[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

                               __________

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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:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]   
    
    
    
    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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