
for TAPS. JPO staff understand TAPS operations and the oversight role 
they perform. Alyeska and the JPO work to resolve issues in a proactive 
manner before they become problems. The JPO performed 689 surveillances 
in 2005 (406 YTD 2006) related to Grant & Lease compliance. 
Approximately 3% of their findings were unsatisfactory, requiring 
corrective action by Alyeska.
    Question 6. I understand that TAPS is in the middle of changing its 
pumps and modernizing its control system to meet its needs for the 
future.
    What are you doing to insure that this updated system will work as 
effectively as the system being replaced that has delivered 15 billion 
barrels of crude oil?
    Answer. Alyeska is in the process of a nearly $500 million dollar 
upgrade to its pump stations and control systems that is designed to 
help the company better manage future variation in throughput. It is 
designed to maintain high pipeline reliability--the time that the 
system is available to receive and transport crude oil--with no 
decrease in safety or operational integrity.
    Four of the critical pump stations will be upgraded with modular, 
scalable facilities. The design provides more flexibility to adjust for 
changing crude oil forecasts, and allows those adjustments to be made 
more easily. The installation of electrically driven pumps, modem 
automation and control equipment, and other facilities will allow 
centralized remote monitoring and unattended operations creating a 
simplified, fit-for-purpose system that is less expensive to operate. 
In addition, maintenance requirements for the new equipment will be 
much less than that required for the current equipment. Maintenance of 
the equipment that employs a high degree of monitoring increases 
equipment reliability. We have a very detailed commissioning and start 
up plan that we will follow to ensure the new equipment will work as 
designed. We will not start up the new system until we are confident it 
will meet safety, integrity, and reliability criteria.
    Our current schedule is to start up the new facilities at Pump 
Station 09 by December of this year and then to complete construction 
and start up of the other three stations next year.

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