    [Senate Hearing 111-1241]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 111-1241

                    LEGISLATIVE HEARING TO CONSIDER S. 3305

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

                                    HEARING

                                   before the

                                  COMMITTEE ON
                          ENVIRONMENT AND PUBLIC WORKS
                              UNITED STATES SENATE

                         ONE HUNDRED ELEVENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  JUNE 9, 2010

                                   __________

      Printed for the use of the Committee on Environment and Public Works

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                   COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                         ONE HUNDRED ELEVENTH CONGRESS
                                 SECOND SESSION

                      BARBARA BOXER, California, Chairman
    MAX BAUCUS, Montana                  JAMES M. INHOFE, Oklahoma
    THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
    FRANK R. LAUTENBERG, New Jersey      DAVID VITTER, Louisiana
    BENJAMIN L. CARDIN, Maryland         JOHN BARRASSO, Wyoming
    BERNARD SANDERS, Vermont             MIKE CRAPO, Idaho
    AMY KLOBUCHAR, Minnesota             CHRISTOPHER S. BOND, Missouri
    SHELDON WHITEHOUSE, Rhode Island     LAMAR ALEXANDER, Tennessee
    TOM UDALL, New Mexico
    JEFF MERKLEY, Oregon
    KIRSTEN GILLIBRAND, New York
    ARLEN SPECTER, Pennsylvania

                        Bettina Poirier, Staff Director
                     Ruth Van Mark, Minority Staff Director

                                C O N T E N T S

                                  ----------
                                                                       Page

                                  JUNE 9, 2010
                               OPENING STATEMENTS

    Boxer, Hon. Barbara, U.S. Senator from the State of California...     1
    Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...     2
    Lautenberg, Hon. Frank R., U.S. Senator from the State of New
      Jersey.........................................................    13
    Vitter, Hon. David, U.S. Senator from the State of Louisiana.....    13
        Additional statement.........................................    29
    Cardin, Hon. Benjamin L., U.S. Senator from the State of Maryland    15
    Bond, Hon. Christopher S., U.S. Senator from the State of
      Missouri.......................................................    18
    Baucus, Hon. Max, U.S. Senator from the State of Montana.........    19
    Alexander, Hon. Lamar, U.S. Senator from the State of Tennessee..    20
    Merkley, Hon. Jeff, U.S. Senator from the State of Oregon........    21
    Whitehouse, Hon. Sheldon, U.S. Senator from the State of Rhode
      Island.........................................................    22
    Carper, Hon. Thomas R., U.S. Senator from the State of Delaware..    23
    Klobuchar, Hon. Amy, U.S. Senator from the State of Minnesota....    24
    Menendez, Hon. Robert, U.S. Senator from the State of New Jersey.    26
    Nelson, Hon. Bill, U.S. Senator from the State of Florida........    28

                                   WITNESSES

    Minich, D. T., Executive Director, Visit St. Petersburg-
      Clearwater.....................................................    34
        Prepared statement...........................................    36
        Response to an additional question from Senator Boxer........    43
        Responses to additional questions from Senator Carper........    44
    Frenette, Mike, Captain, Venice Charter Fishing..................    45
        Prepared statement...........................................    48
        Response to an additional question from Senator Boxer........    52
        Responses to additional questions from Senator Carper........    53
    Kopchak, R. J., Cordova District Fishermen United and Prince
      William Sound Science Center...................................    55
        Prepared statement...........................................    57
        Response to an additional question from:
            Senator Boxer............................................    62
            Senator Carper...........................................    63
    Murchison, Kenneth M., Professor, Paul M. Hebert Law Center,
      Louisiana State University.....................................    64
        Prepared statement...........................................    66
        Response to an additional question from Senator Boxer........    79
        Responses to additional questions from:
            Senator Carper...........................................    80
            Senator Whitehouse.......................................    82
    Hartman, Barry M., Partner, K&L Gates............................    84
        Prepared statement...........................................    86
        Responses to additional questions from:
            Senator Carper...........................................    94
            Senator Whitehouse.......................................    95
            Senator Inhofe...........................................    98
    Baron, Ron, Executive Vice President, Willis Global Energy,
      Willis of Texas, Inc...........................................   100
        Prepared statement...........................................   102
        Responses to additional questions from Senator Carper........   109

                              ADDITIONAL MATERIAL

    Bill submitted by Senator David Vitter, the Acceptance of Offer
      on Liability and Expedited Claims at Mississippi Canyon 252 Act   147
    Deepwater Operations in the Gulf of Mexico by Company Size, data
      compiled by the Office of Senator Robert Menendez..............   187
    Westlaw information on Ballard Shipping Company etc. v. Beach
      Shellfish et al................................................   196

                    LEGISLATIVE HEARING TO CONSIDER S. 3305

                                  ----------

                            WEDNESDAY, JUNE 9, 2010

                                           U.S. Senate,
                     Committee on Environment and Public Works,
                                                        Washington, DC.
        The full Committee met, pursuant to notice, at 10:30 a.m.
    in room 406, Dirksen Senate Office Building, Hon. Barbara Boxer
    (Chairman of the full Committee) presiding.
        Present: Senators Boxer, Inhofe, Baucus, Bond, Voinovich,
    Carper, Lautenberg, Alexander, Vitter, Cardin, Klobuchar,
    Whitehouse, Udall, and Merkley.

               OPENING STATEMENT OF HON. BARBARA BOXER,
               U.S. SENATOR FROM THE STATE OF CALIFORNIA

        Senator Boxer. The Committee will come to order.
        Today, we will hear from fishermen, tourism officials, and
    legal experts about the drastic and heartbreaking economic
    damages caused by a significant oil spill and the need to pass
    legislation to ensure that the people whose jobs and
    livelihoods are impacted are made whole again.
        Several of us sitting here represent coastal States, and as
    we watch this we have the strongest of feelings about what it
    would mean if it happened in our State. And we have the
    strongest of feelings as to what it would mean to our
    fishermen, to our people who run tourism businesses and
    recreation businesses, and to our wildlife. So our hearts are
    in this hearing.
        I want to thank all the dedicated people who are now in the
    Gulf responding to the current disaster. This includes 17,500
    National Guard troops, more than 20,000 people sent by
    President Obama, and countless State and local officials who
    are working day and night to protect and clean up the coast.
        As Chairman of this Committee, I want to unequivocally
    state that I want to make available as many people as it takes
    to clean up this mess with BP paying the bill as is required by
    current law. But as we know from previous oil spills, the road
    to recovery can be long and arduous. The Exxon Valdez spill
    showed how protracted and painful this experience can be.
    Listen to this history.
        On March 24, 1989, shortly after midnight, the oil tanker
    Exxon Valdez struck a reef in Prince William Sound, Alaska,
    spilling more than 11 million gallons of crude oil, which
    eventually contaminated 1,300 miles of shoreline. The spill
    decimated fisheries and ended the lives of thousands that
    depended on the precious natural resources in Prince William
    Sound.
        Exxon reached a settlement agreement for $900 million to
    restore injured natural resources over a period of 10 years.
    But more court cases followed, and Exxon continued to
    successfully fight the court's ruling of an additional $5
    billion to Alaska fishermen, natives, and businesses. In 2006
    an Appeals Court cut this to $2.5 billion. And in 2008, nearly
    20 years, 20 years after the spill, the case wound its way to
    the Supreme Court, who cut the amount Exxon owed even further
    to $507 million. After two decades of waiting, each plaintiff
    received $15,000.
        Exxon successfully fought to minimize the economic damages
    it paid after the spill, leaving many without adequate
    compensation. And while the court cases played out, the impact
    of the oil spill continued. The Prince William Sound herring
    fishery has been closed for the majority of the 21 years since
    the spill, 21 years. Further, surveys conducted since 2001
    indicate that as much as 21,000 gallons of oil remain on the
    coasts of Prince William Sound.
        Congress responded to Exxon Valdez by enacting the Oil
    Pollution Act of 1990, which included reforms, but it had
    serious shortcomings. Recent events make that clear. The Oil
    Pollution Act says that the party responsible for a spill at an
    offshore facility only has to pay $75 million for economic and
    natural resources damages. This is a recipe for another
    horrible, unfair, and long road.
        In the wake of the disaster in the Gulf, we must act.
    Already businesses are complaining that BP is not acting on
    claims. Coming from California, where our coastal tourism,
    recreation, and fishing ocean economies generate $23 billion in
    economic activity and support 388,000 jobs, I believe it is
    critical that we protect those whose jobs and livelihoods could
    be devastated by a spill that was no fault of their own.
        Shielding companies from responsibility for damages sends
    the wrong signal. If anything it increases the risk to the
    public. If you or I, colleagues, or anyone in the audience,
    members of the press, any of us, got into an accident that we
    caused, we are responsible for all the damages. No caps in that
    case, and there should be no caps in this case.
        The law should be clear that the polluter pays for the
    damages they cause, period.
        I look forward to the testimony from our witnesses today,
    and I call on my distinguished Ranking Member, Senator Inhofe.

              OPENING STATEMENT OF HON. JAMES M. INHOFE,
                U.S. SENATOR FROM THE STATE OF OKLAHOMA

        Senator Inhofe. Thank you, Madam Chairman.
        I am glad we scheduled this hearing today because it will
    be an example to see how complex this whole thing is. On May 27
    President Obama held a press conference to explain his role in
    addressing the BP spill. He said, ``This Administration is
    relying on every resource and every idea, every expert, every
    bit of technology to work to stop it. We will take ideas from
    anywhere and we are going to stop it.''
        When I heard this, I thought, that is great, Mr. President.
    You are focused on the right thing that you should be focused
    on. Of course, we in Congress need to do the same, as I have
    said during the previous hearings. Congress should focus on
    three priorities. We need to mitigate and contain the
    environmental impacts, provide assistance to the Gulf's
    affected commercial and recreational industry, and investigate
    the causes so that we can prevent an accident of this kind from
    happening again.
        That is essentially what the President initially said
    before emotion starting rising in this thing. Staying focused
    will help us to make the prudent decisions. I think we all
    agree on that. This is why I was discouraged when President
    Obama in the same press conference veered off course, and he
    said the spill occasioned passage of the global warming
    legislation. He referred prudently to the Waxman-Markey bill,
    the cap and trade bill that the House had passed last year.
        Now this raises the obvious question. How would cap and
    trade, a massive energy tax on consumers, stop the spill? How
    would it clean up the spill? How would it help those affected
    by the spill? And how would it help us determine what happened
    so that we can prevent this from happening again? The answer is
    it wouldn't, but it makes great theater. And so we have had a
    lot of that.
        So I respectfully call on President Obama and my colleagues
    here in the Senate to concentrate on fixing the problem. Let's
    avoid getting sidetracked by cap and trade and other issues
    that will needlessly complicate the efforts in addressing the
    real problem.
        We do have a lot of people right now who are trying to use
    this very tragic situation to advance their own agendas. Since
    the Chairman mentioned the Exxon Valdez, I recall that, Madam
    Chairman, when that happened, I was in the House on the
    appropriate committee, and so I actually went up there. When I
    got there, this horrible thing that took place, some of the far
    left environmental extremists were celebrating. They were
    actually celebrating that it happened. And I said, why would
    you do this? Well, because we are going to parlay this into
    stopping any kind of exploration or drilling on the North
    Slope. And they attempted to do that.
        And I said, wait a minute. The Exxon Valdez was not an
    exploration. It was not a drilling accident. It was a
    transportation accident. If you stop the drilling, stop our
    ability to produce and export our own resources, we are going
    to have to be reliant upon foreign countries, and so
    transportation would play a much larger role. Nonetheless, we
    are seeing a lot of that happen now.
        And I would say this. I think we should avoid overreaching.
    This thing was really tragic. People died. People's economic
    livelihoods are at stake, as the Chairman said, and the
    environment is being harmed. But I am concerned that the
    President's moratorium on deepwater drilling could harm the
    economy in the Gulf, as I am sure Senator Vitter will talk
    about. The Louisiana Department of Economic Development
    estimates that the President's active drilling suspension alone
    will result in the loss of 3,000 to 6,000 Louisiana jobs in the
    next few weeks and over 10,000 in the next few months.
        So today's hearing on S. 3305 is a welcome step, Madam
    Chairman.
        Senator Boxer. Thank you.
        Senator Inhofe. I am not through yet.
        Senator Boxer. Oh, so sorry.
        Senator Inhofe. Two weeks ago, I had to object twice to a
    unanimous consent agreement to debate 3305 on the floor. We
    hadn't had a hearing on it, and that is one of the reasons that
    I objected. This bill involves complex issues that must be
    understood before we act. If we get it wrong, we can set back
    this Nation's energy future for decades.
        Now, why do I say that? Well, it is what the experts are
    telling us. In a recent letter from the Alliant Insurance, they
    said insurers offshore in gas operations sums it up well: ``If
    the liability cap is increased to levels we understand are now
    under consideration, in our view only the major oil companies
    and the NOCs,'' that is the national oil companies, and we are
    talking about China and Venezuela and some of the rest of them,
    ``would be in a position to do this.''
        Now, I would go so far as to say--and I am not quoting them
    when I say this--that if we remove the caps altogether, even
    the big five who would be self-insuring--I think all of them
    self-insure--would not be able to cover it. So we would be
    completely reliant upon China and Venezuela and the national
    oil companies, the only ones who could actually handle an
    unlimited cap.
        So I think we need to look at this thing and to approach it
    logically and not emotionally. And I think we have some good
    witnesses today that are going to shed some light on this.
        Thank you, Madam Chairman.
        [The prepared statement of Senator Inhofe follows:]

                      Statement of Hon. James M. Inhofe,
                    U.S. Senator from the State of Oklahoma

        Thank you, Madam Chairman, for scheduling today's hearing
    to examine the complex issues surrounding the strict liability
    limits in the Oil Pollution Act of 1990.
        On May 27 President Obama held a press conference to
    explain his role in addressing the BP spill. He said his
    Administration is ``relying on every resource and every idea,
    every expert and every bit of technology, to work to stop it.
    We will take ideas from anywhere, but we are going to stop
    it.''
        When I heard this, I thought, ``That's great, Mr.
    President; you're focused on exactly what you should be focused
    on.'' Of course, we in Congress need to do the same. As I've
    said during previous hearings, Congress should focus on three
    priorities. We need to:
         Mitigate and contain the environmental impacts;
         Provide assistance to the Gulf's affected commercial and
    recreational industries; and
         Investigate the causes so we can prevent a disaster of
    this kind from happening again.
        Staying focused will help us make prudent decisions. Which
    is why I was discouraged when President Obama, in the same
    press conference, veered off course: he said the spill
    occasioned passage of global warming legislation. He referred
    approvingly to the Waxman-Markey cap-and-trade vote in the
    House last year.
        This raises obvious questions: How would cap-and-trade, a
    massive energy tax on consumers, stop the spill? How would it
    clean up the spill? How would it help those affected by the
    spill? And how would it help us determine what happened so we
    can prevent it from happening again?
        Well, it wouldn't. So I respectfully call on President
    Obama--and my colleagues here in the Senate--to concentrate on
    fixing this problem. Let's avoid getting sidetracked by cap-
    and-trade or other issues that will needlessly complicate
    efforts to address real problems.
        And I would add this: let's avoid overreaching. Now this
    incident is serious--people died, people's economic livelihoods
    are at stake, and the environment is being harmed. But I am
    concerned that the President's moratorium on deepwater drilling
    could harm the economy in the Gulf. The Louisiana Department of
    Economic Development estimates that the President's active
    drilling suspension alone will result in a loss of 3,000 to
    6,000 Louisiana jobs in the next few weeks and over 10,000
    Louisiana jobs in the next few months. More than 20,000 jobs
    are at risk over the next 12 to 18 months.
        So, today's hearing on S. 3305 is a welcome step, Madam
    Chairman. Two weeks ago I had to object twice to unanimous
    consent agreements to debate S. 3305 on the floor. We hadn't
    had a hearing on it--that's one of the reasons I objected. This
    bill involves complex issues that must be understood before we
    act. If we get this wrong, we could set back this Nation's
    energy future for decades.
        Now why do I say that? Well, it's what the experts are
    telling us. A recent letter from Alliant Insurance, which
    insures offshore oil and gas operations, sums it up well:
        ``If the liability cap is increased to the levels we
    understand are under consideration . . . in our view only major
    oil companies and NOCs (National Oil Companies) will be
    financially strong enough to continue current exploration and
    development efforts.''
        This letter was in reference to S. 3305's $10 billion
    liability cap on economic damages. The insurers believe smaller
    U.S. independent producers won't be able to drill with that
    limit. And bear in mind that ``National Oil Companies'' means
    those that are state-owned, such as the Chinese Offshore Oil
    Corporation. Do we really want China drilling in place of
    America's independent producers?
        Alliant is not alone in holding this view. Consider this
    statement from INDECS insurance consultancy: ``If we have
    understood the proposals correctly, then it would appear to us
    that the proposed bill will not act as `Big Oil Bailout
    Prevention Liability Act of 2010', rather making it impossible
    for anyone other than `Big Oil' to operate.'' I ask that this
    letter be submitted for the record. Lockton Companies insurance
    brokerage has said much the same thing: ``Without insurance,
    many of the active exploration and production companies would
    be unable to operate in the Gulf of Mexico. This decision will
    affect thousands of people, their families, and their local
    economies.'' I ask that this letter be submitted for the
    record.
        Madam Chairman, our response to this tragedy should be
    measured, and it should be based on facts. How we respond could
    have far reaching consequences for the Gulf and the Nation.
    There's simply too much at stake to get this wrong.

        [The referenced letters follow:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Senator Boxer. Thank you so much.
        I am sorry. I thought you were through.
        Senator Inhofe. No, that is all right.
        Senator Boxer. Senator Lautenberg.

            OPENING STATEMENT OF HON. FRANK R. LAUTENBERG,
               U.S. SENATOR FROM THE STATE OF NEW JERSEY

        Senator Lautenberg. Thank you, Madam Chairman.
        What a difference in perspective, because I was up in
    Alaska the third day that the Valdez was foundering, and I saw
    people crying. I didn't see people celebrating. I saw people
    brokenhearted about what was happening to the wildlife and to
    the fish supply and to the life that people had experienced
    before.
        And we shouldn't start any hearings here without extending
    our condolences to the families who lost loved ones. They paid
    a price for mismanagement that is irreparable.
        We saw, as the Chairman so eloquently explained, what
    happened with Exxon with their $5 billion punitive damage fine.
    And they whittled it away, spent the money for the lawyers, and
    20 years later they got the $5 billion fine down to a $500
    million fine. Incredible, when in years since then they have
    earned billions and billions of dollars in a quarter.
        And let's look at this thing realistically. Fishermen,
    crabbers, boaters, they don't want a check or a handout. They
    want to continue a way of life that in many cases has gone on
    for generations so they can work to take care of their
    families. And that is why I want to make one thing clear. I
    will not stand for offshore drilling anywhere that can affect
    my State of New Jersey or my nearby States because the
    spillover is obvious.
        We have to pass energy legislation that prevents spills
    from happening by making the polluters pay. Pretty simple.
    Impose tighter regulations on existing drilling, placing a
    moratorium on offshore drilling in new areas, and investing in
    clean energy. But I am never going to stand silently on the
    beaches of my State that contribute $50 billion to our State's
    economy and watch the funeral march of oil bearing down on my
    home State of New Jersey.
        And that is why I will not support any bill that puts New
    Jersey at risk by allowing drilling in the Atlantic, and in
    order to do that we have to make sure that companies large or
    small, if they make big mistakes, big management mistakes, as
    BP has, that they pay the price, regardless of the size of
    their company.
        And I look forward to hearing our witnesses and hear what
    they say about the results of this.
        Thank you.
        Senator Boxer. Thank you, Senator.
        Senator Vitter.

                OPENING STATEMENT OF HON. DAVID VITTER,
                U.S. SENATOR FROM THE STATE OF LOUISIANA

        Senator Vitter. Thank you, Madam Chair.
        This oil spill liability issue is extremely important, so
    thank you for the hearing on that. But as you know, this
    hearing has been styled specifically on one precise bill, S.
    3305, by Senator Menendez and others, and I have no problem
    talking about that bill.
        But when I understood this, I immediately wrote you and
    requested that as a member of the Committee from the single
    most affected State by the ongoing disaster-- and it is an
    ongoing crisis and an ongoing disaster--I wrote and said I have
    a bill directly on point that lifts all liability caps on BP
    for this event, but also sets up an expedited claim process.
    And Senator Murkowski was instrumental in that portion of the
    bill. And I requested that this hearing and discussion be
    broadened to include that bill, S. 3461.
        After making multiple attempts to reach out to you
    following up on that letter, we finally talked last night, and
    you agreed it would be appropriate and appropriate for me to
    make the UC request so that I can join Senators Menendez and
    Nelson in the first panel and also present S. 3461, which would
    lift the entire liability cap on BP for this disaster and also
    set up an expedited claim process.
        This, by the way, has been completely cleared on the
    Republican side, so we could literally move on this as it
    pertains to this ongoing disaster and ongoing crisis
    immediately if we can get it cleared through the Senate. So I
    would make that unanimous consent request so that we can have
    that fuller discussion.
        Senator Whitehouse. I am sorry. I didn't understand the
    unanimous consent request.
        Senator Boxer. Do you want to repeat it?
        Senator Vitter. It is simply that I be allowed to join our
    colleagues in the first panel so that I can also present S.
    3461, which is my bill to completely remove the liability cap
    on BP for this event and to set up an expedited claim process
    for this event. This bill has been cleared on the Republican
    side and could actually be passed immediately.
        Senator Whitehouse. The UC is just to present that?
        Senator Vitter. Correct.
        Senator Whitehouse. OK.
        Senator Boxer. Senator, I am going to slightly amend your
    request because as you know, we just got your bill this
    morning. Our staff just got a copy of it. It is 40 pages, and I
    haven't seen it. It hasn't been noticed. So what I am going to
    suggest is that I ask unanimous consent that any and all
    members of this Committee have the opportunity today to discuss
    any and all legislation relevant to the Menendez bill.
        Senator Vitter. I have no problem with that if I can join
    my colleagues at the table to be able to present 3461. Assuming
    that is incorporated in your request, I certainly agree.
        Senator Boxer. Let me reiterate. It is definitely
    incorporated. People can sit here or sit there.
        Do you have a problem with where people sit? We don't. So I
    will just reiterate to be clear.
        This hearing is about the Menendez bill, but any and all
    members have the right to discuss their legislation or any
    relevant legislation to the Menendez bill.
        Senator Lautenberg. Within the time constraints, Madam
    Chairman?
        Senator Boxer. Within the time constraints, that is
    correct.
        All right. Now, we are going to move forward.
        I believe Senator Cardin is next. Yes.

             OPENING STATEMENT OF HON. BENJAMIN L. CARDIN,
                U.S. SENATOR FROM THE STATE OF MARYLAND

        Senator Cardin. Thank you, Madam Chair. Let me thank you
    for this hearing.
        I know you pointed out yesterday was World Ocean Day. I
    know my friend from Rhode Island is fully aware of that, but we
    really do celebrate the importance of our oceans for seafood,
    for recreation, for sea lanes for transportation. And all of
    that has been brought into real question as a result of the
    Deepwater Horizon spill.
        I agree with our Chair that our first obligations must be
    to stop the spill and to do the mitigation, and that has got to
    be our first priority. You also need to hold BP responsible, as
    they said they would be, but to make sure that they are full
    held accountable for all the damages that are caused to small
    businesses that have been disadvantaged or put out of business,
    to landowners who have been damaged, and to taxpayers who
    otherwise would have to foot the bill.
        I agree with Senator Lautenberg that we need to put a
    moratorium on drilling until we are sure we have in place a
    regulatory structure that will protect the public as far as any
    future problems are concerned. And we need to take off the
    table those areas of the Nation where it is just too sensitive
    to drill, including the area that Senator Lautenberg and I
    represent.
        But this hearing is basically about the regulatory
    structure to make sure this doesn't happen again. And I
    appreciate the Chairman mentioning the Supreme Court decision
    which I find to be very disappointing and shocking, telling
    Exxon that their punitive damages are limited to a little over
    $500 million, rather than the $2.5 billion.
        As we are trying to talk about, trying to put incentives in
    law to prevent this type of behavior, $500 million seems like a
    lot of money to most of us, but to an oil company such as BP
    Oil, which produced $6 billion in profits the last quarter.
    That is $6 billion in profits, not revenues, that these types
    of damages could be easily handled as just expenses on their
    books and no real discouragement against irresponsible
    behavior.
        That is why I particularly want to thank our colleagues,
    Senator Menendez and Senator Nelson, for bringing forward
    legislation. I am proud to be a cosponsor of that bill that
    would make our laws make sense as far holding the oil companies
    fully responsible for the damages that they cause through their
    irresponsible behavior. And this legislation should be enacted
    quickly, and I applaud my colleagues for doing it.
        One last point, Madam Chairman. Many of these people say
    that these are so-called black swan events that were
    unpredictable. I heard the CEO of BP Oil said they couldn't
    have predicted what was going to happen in this type of
    circumstance.
        Well, that is not what they said when they presented their
    plans to the Government for their permit. They said they
    understood exactly what the risks were, and they were minimal,
    and if a spill occurred they had the proven technology in order
    to prevent any catastrophic or any significant damage to our
    environment. The truth of this matter is that such an event was
    entirely conceivable. BP officials simply did not want to spend
    the money necessary to reduce the likelihood of it happening or
    to have on hand the resources in order to contain it, and they
    weren't forced to do it.
        As a result, we have the ensuing damages. It is our
    responsibility to make sure that we have the right structure in
    place, and the Menendez bill needs to be part of that
    structure. I want to see less black swans and more snowy
    egrets. And I think that is our responsibility to make sure
    that happens.
        [The prepared statement of Senator Cardin follows:]

                     Statement of Hon. Benjamin L. Cardin,
                    U.S. Senator from the State of Maryland

        Madam Chair, yesterday was World Oceans Day. It's an
    opportunity to celebrate the world's oceans and the products
    and amenities they provide, including seafood, recreational
    opportunities, and sea lanes for international trade. It's also
    a time to appreciate oceans for their intrinsic value. I regret
    to say that I think all of these values are coming into sharper
    relief as we struggle to comprehend what's happening--and what
    will happen--in the Gulf of Mexico and beyond as a result of
    the British Petroleum (BP) Deepwater Horizon spill.
        I think the spill in the Gulf does two things: first, it
    brutally underscores the need for our Nation to develop and
    implement an energy policy that weans us off oil as quickly as
    possible. We need to do that for our national and economic
    security, and we need to do it to protect human health and the
    environment. Second, because we cannot end our oil addiction
    overnight, we need to revamp our regulatory and legal
    frameworks so they prevent this sort of accident from happening
    again.
        We already know that the existing regulatory framework--
    replete with inherent conflicts of interest at the Minerals
    Management Service (MMS)--is inadequate, and we are beginning
    to address those problems. The catastrophe unfolding in the
    Gulf of Mexico as a result of the BP Deepwater Horizon accident
    suggests that the legal framework needs to be revamped, too,
    and indicates what's at stake. This accident claimed 11 lives
    and is well on its way to becoming the worst accidental oil
    spill in history, if it hasn't already surpassed the 140
    million gallons released in the 1979 IXTOC 1 spill. The natural
    resource and economic damages are significant now, and the well
    may not be capped for another 2 months. Oil is killing marine
    wildlife, destroying some of America's most important
    commercial fisheries, and fouling fragile barrier islands,
    crucial wetlands, and previously pristine beaches along the
    Gulf Coast. It threatens to be swept by the so-called Loop
    Current around Florida and up the south and even mid-Atlantic
    coast.
        Yesterday the Senate Judiciary Committee held a hearing on
    whether liability caps and recent Supreme Court decisions
    undermine the legal framework meant to act as a deterrent to
    inappropriate cost cutting and risk taking behavior on the part
    of oil and gas companies and other entities involved in
    offshore drilling. It appears that recent decisions by the
    Supreme Court--especially the 2008 Exxon Shipping decision--
    have lessened the efficacy of threatened litigation as a
    deterrent to bad corporate behavior. As the organization People
    For the American Way (PFAW) notes, the Roberts Court gave
    Exxon-Mobil a $2 billion gift by reducing a punitive damages
    award from $2.5 billion to $507.5 million for the 1989 Exxon
    Valdez oil spill. The majority's willingness in that decision
    to invent a rule capping punitive damages against Exxon-Mobil
    does not bode well for those hoping to hold BP and the other
    potentially responsible parties such as Halliburton,
    Transocean, and Cameron accountable for this most recent
    disaster.
        Today's hearing here in the Environment & Public Works
    Committee focuses exclusively on liability caps. The $75
    million liability cap on damages established two decades ago
    and unchanged since then is a trifle compared to big oil
    companies' enormous profits and the burgeoning costs associated
    with containing and responding to a catastrophic deepwater oil
    spill. We need to lift the liability cap on damages to $10
    billion at least--something S. 3305 will do. While BP officials
    have claimed that the company won't be bound by the existing
    cap, the fact remains that under current law BP is only
    responsible for up to $75 million in damages, including
    injuries to natural resources, unless the accident is caused by
    gross negligence, willful misconduct, or violation of an
    applicable Federal regulation under certain circumstances. It's
    worth noting that BP's first quarter profits--not revenue, but
    profits--were almost $6 billion. The existing $75 million
    liability cap is equivalent to less than 1 day of BP profits. I
    congratulate Senator Menendez for introducing S. 3305. I am
    proud to co-sponsor the measure.
        I have heard that the Credit Suisse Group AG estimate of
    stopping and mitigating the spill could be as high as $37
    billion. So it's clear that a spill of this magnitude could
    overwhelm a responsible party's ability to pay, in which case
    funds would have to be withdrawn from the Oil Spill Liability
    Trust Fund. As Chairman of the Environment & Public Works
    Subcommittee on Water & Wildlife, I particularly appreciate
    that S. 3305 eliminates the $500 million per incident cap on
    natural resource damage claims that can be paid out by the
    Trust Fund. That is the right thing to do. And while we will
    hold all responsible parties' feet to the fire when it comes to
    paying claims for damages of all kinds, we need to ensure that
    the Trust Fund, if it needs to be tapped, will have adequate
    revenues for the task at hand, too. That's why I am heartened
    the House-passed version of H.R. 4213, the so-called extenders
    bill currently on the Senate floor, more than quadruples the
    current assessment on domestic and imported oil from 8 cents
    per barrel to 34 cents per barrel.
        It is a constant challenge to assess risks and benefits
    accurately. And it is a constant challenge to strike the right
    legal and regulatory balance to protect human health and the
    environment in the most cost effective, least burdensome way
    possible. This task is further complicated because more and
    more we also need to be aware of--and do a better job planning
    for--so-called ``black swans''--namely, low probability events
    that have absolutely staggering consequences. The September 11,
    2001, terrorist attacks, the breached levees following
    Hurricane Katrina in 2005, the housing market meltdown in 2007
    and 2008, and now the BP Deepwater Horizon accident have all
    been called ``black swans.''
        What troubles me is that ``black swan'' events seem to be
    occurring more frequently, with even greater and greater
    consequences. More important, one characteristic of ``black
    swans'' is that they are supposedly unexpected. Well, the
    events I just mentioned were not entirely unforeseeable. For
    instance, an unclassified September 1999 report prepared by the
    Library of Congress for the National Intelligence Council
    entitled ``The Sociology and Psychology of Terrorism: Who
    Becomes a Terrorist and Why?'' warned that Osama bin Laden's
    terrorists could hijack airliners and fly them into Government
    buildings like the Pentagon. According to the report, ``Suicide
    bomber(s) belonging to al-Qaida's Martyrdom Battalion could
    crash-land an aircraft . . . into the Pentagon, the
    headquarters of the CIA, or the White House.'' With regard to
    the levees, it seems that nearly everybody anticipated the
    breach. The problem wasn't lack of anticipation; it was lack of
    preparation. And the New York Times reported that John Paulson
    earned $1 billion in hedge fund fees in 2007, $2 billion in
    2008, and $2.3 billion in 2009 by betting against subprime
    mortgages.
        Perhaps ``black swans'' aren't so unanticipated after all.
    And if that's the case, they may be--to a certain degree--
    avoidable, if only we have the proper legal and regulatory
    frameworks and proper incentives and disincentives in place.
        With disingenuousness reminiscent of officials from the
    previous Administration talking about 9/11 or breached levees,
    BP officials initially claimed that the accident was
    unprecedented, unforeseeable, and inconceivable. On April 30,
    BP spokesman David Nicholas said, ``The sort of occurrence that
    we've seen on the Deepwater Horizon is clearly unprecedented.''
    On May 2, BP spokesman Steve Rinehart said, ``I don't think
    anybody foresaw the circumstance that we're faced with now''
    and added that the company didn't build a containment dome
    prior to the accident because ``it seemed inconceivable'' that
    the blowout preventer (BOP) would fail. Of course, the
    containment dome didn't work, either.
        The truth of the matter is that such an event is entirely
    conceivable. BP officials simply did not want to spend the
    money necessary to reduce the likelihood of it happening and to
    have on hand the resources to respond swiftly and effectively.
    And they weren't forced to.
        Not only did BP cut corners with regard to drilling and
    capping the well; it also failed to maintain adequate resources
    to contain and respond to a spill. On June 3, BP chief
    executive office Tony Hayward finally acknowledged the obvious:
    the company simply wasn't prepared to deal with a deepwater
    spill. ``What is undoubtedly true is that we did not have the
    tools you would want in your tool kit,'' he told The Financial
    Times in an interview.
        Of course, Mr. Hayward's acknowledgment last week diverges
    dramatically from the mendacious claims that BP officials made
    on the company's Deepwater Horizon drilling permit application
    about having ``proven response technology.'' That's why on May
    17 I joined several members of this Committee, including
    Chairman Boxer and Senators Lautenberg, Gillibrand, Sanders,
    Klobuchar, Carper, and Merkley, in writing to Attorney General
    Eric Holder urging him to open an inquiry into whether BP
    officials violated civil or criminal laws, including 18 U.S.C.
    1001, by making false and misleading statements to the Federal
    Government regarding the company's ability to respond to a
    deepwater oil spill in the Gulf of Mexico.
        Mr. Hayward argued that in the wake of the 1989 Exxon
    Valdez spill in Alaska, BP and other oil companies developed
    plans to contain oil on the surface of the water (even that
    assertion appears dubious), but BP did not have the equipment
    necessary to stanch a deepwater leak like the one in the Gulf.
    He concluded that BP--and by extension presumably the entire
    oil industry--will have to find ways to manage ``low
    probability, high impact'' risks in the future.
        It seems apparent that the existing legal and regulatory
    frameworks governing offshore oil and gas exploration and
    development--particularly in deep waters--need to be re-worked
    to ``help'' BP and other oil companies in that task; it is
    unlikely that they will do so adequately of their own volition
    because of the cost. That's why S. 3305 is so important. For
    too long now BP and other oil companies have systematically
    understated the risks associated with offshore drilling--
    especially deepwater drilling. Establishing higher liability
    caps, reinvigorating the ability of plaintiffs to act as
    watchdogs, and restoring a robust regulatory regime will help
    to keep oil companies honest. We need to do that so we have
    fewer ``black swans'' in the Gulf of Mexico and more snowy
    egrets.

        Senator Boxer. Thank you, Senator.
        Senator Bond, followed by Senator Baucus.

            OPENING STATEMENT OF HON. CHRISTOPHER S. BOND,
                U.S. SENATOR FROM THE STATE OF MISSOURI

        Senator Bond. Thank you very much, Madam Chair, for holding
    this hearing today on the Senate Bill 3305 by Senators
    Menendez, Sanders, and others. I regret to say that this bill
    should be called the Big Oil Gulf Monopoly Bill, because that
    is what it is. The Menendez bill would make operating in the
    Gulf so expensive that only big oil or national oil companies
    could afford it, giving them a virtual monopoly in the Gulf.
        There is unanimous agreement on this Committee--and I
    imagine in the Senate as a whole--that we need to raise the oil
    spill economic liability caps. The only question is how much is
    best. What does more harm than good?
        This bill is a tragedy, and I am thankful that the
    witnesses from Florida, Louisiana, and Alaska have come here
    today to share their stories. Our thoughts and prayers are with
    all the victims, but especially with those families that lost
    loved ones in the first tragic explosion.
        The public needs to know the pain of the victims of this
    disaster so we can make them whole, deter future bad behavior,
    and ensure future claims are paid. But I wonder if these
    victims ever thought that the reaction to their tragedy would
    be a proposal to reward the very big oil company that caused
    this mess.
        The Menendez bill is a reward to big oil, including British
    Petroleum or British Pollution, if you want to call it that,
    because it would hand big oil companies like BP, Exxon, and
    others a virtual monopoly over future Gulf production. The $10
    billion liability cap or unlimited liabilities proposed by
    others would force Gulf production insurance rates to levels
    unaffordable to all except big oil companies, a fact that has
    been laid out in numerous things including by the PFC Global
    Risk Company.
        By their very name, big oil companies are large enough just
    to write the check, pay any insurance premium, or even self-
    insure. The Menendez big oil Gulf monopoly bill would kill all
    competition that big oil faces. BP, Exxon, and others would be
    free to roam the Gulf without competition from the smaller
    American drillers who have drilled successfully and without
    spills.
        The Menendez big oil Gulf monopoly bill would turn the Gulf
    of Mexico into big oil's own private pond. We know that the
    sponsor of this legislation pulled the $10 billion liability
    cap out of thin air. We know that in their rush to go public
    with their proposal they may not have thought all the
    unintended consequences. But now that we have time to reflect,
    I urge this Committee to be thoughtful in reviewing what will
    work best to compensate victims and not give an unfair
    advantage to big oil in the future.
        There have been some thoughtful proposals like expanding
    the existing oil spill trust fund so that all users of oil pay
    more for the risk they are causing. Others propose a Price-
    Anderson-type model that the nuclear industry uses to ensure
    against nuclear accidents. That model would have us raise the
    cap for those that caused a spill, say, to $1 billion, and
    spread the cost of damages above that amount across the entire
    industry. There may be other solutions we should consider.
        What we do know is that America will continue to need
    petroleum for several more decades as we transition to cleaner
    homegrown transportation fuels. And we have seen that the so-
    called regulatory agency, the Minerals Management Service, is
    badly broken and obviously did not demand that the proposed
    driller have the kind of means in place to deal with a
    catastrophic oil spill.
        But the bottom line is we cannot close down the Gulf
    without putting ourselves at hostage even further to the
    Venezuelans, the Chinese, Russia, and the other groups and the
    people in OPEC where they don't have to follow the same
    environmental standards that I believe that we have rightly
    imposed on drilling in the United States.
        There are thousands of Gulf wells operating safely as we
    speak. Over 40,000 of those wells have been drilled and
    operated or are operating with no spill like this. I support
    the Senate's considering new drilling safety reforms, but we
    should all oppose the Menendez big oil Gulf monopoly bill.
        I thank the Chair.
        Senator Boxer. OK.
        Just to be clear, that is not what Senator Menendez calls
    it, but you have every right to give it your nickname. OK.
        Senator Baucus.

                 OPENING STATEMENT OF HON. MAX BAUCUS,
                 U.S. SENATOR FROM THE STATE OF MONTANA

        Senator Baucus. Thank you, Madam Chairman.
        The circumstances in which we find ourselves are clearly
    unacceptable, and the news regrettably keeps getting worse. We
    are now in the midst of the worst oil spill in our Nation's
    history. We are all asking the same questions. What happened?
    How can we be sure it doesn't happen again? And today we are
    evaluating one proposal to address some of these questions.
        We want to encourage the use of robust spill prevention and
    safety measures in offshore oil and gas development. That is
    clear. We also want to prevent the American taxpayer from
    subsidizing private enterprise by absorbing environmental risk.
    We want to have a domestic oil and gas industry.
        With these points in mind, should the liability cap under
    the Oil Pollution Act be increased to a $10 billion level
    proposed in S. 3305? This seems to be a straightforward
    question with a simple answer. But in spite of our outrage we
    should not react in haste.
        The country needs domestic oil and gas, and we should
    seriously evaluate each proposal that comes before us. This
    hearing is a good step in that evaluation. A few key questions:
    Should there be any Federal cap on liability at all? And if so,
    what is the appropriate level? How much risk is the American
    taxpayer absorbing on behalf of oil and gas companies as a
    result of this liability cap?
        And is that appropriate? Does the current cap fail to
    provide incentive to offshore oil and gas producers to adopt
    appropriate safety measures? What effect does raising the cap
    have on our ability to develop domestic oil resources? And what
    are the legal implications of the retroactive application of a
    $10 billion liability cap?
        Madam Chairman, I look forward to hearing from the
    witnesses as we discuss these issues. Again, this spill is
    tragic. It is caused by many mistakes on the part of many,
    including British Petroleum, most likely Transocean, and
    Halliburton, and the appropriate parties listed and others who
    are appropriately liable and culpable should clearly bear the
    burden of all the costs.
        Senator Boxer. Thank you, Senator Baucus.
        Senator Alexander.

              OPENING STATEMENT OF HON. LAMAR ALEXANDER,
                U.S. SENATOR FROM THE STATE OF TENNESSEE

        Senator Alexander. Madam Chairman, thank you very much for
    having the hearing.
        And thanks to the witnesses for coming.
        I have three observations I would like to make. Some of the
    witnesses are from the Gulf Coast, and while this is not a
    hearing about the oil spill liability trust fund, which is
    funded by a 6 cents per barrel fee on industry to help pay for
    clean up and to compensate those hurt by the spills, one of the
    questions I am going to be asking is whether those from the
    Gulf Coast think the money that is collected by that fund to
    clean up oil spills ought to be spent to clean up oil spills.
        They might be surprised to learn there is a proposal in the
    House and in the Senate to raise the tax on the fund to clean
    up oil spills and spend it on more government instead of
    cleaning up the oil spills. And people must be wondering what
    is Washington thinking about that, and that is a question that
    I will have. Should the money raised to clean up oil spills be
    used to clean up oil spills or spent on some other form of
    government?
        A second observation has to do with the need for new laws
    and new regulations. Before we pass new laws and new
    regulations on this whole subject, I would hope the Committee
    would carefully look at the laws that have already been passed.
    The Chairman mentioned the Oil Pollution Control Act, which was
    passed in 1990 after the Exxon Valdez spill. One of the
    provisions of that Act says that the President shall ``ensure
    the clean up of an oil spill and have the people and equipment
    to do it.''
        One might ask: What was President Obama's cleanup plan? And
    where were the people and equipment to clean it up? Now, if the
    answer is that the Federal Government can't clean up an oil
    spill, or that President Bush had the same plan, or that
    President Clinton had the same plan, then perhaps we should
    change the law. But what the law says, and it has for 20 years,
    is that the President of the United States shall ensure that it
    is cleaned up and shall have the people and equipment to do it,
    instead of effectively delegating the clean up to the spiller.
        The third thing, and final observation I would like to
    make, is along the lines of one suggested by Senator Bond as
    well. We might learn a lesson from other successful regulatory
    actions that the Government now has, especially with the
    nuclear industry. I mentioned at an earlier hearing, for
    example, the accountability in the nuclear Navy is pretty
    impressive. If there is a problem on a Navy reactor, the
    captain might lose his job and his career.
        And we have regulating oil a multiplicity of agencies. Some
    have suggested 14 instead of 1, which is the Nuclear Regulatory
    Commission in the case of nuclear power. So accountability and
    multiplicity of regulators is something that might be looked
    at.
        In terms of the increase in liability, I think almost
    everyone in the Senate believes there ought to be an increase
    in liability, but the question would be: Should it be from the
    current model that we now have? I would suggest we ought to
    consider the Price-Anderson model that the nuclear industry
    uses. In that case, the entire nuclear industry is responsible
    for any accident. The industry is forced by law to insure
    itself for the first $12.6 billion in damages related to a
    nuclear accident. Each reactor must carry $375 million in
    private liability insurance. Each reactor may be assessed up to
    $111 million more for any accident.
        In other words you have all of the operators and all of the
    reactors very interested in what might be happening at any
    other reactor. There are incentives to cooperate with best
    practices, to share technology and information, and to assist
    each other if there were to be an accident. So you wouldn't
    have the prospect of Chevron or Exxon sitting on the sidelines
    watching BP clean up.
        So I would ask the Committee seriously to consider, rather
    than just raising the liability limit on this model, should we
    not explore a model like Price-Anderson. It wouldn't be exactly
    the same. We would assign liability per reactor, but the oil
    industry might be apportioned differently, possibly by risk, by
    well, or by volume of production. The Price-Anderson has been
    very successful with the nuclear industry. It might be helpful
    as we look forward in the oil industry.
        Thank you, Madam Chair.
        Senator Boxer. Thank you.
        Here is what we have: Senators Merkley, Whitehouse, and
    Carper.

                OPENING STATEMENT OF HON. JEFF MERKLEY,
                 U.S. SENATOR FROM THE STATE OF OREGON

        Senator Merkley. Thank you, Madam Chair.
        Oregon's beaches and continental shelf fishing grounds
    contribute an enormous amount to the economy of our State
    through harvesting of salmon, through harvesting of ground
    fish, through crabs, oysters and other shellfish, and certainly
    through tourism.
        We take great pride in our beaches. In fact, Oregonians are
    one of only two States where the citizens own the beaches. All
    the beaches are public. There is no private access only. And I
    can tell you that the citizens of Oregon through their
    legislature have banned the drilling to the degree they can off
    the coast of Oregon to the 3-mile boundary, and is it OK to
    drill within those three miles? No, and the legislature has
    spoken, and I think contains the wisdom of the State. Is it OK
    to drill 70 miles off the Oregon coast? The answer is no. That
    oil, if leaked, would wash up. It would affect the salmon and
    the shellfish and the tourism and the coastline we so dearly
    love.
        In fact the West Coast Senators as a whole--and I am proud
    to have joined Senator Boxer in this--have come together, all
    six of us, and proposed not a moratorium but a permanent ban on
    drilling off the Pacific Coast because the value of the oil
    that would be extracted is very small, would have no impact on
    the international price, and it puts at peril a huge number of
    jobs and a huge valuable ecosystem that serves us so well.
        We currently have a liability cap that creates a moral
    hazard, a moral hazard because companies drilling say we don't
    need to be thorough and careful. We can take shortcuts. And if
    we make a mistake, the public will pay. We will shift our costs
    to the U.S. citizen. This is not all right for Wall Street, and
    it certainly isn't all right for oil drilling.
        And we have seen the sorts of shortcuts that occur from
    this moral hazard. We have seen that equipment placed at depth
    often hasn't been tested at depth. We have seen equipment
    placed a depth that wasn't designed to shut off and shear off
    the very thick pipes used 5,000 feet under the ocean. We have
    seen carelessness in regard to the hydraulic system. We have
    seen carelessness in regard to the charging of batteries.
        We have seen claims for equipment ready to go to clean up
    and respond to a spill that was not ready to go. We have seen a
    container placed over the top of the spill that had never been
    tested and was filled with ice and didn't work. We have seen
    point after point in which shortcuts were taken because BP knew
    it could shift the cost to the American citizen, and that is
    not OK for the pocketbooks of the American citizen, and it is
    not OK for the thousands of folks who depend on the Gulf for
    their living that have been affected by this terrible disaster.
        So I applaud you for bringing this bill forward, Senator
    Menendez and Senator Nelson, and I am proud to be cosponsor of
    it.
        Thank you, Madam Chair.
        Senator Boxer. Thank you so much.
        Senator Whitehouse.

             OPENING STATEMENT OF HON. SHELDON WHITEHOUSE,
              U.S. SENATOR FROM THE STATE OF RHODE ISLAND

        Senator Whitehouse. Thank you, Madam Chair.
        Rhode Island considers itself our informal name, the Ocean
    State, and so I can't help but note the context in which this
    spill has taken place. Our oceans presently are populated by
    massive dead zones. In the Arctic we see melting ice caps. In
    the tropical seas we see collapsing coral reefs. And we see
    vast plastic and waste out in our farthest oceans.
        We see marine mammals so poisoned by human release of
    various chemicals and poisons that they are now swimming toxic
    waste, and one of the lead scientists who studies marine
    mammals predicts their extinction.
        We see ocean acidification at its highest level in 800,000
    years, portending a sea in which the baseline creatures in the
    food chain become soluble in their environment. We see 90
    percent and more losses of major pelagic species. We see
    stresses in shore from warming waters and changing habitat. And
    this is sort of the last call that we cannot ignore our oceans.
    We do so at our peril.
        Madam Chairman, our energy legislation needs to attend to
    this. It needs to attend to the effects of our energy use on
    coastal States and on the oceans. It is not enough to treat
    coastal States as if they were land-bound terrestrial States.
    There is no great constituency for the oceans in Congress, but
    we will find to our peril very soon that if we don't take
    better care of them, the cost will be high.
        I submit that we need to improve the Outer Continental
    Shelf Lands Act and the liabilities under that Act. And I have
    put legislation in to that effect. We need to lift the cap on
    punitive damages that the Supreme Court protected Exxon with,
    and I have submitted legislation to do that.
        We need to support Senator Menendez's legislation to lift
    the cap on Oil Pollution Act liability, and we need to support
    Chairman Leahy's legislation under the Deaths on the High Seas
    Act to make sure that seafaring oil rig workers are treated as
    fairly as people involved in airline disasters.
        So this is a very important hearing, but it is also a part
    of a larger picture that I know Senator Menendez and Senator
    Nelson see very clearly as representatives of States that are
    ocean States in their own right.
        For another day is the question of what the consequences
    should be for regulators who are asleep at the switch when
    disaster and recurring indications of unpreparedness such as
    Senator Merkley just described take place, particularly when
    they are asleep at the switch having been lulled to sleep by
    industry lullabies.
        We have a lot of work to do here, and I think this is an
    important step. I appreciate this hearing very much.
        Senator Boxer. Thank you.
        Senator Carper, followed by Senator Klobuchar, and then we
    want to end this and turn to our witnesses, who have been
    extremely patient.

              OPENING STATEMENT OF HON. THOMAS R. CARPER,
                U.S. SENATOR FROM THE STATE OF DELAWARE

        Senator Carper. Thanks, Madam Chair.
        And thanks to our witnesses who have been extremely
    patient.
        I want to thank you for holding this hearing today on
    Senator Menendez's legislation. And I look forward to the
    opportunity to take a closer look at liability issues that are
    associated with our Nation's offshore oil and gas industry.
        As I have mentioned before, my heart goes out to the folks
    that are impacted by this terrible accident, to the families of
    the 11 workers who died, and those that were injured. My heart
    also goes out to the thousands of workers, the individuals and
    families in the Gulf of Mexico who depend on the Gulf's waters
    and shores for their economic livelihood.
        As a member from a coastal State I can say that I truly
    understand the importance of our shorelines to our own local
    and national economies. Our oceans and our shores give life to
    many, many industries, among them tourism, recreation, fishing
    industry, transportation, construction, research and education
    and real estate and many, many more.
        So we need to work together to make sure that the laws that
    we have in place protect these critical industries from
    economic harm in a fair and a real way.
        Today's hearing is an important step in helping Congress
    figure out what kinds of reforms are needed, to make sure that
    liability for the offshore oil and gas industry holds
    responsible parties accountable for their actions or for their
    inactions.
        I look forward to hearing from our witnesses today on how
    we might best go about reforming liability laws for the
    industry and what other reforms might be needed to better
    protect our businesses and our environment from suffering
    further damage in the wake of this terrible accident.
        Again, thank you very much.
        Senator Boxer. Thank you, Senator Carper.
        Senator Klobuchar.

               OPENING STATEMENT OF HON. AMY KLOBUCHAR,
                U.S. SENATOR FROM THE STATE OF MINNESOTA

        Senator Klobuchar. Thank you very much, Madam Chairman.
        Thank you, Senators, for being here.
        A few weeks ago, I actually went down to the Gulf and saw
    firsthand the scope of the disaster, which many have since
    seen, and I remember flying over it and thinking this is so
    much worse than it looks on TV when you see the miles and miles
    of orange waves.
        And now what we have seen since is worse, the pelicans on
    television hobbling around drenched in oil; the wildlife in
    peril. We are losing an entire ecosystem and the foundation of
    our Nation's Gulf Coast economy, from the fishermen across the
    Gulf Coast who sit idle to the hotel rooms sitting empty to the
    countless beaches that are now home to tar balls instead of
    beach balls.
        It has now been over 50 days since the disaster began, and
    the costs have begun to increase exponentially. We still, as we
    all know, don't know exactly how much oil has leaked, but we do
    know that this is likely the worst oil spill in our Nation's
    history and perhaps in the world's history.
        Yesterday, I joined Senators Shaheen and Gillibrand and
    others on a bill to give the President's Gulf Oil Spill
    Commission subpoena power. We also had a hearing with Senator
    Whitehouse and some other Members, Senator Cardin, of the
    Judiciary Committee, and actually heard testimony from the
    brother of one of the victims. That really brought it home.
        At the same time, over the last few weeks we have listened
    to the Chairman of BP America and the leaders of Transocean and
    Halliburton testify before us. BP has indicated that they will
    pay for the spill. Now, they are spending millions of dollars
    on fancy television ads to talk about how they are working to
    make up for this disaster.
        The problem for me is that the story is all too familiar. I
    want to bring you back to the Exxon Valdez. Why do I care about
    this? Well, a Minnesota law firm actually represented the
    fishermen from the very beginning to the end in that case. At
    the time of the Exxon Valdez spill CBS News reported after the
    disaster that Exxon executives were quoted telling fishermen,
    you have my word, we will make you whole again.
        But for 20 years Exxon fought the Minnesota law firm,
    fought them for paying damages and Appeals Court decisions
    multiple times. They have still not paid in full. Years of
    fighting and court appeals on Exxon's part finally concluded
    with a U.S. Supreme Court decision in 2008 that found that
    Exxon only had to pay $507.5 million of the original 1994 court
    decree for $5 billion in punitive damages.
        Twenty years later some of the original plaintiffs are no
    longer alive to receive or continue fighting for compensation
    from Exxon. An estimated 8,000 of the original Exxon Valdez
    plaintiffs have died while waiting for their compensation as
    Exxon fought them in court.
        We cannot let the victims of the Gulf oil disaster suffer
    this same fate. And that is why I am so focused on the bill
    that Senator Menendez and others up here have worked on to lift
    the liability cap for offshore drilling accidents. I
    immediately got on that bill because I had seen what happened
    to the fishermen with the Exxon Valdez.
        It is a pretty basic free market idea, an American idea,
    that if you take a risk you should be the one to get the
    rewards, but also the one to incur the costs.
        I thank you, Madam Chair, for holding this hearing. I truly
    believe that if we hadn't had that $75 million cap in place,
    perhaps different calculations would have been made. When you
    know that there is a $75 million cap on damages, and you have
    to make a decision about whether you are going to have a backup
    to a blowout preventer, whether you are going to have a
    redundant safety system in place, you can't help the
    accountants, the number crunchers look at it, and go, well, it
    is $75 million.
        And I am not saying for a minute, for a minute that BP
    would have made the same decision if they had known what
    disaster awaited them. They wouldn't have. They would have made
    it safer. But the point is all they knew at that time was that
    there was a $75 million cap on damages.
        And that is why I feel strongly both for the victims of
    this disaster, for our taxpayers in Minnesota, across the
    country, but also for incentives going forward that we have to
    raise that cap.
        Thank you very much, Madam Chairman; I yield the floor.
        Senator Boxer. Thank you.
        We have been joined by Senator Udall.
        Do you have an opening statement?
        Senator Udall. No, I don't, but I would like to go to
    questioning in the proper order.
        Senator Boxer. All right. That is fine.
        We will go then to Senator Menendez.
        Your bill is the focus of this hearing, and again, any
    Member can raise their own bills, but we are very, very
    grateful to you for your leadership. We want to put in the
    record at this time an article, White House Endorses Unlimited
    Liability Cap for Oil Spillers, saying we need to ensure there
    is no arbitrary cap on corporate responsibility for a similar
    major oil spill.
        So congratulations, you have gotten that support.
        [The referenced article was not received at time of print.]

              OPENING STATEMENT OF HON. ROBERT MENENDEZ,
               U.S. SENATOR FROM THE STATE OF NEW JERSEY

        Senator Menendez. Thank you very much, Chairman Boxer and
    Ranking Member Inhofe, and distinguished members of the
    Committee, for holding this hearing on S. 3305, which I want to
    just make sure for the record is the Big Oil Bailout Prevention
    Liability Act. We need to act quickly to make sure oil
    companies are held fully accountable for all damages related to
    an oil spill. And we have all come a long way since I
    introduced this legislation with a whole host of my colleagues
    about a month ago.
        The Administration, as you just cited, has moved to embrace
    the idea of unlimited liability for drilling in deep waters for
    all future drilling operations. Senators Vitter and Murkowski
    have introduced legislation that they say would hold BP
    accountable for unlimited damages for this incident, but it is
    silent on future spills.
        And my proposal, with my colleagues, has changed as well.
    When the disaster first occurred a $10 billion liability cap
    not only seemed adequate to compensate all those impacted by
    the spill, but it represented a sizable increase from a
    ridiculously low current level of $75 million.
        But this spill is larger in scale than anything we have
    seen in U.S. waters. It has forever changed our understanding
    of the potential size of oil disasters, even for someone like
    me who had long warned about the danger of rig blowouts. So for
    that reason, along with 20 cosponsors, we have amended the
    legislation for unlimited liability.
        So we have come a long way, but there is still a ways to
    go. Now, I find it interesting that those who say that we need
    to hold the victims harmless in the process and take care of
    them want to keep largely the present system in place. That is
    the voices I hear, a system of rather limited liability, of $75
    million. BP made $94 million each day in the first quarter of
    this year, so that is less than 1 day's consequence.
        And I wonder at the same time--they are pursuing drilling
    that has unlimited risks. So I wonder whether the ``drill,
    baby, drill'' crowd ever thought about the ``spill, baby,
    spill'' consequences, because that is what we have today.
        Now, one of the objections I have heard to removing the
    liability cap is that it will cause mom and pop drillers to go
    out of business. My view of this is not a question of small
    versus big companies. This is about safe versus unsafe
    companies. If you are drilling in the Gulf and are cutting
    corners the way BP allegedly has, then there is no doubt that
    insurers will be charging you more because you are a risky
    company. And if you are an unsafe company I am sure regulators
    are going to force you to overhaul your operations and use
    better equipment. That will definitely cost an unsafe company
    some money to get its operations into compliance.
        But a company with a higher safety standard should not have
    those same issues to worry about. The insurers and regulators
    alike would be able to see that you are operating safely, and
    in turn you should be able to continue your operations without
    the fear of major cost increases.
        Lifting the liability cap, as we do under the legislation,
    also instills discipline on oil companies, as Senator Klobuchar
    was referring to, not to cut the corners, not to take the
    calculation that the cost of doing business if something goes
    wrong is a limit of $75 million. And so by lifting the
    liability cap we make sure that the incentives are not perverse
    as they are under the present law.
        However, if you are an unsafe company that is also small,
    then we should be all concerned. According to a recent analysis
    by Credit Suisse, BP's cleanup costs, economic damages, and
    other related costs could total $37 billion. That is a
    shockingly high number, but one BP will likely be able to
    absorb since it is a company well worth over $100 billion.
        But what if a similar unsafe but smaller company had caused
    this leak? As you can see from the bar chart that I have
    brought and the report I have provided to the Committee, there
    is a company worth less than $500 million drilling in over
    4,000 feet of water in the Gulf. If a $500 million company had
    been the operator, and a spill causing $37 billion in costs and
    damages had taken place, I think it is clear that the residents
    of the Gulf and the American taxpayer would be holding the bag
    for over $36 billion. Is that the liability standards we want?
    Is that the risk we want to our collective economy?
        So unsafe companies that are not so big that they could pay
    for their catastrophic mistakes might have reason to worry, but
    small safe companies should be able to continue operating in
    the Gulf without fear.
        Finally, as I have mentioned previously, I applaud Senator
    Vitter for embracing unlimited liability for damages stemming
    from this bill, but I believe we need to change the law for all
    potential future spills so that the American taxpayer knows all
    companies will pay for that which they spill.
        I also don't believe that Senator Vitter's approach will
    survive judicial scrutiny because it attempts to form a
    contract without the consent of the parties and because it is
    an unconstitutional bill of attainder on just one company and
    one incident. By contrast the Department of Justice and the
    Congressional Research Service have both testified that our
    bill would survive constitutional challenge. Superfund law is
    an example of that. We created responsibility for polluting
    parties that had already polluted, and we created the liability
    subsequently, and that has been litigated and upheld.
        So we need to pass legislation that would hold all oil
    companies accountable and hold up in court. It is time we
    finally start treating oil companies like we do everyone else,
    Madam Chairman. The average taxpayer does not enjoy a liability
    cap. The guy installing solar panels on your roof does not have
    a liability cap, and neither should oil companies.
        The mom and pops we should be worried about are not oil
    companies, but mom and pop taxpayers who shouldn't have to pay
    for the cleanup spills of others.
        Thank you, Madam Chairman, for the opportunity to testify
    on our bill, and I am happy to answer any questions.
        Senator Boxer. Thank you very much.
        Senator Nelson, to be followed by Senator Vitter.

                OPENING STATEMENT OF HON. BILL NELSON,
                 U.S. SENATOR FROM THE STATE OF FLORIDA

        Senator Nelson. Madam Chairman, this comes down to whether
    or not you want to lessen the likelihood that you have these
    kinds of spills in the future. So that all those mistakes that
    were made, starting with the coziness with the Government
    regulator never happens again; starting with all of those
    backup systems on the blowout preventer that did not work,
    never happen again; and that all of the mistakes that are being
    made now, the fishermen that are being promised that they are
    going to be hired and they don't get paid, and they said give
    us a 14-day requisition and we will pay you in 14 days. That is
    28 days. Where are they going to get the money to pay their
    crews? And it goes on and on and on.
        Madam Chairman, this is NOAA's projection, and obviously
    you can see it, but you can go on the NOAA Web site. This is
    the projection for Friday. This is a 72-hour projection. And it
    has it now the winds are not blessing us as they have on the
    Florida coast, the Alabama coast, and the Mississippi coast.
    The winds are changing, and by Friday are sending it to the
    coast of Florida.
        The National Park Service has already put out a warning not
    to go into the water on the Gulf Islands Seashore Park, and
    that includes part of Perdido Key as well, which is a part of
    Florida.
        Now, it is hard for someone who has exposure to the Gulf,
    but for that matter, any of the Senators that have exposure to
    any of the oceans, not to be very emotional about this when you
    see as a result how your people are going to suffer.
        And so we come to you with a simple little proposal, and
    that is that the person who makes the mistake ought to be
    responsible. And if the penalty is that they are going to be
    responsible and have to pay, they are sure going to be a lot
    more careful about what they are doing.
        I don't think, Madam Chairman, that the Government
    regulator is going to make the mistake that we have for the
    last couple of decades, and I think that house is being
    cleaned, and it sure needed to be cleaned.
        And so this Committee we would ask you, as you deliberate,
    let's don't delay this. Let's get it out there so that it sends
    a strong signal to the future exploration that these mistakes
    should not be made.
        Thank you.
        Senator Boxer. Thank you, Senator.
        Senator Vitter.

                    STATEMENT OF HON. DAVID VITTER,
                U.S. SENATOR FROM THE STATE OF LOUISIANA

        Senator Vitter. Thank you, Madam Chair, and thanks for the
    opportunity to present S. 3461 by Senator Murkowski and myself.
        This bill is very simple. You have it before you. It does
    two things. First of all it removes any and all liability cap
    on BP for this event. It absolutely does that without
    equivocation to give certainty on that issue to the people of
    the Gulf Coast who are going through an ongoing crisis.
        And second it establishes an expedited claims process
    because it is crucial that these folks not just be made whole
    eventually, but they start to be made whole now because they
    are struggling month to month.
        This bill has also been completely cleared on the
    Republican side, so it stands ready to move immediately.
        Now, Madam Chair, as I have said several times in this
    Committee and sort of tried to gently remind folks, this is an
    important issue we are discussing, this whole event, but it is
    not just an important issue. It is an ongoing crisis. It is an
    ongoing disaster in the Gulf because the flow continues, the
    pollution continues, and it expands and is now hitting four
    States, not just mine.
        And that is very much the perspective I am coming from.
    This is an ongoing crisis, and we need to act in certain ways.
    And that is why I bring this bill because we can act
    immediately on this to address this ongoing crisis.
        Now, clearly--clearly the economic damages liability cap
    needs to be increased to a great extent permanently, and we all
    agree on that. But just as clearly, that will not pass
    immediately. Hopefully, it won't take extremely long, but it
    will not pass immediately. So that is why, again Senator
    Murkowski and I cleared entirely on the Republican side, have
    brought this bill.
        And again, the bill is real simple. No. 1, it removes
    completely, completely any cap on BP for this event. No. 2, it
    sets up an expedited claims process to make these folks in the
    Gulf whole, not just eventually but starting right now as they
    struggle month to month. And finally with regard to the details
    of the bill, let me say, Madam Chairman, that we drafted the
    bill very specifically to avoid legal challenge from BP or
    anyone else. However, we are open to technical revision. And if
    Senator Menendez has a version that he would support, we are
    open to that. We just want this passed immediately to address
    this ongoing crisis and would be happy to work with him on a
    technical revision regarding the liability issue.
        Finally, Madam Chairman, let me submit for the record and
    read this letter which I think sums up very well the attitude
    of folks facing this ongoing crisis in the Gulf. It is from
    four leading local elected officials who all happen to be
    Democrats: ``Dear Senator Boxer: If there is any national
    policy challenge that is not and should not be treated as
    partisan in any way, surely it is the ongoing oil disaster in
    the Gulf. Although there is universal agreement about this in
    Louisiana, apparently that may not be the case in Washington,
    DC. Several weeks ago, Senator David Vitter introduced
    emergency legislation to completely remove the existing cap in
    Federal law for economic damages as it pertains to BP and our
    disaster.
        ``The bill also includes an expedited claims process so
    that affected fishermen and others aren't just made whole, but
    are paid something immediately in an ongoing basis. When
    Senator Vitter tried to pass this through the Senate
    immediately, it was blocked by Senator Robert Menendez,
    Chairman of the Democratic National Senatorial Committee.
        ``We urge you to intervene with Senator Menendez and others
    so that this important legislation can be passed through the
    U.S. Senate and then the U.S. House. This should be made the
    law immediately to help us deal with this ongoing crisis. We
    realize that permanent revisions to OPA will require more
    debate, but this focused change for the BP disaster can and
    should be passed immediately. Thank you for focusing on this
    urgent request quickly.''
        And I will submit this for the record.
        Thank you, Madam Chair, and I look forward to our
    discussion and hopefully quick action.
        [The referenced letter was not received at time of print.]
        Senator Boxer. Thank you.
        Well, I regret that politics was entered into the record,
    but that is your choice, Senator Vitter.
        Senator Vitter, let me just say I do have a suggestion. I
    am going to ask Senator Menendez about it. What you are saying
    is your State and you have decided, you have decided that you
    want to make sure that for this particular spill affecting your
    State that there be no limit on the liability of BP.
        And you are not willing to at this stage at least, and
    maybe we can move you toward it, to admit that once something
    happened on the Atlantic coast, and Senator Lautenberg found
    himself in the same position as you, but it is a different
    company, he wouldn't have the same protection. That is the
    constitutional question. Why should one State and one spill get
    treated a different way?
        So I am wondering, Senator Menendez, if Senator Vitter took
    his bill and basically said all other spills that will occur
    from this day forward with different companies will be treated
    the same way, unlimited liability. That would be a technical
    change, I suppose you could call it. Would that be something
    that you could work with, if he agreed that all other spills be
    treated the same way with different companies at different
    places?
        Senator Menendez. Madam Chair, first let me just say my
    opposition had nothing to do with being the Chairman of the
    Democratic Senatorial Campaign Committee. It had everything to
    do with that proceeding with one incident and one company and
    saying, yes, you have unlimited liability and no one else has,
    is bad public policy, and I think is also illegal.
        So the answer to your question is yes.
        Senator Boxer. Good.
        Senator Menendez. If in fact we have unlimited liability
    across the board for the future, that is in essence what we are
    trying to accomplish. And I would hope that since the
    Republican Caucus has cleared, according to Senator Vitter, the
    proposition that unlimited liability should exist for this
    incident, then the precedent and the principle is set for any
    other.
        Senator Boxer. Right. And I would recommend, Senator
    Menendez, that you work with all of us and Senator Vitter to
    try and make this proposal on the floor of the U.S. Senate
    today, that we amend this bill to ensure that any other spill
    with different companies, that the people in that region, the
    fishermen, the recreation industry, the tourism industry, they
    be made whole as well. And then we can come together as
    Democrats and Republicans because that is my goal is to get
    this thing done.
        Senator Vitter. Madam Chairman, may I respond?
        Senator Boxer. Yes, and then Senator Nelson.
        Senator Vitter. OK, thank you. Because it is obvious that--
    --
        Senator Lautenberg. Madam Chairman, forgive me, but we have
    in front of us a bill to be considered. And I think that we
    ought to do that business and not let it be diverted even if it
    sounds right.
        Senator Vitter. Madam Chair, I would refer to your
    unanimous consent which was passed which clearly allows this
    discussion.
        Senator Boxer. Yes, but what I am going to do is ask the
    people, I want to have answers. So I guess I want to ask
    Senator Nelson a question here.
        Senator Vitter. Madam Chair, since you clearly----
        Senator Boxer. Senator, when you want to come back up here.
    I am asking a question to specific Senators. I have 2 minutes
    remaining.
        Senator Vitter. Which have everything to do with my
    proposal, and I can't respond----
        Senator Boxer. I will be glad to give you as much time as
    you want, but these two have to leave. So I would like to get
    the benefit of their time.
        Senator Vitter. OK. I will be happy to wait to respond
    until they have responded.
        Senator Boxer. Well, after they leave.
        Senator Nelson, and I would ask to have 30 seconds added
    back on because I am losing my time here.
        The Price-Anderson model, which has been suggested by
    Senator Alexander, I have asked for a review of that. And what
    happens there is that the taxpayers are on the hook when the
    liability goes over $10 billion, and then the taxpayers have to
    come in and fund it. The reason I like Senator Menendez's bill,
    which is broad, I like Senator Vitter, the fact that he holds
    BP accountable, but I like the Menendez approach better because
    it includes all companies, is because taxpayers will never have
    to bail out.
        And your point I thought was so well made. We are looking
    at preventing this type of thing from happening. And if there
    is a situation where, like Price-Anderson, where taxpayers are
    on the hook above a certain amount, won't they do what Senator
    Klobuchar said they did with the $75 million, which is to take
    into account what the rules are, and maybe they will cut
    corners because they feel they can rely on taxpayer bailouts.
        Could you respond to that?
        Senator Nelson. Yes, and you already have taxpayer
    participation with regard to the trust fund. And the trust fund
    is for cleanup expenses, and it is at a limited amount of 6
    cents per barrel. You ought to consider raising that to 25
    cents because it is only a matter of something in excess of $1
    billion in the trust fund, and obviously you can see these
    cleanup expenses are going to be enormous. So you have already
    got taxpayer participation.
        This is a question of liability for the overall economic
    damages, and that is where this artificially low limit of $75
    million is completely unrealistic. And if you want to make
    people all the more responsible, they need to understand they
    are going to suffer the economic consequences of paying for the
    damages as a result of their malfeasance and misfeasance.
        May I also say, Senator, when you are considering the
    legislation, you may want to take a good example from the Act
    of 1990 that set up a citizens oversight panel that then looked
    at the implementation of all the clean up and the damages over
    time, and that citizens oversight panel has become most
    effective with regard to the Exxon Valdez. I am going to file
    legislation on that in the next few days and would ask that you
    all consider that as you approach this whole program since you
    are the Environment Committee.
        Senator Boxer. My time has run out.
        Senator Inhofe.
        Senator Inhofe. OK. First of all, let me clarify something,
    and I think it speaks well of both of us, Madam Chairman.
        You mentioned that you were kind enough to let Senator
    Vitter be heard, and I would point out that we didn't know
    about Senator Menendez until Monday at 5 o'clock and Nelson
    until 7:20 last night. And so we didn't object to that, and I
    don't object now.
        But I would like, since Senator Vitter does want to respond
    to many of the things that have been said, for you to go ahead
    and take my time as you see fit to respond.
        Senator Vitter. Thank you, Senator, very much.
        And just to respond to the Chair, my entire point seems to
    be lost on some folks. The point is that we need a permanent
    revision of the law, but there is clearly disagreement about
    how to do that. And that is clearly not happening this week or
    next week. We should have that debate. We should move it along
    as quickly as possible. And I have a proposal which, by the
    way, increases the liability cap on BP to $20 billion, which is
    double the original version that Senator Menendez introduced
    which is before us.
        But in the meantime, I would again urge us and plead that
    we can act to address the ongoing crisis in the Gulf through a
    focused bill. Now, I don't think it hurts Senator Menendez's
    effort at all. In fact I can make an argument that it helps
    build momentum for it, so I don't understand the tremendous
    opposition to it. But again I urge and plead that we come
    together in a bipartisan way, do that immediately, and continue
    to have this debate not for years, but continue to have this
    debate to come toward a permanent solution. And that is all I
    am urging with my bill.
        Senator Inhofe. Madam Chairman, I won't even use the
    remaining 3 minutes that I have, but my staff tells me that it
    was an understanding that we were not going to have questions
    of the Members, and we do have several witnesses that we would
    like to hear from. In fact, they would have answers to a lot of
    these questions, so I would like to move on, if I could, to the
    panelists as soon as possible.
        Senator Boxer. That is fine.
        Senator Lautenberg. Madam Chairman.
        Senator Boxer. Yes.
        Senator Lautenberg. If I may, you were very generous in
    permitting this intrusion into the discussion of the bill at
    hand. And it is obtrusive, and the fact that we had a political
    introduction, DSCC, it shows you the tone, the sincerity with
    which this is delivered.
        Madam Chairman, I want to comment my colleague, Senator
    Menendez, who is diligent about everything he does; excellent
    testimony. I was quick to join him once we saw what the
    liability situation was going to be there.
        And it is customary, is it not, for these Committees to
    generally excuse the Senators after their testimony. And I move
    that we get on with that and get the regular discussion going.
        Senator Boxer. I apologize. I was just wanting to see if we
    could come together here, and I think we may have found a way.
    A friendly amendment to the Vitter bill so that everybody is
    protected is something that I am going to be working on with
    you, Senator Vitter, and you, Senator Menendez. And I
    apologize.
        Senator Vitter. Madam Chair, let me just apologize to
    Senator Lautenberg. As a member of the Committee coming from
    the most affected State by this ongoing crisis, for having the
    gall to have legislation to try to address it now.
        Senator Boxer. That is not what Senator Lautenberg said.
        We are going to move on now. We thank Senators very, very
    much.
        And now we are going to go to our panel: Mr. D.T. Minich,
    Executive Director of Visit St. Petersburg-Clearwater, which
    promotes tourism for key portions of the western coast of
    Florida; Captain Mike Frenette, a professional tournament
    angler and guide and is the owner and operator of the Red Fish
    Lodge located in Venice, Louisiana, which caters primarily to
    anglers. He is also the President of the Venice Charter Boat
    and Guide Association and a member of the Board of Directors of
    the Louisiana Charter Boat Association.
        Mr. R.J. Kopchak. Mr. Kopchak has been a commercial
    fisherman for over 35 years in Prince William Sound, the Cooper
    River Delta, and Northern Gulf of Alaska. In 1989, when the
    Exxon Valdez ran aground, he played a key role in the local
    response to the spill. He is a Board Member of the Cordova
    District Fishermen United, a local fishermen's organization,
    and is the Development Director of the Prince William Sound
    Science Center.
        Mr. Kenneth Murchison is a Professor of Law at the Paul M.
    Hebert Law Center at Louisiana State University, where he has
    been a member of the faculty at the Law Center since 1977 and
    taught environmental law since the early 1980s.
        Mr. Barry Hartman, a Partner with the law firm of K&L Gates
    and a former Acting Assistant Attorney General. Mr. Ron Baron
    is Executive Vice President of Willis Global Energy Practice.
        We want to welcome this distinguished panel, and we are
    going to start with Mr. Minich, Executive Director of Visit St.
    Petersburg-Clearwater.

            STATEMENT OF D. T. MINICH, EXECUTIVE DIRECTOR,
                    VISIT ST. PETERSBURG-CLEARWATER

        Mr. Minich. Good morning. I thank you all for calling this
    hearing today.
        I am the Executive Director of Tourism for the St.
    Petersburg-Clearwater area, which is on the Gulf Coast. When
    you take in Tampa Bay as a whole it is the largest tourism area
    really on the Gulf Coast of Mexico.
        Tourism is the No. 1 industry in the State of Florida, $61
    billion a year; almost a million people are employed in
    tourism. And the reason that for over 100 years many, many
    people have been coming to our State and enjoying our State is
    because of the tremendous beaches and pristine waters that we
    have. And all of that is currently at risk.
        My area alone is a $6 billion industry, tourism, for just
    my county, and there are over 80,000 people directly employed
    in tourism in Pinellas County alone. So you can see that it is
    a very, very big industry, and it is currently at risk.
        You might wonder why I am here talking today because right
    now there is no oil, and for the short term there doesn't look
    like there will be oil on our beaches, but I will get to that
    in a minute.
        We have had experience in Pinellas County with an oil
    spill. In 1993 three tankers collided right at the mouth of
    Tampa Bay, and oil was spilled, and oil ultimately affected 14
    miles of our 35 miles of beach. Now, let me tell you this
    number, and let me tell you it slow. Those three boats and this
    oil spill was 362,000 gallons. That is coming out of there
    every couple of hours, 362,000 gallons. So in terms of gallons,
    in terms of barrels, it was a very minor spill.
        We saw cancellations of 40 percent to 60 percent, and it
    took us 2 years to recover from a relatively small spill that
    was cleaned up in a relatively short amount of time.
        So the effects of this spill are huge and tremendous, and
    no one knows where we are going. This is so uncharted. We don't
    even know how long this is going to affect us.
        I also, because of our concern, have met with some of the
    folks in Alaska tourism, and I have been told some things that
    astounded me. First of all the Valdez was a very small area of
    Alaska. It was concentrated. It was pretty predictable where
    this was going to effect and how it was going to effect, unlike
    the current situation. It took Alaska tourism 5 years of
    advertising, of very, very aggressive advertising to get in
    people's minds that Alaska still was not covered with oil, to
    also understand that this was a very small part. This wasn't
    where the Alaska cruise ships go or anything like that. As you
    have heard, 20 years to get claims back, and they told me no
    tourism entities received any of those claims.
        What it means to us right now is that we are seeing 25
    percent reduction in reservations right now for the summer
    months. We are getting families that are calling in that have
    been coming to St. Pete-Clearwater for years and years and
    years, and they are saying we don't want to risk it. Our hotels
    have all removed the cancellation policies, that they will
    refund the money if they check in and there is oil. But they
    don't want to risk it because they don't want to buy for a
    family of five, five airline tickets that are nonrefundable for
    August, and then when August comes around, and they discover
    there is possibly oil on the beach where they plan to vacation,
    they are not going to get that money back.
        We met with the Governor Monday, and I have a family, the
    Hubbard family, fifth generation operating a marine and fishing
    charter and restaurant on John's Pass, and she was almost in
    tears. The creditors were flying down Tuesday from Des Moines
    to talk to her, and their business is in jeopardy, and they
    have been there five generations, and this business is in
    jeopardy.
        We have been through hurricanes. We have been through
    wildfires. We have been through all kinds of economic ups and
    downs, and this is the worst thing and the scariest thing that
    we have seen in Florida tourism because it is so unpredictable
    and because it has the potential to affect, if it gets in the
    loop current, as Senator Nelson was showing earlier, it gets in
    the loop current, it could affect the Keys. It could affect the
    East Coast. It is already affecting the west coast, and $75
    million is nothing. BP is spending $50 million, two-thirds of
    that on a public relations campaign for their own benefit right
    now.
        We have to lift this cap. We have to remove this cap
    because we don't know where this thing is going. This could
    affect us for 20 years or more.
        [The prepared statement of Mr. Minich follows:]

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        Senator Lautenberg [presiding]. Thank you very much.
        Mr. Frenette.

                 STATEMENT OF MIKE FRENETTE, CAPTAIN,
                         VENICE CHARTER FISHING

        Mr. Frenette. As you can see, there will be some pictures
    that will be scrolling with my testimony here.
        First of all, I would like to thank everyone on the
    Committee for the opportunity to express my comments relative
    to the modification of caps on liability in the Oil Pollution
    Act of 1990. We are all aware of BP's tragic accident that
    occurred April 20, 2010. At this time I would like to extend my
    sincere condolences to the 11 families who immediately saw the
    effects of these lost 11 lives. I think that is very important.
        Twenty-nine years ago I pursued my dream, turning a passion
    into a business, and today I own a lodge located in Venice,
    which is in the heart of the Mississippi Delta, the area where
    the impact of this oil spill hit immediately and is affecting
    us until this day. It will continue to affect us.
        The rich estuary feeds into the Gulf of Mexico and creates
    life for more than 400 marine and coastal fish in addition to
    wildlife species. The near-offshore waters of the Gulf as well
    as the intricate inshore waters incorporate a complex system of
    bays, bayous, canals, and marshland that are the breeding
    grounds for the majority of these species.
        The delta is the spawning grounds for countless numbers of
    marine life, mammals, and birds. Included in this beautiful one
    of a kind estuary the ecosystem is brought to a full circle. It
    all begins in this estuary, starting from the plankton and the
    invertebrates, to the eggs and larva of numerous marine lives,
    to the delicious seafood that the entire country, as well as
    the rest of the world, enjoys. Yes, this estuary is home to 30
    percent of the seafood that is cultivated for the United States
    and is the area where 70 percent of Louisiana seafood is
    cultivated.
        This is the home for jumbo shrimp, oysters, blue crabs, and
    more fish than I have time to mention. Within this delta region
    thousands of commercial fishermen, charter fishermen and
    guides, recreational fishermen have a strong economic impact on
    Louisiana's economy.
        Let's put this into perspective. The following industries
    which are directly impacted by this disaster contribute the
    following sums annually to the local economy: oyster industry,
    $317 million; the shrimping industry, $1.3 billion; blue crab
    industry, $293 million; Louisiana's charter boat and guide
    industry, $419 million; recreational fishing alone in
    Louisiana, over $1 billion. And again the area that is affected
    the most was Plaquemines Parish, where I am from, where 70
    percent of the seafood is cultivated and harvested.
        At this point oil covers many miles of the estuary, and
    quite honestly a large part of it is dying daily as a result of
    the spill. Vegetation that was once green is now covered with
    oil, and more and more areas are dying as I speak. As the oil
    saturates the delta area it is saddening to see the devastation
    that I have personally observed. Oiled birds, oiled crabs, and
    dead fish floating in oil saturated areas are sights that quite
    honestly have brought tears to my eyes.
        This devastation is not a natural disaster. This disaster--
    and it truly is a disaster of great magnitude--was created by
    man, a disaster that I truly feel could have been avoided. Oil
    companies at this time have the opportunity to hide behind a
    veil of a $75 million liability cap, a cap that obviously would
    not cover the economic losses that the hard working people of
    this beautiful part of the United States are currently
    experiencing and will continue to experience for quite some
    time.
        I am sure that there will be arguments from the oil
    industry side as to how they will be affected if the $75
    million cap is lifted. But I ask: Should corporations that net
    billions of dollars annually be allowed to hide behind a
    protective veil of liability cap even while their actions
    devastate thousands of lives?
        The possibility truly exists for many livelihoods to cease,
    livelihoods that have existed for generations, and now are on
    the brink of financial disaster because of poor decisions by a
    super-corporate entity that has created the worst oil spill in
    the history of the coast of Louisiana.
        Profits in the oil industry can be tremendous, and of
    course I understand for super-corporate companies to make great
    profit they need to take a great financial risk as well. But
    the risk should be just that, financial. Why should our
    environment, our way of living, our livelihoods be included in
    those risks? Our industry as well as other industries that I
    have previously mentioned have come to a halt.
        Fishing, both commercial as well as recreational, is shut
    down. Our estuary, or I should say your estuary, is under siege
    at this moment by chemicals that could have permanent
    devastating results not only to the fisheries but
    catastrophically to humans in the form of a collapse of a
    strong economic catalyst that drove not only Plaquemines Parish
    but unfortunately stretches across the Gulf and now in a
    rippling effect that covers the United States.
        At a minimum BP or any other oil company that is deemed
    responsible for damages to wetlands, wildlife, and fisheries
    and for the economic damages to individuals and businesses
    should be held accountable for these damages. The wetlands,
    wildlife, and fisheries should be returned to their original
    condition or even better that existed prior to any spill.
        It is impossible to clean these wetland areas, and BP
    should be held accountable for restoring the productivity,
    vibrancy, and reintroducing the water and sediments of the
    Mississippi River that can make these areas sustainable.
    Additionally, every human being or business that was affected
    as a result of the oil spill and governed under the OPA should
    be compensated for every current and further loss that is
    attributed to this accident.
        Please do not allow my dream and that of many others,
    including my two sons, to vanish. BP, including Mr. Tony
    Hayward himself, has stated on many occasions that they will
    restore the wetlands, wildlife, and fisheries back to the
    original condition, in fact, if they can, even better than
    before, and they will make every individual or business who has
    been affected and experienced a loss as a result of this
    tragedy whole no matter what.
        If Mr. Hayward stands by this statement, then I say to each
    and every one of you, it is time to lift the $75 million
    liability cap and truly hold any company that recklessly
    creates such a disaster responsible for their actions.
        Thank you.
        [The prepared statement of Mr. Frenette follows:]

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        Senator Boxer. Thank you very much. And I might thank you
    for providing these photographs, and thank you for your
    heartfelt testimony.
        Mr. R.J. Kopchak is a commercial fisherman for over 35
    years in Prince William Sound.
        Mr. Kopchak.

     STATEMENT OF R. J. KOPCHAK, CORDOVA DISTRICT FISHERMEN UNITED
                AND PRINCE WILLIAM SOUND SCIENCE CENTER

        Mr. Kopchak. Thank you, and again our hearts go out to
    those who lost their lives and to our fellow fishermen and
    their families and assorted businesses in the Gulf.
        In 1989, when the Exxon Valdez ran aground, I was the Vice
    Mayor of Cordova. I organized the Cordova Oil Spill Response
    Center to coordinate immediate community-based response and
    also incorporated the Prince William Sound Science Center where
    I served as their President.
        The Center is home for the Oil Spill Recovery Institute,
    which was created in OPA 90 to complement State and Federal
    efforts over the long timeline of oil spill recovery. I have
    served on the Public Advisory Committee of the Oil Spill
    Trustees and organized and chaired the Herring Recovery
    Planning Team in an effort to better understand why Pacific
    herring have yet to recover from the spill.
        I was an owner and board member of the Copper River
    Fishermen's Cooperative, a small fisherman-owned processor. I
    am a board member of and active in the local fishermen's
    organization, Cordova District Fishermen United, and recently
    rejoined the Science Center as their Development Director.
        My background offers unique perspectives, but I speak today
    on my own behalf and represent no organization.
        I share with you a real life example of the potential
    impact to the Gulf fisheries from the long-term oil damage and
    what level of liability might arise from the loss of just one
    fishery to just one community if in fact we were to make
    fishermen whole.
        Like the timing of the Gulf of Mexico spill, the Exxon
    Valdez spill coincided with the spring reproductive season.
    Like the shrimp in the Gulf, our herring were about to spawn.
    Herring eggs were laid on oiled beaches, and emerging herring
    larva drifted with the chemical soup that was a result of the
    spill, the dispersants and the recovery operations.
        Studies following the oil spill revealed that fish eggs and
    developing embryos and larva could be damaged at exposures to
    oil as small as parts per billion, not in the parts per million
    as we previously thought prior to Valdez. Herring mortality
    skyrocketed over the next 4 years, resulting in the collapse of
    the herring population. Twenty-one years later, herrings are
    still listed as damaged and not recovering from the spill.
        Once over 1,100 people directly participated in our herring
    fishery. Small and mid-sized family fishing vessels with
    between two and five crewmen harvested herring and herring egg-
    covered kelp for special markets in Japan. In addition to 500
    herring harvest permit owners, who operated about 300 vessels,
    about 40 spotter pilots and about 300 folks who picked kelp and
    harvest by hand participated in the fishery. Fish processors
    employed another 200 in shoreside jobs that depended on the
    herring fishery as much as the commercial fishermen.
        The value of the herring permits that were owned in 1989 by
    commercial fishermen exceeded $34 million. Today those permits
    are worth nothing, zero. Since 1994, the year litigation ended
    and the Exxon appeals began, herring fishermen have lost over
    $166 million. No compensation for these losses, they were post-
    litigation.
        In addition to what fishermen were not paid, the impact to
    the regional seasonal economy is estimated at over $650
    million. That is about a 4-time multiplier. They use 10-times
    multipliers in the Great Lakes region: wholesalers, retailers,
    packaging, shipping, local grocery stores, marine repair,
    restaurants and hotels, fuel distributors, longshoremen, to
    name a few. Lost fish tax revenue added another $6 million of
    losses to my community, or if you added all of the lost fish
    tax, about $18 million to all of the impacted communities.
        My family is representative of those still being impacted.
    Our two herring permits have gone in value from $145,000 to
    zero. Herring equipment once worth over $50,000 is today of no
    value. As an average fisherman I wasn't a high-liner. We made
    about $28,700 a year. If you count it up, over $460,000 in lost
    revenues in the 16 years. If you add it all together, the
    equipment, the permit value, and the lost revenues, $650,000 in
    lost revenues to my family.
        In addition to herring we lost our fisherman-owned
    processing cooperative, the Copper River Fishermen's Co-op had
    135 fishermen-owners and depended on the banks for financing.
    That is the money we needed each year to buy, process, market,
    and distribute our fishery products. With the interruptions in
    product availability, the banks withdrew their financing, and
    we lost our equity, over $3 million.
        Cordova used to wake up from the winter sleep in mid-March
    each year when the herring fishermen began to arrive to prepare
    for the season. It is now early May. A 6-month economic window
    is now only 4 and a half months long, and one of our major
    economic drivers is gone.
        A $75 million limit in liability is a disservice to the
    working class men and women most impacted by the careless and
    maybe perhaps criminal actions of one of the world's most
    profitable businesses.
        One last comment. Limiting liability also affects
    restoration, recovery monitoring, and punitive damages. Courts
    could limit these awards to a percentage of liability, severely
    restricting the funds available for recovery and recovery
    monitoring.
        And what about long-term liability? The herring fishermen
    have experienced 16 years of collapse; no compensation for
    those liabilities.
        We encourage you to deal with this. Limiting liability in
    oil spills transfers economic impact from those responsible and
    most able to pay to those who are victimized; who have lost
    their way of life and perhaps their ability to make a living.
        Thank you.
        [The prepared statement of Mr. Kopchak follows:]

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        Senator Boxer. Thank you very much.
        Mr. Kenneth Murchison, Professor of Law at the Paul Hebert
    Law Center, Louisiana State University.

     STATEMENT OF KENNETH M. MURCHISON, PROFESSOR, PAUL M. HEBERT
                 LAW CENTER, LOUISIANA STATE UNIVERSITY

        Mr. Murchison. Chairman Boxer, Ranking Member Inhofe,
    members of the Committee, thank you for inviting me to appear
    before you today. As the Chairman indicated, my name is Ken
    Murchison. I am the James E. and Betty M. Phillips Professor at
    the Paul M. Hebert Law Center of Louisiana State University.
        The views I express today are my personal opinions. They do
    not necessarily represent the views of the Law Center, the
    University, or the State.
        I have been a member of the faculty at the Law Center since
    1977, and I have regularly taught environmental law since the
    early 1980s.
        My written statement briefly describes the liability
    provisions of the Oil Pollution Act. I will not repeat that
    summary except to note that the Oil Pollution Act creates
    strict liability subject to very narrow defenses for removal
    costs and damages, which includes damages to natural resources
    and property, as well as most economic losses suffered by
    individuals, businesses and government. The $75 million cap
    that S. 3305 proposes to raise applies only to damages under
    the Oil Pollution Act when the damages result from a spill from
    an offshore facility.
        S. 3305, as you know, changes the limitation of this
    liability damages by increasing that amount for which a
    responsible party can be held liable from $75 million to $10
    billion. In my judgment, both economics and morality support
    the proposed change.
        The economic case for increasing or eliminating caps on
    liability is relatively straightforward. Immunizing a
    commercial actor from bearing all the economic costs associated
    with its operation has the effect of under-deterrence. That is,
    the actor will engage in conduct that would not be profitable
    if the actor bore the full economic cost or would forego safety
    or environmental controls that would be cheaper than paying the
    costs the actor is avoiding.
        The question of immunizing economic actors from full
    liability also has a moral dimension. If a disaster occurs the
    amount of damages that individuals and property owners suffer
    does not decline because an actor is not required to pay the
    full cost associated with the economic activity.
        Instead some people suffering the injury are not
    compensated at all, or each person suffering injury recovers
    only a portion of the damage. In either event individuals with
    no connection to the economic activity suffer injury and are
    forced to bear the costs of the loss. The cap is, in effect, a
    contingent tax on a group not directly involved with the
    economic activity.
        A basic principle of justice suggests that it is fair to
    make the party who experiences economic gain of the activity
    bear the loss, rather than the innocent bystander. This
    principle of fairness seems to be particularly applicable to
    the present spill in the Gulf of Mexico, where many thousands
    of innocent property owners and businesses have suffered losses
    that threaten their livelihood and financial well being.
        Some have expressed concern that eliminating the limits on
    liability will preclude smaller companies from drilling
    operations and lead to further domination of drilling
    activities by a small group of major companies. But even if one
    assumes the domination of drilling activities by major
    companies could increase because of the liability risk
    associated with unlimited damages, a damages cap is a
    particularly inappropriate way of responding to that market
    imperfection when other fairer methods of spreading the risk
    are available.
        Obviously, smaller companies could establish contractual
    arrangements that would share the risk. If those private
    arrangements are inadequate, the Government could create
    mandatory pooling arrangements to which all participants in
    drilling activities contribute in proportion to their
    involvement in drilling activities.
        Some others who oppose responding to the Gulf tragedy with
    an initial focus on the damage cap argue the cap is a minor
    aspect of the problem revealed by the Gulf release. In making
    this argument they emphasize the several reasons that BP's
    liability for the Gulf bill will greatly exceed $75 million.
    These opponents of the statutory change in the liability cap
    are correct that the $75 million limit is not an absolute cap
    on all liability for releases in the Gulf of Mexico. I think
    they underestimate the impact of the cap, and so I support the
    change proposed in S. 3305.
        My comments to this point reflect my views as an
    environmental law professor whose career is nearer its end than
    its beginning, but I am also a citizen of Louisiana with deep
    roots in the State. I think I am like most Louisianans in my
    reaction to the catastrophe unfolding in the Gulf. We are
    dismayed by the horrific damages to one of the richest
    ecosystems, but we are not primarily concerned with fixing
    blame, and we are emphatically not looking for a handout.
        We are interested in seeing fair compensation for the
    tremendous loss we have suffered and seeing meaningful reforms
    that will lessen the likelihood of a similar disaster and
    provide an improved response when the next oil spill occurs.
        Thank you for the opportunity to appear today. If you have
    any questions regarding the matter, I will certainly be happy
    to try to answer.
        [The prepared statement of Mr. Murchison follows:]

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        Senator Boxer. Thank you so much, Mr. Murchison.
        Mr. Barry Hartman, a Partner with the law firm of K&L Gates
    and former Acting Assistant Attorney General, welcome.

           STATEMENT OF BARRY M. HARTMAN, PARTNER, K&L GATES

        Mr. Hartman. Thank you very much, Madam Chairman, Ranking
    Member Inhofe, and members of the Committee. I appreciate the
    opportunity to be invited here today. I will keep my remarks
    very brief.
        My perspective on the cap issue comes from my experience,
    and I speak today only of my personal experience, not my
    clients' views or my firm's view.
        In 1989 when I was at the Justice Department, I was
    responsible for overseeing and ultimately negotiating the final
    plea and civil and criminal agreements in the Exxon Valdez
    case. Since that time I have had the privilege of representing
    the Rhode Island Lobstermen's Association in Senator
    Whitehouse's State in connection with the North Cape oil spill
    back in 1996, so I have seen this from the viewpoint of the
    victims as well.
        I have also represented individuals and companies who are
    on the receiving end of civil and criminal charges. So I will
    try to provide you with a perspective of seeing this from many
    different views.
        The purpose of my testimony is to briefly provide you with
    my views on the question of whether the current cap on
    liability under OPA should be changed, and if so by how much.
    Needless to say, this is an important issue. The liability
    scheme under OPA and other laws is extraordinarily complicated
    and detailed, and you must carefully consider how changing that
    liability scheme and the cap affects other provisions of the
    law because I am sure nobody wants to change one provision and
    have an unintended bad effect on another. So I will simply
    raise the following issues that should be taken into account.
        First of all, is the existence of this cap under OPA the
    real issue given the many other bases for liability that exist
    under the law? What is the relationship of the cap to the
    current trust fund which has, I believe, $1.6 billion available
    to back up a party who may not be available to pay for its own
    damages?
        If the purpose of the liability cap is to ensure there is a
    source of payment for damages, some suggest that it would
    create a disincentive if the cap were removed to engage in
    conduct that would be risky. My experience is that under
    current Federal laws there are extraordinarily more effective
    civil and criminal remedies that already provide a much greater
    financial and personal incentive, not the least of which is the
    Alternative Fines Act. And those things are the things that are
    going to cause companies and individuals to act properly, I
    believe, as opposed to a liability cap that might or might not
    be real in the first place.
        Is the reason for increasing the cap because it doesn't
    cover most spills? That is something I think the Committee
    should look at very carefully. The Coast Guard did a study from
    2004 to 2009 which I read to say that there were no spills that
    resulted in damages where they were not paid as a result of the
    cap being exceeded. It is not to say the cap shouldn't be
    changed. It is simply a fact that I think you should take into
    account.
        What is the relationship between the cap and the current
    financial assurance requirements that exist under OPA? Under
    OPA, a company must show that it can pay what the cap is. If
    there is no cap, what will be the financial assurance
    requirement? I learned in law school my first day in civil
    procedure that you can't get blood from a stone. So you can
    have unlimited liability, but if the people who are responsible
    don't have the money to pay and don't have financial assurance,
    I am not sure what that gets you. A study by Resources for the
    Future suggested this as well.
        The OPA liability limits are part of a much more complex
    structure, as I mentioned. There are civil and criminal
    remedies available. There are State law remedies available.
        In the current Gulf situation, I would submit the following
    observation. I think that the OPA statute and the liability cap
    have been rendered kind of irrelevant. I believe there have
    been over 6,000 lawsuits filed so far in State courts, and I
    think some Federal courts along the Gulf States where there are
    no limits on liability.
        So the question is if you want to increase the liability
    limits under OPA, it might be a good idea, but do you want
    people to get into the OPA compensation process which was
    designed to get compensation for people more quickly? And are
    there going to be incentives created to cause people to want to
    go into that process rather than simply going to court? If they
    are just going to go to court, it kind of doesn't matter that
    there is an OPA at all because there is no liability limit
    there.
        Thank you very much for the opportunity to testify. I am
    happy to provide any answers to questions, and as others have
    said, my heart goes out to those in Louisiana and other places
    who have been impacted by this.
        [The prepared statement of Mr. Hartman follows:]

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        Senator Boxer. Thank you so much, sir.
        Mr. Ron Baron, Executive Vice President, Willis Global
    Energy in Texas.
        Correct, sir?
        Mr. Baron. Yes.
        Senator Boxer. Welcome, sir.

    STATEMENT OF RON BARON, EXECUTIVE VICE PRESIDENT, WILLIS GLOBAL
                     ENERGY, WILLIS OF TEXAS, INC.

        Mr. Baron. Good morning, Madam Chair Boxer, Ranking Member
    Inhofe, and members of the Committee. On behalf of Willis I
    would like to thank the Committee for inviting me to testify.
        My testimony is focused on the energy insurance market
    capacity for two kinds of risk related to offshore exploration
    and production activities. They are third party liability,
    including pollution and control of well risk.
        There is a worldwide insurance market for offshore energy
    risk. The traditional leading market is Lloyds of London. There
    is a finite amount of capacity available from the market which
    varies depending on the type of insurance coverage being
    provided as well as other factors. Generally speaking third
    party liability insurance provides coverage for property damage
    and bodily injury liability arising from a company's
    operations. Control of well insurance provides coverage for
    costs and expenses in controlling a well, re-drilling,
    pollution clean up, and containment.
        Another product offered by the market is oil spill
    financial responsibility certification. This product is
    typically backed by corporate indemnities and/or control of
    well and excess liability insurance maintained by the company.
        When talking about capacity, I will use two descriptive
    words: theoretical and working. Theoretical capacity is the
    maximum dollar amount that the market could commit to any
    single risk. Working capacity is the dollar amount that the
    market would actually commit to any single risk.
        For working capacity the third party liability insurance
    coverage offshore of the United States is in the range of $1.25
    billion to $1.5 billion. The theoretical capacity for third
    party liability is close to $1.9 billion. The working capacity
    for well risk is in the range of $600 million to $750 million.
    Theoretical capacity for these risks is closer to $1 billion.
        It is important to note that here is a standard provision
    in both the third party liabilities and control of risk
    policies that reduces the limits of coverage provided by the
    insurance market. That provision spells the limit of coverage
    to the percentage interest that the insured has in a well.
        As an example, if a company has a 50 percent interest in a
    well, and their policy provides $400 million of limit, then the
    limit of coverage for that well under their policy would scale
    down to $200 million. The working capacity for all spill
    financial responsibility certification is even more limited,
    and I would estimate the top range to be no more than $200
    million.
        As a consequence of the Macondo well incident, there was a
    reduction in the capacity being offered by the insurance market
    to third party liability and control of well coverage. Also,
    the cost for this coverage has increased. The magnitude of
    increased premiums has and will vary dramatically on the
    profile of the particular insured, which would include their
    exposures, operating areas, and loss experience.
        We have begun to see some new capacity coming to the market
    due to the higher premiums that are being charged. In
    particular we know of one insurance company who has provided
    some pricing indications to a number of interested buyers for
    additional limits of excess third party liability. And we
    understand those amounts are in the range of $500 million to $1
    billion.
        We have heard that another insurance buyer has given their
    broker an order to secure coverage in the amount of $1 billion
    overall limit for their control of well coverage. But to date
    that placement has not been completed due to lack of capacity.
        In addition to the capacity available from the commercial
    insurance market, there is an oil industry association in
    Bermuda. There are 54 member companies, half of which are
    engaged in exploration and production activities. The coverage
    provided by OIL includes property damage or loss, control of
    well, and pollution risk. However, OIL membership is restricted
    to companies with a minimum of $1 billion of gross assets, and
    some companies are not comfortable with the mutual concept.
        The actual working capacity in the insurance market as of
    today is in a state of flux. And although increased premiums
    could attract additional capacity over a period of time, it
    will not be sufficient to satisfy the liability and financial
    responsibility limits being proposed under Senate Bill 3305.
        Thank you.
        [The prepared statement of Mr. Baron follows:]

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        Senator Boxer. Thank you so much.
        I want to read to the panel what BP said on its permit
    application when it applied to get a permit for this particular
    well. It said the following: ``In the event of an unanticipated
    blowout resulting in an oil spill, it is unlikely to have an
    impact, based on the industry-wide standards for using proven
    equipment and technology for such responses and implementation
    of BP's regional oil spill response plan which addressed
    available equipment and personnel, techniques for containment
    and recovery and removal of the oil spill.''
        That is what they said. They said they had the ability to
    respond with proven equipment and technology.
        Then after it happened, this is what they said: ``All the
    techniques being attempted or evaluated to contain the flow of
    oil on the sea bed involves significant uncertainty because
    they have not been tested in these conditions before.''
        So before they got their permit they said everything was
    fine. They had proven ``equipment and technology'' for such
    responses. I quote them.
        Eight Members of the Senate--I think all on this
    Committee--sent a letter to the Justice Department asking for
    an investigation, criminal and civil investigation, into
    whether these were false statements. I want to know if any
    member of the panel disagrees that there ought to be an
    investigation into whether or not BP told the truth in the
    permit. Does any member of the panel disagree that there ought
    to be an investigation into this?
        OK. Thank you.
        Mr. Minich, the size and importance of the tourism industry
    to Florida's economy is remarkable. In my home State of
    California, coastal tourism, recreation, and fishing generate
    $23 billion in economic activity and 388,000 jobs. Now, I just
    have a simple question because frankly I am married to a
    lawyer. My father is a lawyer. My son is a lawyer. Will they
    listen to Mr. Hartman and all the technicalities?
        I would like to strip that away and ask a direct question
    so we keep our eye on what we should be doing here, in my
    opinion, and that is, again, do you think that those who caused
    the disaster should be held accountable?
        Mr. Minich. Absolutely, 150 percent, they should be held
    accountable.
        Senator Boxer. OK. Then you think they should be held
    accountable whoever they are if they did this damage.
        Mr. Minich. Absolutely. There is no question.
        Senator Boxer. Does anybody have a disagreement with that
    on the panel?
        Well, then I think we are speaking, I mean the panel is
    basically saying by your silence to this that we ought to move
    and hold people accountable. And I guess I am going to try, Mr.
    Hartman, in an attempt to understand better what you were
    saying.
        Don't you think it would be a good idea to simplify what we
    are doing here because if there is a lot of confusion
    surrounding it, you wind up 21 years in court? Now, I know you
    have represented Halliburton in the past. Are you representing
    them, your company, in this particular matter?
        Mr. Hartman. Madam Chairman, my firm does not represent
    anybody involved in this spill at all.
        Senator Boxer. OK. That is good. We had your client list.
    They were on it, but you don't represent them in this, so that
    is good. So you don't have any conflict, so I am going to ask
    you this question.
        If we had a very straightforward bill that simply said to
    the oil companies who undertake this, or gas companies, that
    you are responsible not only for the full clean up, which they
    are now under law, the clean up they are responsible for, but
    also to make whole the Mike Frenettes, the R.J. Kopchaks. Don't
    you think it is cleaner to just say you caused the damage, you
    pay the damage, period, end of quote.
        And don't you think it will be, as the panel so testified,
    because we would have that simple approach, a way to avoid this
    from happening in the future? Because don't you agree, because
    you are an attorney who has represented people, you said
    yourself, who get sued, that many times, and we learned this
    from a lot of the automobile crash tests, that companies put
    into their balance sheets what the costs are if there is an
    accident?
        If they have no limit, and they just have to step up and
    pony up to make people whole, won't that be a deterrent from
    what happened?
        Mr. Hartman. Well, Madam Chairman, as somebody who is
    related to many lawyers, I am sure you will appreciate that I
    am going to say it is a complicated question. But fundamentally
    I think that is what the laws currently do. Do they all work
    right? No. Are they complicated? Yes. There have been issues
    for years and years about should you preempt State laws and
    make one simple Federal remedy. Twenty years ago when I was
    involved with OPA, for the Justice Department these were the
    same issues. And they are legitimate questions. They are just
    complicated.
        Senator Boxer. OK. Well, let me just finish by asking Mr.
    Murchison how he feels. Because in my view if you say that is
    what the law is supposed to do, and 21 years later in Alaska
    they still haven't cleaned up the mess, and people got $15,000,
    people who lost $650,000. Do I remember that right? That did
    not resolve. The current law did not resolve anything. That is
    why we changed it, but it still has problems.
        And I would just close and ask Mr. Murchison to respond to
    whether or not a very straightforward, simple deal: you make
    the mess, you clean it up, and you make people whole.
        Mr. Murchison. The short answer I would give would be yes,
    but I would agree that there are complications in terms of the
    financial responsibility that the Committee will need to deal
    with going forward. But I would start with the problem of
    saying that those who cause the injury--and not the innocent
    people--ought to bear the loss.
        Senator Boxer. And that is what has happened in Alaska. We
    heard it right here.
        Mr. Murchison. That is what is happening right at this
    moment in the State of Louisiana.
        Senator Boxer. It can't happen in Louisiana because we are
    going to hold BP's feet to the fire on it, and I am going to do
    everything I can, with my colleagues, to make sure it doesn't.
        I am going to ask Senator Inhofe to go next, and I am going
    to give the gavel to Senator Lautenberg because I have to be at
    a 12:30 meeting with the Majority Leader.
        Senator Inhofe. And since I wasn't invited to the 12:30
    meeting with the Majority Leader, I will go next.
        [Laughter.]
        Senator Inhofe. First of all, I have eight documents, four
    from the insurance industry, two from industry, and two from
    expert witnesses and ask consent that they be made part of the
    record.
        Without objection, so ordered.
        Senator Lautenberg [presiding]. Without objection.
        [The referenced documents follow:]

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        Senator Inhofe. Mr. Baron, I don't think there is a Member
    of Congress who doesn't agree that the limits that were put in
    place back during the Exxon Valdez--I happened to be in the
    House at the time. I actually went up there. I am very familiar
    with the process that took place. But that $75 million is too
    low, we all understand that, and it certainly needs to be
    changed. And I made that very clear on the floor when I
    objected to the Menendez motion on the $10 billion. I think
    that is arbitrary.
        But let me just ask you, this is kind of hard to answer,
    but kind of guess with me on this. If we were to raise that to
    $10 billion or eliminate the caps altogether, about how many
    companies, roughly, would be left to explore and produce in the
    Gulf?
        Mr. Baron. I am really not in a position to comment about
    how many companies would be left. I can say that from an
    insurance market standpoint, there is not sufficient capacity
    to provide companies insurance protection to limits which are
    being proposed.
        Senator Inhofe. Well, the big five, I would contend, and
    this is an argument I made on the floor, may be the last ones,
    along with the national oil companies, if it were raised to $10
    billion. Do you strongly disagree with that?
        Mr. Baron. No, I do not.
        Senator Inhofe. And BP is one of the big five. In other
    words, if we raised it up, I would say this would put them in a
    more advantageous position than they would be in today. That is
    my opinion.
        If that were raised up there, how many of the independents,
    let's take the next step down below the five majors, would be
    able to purchase insurance to be able to operate?
        Mr. Baron. Well, again, there is not sufficient capacity
    from the insurance market to meet these proposed limits, and I
    believe that then you would have to rely on their balance
    sheets and their ability to demonstrate the financial
    responsibility test.
        Senator Inhofe. Yes. My concern and the reason for
    mentioning this is that I am one of these few in Congress who
    believes in order to run this machine called America we have to
    have fossil fuels. And one of the great sources is offshore. I
    know a lot of them, in fact we are suppliers in my State of
    Oklahoma, as are many who are out there. And it would appear to
    me that if we were to take the cap altogether off it could be
    instituting a de facto ban on offshore drilling. Do you think I
    am unreasonable in coming to that conclusion?
        Mr. Baron. No, Senator.
        Senator Inhofe. Mr. Hartman, you used a term that I asked
    the staff about, and I wasn't familiar with it and they weren't
    either. Maybe you could help us out. You said Alternative Funds
    Act or Fines Act. What were you saying? Would you repeat that?
        Mr. Hartman. The Alternative Fines Act is under title 18 of
    the U.S. Code, and it gives a court the discretion to fine
    anyone convicted of a covered crime an amount equal to twice
    the economic harm caused by the crime or twice the economic
    gain as a result of the crime. That has been on the books for a
    number of years. It was the statute that was used in the Exxon
    case that resulted in the $1.1 billion resolution instead of
    $25,000 a day.
        Senator Inhofe. I see. Well, that is interesting. Our staff
    is going to look into that because as we progress on this thing
    that might be a place to be looking.
        Let me ask you a question that I think is very basic, and
    maybe everyone knows the answer but me. Many years ago I was a
    claims adjuster. That is what I did for a living. Establishing
    losses is something that is not an easy thing to do. Under the
    CRS report there are six categories of economic losses and
    different types of economic losses and natural resource
    damages. I have put them in those two categories because I
    think that is where this comes in.
        And I would like to have you tell us first of all the
    relationship between the way the current claims process is
    operating and the current liability cap. Would this bill as
    written or any other bill that simply raised or removed the cap
    altogether have any effect on the claims process?
        Mr. Hartman. In partial response, and the Chairman made the
    observation about what happened in Alaska, of course, that was
    before OPA was passed. And one of the purposes of the Oil
    Pollution Act and that process is to provide a quicker and more
    expeditious claims process. And the incentive for people to go
    into that process, at least in my experience, is that it is
    easier to prove the loss and the damages in that process than
    it is in court, and you don't have to prove liability that you
    have to prove in court.
        Senator Inhofe. I see.
        Mr. Hartman. But of course, that process is only available
    for claims under OPA. If I understand your question, if you
    expand or make it an unlimited liability amount, I suppose more
    claims, if there are claims beyond $75 million, could go to
    that fund. Hopefully, it would create an incentive to make more
    people go to the fund and they wouldn't have to wait 20 years
    for recovery by having to go to court.
        I don't know if I have answered you.
        Senator Inhofe. Yes, you have. And all the way through this
    thing, I have been wondering when they talk about economic
    damages, that sounds good. That sounds easy. And certainly you
    folks know what economic damages that you would feel you would
    be entitled for some kind of remedy or recovery, but it is not
    an easy thing to address. It is very complicated.
        OK, for the record I would like to ask you to submit to me
    some of the complications in determining economic losses, as
    well as natural resources damages. Is that fair?
        Senator Lautenberg. I have no objection.
        Senator Inhofe. OK. Good. Thank you very much.
        Senator Lautenberg. Thanks very much.
        I am going to turn my question period over to Senator
    Klobuchar, and we will continue. I will pick up after that.
        Senator Klobuchar.
        Senator Klobuchar. Thank you very much, Senator Lautenberg.
        And thank you to all the witnesses, and thank you for being
    patient.
        I just would like to hear from some of the people who are
    in the Gulf area. I am particularly, Mr. Minich, sympathetic
    about the tourism industry. That is the Subcommittee I chair on
    the Commerce Committee. I know what a rough time the tourism
    industry has had. People don't realize that one of eight people
    in this country is employed in tourism. Every percentage point
    we lose of tourism costs us 170,000 jobs in this country.
        So one of the things I was wondering about is how people
    are actually sort of feeling down in the Gulf. Do they truly
    believe that BP is going to compensate them? And are they aware
    of what happened with Exxon with that continuing lawsuit and
    how it took 20 years for the fishermen, to our people from the
    fishing area, to collect their damages? And are they concerned
    about this?
        Mr. Minich. A lot of folks in the tourism industry are not
    aware of the 20-year situation. We are all extremely, extremely
    worried about the situation. And there is no one in the tourism
    industry, if they get any compensation, they are not going to
    be fully compensated because we are seeing anywhere from 20
    percent to 30 percent reduction in reservations for the rest of
    the summer. Well, you can't turn in a claim for that. That is
    just lost business. It is gone.
        In our county, we are tracking dollar amounts for
    cancellations. If they are canceling an entire week's stay, we
    have a dollar amount that we can put toward that.
        But the situation, too, is that there is so much
    uncertainty with this particular spill and where it is going
    and what it is going to do and how long it is going to be
    around that. Twenty percent of just Pinellas County alone, 20
    percent of our summer business is European. And they don't want
    to make that long haul flight and come over here and have
    something happen.
        So we are very concerned. The tourism industry in Florida
    was just making the turn from the last 2 years of the terrible
    economy. We felt really good about things in April. The
    indicators were up. Everything was positive, and then this
    thing hits April 20th, and it was downhill from there.
        Senator Klobuchar. And the fishing perspective on this?
        Mr. Frenette. What I certainly can say, and reiterate what
    he just said, but since April 20th and about 5 or 6 days after
    that, our area, which was immediately impacted, the estuary,
    was completely shut down for fishing. My business was
    completely shut down.
        Senator Klobuchar. I have no doubt about the damages. I am
    just wondering if people believe some extra protection would
    help them. Or do they think BP is just going to pay?
        Mr. Frenette. I think everybody has a lot of doubts, a lot
    of questions, especially from what happened with Valdez. Pretty
    much everybody in our area is aware of that and how long it
    took. We are really concerned about comments that have been
    made by Mr. Hayward from the inception of this accident. And
    quite honestly nothing really has been done yet other than a
    small disbursement of checks to some people. It is hard. Do I
    have complete faith? Absolutely not.
        Senator Klobuchar. All right. My other perspective, just
    from being not in the Gulf region, being a land of 10,000 lakes
    as opposed to the Ocean State of Rhode Island, is just that the
    taxpayers of my State and others not have to pay for this when
    BP clearly made some decisions that were wrong decisions.
        And I am again wondering if we don't raise the cap, who do
    people think is going to pay for this? Is it the taxpayers?
        Mr. Baron, do you think the taxpayers should be paying for
    this?
        Mr. Baron. No, I don't.
        Senator Klobuchar. All right. So you believe that BP should
    be paying for it?
        Mr. Baron. Yes.
        Senator Klobuchar. All right. Then our concern here, as
    expressed by people in the communities, is just that we have to
    make sure that they pay for it.
        The last series of questions I want to ask is just about
    this incentive going forward, which I identified in my opening
    statement.
        If we are going to have a $75 million cap, and BP made $16
    billion last year, how is it an incentive for them to take
    safety measures, we know it is now, but in other ways going
    forward, if we don't at least have a realistic cap for the
    damage that it causes?
        And I wondered, Mr. Murchison, if you would comment about
    that incentive issue. I believe that if you bask in the rewards
    and make $16 billion a year, you should also have some
    liability for this. As I said yesterday at our Judiciary
    hearing, if an ethanol or a biofuel plant blew up in the middle
    of a corn field in Minnesota, they would be liable. If a wind
    turbine or a solar panel created some damage, they would be
    liable. And you don't have those kinds of incentives in place
    when you put this cap that is so disproportionate to the damage
    cost.
        Mr. Murchison. And BP is going to be making money from this
    field long after they have quit restoring the fisheries of
    south Louisiana. When we are talking about people in south
    Louisiana going broke, we mean really going broke.
        Senator Klobuchar. OK.
        Mr. Hartman, do you just want to add to that?
        Mr. Hartman. Only that under current law, first of all,
    that cap--to the extent it is a cap--disappears if there is a
    violation of any Federal safety construction or operational
    regulation, any one. And so to the extent you are concerned
    about the liability cap issue and risk taking, current law
    addresses that. Plus, there is also an exception if they don't
    follow any reasonable order of the Government.
        And as I said before, regardless of the cap, under State
    law, it doesn't exist and under these other provisions like the
    Alternative Fines Act, there is no cap, not to mention the
    other sanctions that could be available.
        So I am just simply making the observation, as you think
    about that, think about the other existing incentives and how
    changing the cap would relate to those. That is all.
        Senator Klobuchar. Thank you.
        Senator Lautenberg. We will keep the record open.
        Senator Whitehouse.
        Senator Whitehouse. Thank you, Chairman.
        Let me ask a few questions about some of those other areas.
        Mr. Hartman, did you when you were at the Department of
    Justice ever engage in criminal prosecution of environmental
    cases? Or were you entirely on the civil side?
        Mr. Hartman. Criminal as well.
        Senator Whitehouse. Criminal as well. In terms of
    restitution under a criminal judgment, would there be any
    restriction on a judge imposing an order of criminal
    restitution above and beyond a civil liability cap, indeed,
    taking that civil liability cap into consideration in
    determining a criminal restitution order to make sure people
    were fully compensated?
        Mr. Hartman. I don't believe under the Alternative Fines
    Act, for example, plus a judge's authority as a condition of
    probation to deal with victim restitution, that there is any
    technical, legal limit on his or her ability to use those
    processes.
        Now, there are practicality issues as to whether it is
    appropriate to do it in a criminal process or whether it is
    going to unduly complicate the process.
        Senator Whitehouse. Yes.
        Mr. Hartman. But in theory, it exists.
        Senator Whitehouse. In theory, it is perfectly available.
        And are you familiar with the Rivers and Harbors Act?
        Mr. Hartman. I am.
        Senator Whitehouse. That is a criminal statute.
        Mr. Hartman. There is a criminal provision in that.
        Senator Whitehouse. And it provides a very low standard. It
    doesn't require negligence. It is simply a discharge that is
    not permitted. Correct?
        Mr. Hartman. It is strict liability, like the Migratory
    Bird Treaty Act and the Refuse Act. That is correct.
        Senator Whitehouse. So in effect, from a prosecutor's point
    of view, if you can prove the act, the rest of it is a lay-down
    hand.
        Mr. Hartman. It certainly is an easier case than proving
    one when you have intent.
        Senator Whitehouse. Yes. Here is no mental standard
    required, no punitive mens rea.
        Mr. Hartman. That is correct.
        Senator Whitehouse. With respect to State law, before we
    had the North Cape-Scandia in Rhode Island we had the World
    Prodigy, which went ashore at Brenton Point and also did
    considerable damage. I was in the Attorney General's office
    then, as a young lawyer. And in that case there was the
    application of a doctrine called the Robins dry dock rule which
    bars recovery for economic damages in cases of an unintentional
    maritime tort. There are some specific limitations for things
    like commercial fishermen, but shore-based industries such as
    fish stores, hotels, those sorts of things seem to be exempted.
        These types of businesses tried to recover damages after
    that 1989 World Prodigy spill, and their claims were dismissed
    in Federal Court in Rhode Island on the grounds that the court
    could no award economic damages under State law because that
    part of Rhode Island's law conflicted with the Federal maritime
    law.
        So in that context I am just a little bit skeptical or have
    some questions about your claim that it doesn't matter if we
    cap the damages because there is always the State law. At least
    this decision that took place in Rhode Island a Federal Court
    essentially barred State law actions because of that
    restriction under Federal maritime law.
        Is there not risk that a similar decision would pertain
    with respect to damages above the OPA cap?
        Mr. Hartman. I haven't studied that, frankly. I don't
    believe that was a factor. I may be wrong about this. I don't
    believe that was a factor in the claims made by fishermen in
    the Exxon case. I just don't remember why. I am sorry.
        Senator Whitehouse. Professor Murchison, can we all agree
    that--actually I think we had President Galligan. Does he still
    teach at your school, or did he use to?
        Mr. Murchison. He is now the President of Colby-Sawyer
    College.
        Senator Whitehouse. President of Colby?
        Mr. Murchison. But he was a colleague of mine for 12 years
    at LSU.
        Senator Whitehouse. He was before the Judiciary Committee
    yesterday. He was a wonderful witness, by the way, as were you.
    So well done, Hebert Law School.
        Is there any doubt that as a matter of corporate law a
    corporation has a solemn obligation to its shareholders to
    maximize its economic return?
        Mr. Murchison. I am not a corporate law scholar, but that
    is what I remember from law school, Senator. And I think so.
        By the way, I did briefly ask President Galligan about the
    question you are asking. He wouldn't concede that there is no
    possibility of State law applying to that claim because there
    is some admiralty doctrine that might be incorporated, but he
    did see that as a risk of not applying State damage law,
    particularly to a spill that occurred as far offshore as this
    particular one did. It is not clear about the reservation of
    State law authority for an oil spill that occurs out in the
    exclusive economic zone.
        Senator Whitehouse. But lifting the damage cap would be
    nice and clear.
        Mr. Murchison. That seems to be the basic idea is what
    everybody seems to agree ought to happen, would happen. That
    is, BP pays for the economic damages and for the long term. You
    know, long after my lifetime, they are going to be working to
    restore the fisheries. That is the most prolific fishery area
    in the world.
        Senator Whitehouse. Thank you very much. My time is
    expired.
        Thank you, Chairman, for your courtesy in allowing me to go
    ahead of you.
        Senator Lautenberg. Thank you.
        You have heard from one of our distinguished lawyers, a
    former U.S. Attorney and a legal scholar. I have the good
    fortune of not being any of those things. I come from the
    business world, and I ran a fairly good sized company before I
    came here. I knew one thing that though we had obligations to
    shareholders, we also had obligations to employees. We also had
    obligations to clients. We also had obligations to the
    community in which we existed.
        So there are all kinds of things, including the fact that
    you have a moral obligation, I think, to operate honestly to
    the fullest extent, period. That is where I come in.
        Mr. Kopchak, it is very interesting to hear that you were
    also in a black cloud, first to Cordova and now to the Gulf. I
    was in Cordova, and I arrived at the most 3 days later after
    the Exxon Valdez ran aground. I was Chairman of the
    Subcommittee on Coast Guard at the time. So they rushed me up
    there.
        And I saw tragedy dressed in the most beautiful colors you
    ever saw because as the oil skimmed over the water, the color,
    the kaleidoscope of color was quite a thing to see. But then to
    see employees of the Federal Government from Fish and Wildlife,
    the Park Service, Interior, caressing the birds and the ducks
    and the seals with a cloth to try and save their lives was
    quite a touching experience. I didn't see any joy in Alaska at
    that time, I must tell you.
        For general information, Exxon in 1989 made $3.8 billion,
    1989; equivalent today to about $6 billion in earnings. And
    fighting all that time to me shows a general contempt for the
    public at large because they fought the punitive claim, the $5
    billion claim over these years; got it down to $500 million;
    instead of stepping up to the good citizenship obligation they
    have in this monopoly virtual situation, commodity situation
    that they had. It shows an attitude that is distressing, and I
    think we see the same thing here with BP.
        Mr. Baron, I think you were wonderfully candid when you
    said that there is a finite amount of liability that can be
    covered, period, which says to me--and any who disagree, I
    would appreciate expression--that says that maybe this is an
    enterprise that has never been fully paid for. If we say, if it
    is suggested that the taxpayers ought to be the last recipient
    of the bill for damages that others caused, we are not the kind
    of society that we think we are. And it is absolutely unjust,
    in my view.
        Mr. Hartman, you say, well, let's not rush into this. Let's
    look at all of the possibilities out there. Is there enough
    justification to say that profits from offshore drilling ought
    to be able to pay for their mistakes? Or is the taxpayers'
    obligation to bear the risk for mismanagement?
        Mr. Hartman. I am not sure I quite understand what you are
    asking.
        Senator Lautenberg. Well, what I am asking--you are
    suggesting, give it time. Did I misunderstand what you said?
    Give it time so that we can see absolutely where the fault lies
    and State laws, et cetera?
        Mr. Hartman. No, if that was what I said, then I misspoke.
    That wasn't certainly what I intended. I am only suggesting
    that in considering what to do with the liability cap, just
    consider how it implicates other provisions of the law because
    it is a complicated question. In the financial assurances, for
    example, you can't have unlimited financial assurances. Nobody
    will write that, I don't think.
        So if you want to make sure there is somebody there that
    can pay, you have to say, well, how much do you have to pay?
    Well, make sure you can pay everything. Well, that is fine, but
    there is a provision of the law that says you have to show
    financial assurance up to some level. You have to change that
    provision if you are going to change it to unlimited liability.
        Just an example of how things relate. I am simply saying
    look at these things carefully because they are complicated.
    That is all.
        Senator Lautenberg. Here we have heard this very frankly
    heart wrenching testimony from people who were directly
    affected and whose families' lives have changed forever. Where
    is that cost borne? They are innocent bystanders. When I
    listened to Mr. Frenette, you define over $2 billion worth of
    contributions from shrimp and other parts of the industry, some
    of it commercial, some of it recreational. We start off with
    over $2 billion, $2.5 billion worth of contributions just from
    those activities. Where does this get paid for?
        The notion of $10 billion coverage by my distinguished
    colleague from New Jersey was almost immediately eliminated
    because we knew very well the common expectation that this is
    so far above $10 billion that just take the cap off. You did
    it? Pay for it.
        And so Mr. Minich, when you described the kinds of losses
    contemplated, how do these things get paid for?
        Mr. Minich. Senator, Senator Boxer read from the
    application that BP did for this rig, and it said that if there
    was any kind of spill, they could cap it. And they haven't been
    able to cap it. They have not capped it. So why would we cap
    the limitations on their liability? I mean, that is just the
    bottom line. There should be no cap on their liability. They
    can't cap this thing. Why would we cap their liability?
        Senator Lautenberg. Well, what we have seen when we look
    back at history and the trip for me to the foundering Exxon
    Valdez is just brought home by Mr. Kopchak. The fact is that
    the herring species are gone. There is a depletion of it and
    some of the other quantities of fish available there. There has
    been a shift.
        I saw something on television the other day that had a
    fellow with a shovel picking up rocks that were still covered
    by oil, so the damage is virtually permanent. How do these
    things get done, Professor? How will you get these things
    restored? Who pays for it? Where is the obligation to clean up
    after you mix things up?
        It was mismanagement, obviously here, and I will draw a
    conclusion, that said OK, we are going to take the less
    protective area. It costs less, and we will be able to do what
    we have to.
        But when I asked the three witnesses that we had there one
    day from BP, from Transocean, from Halliburton whether it was
    anybody's fault there, whether the spill was anybody's fault,
    everyone said, well, no.
        Well, whose fault is it? Is it the fault of the American
    public who need the nutrition, the recreation, the livability?
    Whose fault is it, Professor?
        Mr. Murchison. Well, I think that is why the oil pollution
    damages are a no fault liability. I think the exactly the
    purpose of it was so that we didn't sit around arguing about
    that. We defined a responsible party by certain functions they
    operated. And to be honest with you, Senator, long after you
    and I are gone, it will be working on this fishery in south
    Louisiana.
        Senator Lautenberg. I don't know whether that is a
    prediction for me, but so far we are doing pretty good.
        I guess, Mr. Hartman, you are unwilling to say that BP is
    responsible for the spill in any way?
        Mr. Hartman. I am not saying that at all, Senator.
    Technically under the law, they are the responsible party under
    OPA. I was only asked to give you my views on how the cap
    system worked to make sure that you have information that might
    be relevant to your consideration.
        Senator Lautenberg. I just wanted to be sure of the
    conclusions that we draw. By the way, your testimony, all of
    you, was excellent, clear. And you weren't afraid, Mr. Frenette
    and Mr. Kopchak, to show the amount of pain and excruciating
    result that your families, your friends, your community is
    paying for this. We don't often see that. People are usually
    steeled before they get here not to show any emotion. They tell
    us not to, but I have been here long enough it doesn't matter.
        What we are going to do is we are going to keep the record
    open. You will get questions, I believe, in writing. And we are
    asking so that we can move ahead with the liability question
    altogether that we will have questions go out by 10 o'clock
    this Monday. And I would ask each of you if there are written
    questions to respond to those questions by noon on the
    following Thursday.
        With that, we will adjourn this Committee hearing and say
    thank you to each one of you for the work that you put into and
    for the clarity of your testimony. Thank you very much.
        [Whereupon, at 1 p.m. the Committee was adjourned.]
        [Additional material submitted for the record follows:]

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