[Congressional Record Volume 145, Number 69 (Thursday, May 13, 1999)]
[Senate]
[Pages S5281-S5305]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  THE INTERNET REGULATORY FREEDOM ACT

  Mr. McCAIN. Mr. President, I rise today to introduce The Internet 
Regulatory Freedom Act of 1999. This legislation will help assure that 
the enormous benefits of advanced telecommunications services are 
accessible to all Americans, no matter where they live, what they do, 
or how much they earn.
  Advanced telecommunications is a critical component of our economic 
and social well-being. Information technology now accounts for over 
one-third of our economic growth. The estimates are that advanced, 
high-speed Internet services, once fully deployed, will grow to a $150 
billion a year market.
  What this means is simple: Americans with access to high-speed 
Internet service will get the best of what the Internet has to offer in 
the way of on-line commerce, advanced interactive educational services, 
telemedicine, telecommuting, and video-on-demand. But what it also 
means is that Americans who don't have access to high-speed Internet 
service won't enjoy these same advantages.
  Mr. President, Congress cannot stand idly by and allow that to 
happen.
  Advanced high-speed data service finally gives us the means to assure 
that all Americans really are given a fair shake in terms of economic, 
social, and educational opportunities. Information Age 
telecommunications can serve as a great equalizer, eliminating the 
disadvantages of geographic isolation and socioeconomic status that 
have carried over from the Industrial Age. But unless these services 
are available to all Americans on fair and affordable terms, Industrial 
Age disadvantages will be perpetuated, not eliminated, in the 
Information Age.
  As things now stand, however, the availability of advanced high-speed 
data service on fair and affordable terms is seriously threatened. 
Currently, only 2 percent of all American homes are served by networks 
capable of providing high-speed data service. Of this tiny number, most 
get high-speed Internet access through cable modems. This is a 
comparatively costly service --about $500 per year --and most cable 
modem subscribers are unable to use their own Internet service provider 
unless they also buy the same service from the cable system's own 
Internet service provider. This arrangement puts high-speed Internet 
service beyond the reach of Americans not served by cable service, and 
limits the choices available to those who are.
  If this situation is allowed to continue, many Americans who live in 
remote areas or who don't make a lot of money won't get high-speed 
Internet service anywhere near as fast as others will. And, given how 
critical high-speed data service is becoming to virtually every segment 
of our everyday lives, creating advanced Internet ``haves'' and ``have 
nots'' will perpetuate the very social inequalities that our laws 
otherwise seek to eliminate.
  This need not happen. Our nation's local telephone company lines go 
to almost every home in America, and local telephone companies are 
ready and willing to upgrade them to provide advanced high-speed data 
service.
  They are ready and willing, Mr. President, but they are not able--at 
least, not as fully able as the cable companies are. That's because the 
local telephone companies operate under unique legal and regulatory 
restrictions. These restrictions are designed

[[Page S5282]]

to limit their power in the local voice telephone market, but they are 
mistakenly being applied to the entirely different advanced data 
market. And as a result, their ability to build out these networks and 
offer these services is significantly circumscribed.
  Mr. President, it's very expensive for to build high-speed data 
networks. Unnecessary regulation increases this already-steep cost and 
thereby limits the deployment of services to people and places that 
might otherwise receive them--and many of them are people and places 
that won't otherwise be served. This legislation will get rid of this 
unnecessary regulation, thereby facilitating the buildout of the 
advanced data networks necessary to give more Americans access to high-
speed Internet service at a cheaper price and with a greater array of 
service possibilities.
  That's called ``competition,'' Mr. President, and some people don't 
like it very much. AT&T, for example, owns cable TV giant TCI and its 
proprietary Internet service provider @Home. AT&T doesn't face the same 
regulatory restrictions as the telephone companies do, and AT&T will 
fight furiously to retain these restrictions so that it can continue to 
enjoy the ``first-move'' advantage it now has in the market for high-
speed Internet service. So will other local telephone company 
competitors such as MCI/Worldcom, many of whom, like AT&T, prefer 
gaming the regulatory process to competing in the marketplace.
  They're right about one thing, Mr. President--competition sure isn't 
nice. It's tough. Some companies win, and some companies lose. But the 
important thing to me is this: with competition, consumers win.
  The 1996 Telecommunications Act effectively nationalized telephone 
industry competition. That's one of the many reasons I voted against 
it. As subsequent events have shown, the Act has been a complete and 
utter failure insofar as most Americans are concerned. All the average 
consumer has gotten are higher prices for many existing services, with 
little or no new competitive offerings. Most of the advantages have 
accrued to gigantic, constantly-merging telecommunications companies 
and the big business customers they serve.
  Mr. President, we must not let this misguided law produce the same 
misbegotten results when it comes to making high-speed data services 
available and affordable to all Americans. The service is too 
important, and the stakes are too high.
  Even the former Soviet Union managed to recognize that centralized 
planning was a flat failure, and abandoned it decades ago. It's time we 
started doing the same with centralized competition planning under the 
1996 Act, and advanced data services are the best place to start. 
Unfettered competition, not federally-micromanaged regulation, is the 
best way of making sure that high-speed data services will be widely 
available and affordable. That's what I want, that's what consumers 
deserve, and that's what this legislation will do.
  The first is the fact that the high-speed cable modem service being 
rolled out by AT&T on many of the nation's cable television systems 
favors its own proprietary Internet service provider, which limits 
consumer choice. Although AT&T's cable customers can access AOL or 
other Internet service providers of their own choice, they must first 
pass through, and pay for, AT&T's own Internet service provider, @Home. 
The fact that it typically costs around $500 a year to subscribe to 
@Home is a big disincentive to paying even more to access another 
service provider.
  The second problem is every bit as troubling. Even though cable 
subscribers have only limited choice in accessing high-speed Internet 
service, 98 percent of Americans are even worse off, because they 
aren't served by any network that can carry high-speed Internet 
services.
  Obviously, Mr. President, telephone networks serve almost everybody, 
and the large telephone companies very much want to convert their 
networks and make these services available to subscribers who might not 
otherwise get them, especially in rural and low-income areas, and also 
provide competitive alternatives for AT&T's cable modem subscribers. 
But, although AT&T can roll out cable modem service in a virtually 
regulation-free environment, federal regulation significantly impedes 
the ability of telephone companies to do the same thing.
  Mr. President, this is blatantly unfair to the telephone companies--
but that's not the worst of it. The benefits of business development, 
employment, and economic growth will go where the advanced data 
networks go. If these benefits go to urbanized, high-income areas 
first, the resulting disparities may well be difficult, if not 
impossible, to equalize.
  Mr. President, I ask unanimous consent the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1043

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Internet Regulatory Freedom 
     Act of 1999''.

     SECTION 2. PURPOSE.

       The purpose of this Act is to eliminate unnecessary 
     regulation that impedes making advanced Internet service 
     available to all Americans at affordable rates.

     SECTION 3. PROVISIONS OF INTERNET SERVICES.

       Part I of title II of the Communications Act of 1934 (47 
     U.S.C. 201 et seq.) is amended by adding at the end thereof 
     the following:

     ``SEC. 231. PROVISION OF INTERENT SERVICES.

       ``(a) Policy.--Since Internet services are inherently 
     interstate in nature, it is the policy of the United States 
     to assure that all Americans have the opportunity to benefit 
     from access to advanced Internet service at affordable rates 
     by eliminating regulation that impedes the competitive 
     deployment of advanced broadband data networks.
       ``(b) Freedom From Regulation; Limitations on Commission's 
     Authority.--Notwithstanding any other provision, including 
     section 271, of this Act, nothing in this Act applies to, or 
     grants authority to Commission with respect to--
       ``(1) the imposition of wholesale discount obligations on 
     bulk offerings of advanced services to providers of Internet 
     services or telecommunications carriers under section 
     251(c)(4), or the duty to provide as network elements, under 
     section 251(c)(3), the facilities and equipment used 
     exclusively to provide Internet services;
       ``(2) technical standards or specifications for the 
     provisions of Internet services; or
       ``(3) the provision of Internet services.
       ``(c) Internet Services Defined.--In this section, the term 
     `Internet services' means services, other than voice-only 
     telecommunication services, that consist of, or include--
       ``(1) the transmission of writing, signs, signals, 
     pictures, or sounds by means of the Internet or any other 
     network that includes Internet protocol-based or other 
     packet-switched or equivalent technology, including the 
     facilities and equipment exclusively used to provide those 
     services; and
       ``(2) the transmission of data between a user and the 
     Internet or such other network.
       ``(d) ISP Not a Provider of Intrastate Communication 
     Services.--A provider of Internet services may not be 
     considered to be a carrier providing intrastate communication 
     service described in section 2(b)(1) because it provides 
     Internet services.''.

                                 ______
                                 
      By Mr. KENNEDY:
  S. 1044. A bill to require coverage for colorectal cancer screenings; 
to the Committee on Health, Education, Labor, and Pensions.


              the eliminate colorectal cancer act of 1999

 Mr. KENNEDY. Mr. President, today we are introducing a bill 
that will require all private insurers to provide coverage for 
screening tests for colorectal cancer. More than 56,000 Americans die 
from colon cancer each year and we know that the vast majority of these 
tragedies could have been prevented by early detection and treatment.
  Millions of Americans are at risk of contracting colon cancer during 
their lifetime. Persons over age 50 are particularly vulnerable, and so 
are family members of those who have had this illness. Effective 
treatments are well-established for this disease, but it must be 
detected early in order for the treatment to be successful.
  Unfortunately, fewer than 20 percent of Americans take advantage of 
the routine screening tests that can identify those who have the 
disease or who are at risk. Too many physicians fail to recommend or 
even mention it. The cost of screening those at risk is minor compared 
to the savings gained by reducing the overall costs of treatment, 
suffering, lost productivity, and premature death.
  As many colon cancer survivors have told us, early recognition and 
treatment are essential to winning this battle. Over 90% of people who 
have been

[[Page S5283]]

diagnosed as a result of these screening tests and then treated for 
this cancer have resumed active and productive lives.
  People on Medicare already have the right to these screening tests. 
The legislation we are introducing today will extend the same benefit 
to everyone else who has private insurance coverage. Under our 
proposal, coverage for screening tests will be available to anyone over 
age 50, and also to younger persons who are at risk for the disease or 
who have specific symptoms. The type of tests and frequency of tests 
would be determined by the doctor and the patient. This is a very 
reasonable and cost-effective measure that is essential to prevent 
thousands of unnecessary deaths.
  Our bill has already received support and endorsements from all the 
major gastrointestinal professional organizations, the American Cancer 
Society, the American Gastroenterological Association, the Cancer 
Research Foundation of America, the American Society for 
Gastrointestinal Endoscopy, the American Society of Colon and Rectal 
Surgeons, STOP Colon and Rectal Cancer Foundation, the United Ostomy 
Association, the Colon Cancer Alliance, Cancer Care, Inc., and the 
American Association of Homes and Services for the Aging.
  A companion bill is being introduced in the House with the bipartisan 
leadership of my respected colleagues, Congresswomen Louise Slaughter 
and Connie Morella. They have rightly emphasized that this disease is 
one that affects women as much as men. I look forward to working with 
them and my colleagues here in the Senate to get this very important 
protective legislation passed.
                                 ______
                                 
      By Mr. CHAFEE (for himself, Mr. Baucus, Mr. Grassley, Mr. 
        Rockefeller, Mr. Breaux, Mr. Kerrey, and Mr. Robb):
  S. 1045. A bill to amend the Internal Revenue Code of 1986 to impose 
an excise tax on persons who acquire structured settlement payments in 
factoring transactions, and for other purposes; to the Committee on 
Finance.


                  structured settlement protection act

  Mr. CHAFEE. Mr. President, today I am introducing the Structured 
Settlement Protection Act, together with Senators Baucus, Grassley, 
Rockefeller, Breaux, and Kerrey of Nebraska. Companion legislation has 
been introduced in the House as H.R. 263, sponsored by Representatives 
Clay Shaw and Pete Stark and a broad bipartisan group of Members of the 
House Ways and Means Committee.
  The Act protects structured settlements and the injured victims who 
are the recipients of the structured settlement payments from the 
problems caused by a growing practice known as structured settlement 
factoring.
  Structured settlements were developed because of the pitfalls 
associated with the traditional lump sum form of recovery in serious 
personal injury cases. All too often a lump sum meant to last for 
decades or even a lifetime swiftly eroded away. Structured settlements 
have proven to be a very valuable tool. They provide long-term 
financial security in the form of an assured stream of payments to 
persons suffering serious, often profoundly disabling, physical 
injuries. These payments enable the recipients to meet ongoing medical 
and basic living expenses without having to resort to the social safety 
net.
  Congress has adopted special tax rules to encourage and govern the 
use of structured settlements in physical injury cases. By encouraging 
the use of structured settlements Congress sought to shield victims and 
their families from pressures to prematurely dissipate their 
recoveries. Structured settlement payments are non-assignable. This is 
consistent with worker's compensation payments and various types of 
federal disability payments which are also non-assignable under 
applicable law. In each case, this is done to preserve the injured 
person's long-term financial security.
  I am very concerned that in recent months there has been sharp growth 
in so-called structured settlement factoring transactions. In these 
transactions, companies induce injured victims to sell off future 
structured settlement payments for a steeply-discounted lump sum, 
thereby unraveling the structured settlement and the crucial long-term 
financial security that it provides to the injured victim. These 
factoring company purchases directly contravene the intent and policy 
of Congress in enacting the special structured settlement tax rules. 
The Treasury Department shares these concerns and has included a 
similar proposal in the Administration's FY 2000 budget.
  An article in the January 25 issue of U.S. News & World Report 
highlights the growing problem of structured settlement purchases. 
Orion Olson was bitten by a dog when he was three years old. The dog 
bite caused him vision and neurological problems. The settlement 
resulting from his lawsuit called for Mr. Olson to receive $75,000 in 
periodic payments once he turned 18. Unfortunately, Mr. Olson was lured 
into selling his payments for a lump sum payment of $16,100. Within six 
months this money was gone and Mr. Olson was living in a car.
  Last year, the National Spinal Cord Injury Association wrote to the 
Chairman of the Finance Committee strongly supporting the legislation. 
They stated: [o]ver the past 16 years, structured settlements have 
proven to be an ideal method for ensuring that persons with 
disabilities, particularly minors, are not tempted to squander 
resources designed to last years or even a lifetime. That is why the 
National Spinal Cord Injury Association is so deeply concerned about 
the emergence of companies that purchase payments intended for disabled 
persons at drastic discount. This strikes at the heart of the security 
Congress intended when it created structured settlements.''
  The legislation we are introducing would impose a substantial penalty 
tax on a factoring company that purchases the structured settlement 
payments from the injured victim. This is a penalty, not a tax 
increase. Similar penalties are imposed in a variety of other contexts 
in the Internal Revenue Code to discourage transactions that undermine 
Code provisions, such as private foundation prohibited transactions and 
greenmail. The factoring company would pay the penalty only if it 
engages in the transaction that Congress has sought to discourage. An 
exception is provided for genuine court-approved hardship cases to 
protect the limited instances where a true hardship warrants the sale 
of future structured settlement payments.
  This bipartisan legislation, which is supported by the Treasury 
Department, should be enacted as soon as possible to stem this growing 
nationwide problem.
  Mr. President, I ask unanimous consent that a copy of the bill, a 
summary of the legislation and the article from U.S. News & World 
Report be printed in the Record.
  There being no objection, the materials were ordered to be printed in 
the Record, as follows:

                                S. 1045

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

       (a) Short Title.--This Act may be cited as the ``Structured 
     Settlement Protection Act''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.

     SEC. 2. IMPOSITION OF EXCISE TAX ON PERSONS WHO ACQUIRE 
                   STRUCTURED SETTLEMENT PAYMENTS IN FACTORING 
                   TRANSACTIONS.

       Subtitle E is amended by adding at the end the following 
     new chapter:

       ``CHAPTER 55--STRUCTURED SETTLEMENT FACTORING TRANSACTIONS

``Sec. 5891. Structured settlement factoring transactions.

     ``SEC. 5891. STRUCTURED SETTLEMENT FACTORING TRANSACTIONS.

       ``(a) Imposition of Tax.--There is hereby imposed on any 
     person who acquires directly or indirectly structured 
     settlement payment rights in a structured settlement 
     factoring transaction a tax equal to 50 percent of the 
     factoring discount as determined under subsection (c)(4) with 
     respect to such factoring transaction.
       ``(b) Exception for Court-Approved Hardship.--The tax under 
     subsection (a) shall not apply in the case of a structured 
     settlement factoring transaction in which the transfer of 
     structured settlement payment rights is--
       ``(1) otherwise permissible under applicable law, and

[[Page S5284]]

       ``(2) undertaken pursuant to the order of the relevant 
     court or administrative authority finding that the 
     extraordinary, unanticipated, and imminent needs of the 
     structured settlement recipient or the recipient's spouse or 
     dependents render such a transfer appropriate.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Structured settlement.--The term `structured 
     settlement' means an arrangement--
       ``(A) established by--
       ``(i) suit or agreement for the periodic payment of damages 
     excludable from the gross income of the recipient under 
     section 104(a)(2), or
       ``(ii) agreement for the periodic payment of compensation 
     under any workers' compensation act that is excludable from 
     the gross income of the recipient under section 104(a)(1), 
     and
       ``(B) where the periodic payments are--
       ``(i) of the character described in subparagraphs (A) and 
     (B) of section 130(c)(2), and
       ``(ii) payable by a person who is a party to the suit or 
     agreement or to the workers' compensation claim or by a 
     person who has assumed the liability for such periodic 
     payments under a qualified assignment in accordance with 
     section 130.
       ``(2) Structured settlement payment rights.--The term 
     `structured settlement payment rights' means rights to 
     receive payments under a structured settlement.
       ``(3) Structured settlement factoring transaction.--The 
     term `structured settlement factoring transaction' means a 
     transfer of structured settlement payment rights (including 
     portions of structured settlement payments) made for 
     consideration by means of sale, assignment, pledge, or other 
     form of encumbrance or alienation for consideration.
       ``(4) Factoring discount.--The term `factoring discount' 
     means an amount equal to the excess of--
       ``(A) the aggregate undiscounted amount of structured 
     settlement payments being acquired in the structured 
     settlement factoring transaction, over
       ``(B) the total amount actually paid by the acquirer to the 
     person from whom such structured settlement payments are 
     acquired.
       ``(5) Relevant court or administrative authority.--The term 
     `relevant court or administrative authority' means--
       ``(A) the court (or where applicable, the administrative 
     authority) which had jurisdiction over the underlying action 
     or proceeding that was resolved by means of the structured 
     settlement, or
       ``(B) in the event that no action or proceeding was 
     brought, a court (or where applicable, the administrative 
     authority) which--
       ``(i) would have had jurisdiction over the claim that is 
     the subject of the structured settlement, or
       ``(ii) has jurisdiction by reason of the residence of the 
     structured settlement recipient.
       ``(d) Coordination With Other Provisions.--
       ``(1) In general.--In any case where the applicable 
     requirements of sections 72, 130, and 461(h) were satisfied 
     at the time the structured settlement was entered into, the 
     subsequent occurrence of a structured settlement factoring 
     transaction shall not affect the application of the 
     provisions of such sections to the parties to the structured 
     settlement (including an assignee under a qualified 
     assignment under section 130) in any taxable year.
       ``(2) Regulations.--The Secretary is authorized to 
     prescribe such regulations as may be necessary to clarify the 
     treatment in the event of a structured settlement factoring 
     transaction of amounts received by the structured settlement 
     recipient.''

     SEC. 3. TAX INFORMATION REPORTING OBLIGATIONS.

       Subpart B of part III of subchapter A of chapter 61 is 
     amended by adding at the end the following new section:

     ``SEC. 6050T. REPORTING REQUIREMENTS REGARDING STRUCTURED 
                   SETTLEMENT FACTORING TRANSACTIONS.

       ``(a) In General.--In the case of a transfer of structured 
     settlement payment rights in a structured settlement 
     factoring transaction--
       ``(1) described in section 5891(b) and of which the person 
     making the structured settlement payments has actual notice 
     and knowledge, such person shall make such return and furnish 
     such written statement to the acquirer of the structured 
     settlement payment rights as would be applicable under the 
     provisions of section 6041 (except as provided in subsection 
     (c) of this section), or
       ``(2) subject to tax under section 5891(a) and of which the 
     person making the structured settlement payments has actual 
     notice and knowledge, such person shall make such return and 
     furnish such written statement to the acquirer of the 
     structured settlement payment rights at such time, and in 
     such manner and form, as the Secretary shall by regulations 
     prescribe.
       ``(b) Coordination With Other Provisions.--The provisions 
     of this section shall apply in lieu of any other provisions 
     of this part to establish the reporting obligations of the 
     person making the structured settlement payments in the event 
     of a structured settlement factoring transaction. The 
     provisions of section 3405 regarding withholding shall not 
     apply to the person making the structured settlement payments 
     in the event of a structured settlement factoring 
     transaction.
       ``(c) Definition.--For purposes of this section, the term 
     `acquirer of the structured settlement payment rights' shall 
     include any person described in section 7701(a)(1).''

     SEC. 4. EFFECTIVE DATE.

       The amendments made by this Act shall be effective with 
     respect to structured settlement factoring transactions (as 
     defined in section 5891(c)(3) of the Internal Revenue Code of 
     1986, as added by this Act) occurring after the date of 
     enactment of this Act.
                                  ____


          Summary of the Structured Settlement Protection Act


 1. Stringent Excise Tax on Persons Who Acquire Structured Settlement 
                   Payments in Factoring Transactions

       Factoring company purchases of structured settlement 
     payments so directly subvert the Congressional policy 
     underlying structured settlements and raise such serious 
     concerns for the injured victims that it is appropriate to 
     impose a stringent excise tax against the amount of the 
     discount reflected in the factoring transaction (subject to a 
     limited exception described below for genuine court-approved 
     hardships). Accordingly, the Act would impose on the 
     factoring company that acquires structured settlement 
     payments directly or indirectly from the injured victim an 
     excise tax equal to 50 percent of the difference between (i) 
     the total amount of the structured settlement payments 
     purchased by the factoring company, and (ii) the heavily-
     discounted lump sum paid by the factoring company to the 
     injured victim.
       Similar to the stiff excise taxes imposed on prohibited 
     transactions in the private foundation and pension contexts--
     which can range as high as 100 to 200 percent--this stringent 
     excise tax is necessary to address the very serious public 
     policy concerns raised by structured settlement factoring 
     transactions.
       The excise tax under the Act would apply to the factoring 
     of structured settlements in tort cases and in workers' 
     compensation. A structured settlement factoring transaction 
     subject to the excise tax is broadly defined under the Act as 
     a transfer of structured settlement payment rights (including 
     portions of payments) made for consideration by means of 
     sale, assignment, pledge, or other form of alienation or 
     encumbrance for consideration.


   2. Exception from Excise Tax for Genuine, Court-Approved Hardship

       The stringent excise tax would be coupled with a limited 
     exception for genuine, court-approved financial hardship 
     situations. The excise tax would apply to factoring companies 
     in all structured settlement factoring transactions except 
     those in which the transfer of structured settlement payment 
     rights (1) is otherwise permissible under applicable Federal 
     and State law and (2) is undertaken pursuant to the order of 
     a court (or where applicable, an administrative authority) 
     finding that the extraordinary, unanticipated, and imminent 
     needs of the structured settlement recipient or his or her 
     spouse or dependents render such a transfer appropriate.
       This exception is intended to apply to the limited number 
     of cases in which a genuinely extraordinary, unanticipated, 
     and imminent hardship has actually arisen and been 
     demonstrated to the satisfaction of a court (e.g., serious 
     medical emergency for a family member). In addition, as a 
     threshold matter, the transfer of structured settlement 
     payment rights must be permissible under applicable law, 
     including State law. The hardship exception under this 
     legislation is not intended to override any Federal or State 
     law prohibition or restriction on the transfer of the payment 
     rights or to authorize factoring of payment rights that are 
     not transferable under Federal or State law. For example, the 
     States in general prohibit the factoring of workers' 
     compensation benefits. In addition, State laws often prohibit 
     or directly restrict transfers of recoveries in various types 
     of personal injury cases, such as wrongful death and medical 
     malpractice.
       The relevant court for purposes of the hardship exception 
     would be the original court which had jurisdiction over the 
     underlying action or proceeding that was resolved by means of 
     the structured settlement. In the event that no action had 
     been brought prior to the settlement, the relevant court 
     would be that which would have had jurisdiction over the 
     claim that is the subject of the structured settlement or 
     which would have jurisdiction by reason of the residence of 
     the structured settlement recipient. In those limited 
     instances in which an administrative authority adjudicates, 
     resolves, or otherwise has primary jurisdiction over the 
     claim (e.g., the Vaccine Injury Compensation Trust Fund), the 
     hardship matter would be the province of that applicable 
     administrative authority.


   3. Need to Protect Tax Treatment of Original Structured Settlement

       In the limited instances of extraordinary and unanticipated 
     hardship determined by court order to warrant relief under 
     the hardship exception, adverse tax consequences should not 
     be visited upon the other parties to the original structured 
     settlement. In addition, despite the anti-assignment 
     provisions included in the structured settlement agreements 
     and the applicability of a stringent excise tax on the 
     factoring company, there may be a limited number of non-
     hardship factoring transactions that still go forward. If the 
     structured settlement tax rules under I.R.C. Sections 72, 130 
     and 461(h) had been satisfied at the time of the structured

[[Page S5285]]

     settlement, the original tax treatment of the other parties 
     to the settlement--i.e., the settling defendant (and its 
     liability insurer) and the Code section 130 assignee--should 
     not be jeopardized by a third party transaction that occurs 
     years later and likely unbeknownst to these other parties to 
     the original settlement.
       Accordingly, the Act would clarify that if the structured 
     settlement tax rules under I.R.C. Sections 72, 130, and 
     461(h) had been satisfied at the time of the structured 
     settlement, the section 130 exclusion of the assignee, the 
     section 461(h) deduction of the settling defendant, and the 
     Code section 72 status of the annuity being used to fund the 
     periodic payments would remain undisturbed. That is, the 
     assignee's exclusion of income under Code section 130 arising 
     from satisfaction of all of the section 130 qualified 
     assignment rules at the time the structured settlement was 
     entered into years earlier would not be challenged. 
     Similarly, the settling defendant's deduction under Code 
     section 461(h) of the amount paid to the assignee to assume 
     the liability would not be challenged. Finally, the status 
     under Code section 72 of the annuity being used to fund the 
     periodic payments would remain undisturbed.
       The Act provides the Secretary of the Treasury with 
     regulatory authority to clarify the treatment of a structured 
     settlement recipient who engages in a factoring transaction. 
     This regulatory authority is provided to enable Treasury to 
     address issues raised regarding the treatment of future 
     periodic payments received by the structured settlement 
     recipient where only a portion of the payments has been 
     factored away, the treatment of the lump sum received in a 
     factoring transaction qualifying for the hardship exception, 
     and the treatment of the lump sum received in the non-
     hardship situation. It is intended that where the 
     requirements of section 130 are satisfied at the time the 
     structured settlement is entered into, the existence of the 
     hardship exception to the excise tax under the Act shall not 
     be construed as giving rise to any concern over constructive 
     receipt of income by the injured victim at the time of the 
     structured settlement.


 4. Tax Information Reporting Obligations With Respect to a Structured 
                    Settlement Factoring Transaction

       The Act would clarify the tax reporting obligations of the 
     person making the structured settlement payments in the event 
     that a structured settlement factoring transaction occurs. 
     The Act adopts a new section of the Code that is intended to 
     govern the payor's tax reporting obligations in the event of 
     a factoring transaction.
       In the case of a court-approved transfer of structured 
     settlement payments of which the person making the payments 
     has actual notice and knowledge, the fact of the transfer and 
     the identity of the acquirer clearly will be known. 
     Accordingly, it is appropriate for the person making the 
     structured settlement payments to make such return and to 
     furnish such tax information statement to the new recipient 
     of the payments as would be applicable under the annuity 
     information reporting procedures of Code section 6041 (e.g., 
     form 1099-R), because the payor will have the information 
     necessary to make such return and to furnish such statement.
       Despite the anti-assignment restrictions applicable to 
     structured settlements and the applicability of a stringent 
     excise tax, there may be a limited number of non-hardship 
     factoring transactions that still go forward. In these 
     instances, if the person making the structured settlement 
     payments has actual notice and knowledge that a structured 
     settlement factoring transaction has taken place, the payor 
     would be obligated to make such return and to furnish such 
     written statement to the payment recipient at such time, and 
     in such manner and form, as the Secretary of the Treasury 
     shall by regulations provide. In these instances, the payor 
     may have incomplete information regarding the factoring 
     transaction, and hence a tailored reporting procedure under 
     Treasury regulations is necessary.
       The person making the structured settlement payments would 
     not be subject to any tax reporting obligation if that person 
     lacked such actual notice and knowledge of the factoring 
     transaction. Under the Act, for purposes of the reporting 
     obligations, the term acquirer of the structured settlement 
     payment rights'' would be broadly defined to include an 
     individual, trust, estate, partnership, company, or 
     corporation.
       The provisions of section 3405 regarding withholding would 
     not apply to the person making the structured settlement 
     payments in the event that a structured settlement factoring 
     transaction occurs.


                           5. Effective Date

       The provisions of the Act would be effective with respect 
     to structured settlement factoring transactions occurring 
     after the date of enactment of the Act.
                                  ____


             [From U.S. News & World Report, Jan. 25, 1999]

                           Settling for Less


          should accident victims sell their monthly payouts?

                          (By Margaret Mannix)

       Orion Olson has had his share of hard knocks. When he was a 
     3 year old, a dog bite caused him vision and neurological 
     problems, as well as injuries requiring plastic surgery. In 
     his teens, he dropped out of high school and wound up 
     homeless. But he had hope. On his 18th birthday, the 
     Minneapolis man was to start receiving the first of five 
     periodic payments totaling $75,000 from a lawsuit stemming 
     from the dog attack. He received the first installment of 
     $7,500, but the money didn't last long.
       So when Olson saw a television ad for a finance company 
     named J. G. Wentworth & Co. that provided cash to accident 
     victims, he saw a way to get his life back on track. He 
     agreed to sell his remaining future payments of $67,500 to 
     Wentworth for a lump sum of $16,100. ``I needed money,'' says 
     Olson, now 20 years old. ``If I could get the money out like 
     they were saying on TV, I wouldn't have to worry about being 
     on the street anymore.'' Within six months, however, Olson 
     had spent all the money and was living in a car. He now 
     wishes he had waited for his regular payments.
       Olson may be financially unsophisticated, but he is also 
     caught up in a burgeoning, and unregulated, new industry that 
     specializes in converting periodic payments into fast cash. 
     Also known as factoring companies, these firms can be a 
     godsend to accident victims, lottery winners, and others who 
     have guaranteed future incomes but need immediate funds. But 
     like a modern-day Esau trading his inheritance for a bowl of 
     soup, the unwary consumer may be selling future sustenance 
     for cheap. A growing number of federal and state legislators, 
     as well as several attorneys general, contend that factoring 
     companies charge usurious interest rates, fail to properly 
     disclose terms, and take advantage of desperate people. 
     ``It's unconscionable,'' says Minnesota Attorney General Mike 
     Hatch. ``They are really preying upon the vulnerable.''
       Frittering away. Critics further allege that factoring 
     companies undermine the very law that Congress passed to help 
     beneficiaries of large damage awards. In 1982, seeking to 
     prevent accident victims from frittering away large sums 
     intended to provide for them over their lifetimes, Congress 
     instituted tax breaks for those who agreed to receive their 
     money over a period of years. But now, contends Montana Sen. 
     Max Baucus, a sponsor of that legislation, the careful 
     planning that goes into the structuring of these payments 
     ``can be unraveled in an instant by a factoring company 
     offering quick cash at a steep discount.''
       A number of advanced-funding companies compete for their 
     share of future payments that include more than $5 billion in 
     structured settlements awarded each year. The largest buyer 
     is Wentworth, handling an estimated half of all such 
     transactions. Based in Philadelphia, the firm began by 
     financing nursing homes and long-term care facilities. In 
     1992 it started buying settlements that auto-accident victims 
     were owed by the state of New Jersey. Since then, Wentworth 
     has completed more than 15,000 structured-settlement 
     transactions with an approximate total value of $370 million.
       The deals work like this: A structured-settlement recipient 
     who wants to sell, say, $50,000 in future payments, will not 
     get a limp sum of $50,000. That's because, as a result of 
     inflation, money schedule to be paid years from now is worth 
     less today. Formulas based on such factors as inflation and 
     the date that payments begin are used to determine the 
     ``present value'' of the future payments. The seller is, in 
     essence, borrowing a lump sum that is paid back with the 
     insurance company payments. The interest on the borrowed sum 
     is called the ``discount rate.''
       Wentworth and other advanced-funding companies say they are 
     providing a valuable service because structured settlements 
     have a basic flaw: They are not flexible. Consumer needs 
     change, they note, and a fixed monthly payment does not. 
     Wentworth points to an Ohio woman who sold the company a $500 
     portion of her monthly payments for six years when her bills 
     were piling up and her home mortgage was about to be 
     foreclosed. She received instant cash of $21,000, at a 
     discount rate of 15.8 percent. The customer, who did not wish 
     to be identified, says she is grateful to Wentworth for 
     advancing her the money when her insurance company would not. 
     ``The insurance companies just don't understand,'' she says, 
     ``When I needed their help, they were not there.'' Likewise, 
     a New York quadriplegic, who also did not want to be named, 
     says he secured funds from Wentworth at a 12 percent discount 
     rate to expand his won business and, as a result, is more 
     successful than ever. ``It was definitely worth it for me,'' 
     he ways.
       But other customers are not as satisfied. New York City 
     resident Raymond White lost part of one leg when we has 
     struck by a subway train in 1990. A lawsuit led to a 
     settlement that guaranteed White a monthly payment of $1,100, 
     with annual cost-of-living increases of 3 percent. In 1996, 
     White, who did not have a job, wanted cash to buy a car and 
     pay medical bills. So he turned to Wentworth, selling 
     portions of his monthly payments for the next 15 years in six 
     different transactions.
       Altogether White gave up future payments totaling $198,000. 
     He received a total of $54,000 in return, but the money, 
     which he used for living expenses, is now gone. He bought a 
     car, but it has been repossessed. He bought a plot of land in 
     Florida, but lost it to foreclosure. With debts mounting, he 
     now relies partially on public assistance to get by. 
     ``Unfortunately I was so overwhelmed with debt and striving 
     for a better life that I went along with it,'' says White. 
     ``In reality, what I was doing was accumulating more debt for 
     myself.''

[[Page S5286]]

       Some Wentworth customers say they might have realized the 
     repercussions of their transactions had the contracts been 
     clearer about the long-term costs. Jerry Magee of Magnolia, 
     Miss., who has filed a class action suit against the company, 
     is one of them. In a mortgage contract, for instance, lending 
     laws require that consumers see their interest rate and the 
     total amount of money they will be paying over the life of 
     the loan. By contrast, Magee's lawyer says, neither the 
     effective interest rate nor the total amount of the 
     transaction was clearly spelled out in the 13-page contract 
     or in the 25 other documents Wentworth required him to sign. 
     Wentworth says it has been revising its documents to make 
     them easier to understand.
       Change of address. While the factoring transaction itself 
     is complex, the transfer of payments is simple. The 
     structured settlement recipient instructs the insurance 
     company to change his or her address to that of the factoring 
     company. The check remains in the recipient's name, and the 
     factoring company uses a power of attorney, granted by the 
     recipient, to cash it.
       This roundabout method is used because insurance companies 
     say structured payments should not be sold. Most settlement 
     contracts specify that payments cannot be ``assigned,'' and 
     the Internal Revenue Service says that payments ``cannot be 
     accelerated, deferred, increased or decreased.'' Selling 
     payments, the insurance companies say, amounts to 
     accelerating them. And that may threaten the claimant's tax 
     break. Insurance companies say that if their annuitants start 
     selling their payments, the social good that justifies the 
     tax break disappears. Ironically, they make this argument 
     even though some insurance companies themselves are not 
     making counteroffers to factoring companies, accelerating 
     payments to their own claimants. Berkshire Hathaway Life 
     Insurance Co., for example, recently offered a claimant a 
     lump sum of $59,000, beating Wentworth's offer of $45,000. 
     The IRS has not formally addressed the tax issues, but the 
     U.S. Department of the Treasury has recommended a tax on 
     factoring transactions to discourage them.
       Insurance companies also worry about having to pay twice. 
     Last year, a judge ruled an insurance company was 
     obligated to pay a workers' compensation recipient his 
     monthly payments because the factoring transaction he 
     entered into was invalid under Florida's workers' 
     compensation statute. For their part, the factoring 
     companies argue that even though the claimants do not own 
     the annuities--the insurance companies do--the factoring 
     companies can buy the ``right to receive'' the payments.
       Insurance companies are getting wise to these factoring 
     deals--CNA, a Chicago-based insurer, noticed that annuitants 
     from all over the country were changing their addresses to 
     Wentworth's Philadelphia post office box--and some are trying 
     to stop the transactions. Some insurance companies, for 
     example, refuse to honor change-of-address requests or 
     redirect the payments back to the annuitant after the deal is 
     done. But redirecting a payment can cause serious 
     consequences for the claimant. In Wentworth's case, the 
     company has each customer sign a clause called a ``confession 
     of judgment,'' which allows the factoring company to sue 
     customers quickly for default when their payments are not 
     received; customers also waive the right to defend 
     themselves.
       Christopher Hicks, a 20-year-old accident victim from 
     Oklahoma City, learned the effects of that clause the hard 
     way. In 1997, Hicks signed over to Wentworth half of his 
     $2,000 monthly payments for the next 32 months and $1,500 for 
     the 26 months after that. In exchange, Hicks received 
     $37,500, which he admits he quickly spent on furniture, 
     clothes, and other items. When Wentworth failed to receive a 
     check from the insurance company that pays Hicks the annuity, 
     it secured a judgment against him for the entire amount of 
     the deal--$71,000.
       No clue. To collect, Wentworth garnisheed Metropolitan 
     Life, meaning that Metropolitan Life was supposed to start 
     sending Hicks's monthly checks to Wentworth. It did not--the 
     company won't say why--and Hicks, who was supposed to be 
     getting $1,000 back from Wentworth, was left with nothing. 
     ``When the money stopped, I had no clue what was going on,'' 
     says Hicks, who had to rely on family and friends until the 
     two companies settled their differences in court. Hicks now 
     wishes he had never gotten involved with Wentworth. ``They 
     make you think you are doing the right thing in the long 
     run,'' says Hicks, ``but you are really messing up your 
     life.''
       Wentworth makes liberal use of confession-of-judgment 
     clauses even though they are illegal in consumer transactions 
     in the company's home state of Pennsylvania. The Federal 
     Trade Commission also bans the clauses as an unfair practice 
     in consumer-credit transactions. The clauses are allowable in 
     business transactions in Pennsylvania if they are accompanied 
     by a statement of business purpose. So in each case Wentworth 
     certifies that the agreements ``were not entered into for 
     family, personal, or household purposes.''
       Such language is used in affidavits despite cases like that 
     of Davinia Willis, a 24-year-old resident of Richmond, 
     Calif., who entered into a transaction with Wentworth in 1996 
     to stop her house from being foreclosed upon and to repair 
     wheelchair ramps--clearly, she says, personal uses. In a 
     class action lawsuit against the company, she cites the 
     confession of judgment as one reason why the contract is 
     ``illegal, usurious, and unconscionable.'' Wentworth says the 
     clauses are necessary to keep its customers from reneging on 
     their agreements.
       In the end, the controversy over factoring companies comes 
     down to a fundamental disagreement over the definition of 
     their business. The factoring companies say they are not 
     subject to usury or consumer-credit disclosure laws because 
     they are not, in fact, lenders. ``We don't make loans,'' 
     declares Andrew Hillman, Wentworth's general counsel. ``We 
     buy assets.'' But some state attorneys general say these 
     transactions differ very little, if at all, from loans and 
     perhaps should be classified as such. That way, says Shirley 
     Sarna, chief of the New York attorney general's consumer 
     fraud and protection bureau, the law could prevent factoring 
     companies from charging discount rates that she says in some 
     cases have exceeded 75 percent. Wentworth says its average 
     rate is 16 percent, and several factoring companies insist 
     their rates would be much lower if insurance companies did 
     not make it expensive from them to complete the deals. ``By 
     getting the insurance companies to process the address 
     changes, it would overnight transform our discount rates from 
     high teens to the single digits,'' says Jeffrey Grieco, 
     managing director of Stone Street Capital, an advanced-
     funding firm in Bethesda, Md.
       Who is right and who is wrong is being hammered out in 
     courtrooms and statehouses across the country. The insurance 
     companies were heartened last summer when a Kentucky judge 
     denied four of Wentworth's garnishment actions, saying the 
     purchase agreements the customers signed were neither valid 
     nor legal. But other courts have ruled differently.
       In Illinois, a new state law says that structured 
     settlements can be sold as long as a judge approves the 
     transaction. Wentworth notes that more than 100 such sales 
     have been approved. At the same time, several state attorneys 
     general are examining the factoring industry's practices. 
     ``You have got to worry about people who have a debilitating 
     injury,'' says Joseph Goldberg, senior deputy attorney 
     general for Pennsylvania. ``The injury is never going away 
     and they have no real means of income and probably no means 
     of employment. . . . If they give that monthly payment up, it 
     could have serious consequences.'' Voicing similar concerns, 
     disability groups like the National Spinal Cord Injury 
     Association, which now refuses to accept factoring companies' 
     advertisements in its magazine, are warning members about the 
     hazards of cashing out. The association is ``deeply concerned 
     about the emergency of companies that purchase payments 
     intended for disabled persons at a drastic discount,'' says 
     its executive director, Thomas Countee.
       While opinions are divided about the validity of factoring 
     transactions, both sides agree that regulation of the 
     secondary market is necessary. As in Illinois, Connecticut 
     and Kentucky have passed laws requiring a judge's approval of 
     advanced-funding deals, as well as fuller disclosure of 
     costs. Faced with mounting criticism, Wentworth this week 
     will announce its pledge to submit every request for purchase 
     of a settlement to a court for approval. Other states are 
     expected to address the issue this year, and in Congress, 
     Rep. Clay Shaw, a Florida Republican, has reintroduced a 
     measure that would tax factoring transactions.
       The factoring companies respond to all these efforts by 
     also calling for better disclosure from the primary market--
     the insurance companies, attorneys, and brokers that set up 
     the structured settlements in the first place. Factoring 
     companies argue that structured settlements are not always as 
     generous as they are represented to be. ``We challenge 
     insurance companies and their brokers to take the same 
     pledge.'' said Michael Goodman, Wentworth's executive vice 
     president.
       Whatever the outcome of the debate, consumers thinking 
     about selling their future payments are well advised to take 
     a hard look at what they are getting into.

 Mr. BAUCUS. Mr. President, I am pleased to join today with 
Senator Chafee and a bipartisan group of our colleagues from the 
Finance Committee in introducing the Structured Settlement Protection 
Act.
  Companion legislation has been introduced in the House (H.R. 263) by 
Representatives Clay Shaw and Pete Stark. The House legislation is co-
sponsored by a broad bipartisan group of Members of the House Ways and 
Means Committee.
  The Treasury Department supports this bipartisan legislation
  I speak today as the original Senate sponsor of the structured 
settlement tax rules that Congress enacted in 1982. I rise because of 
my very grave concern that the recent emergence of structured 
settlement factoring transactions--in which favoring companies buy up 
the structured settlement payments from injured victims in return for a 
deeply-discounted lump sum--complete undermines what Congress intended 
when we enacted these structured settlement tax rules.
  In introducing the original 1982 legislation, I pointed to the 
concern over the premature dissipation of lump sum

[[Page S5287]]

recoveries by seriously-injured victims and their families:

       In the past, these awards have typically been paid by 
     defendants to successful plaintiffs in the form of a single 
     payment settlement. This approach has proven unsatisfactory, 
     however, in many cases because it assumes that injured 
     parties will wisely manage large sums of money so as to 
     provide for their lifetime needs. In fact, many of these 
     successful litigants, particularly minors, have dissipated 
     their awards in a few years and are then without means of 
     support. [Congressional Record (daily ed.) 12/10/81, at 
     S15005.]

  I introduced the original legislation to encourage structured 
settlements because they provide a better approach, as I said at the 
time: ``Periodic payment settlements, on the other hand, provide 
plaintiffs with a steady income over a long period of time and insulate 
them from pressures to squander their awards.'' (Id.)
  Thus, our focus in enacting these tax rules in section 104(a)(2) and 
130 of the Internal Revenue Code was to encourage and govern the use of 
structured settlements in order to provide long-term financial security 
to seriously-injured victims and their families and to insulate them 
from pressures to squander their awards.
  Over the almost two decades since we enacted these tax rules, 
structured settlements have proven to be a very effective means of 
providing long-term financial protection to persons with serious, long-
term physical injuries through an assured stream of payments designed 
to meet the victim's ongoing expenses for medical care, living, and 
family support. Structured settlements are voluntary agreements reached 
between the parties that are negotiated by counsel and tailored to meet 
the specific medical and living needs of the victim and his or her 
family, often with the aid of economic experts. This process may be 
overseen by the court, particularly in minor's cases. Often, the 
structured settlement payment stream is for the rest of the victim's 
life to ensure that future medical expenses and the family's basic 
living needs will be met and that the victim will not outlive his or 
her compensation.
  I now find that all of this careful planning and long-term financial 
security for the victim and his or her family can be unraveled in an 
instant by a factoring company offering quick cash at a steep discount. 
What happens next month or next year when the lump sum from the 
factoring company is gone, and the stream of payments for future 
financial support is no longer coming in? These structured settlement 
factoring transactions place the injured victim in the very predicament 
that the structured settlement was intended to avoid.
  Court records show that across the country factoring companies are 
buying up future structured settlement payments from persons who are 
quadriplegic, paraplegic, have traumatic brain injuries or other grave 
injuries. That is why the National Spinal Cord Injury Association and 
the American Association of Persons With Disabilities (AAPD) actively 
support the legislation we are introducing today. The National Spinal 
Cord Injury Association stated in a recent letter to Chairman Roth of 
the Finance Committee that the Spinal Cord Injury Association is 
``deeply concerned about the emergency of companies that purchase 
payments intended for disabled persons at drastic discount. This 
strikes at the heart of the security Congress intended when it created 
structured settlements.''
  As a long-time supporter of structured settlements and an architect 
of the Congressional policy embodied in the structured settlement tax 
rules, I cannot stand by as this structured settlement factoring 
problem continues to mushroom across the country, leaving injured 
victims without financial means for the future and forcing the injured 
victims onto the social safety net--precisely the result that we were 
seeking to avoid when we enacted the structured settlement tax rules.
  Accordingly, I am pleased to join with Senator Chafee in introducing 
the Structured Settlement Protection Act. The legislation would impose 
a substantial penalty tax on a factoring company that purchases 
structured settlement payments from an injured victim. There is ample 
precedent throughout the Internal Revenue Code, such as the tax-exempt 
organization area, for the use of penalties to discourage transactions 
that undermine existing provisions of the Code. I would stress that 
this is a penalty, not a tax increase--the factoring company only pays 
the penalty if it undertakes the factoring transaction that Congress is 
seeking to discourage because the transaction thwarts a clear 
Congressional policy. Under the Act, the imposition of the penalty 
would be subject to an exception for court-approved hardship cases to 
protect the limited instances of true hardship of the victim.
  I urge my colleagues that the time to act is now, to stem as quickly 
as possible these harsh consequences that structured settlement 
factoring transactions visit upon seriously-injured victims and their 
families.
                                 ______
                                 
      By Mr. REED:
  S. 1046. A bill to amend title V of the Public Health Service Act to 
revise and extend certain programs under the authority of the Substance 
Abuse and Mental Health Service Administration, and for other purposes; 
to the Committee on Health, Education, Labor, and Pensions.


  wrap around services for detained or incarcerated youth act of 1999

  Mr. REED. Mr. President, I rise today to introduce legislation that 
would help local communities coordinate services for juvenile offenders 
who are leaving the juvenile justice system and returning to their 
communities. This provision was included in the Robb amendment to S. 
254, the Violent and Repeat Juvenile Offender Accountability and 
Rehabilitation Act of 1999, which was unfortunately tabled earlier this 
week.
  The problem of mental illness plagues an alarming number of youth, 
who too often find themselves caught up in the juvenile justice system. 
While overall crime rates in this country have been in decline for the 
past few years, we have seen alarming increases in the number of 
serious and violent crimes committed by minors. Each year, more than 
two million youngsters under the age of 18 are arrested. What's more, 
statistics show that thirty percent of these young people will commit 
another crime within a year of their initial arrest.
  Often, society views these young people, who have turned to crime at 
such an early age, as a ``lost cause'' or simply beyond hope of 
rehabilitation. The said fact that often gets overlooked is that many 
of these youngsters are battling with a serious emotional or mental 
disorder that winds up manifesting itself in criminal behavior. We 
cannot condone this behavior, yet, we as a society have failed to 
dedicate the resources necessary to bring these children back from the 
edge of self-destruction.
  The legislation I am introducing today would help local agencies to 
coordinate the array of mental health, substance abuse, vocational, and 
education services a youngster may need to successfully transition back 
into the mainstream. Once a youth has been through the juvenile or 
criminal justice system, we need to do all we can to prevent a similar 
incident. If these children have been identified as having a mental or 
emotional disorder, they need to have access to appropriate treatment 
and services while they are incarcerated, but perhaps more imperatively 
when they leave incarceration. Turning these young people out on the 
street with no services to facilitate their transition does not help 
these children and does not help society as a whole.
  Studies have found the rate of mental disorder is two to three times 
higher among the juvenile offender population than among youth in the 
general population. According to a 1994 Department of Justice study, 73 
percent of juvenile offenders reported mental health problems and 57 
percent reported past treatment for their condition. In addition, it is 
estimated that over 60 percent of youth in the juvenile justice system 
have substance abuse disorders, compared to 22 percent in the general 
population.
  In an effort to bring desperately needed mental health services to 
this terribly underserved population, my legislation would authorize 
the Substance Abuse and Mental Health Services Administration (SAMHSA), 
in collaboration with the Departments of Justice and Education, to 
administer a

[[Page S5288]]

competitive grant program that responds to the array of social and 
educational needs of children who are leaving the juvenile justice 
system.
  These cooperative ``wrap-around services'' would enable juvenile 
justice agencies to work together with educational and health agencies 
to provide transitional services for youth who have had contact with 
the juvenile justice system, in order to decrease the likelihood that 
these young people will commit additional criminal offenses.
  These services, which would be targeted toward youth offenders who 
have serious emotional disturbances or are at risk of developing such 
disturbances, could include diagnostic and evaluation services, 
substance abuse treatment, outpatient mental health care, medication 
management, intensive home-based therapy, intensive day treatment 
services, respite care, and therapeutic foster care.
  I think it is important for my colleagues to note that this proposal 
is modeled after existing programs with a proven record of success. For 
instance, my home state of Rhode Island is one of four states (the 
others include California, Wisconsin, and Virginia) that has sought to 
target teens who have been diagnosed with a serious emotional 
disturbance and provide them with the services they need to get back on 
track.
  The Rhode Island Department of Youth and Families last year initiated 
a statewide program called ``Project Hope'', for youth ages 12 to 18 
with serious emotional disturbances who are in the process of 
transitioning from the Rhode Island Training School back into their 
communities. The goal of the partnership is to develop a single, 
community-based system of care for these children to reduce the 
likelihood that they will re-offend. The program brings a core set of 
services to these young people that includes health care, substance 
abuse treatment, educational/vocational services, domestic violence and 
abuse support groups, recreational programs, and day care services. A 
key component in the program's strategy is to engage young people and 
their families in the planning and implementation of these transition 
services.
  A similar program that has been in operation in Milwaukee, Wisconsin 
since 1994 has reported a 40 percent decline in the number of felonies 
committed and a 30% decrease in misdemeanors after providing 
comprehensive services to children with serious emotional disorders for 
one year.
  This legislation would provide states with the resources and 
flexibility to start filing a critical service gap for youngsters who 
are leaving the juvenile justice system and re-entering their 
communities. The provisions of adequate transitional and aftercare 
services to prevent recidivism is essential to reducing the societal 
costs associated with juvenile delinquency, promoting teen health, and 
fostering safe communities.
  I am pleased to introduce this legislation today. The provisions 
outlined in this bill will help community agencies to coordinate 
services, which will prevent these troubled juveniles from committing 
additional crimes and falling into a life on the fringes of society. It 
is in our best interest to take responsibility for these teens instead 
of turning our backs on them at such a critical stage.
                                 ______
                                 
      By Mr. MURKOWSKI (for himself and Mr. Bingaman) (by request):
  S. 1047. A bill to provide for a more competitive electric power 
industry and for other purposes; to the Committee on Energy and Natural 
Resources.
  S. 1048. A bill to provide for a more competitive electric power 
industry, and for other purposes, to the Committee on Finance.


           comprehensive electricity competition and tax acts

  Mr. MURKOWSKI. Mr. President, at the request of the Administration, 
Senator Bingaman and I are introducing the President's proposed 
electricity legislation. The Administration's legislation is being 
introduced as two separate bills because Title X of their proposed 
legislation amends the Internal Revenue Code. I will speak first with 
respect to the restructuring portion of the Administration's 
legislation, Titles I through IX.
  Mr. President, I am not introducing the restructuring portion of the 
Administration's legislation because I support it--I do not. Some of 
its provisions I agree with, but many of its key provisions I am 
opposed to. Instead, I am introducing the Administration's legislation 
in order to initiate the debate in the hope that through the 
legislative process Congress can craft legislation that will enjoy 
bipartisan support and will benefit consumers.
  At the outset, let me observe that our electric power industry isn't 
broken. We have the finest electric system in the world bar none. Our 
electric utilities have done an excellent job supplying electricity to 
the consumers of this Nation. As a result, today electricity is both 
reliable and reasonably-priced. But that isn't to say that improvements 
cannot, and should not, be made. I believe that consumers will benefit 
through enhanced competition. The key question we face is: Should we 
try to enhance competition through increased reliance on the free 
market, or through increased use of government regulation? I think the 
answer is self evident.
  Although deregulation is our goal, some regulation will remain 
necessary to protect consumers. However, such regulation should not be 
made the exclusive jurisdiction of the Federal government, as some have 
suggested. The retail market has traditionally been the jurisdiction of 
the States, and it should remain that way. States are the closest to 
the people, and are best able to determine what is in their consumers' 
best interests. Let me speak now about some of the key provisions of 
the Administration's legislation.
  There are several important components of the Administration's 
legislation that I strongly support. For example, it proposes to repeal 
the Public Utility Holding Company Act (PUHCA) and the Public Utility 
Regulatory Policies Act of 1978 (PURPA), two anticompetitive laws that 
cost consumers billions of dollars every year in above-market electric 
rates. If we do nothing else, repeal of PUHCA and PURPA would 
materially advance competition and reduce electric rates to consumers.
  The Administration's legislation also shows a clear interest in 
addressing several contentious issues left out in their bill in the 
last Congress. For example, the Administration's legislation includes 
provisions that will begin the debate on what to do about the Federal 
utilities--the Federal power marketing administrations and the 
Tennessee Valley Authority. The Administration's legislation also takes 
a significant step forward by addressing the very difficult issue of 
creating a level playing field between municipal and private 
utilities--the tax-exempt municipal bond issue. This is an issue that 
must be dealt with. The Administration's bill also addresses 
reliability and it makes all wholesale transmission open access, two 
very important matters. Also of note is the Administration's 
recognition of the need to deal with the high cost of electricity in 
rural communities. Senator Daschle and I have introduced legislation to 
deal with this problem, and the Administration's legislation 
incorporates part of our bill.
  There are, however, several provisions in the Administration's 
legislation that I am opposed to. First, I do not support its Federal 
retail competition mandate which overrides State law. I see no need for 
this. The States are moving aggressively to implement retail 
competition in a manner and a time frame that benefits consumers. 
According to the DOE's Energy Information Administration, twenty States 
have already enacted restructuring legislation or issued a 
comprehensive regulatory order. More than half the U.S. population live 
in these twenty States. Again according to DOE's Energy Information 
Administration, twenty-eight of the remaining thirty States are in the 
process of deciding what is in the best interests of its residents. 
Accordingly I ask: With States making such good progress on retail 
competition what need is there for a Federal mandate--assuming such a 
mandate is Constitutional? Moreover, because the Administration's 
proposed mandate would apply even to the twenty States that have 
already acted, I am concerned that such a Federal mandate would upset 
the progress these States have made. In this connection, I am not 
convinced that the Administration's ``opt-out'' provision will in fact

[[Page S5289]]

protect consumers from the adverse consequences of Federally-mandated 
retail competition.
  Second, the bill's so-called ``renewable portfolio mandate'' is also 
a significant problem. For reasons that I do not understand, the 
Administration has decided to exclude hydroelectric power from the 
definition of renewable energy, even though hydro is this Nation's most 
significant renewable energy source. Without hydroelectric power being 
counted, to meet this new Federal mandate ``renewable'' generation 
would have to increase to 7.5 percent by the year 2010. Clearly, an 
impossibility.
  Third, I am also troubled with the Administration's so-called 
``public benefits'' fund. It puts a Federal $3 billion per year tax on 
electric consumers, that a Federal board gets to spend for vaguely 
defined public purposes. It also appears to require a matching $3 
billion per year State expenditure. At the very outset, this eats up a 
very large share of the claimed consumer savings resulting from 
enactment of the Administration's bill.
  Finally, the Administration's bill also contains numerous new 
Federal oversight, regulatory and environmental programs, many of which 
give the Federal Energy Regulatory Commission major oversight--much of 
which comes at the expense of the States. There are far too many of 
these in the Administration's legislation to identify and discuss here. 
Some of these may be worthwhile, but clearly many are not. Each will 
have to be carefully scrutinized and will have to be justified on their 
own merits if it is to be included in a final bill. I will speak now 
about the tax provisions of the Administration's proposed legislation 
which I am introducing as a separate measure.

  Mr. President, at the request of the Administration I am also 
introducing the portion of their electricity restructuring bill that 
deals with tax-exempt debt issued by municipal utilities. This is Title 
X of the Administration's proposed legislation. In addiition, the 
Administration's bill clarifies the tax rules regarding contributions 
to nuclear decommissioning costs.
  Mr. President, if consumers and businesses are to maximize the full 
benefits of open competition in this industry it will be necessary for 
all electricity providers to interconnect their families into the 
entire electric grid. Unfortunately, this system efficiency is 
significantly impaired because of current tax law rules that 
effectively preclude public power entities--entities that financed 
their facilities with tax-exempt bonds--from participating in State 
open access restructuring plans, without jeopardizing the exempt status 
of their bonds.
  No one wants to see bonds issued to finance public power become 
retroactively taxable because a municipality chooses to participate in 
a state open access plan. That would cause havoc in the financial 
markets and could undermine the financial stability of many 
municipalities. At the same time, public power should be obtain a 
competitive advantage in the open marketplace based on the federal 
subsidy that flows from the ability to issue tax-exempt debt.
  The Administration's proposal attempts to resolve this issue by 
prohibiting public power facilities from issuing new tax-exempt bonds 
for generating facilities and transmission facilities. However, tax 
exempt debt could be issued for new distribution facilities. In 
addition, the Administration's proposal ensures that outstanding bonds 
would not lose their tax-exempt status if transmission facilities 
violate the private use rules because of a FERC order requiring non-
discriminatory open access to such facilities. Outstanding debt for 
generation would not lose it's tax-exempt status if the private use 
rules were triggered simply because the entity entered into a contract 
in response to a marketplace based on competition.
  Mr. President, I am not endorsing every concept in the tax portion of 
the Administration's proposal. I believe it is a good starting point 
for discussion of how we transition from a regulated environment to a 
free market competitive landscape. It is my hope that the public power 
and the investor owned utilities will sit down and come to a reasonable 
compromise on how to resolve the tax issues affecting the industry. My 
door is always open to hear all sides on this issue and see whether we 
can fix the problems that exist in the tax code so that competition in 
the industry becomes a reality.
  Mr. President, the introduction of the Administration's bill is just 
the beginning of a very long and arduous process. I hope to be able to 
work with the electric power industry, my Republican and Democratic 
colleagues to both the Finance Committee and the Energy and Natural 
Resources Committee, and DOE Secretary Richardson to craft legislation 
that will benefit consumers and our Nation.
  Mr. President, I ask unanimous consent that the Administration's 
transmittal letter and section-by-section analysis be printed in the 
Record.
  There being no objection, the items were ordered to be printed in the 
Record, as follows:

                                      The Secretary of Energy,

                                   Washington, DC, April 15, 1999.
     Hon. Al Gore,
     President of the Senate,
     Washington, DC.
       Dear Mr. President: Enclosed is proposed legislation, the 
     Comprehensive Electricity Competition Act (CECA), that will 
     reduce electricity costs, benefit the economy, and improve 
     the environment by promoting competition and consumer choice 
     in the electricity industry.
       The basic Federal regulatory framework for the electric 
     power industry was established with the enactment in 1935 of 
     the Public Utility Holding Company Act and Title II of the 
     Federal Power Act. These statutes are premised upon State-
     regulated monopolies rather than competition. Now, however, 
     economic forces are beginning to forge a new era in the 
     electricity industry, one in which generation prices will be 
     determined primarily by the market rather than by legislation 
     and regulation. Consequently, Federal electricity laws need 
     to be updated so that they stimulate, rather than stifle, 
     competition.
       In this new era of retail competition, consumers will 
     choose their electricity supplier. The Administration 
     estimates that consumers will save $20 billion a year. 
     Competition will also spark innovation in the American 
     economy and create new industries, jobs, products, and 
     services, just as telecommunications reform spawned cellular 
     phones and other new technologies.
       Competition also will benefit the environment. The market 
     will reward a generator that wrings as much energy as 
     possible from every unit of fuel. More efficient fuel use 
     means lower emissions. In addition, competition provides 
     increased opportunities to sell energy efficiency services 
     and green power. Moreover, CECA's renewable portfolio 
     standard and enhanced public benefit funding will lead to 
     substantial environmental benefits.
       The following are key provisions of CECA:
       All electric consumers would be able to choose their 
     electricity supplier by January 1, 2003, but a State or 
     unregulated cooperative or municipal utility may opt out of 
     retail competition if it believes its consumers would be 
     better off under the status quo or an alternative retail 
     competition plan.
       States would be encouraged to allow the recovery of 
     prudently incurred, legitimate, and verifiable retail 
     stranded costs that cannot be reasonably mitigated.
       The regions served by the Tennessee Valley Authority and 
     the Federal Power Marketing Administrations would have 
     greater access to alternative sources of power.
       All consumers would have the opportunity to reap the full 
     benefits of competition, because CECA would require retail 
     suppliers to provide information regarding the service being 
     offered; provide the Federal Trade Commission with the 
     authority to prevent ``slamming'' and ``cramming;'' require 
     States to consider implementing anti-redlining requirements; 
     allow for aggregation; authorize the establishment of an 
     electricity consumer database to help consumers compare 
     various offers, and establish a Model Retail Supplier Code 
     for States.
       All users of the interstate transmission grid would be 
     subject to mandatory reliability standards. The Federal 
     Energy Regulatory Commission (FERC) would approve and oversee 
     an organization that would develop and enforce these 
     standards.
       FERC would have the authority to require utilities to turn 
     over operational control of transmission facilities to an 
     independent regional system operator.
       A Renewable Portfolio Standard would be established to 
     ensure that by 2010 at least 7.5 percent of all electricity 
     sales consist of generation from non-hydroelectric renewable 
     energy sources.
       A Public Benefits Fund would be established to provide 
     matching funds of up to $3 billion per year to States and 
     Indian tribes for low-income energy assistance, energy-
     efficiency programs, consumer information, and the 
     development and demonstration of emerging technologies, 
     particularly renewable energy technologies. A rural safety 
     net would be created if significant adverse economic effects 
     on rural areas have occurred or will occur as a result of 
     electric industry restructuring.
       Indian tribes would receive additional support through the 
     creation of a grant's program, the establishment of an Energy 
     Policy and Programs Office of the Department of

[[Page S5290]]

     Energy, and special incentives for renewable energy 
     production on Indian lands.
       Barriers would be removed in order to encourage combined 
     heat and power and distributed power technologies.
       The Environmental Protection Agency would be given 
     authority for interstate nitrogen oxides trading to 
     facilitate attainment of the ambient air quality standard for 
     ozone in the eastern United States.
       Federal electricity laws would be modernized to achieve the 
     right balance of competition without market abuse by 
     repealing outdated laws including the Public Utility Holding 
     Company Act of 1935 and the ``must buy'' provision of the 
     Public Utility Regulatory Policies Act of 1978 and by giving 
     FERC enhanced authority to address market power.
       A separate bill being transmitted today would change 
     Federal tax law to address certain tax-exempt bonds, nuclear 
     decommissioning costs, class life for distributed power 
     facilities, and to provide a temporary tax credit for 
     combined heat and power facilities.
       We urge the prompt enactment of CECA to provide lower 
     prices, a cleaner environment, and increased technical 
     innovation and efficiency.
       The Omnibus Budget Reconciliation Act requires that all 
     revenue and direct spending legislation meet a pay-as-you-go 
     (PAYGO) requirement. That is, no such bill should result in 
     net budget costs: and if it does, it could contribute to a 
     sequester if it is not fully offset. This proposal affects 
     direct spending and receipts; therefore, it is subject to the 
     PAYGO requirement. The net PAYGO effect of this bill is 
     currently estimated to be a net cost of $60 million in FY 
     2000 and a net savings of $274 million from FY 2000 to FY 
     2004.
       The proposals to provide an investment tax credit for 
     combined heat and power and to deny tax-exempt status for new 
     electric utility bonds except for distribution related 
     expenses, are included in the President's FY 2000 Budget. The 
     Budget contains proposals for mandatory spending reductions 
     and increases in receipts that are sufficient to finance 
     these proposals.
       This estimate is preliminary and subject to change.
       The pay-as-you-go effect of this draft bill is:

                                                   FISCAL YEAR
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                           1999    2000     2001      2002      2003      2004
----------------------------------------------------------------------------------------------------------------
Tax Provisions:
  Revenue Effect \1\....................................      -1     -60       -88       -90       -22        34
                                                         -------------------------------------------------------
Renewable Portfolio Standards:
  Offsetting receipts...................................  ......      -5        -9        -9        -9        -9
  Outlays...............................................  ......       5         9         9         9         9
                                                         -------------------------------------------------------
      Net Cost..........................................  ......  ......  ........  ........  ........  ........
Public Benefits Fund and Electricity Reliability
 Organization:
  Offsetting receipts...................................  ......  ......    -3,005    -3,005    -3,005    -3,005
  Outlays...............................................  ......  ......     2,505     3,005     3,005     3,005
                                                         -------------------------------------------------------
      Net Cost..........................................  ......  ......      -500  ........  ........  ........
                                                         =======================================================
      Total Net Cost....................................       1      60      -412        90        22       -34
----------------------------------------------------------------------------------------------------------------
\1\ For tax provisions, a ``+'' is a revenue gain; a ``-'' is a revenue loss. These proposals have been fully
  offset in the President's budget.

       The Office of Management and Budget advises that there is 
     no objection to the presentation of this legislation to the 
     Congress and that its enactment would be in accord with the 
     program of the President.
       If you require any additional information, please call me 
     or have a member of your staff contact Mr. John C. Angell, 
     Assistant Secretary for Congressional and Intergovernmental 
     Affairs, at (202) 586-5450.
       Yours sincerely,
     Bill Richardson.
                                  ____


     Section-by-Section Analysis of the Comprehensive Electricity 
                            Competition Act


                    TITLE I. RETAIL ELECTRIC SERVICE

                    Section 101. Retail competition

       This provision would amend the Public Utility Regulatory 
     Policies Act of 1978 (PURPA) to require each distribution 
     utility to permit all of its retail customers to purchase 
     power from the supplier of their choice by January 1, 2003, 
     but would permit a State regulatory authority (with respect 
     to a distribution utility for which it has ratemaking 
     authority) or a non-regulated utility to opt out if it finds, 
     on the basis of a public proceeding, that consumers of the 
     utility would be served better by the current monopoly system 
     or an alternative retail competition plan.
       The section also would enunciate a Federal policy that 
     utilities should be able to recover prudently incurred, 
     legitimate, and verifiable retail stranded costs that cannot 
     be mitigated reasonably, but States and non-regulated 
     utilities would continue to determine whether to provide for 
     retail stranded costs recovery. If States and non-regulated 
     utilities are considering implementation of retail 
     competition, they would also be required to consider 
     providing assistance for electric utility workers who may 
     become or have become unemployed as a result of the 
     implementation of retail competition. If a State or non-
     regulated utility decides to impose a stranded cost charge, 
     it would be required to consider reducing that charge if the 
     charge results from the use of on-site efficient or renewable 
     generation. This section does not retrocede to States 
     authority over Federal enclaves.

       Section 102. Authority to impose reciprocity requirements

       This section would amend PURPA to permit a State that has 
     filed a notice indicating it is implementing retail 
     competition to prohibit a distribution utility that is not 
     under the ratemaking authority of the State and that has not 
     implemented retail competition from directly or indirectly 
     selling electricity to the consumers covered by the State's 
     notice. This section also would permit a nonregulated utility 
     that has filed a notice of retail competition to prohibit any 
     other utility that has not implemented retail competition 
     from directly or indirectly selling electricity to the 
     consumers covered by the nonregulated utility's notice.

    Section 103. Aggregation for purchase of retail electric energy

       This section would amend PURPA to ensure that electricity 
     customers and entities acting on their behalf, subject to 
     legitimate and non-discriminatory State requirements, would 
     be allowed to acquire retail electric energy on an aggregate 
     basis if they are served by one or more distribution 
     utilities for which a notice of retail competition has been 
     filed.


                     TITLE II. CONSUMER PROTECTION

                   Section 201. Consumer information

       This section would amend PURPA to permit the Secretary of 
     Energy to require all suppliers of electricity to disclose 
     information on price, terms, and conditions; the type of 
     energy resource used to generate the electric energy; and the 
     environmental attributes of the generation, including air 
     emissions characteristics. This requirement would be 
     enforceable by the Federal Trade Commission and by individual 
     States.

    Section 202. Access to electric service for low-income consumers

       This section would amend PURPA to require a State 
     regulatory authority or nonregulated distribution utility 
     that files a notice of retail competition to consider 
     assuring that its low-income residential consumers have 
     service comparable to its other residential consumers and 
     that all retail electric suppliers in the State share 
     equitably any costs necessary to provide such service.

                  Section 203. Unfair trade practices

       This section would amend the Federal Trade Commission Act 
     to establish slamming and cramming in supplying electricity 
     as unfair trade practices punishable by the Federal Trade 
     Commission (FTC). Under this section, a person may not submit 
     or change, in violation of procedures established by the FTC, 
     a retail electric customer's selection of a retail electric 
     supplier. Also, a person may not charge a retail electric 
     customer for a particular service, except in accordance with 
     procedures established by the FTC.

         Section 204. Residential electricity consumer database

       This section would amend PURPA to authorize the Secretary 
     of Energy to establish a database containing information to 
     help residential electric consumers compare the offers of 
     various retail electric suppliers.

                Section 205. Model retail supplier code

       This section would amend PURPA to authorize the Secretary 
     of Energy to develop for State use a model code for the 
     regulation of retail electricity suppliers for the protection 
     of electric consumers.

            Section 206. Model electric utility worker code

       This section would amend PURPA to authorize the Secretary 
     of Energy to develop for State use a model code setting 
     standards for electric utility workers to ensure that 
     electric utilities are operated safely and reliably.


         TITLE III--FACILITATING STATE AND REGIONAL REGULATION

 Section 301. Clarification of State and Federal authority over retail 
                         transmission services

       Subsection (a) would clarify that the Federal Power Act 
     (FPA) does not prevent States and nonregulated distribution 
     utilities from ordering retail competition or imposing 
     conditions, such as a fee, on the receipt of electric energy 
     by an ultimate customer within the State. This section also 
     would clarify the Federal Energy Regulatory Commission's 
     (FERC) authority over unbundled retail transmission.
       Subsection (b) would reinforce FERC's authority to require 
     public utilities to provide open access transmission services 
     and permit recovery of stranded costs. This section also 
     would provide retroactive effect to Commission Order No. 888 
     and clarify FERC's authority to order retail transmission 
     service to complete an authorized retail sale.
       Subsection (c) would extend FERC's jurisdiction over 
     transmission services to municipal and other publicly-owned 
     utilities and cooperatives.
       Subsection (d) would give the Secretary of Agriculture 
     intervention rights in FERC rulemakings that directly affect 
     a cooperative with loans made or guaranteed under the Rural 
     Electrification Act of 1936.

   Section 302. Interstate compacts on regional transmission planning

       This section would amend the FPA to permit FERC to approve 
     interstate compacts that establish regional transmission 
     planning agencies if the agencies meet certain criteria 
     relating to their governance.

    Section 303. Backup authority to impose a charge on an ultimate 
                 consumer's receipt of electric energy

       This section would amend the FPA to reinforce FERC's 
     authority to provide a back-up for the recovery of retail 
     stranded costs if a State or a non-regulated utility has 
     filed a

[[Page S5291]]

     retail competition notice and concludes that such charges are 
     appropriate but lacks authority to impose a charge on the 
     consumer's receipt of electric energy.

 Section 304. Authority to establish and require independent regional 
                            system operation

       This section would amend section 202 of the FPA by 
     permitting FERC to establish an entity for independent 
     operation, planning, and control of interconnected 
     transmission facilities and to require a utility to 
     relinquish control over operation of its transmission 
     facilities to an independent regional system operator.


                       TITLE IV--PUBLIC BENEFITS

                   Section 401. Public benefits fund

       This section would amend PURPA by establishing a Public 
     Benefits Fund administered by a Joint Board that would 
     disburse matching funds to participating States and tribal 
     governments to carry out programs that support affordable 
     electricity service to low-income customers; implement energy 
     conservation and energy efficiency measures and energy 
     management practices; provide consumer education; and develop 
     emerging electricity generation technologies. Funds for the 
     Federal share would be collected from generators, which, as a 
     condition of interconnection with facilities of any 
     transmitting utility, would pay to the transmitting utility a 
     charge, not to exceed one mill per kilowatt-hour. The 
     transmitting utility then would pay the collected amounts to 
     a fiscal agent for the Fund. States and tribal governments 
     would have the flexibility to decide whether to seek funds 
     and how to allocate funds among public purposes. In addition, 
     a rural safety net would be created if the Secretary of 
     Energy determines, in consultation with the Secretary of 
     Agriculture, that significant adverse economic effects on 
     rural areas have occurred or will occur as a result of 
     electric restructuring.

           Section 402. Federal renewable portfolio standard

       This section would amend PURPA to establish a Federal 
     Renewable Portfolio Standard (RPS) to guarantee that a 
     minimum level of renewable generation is developed in the 
     United States. The RPS would require electricity sellers to 
     have renewable credits based on a percentage of their 
     electricity sales. The seller would receive credits by 
     generating power from non-hydroelectric renewable 
     technologies, such as wind, solar, biomass, or geothermal 
     generation; purchasing credits from renewable generators; or 
     a combination of these, but would receive twice the number of 
     credits if the power was generated on Indian lands. The RPS 
     requirement for 2000-2004 would be set at the current ratio 
     of RPS-eligible generation to retail electricity sales. 
     Between 2005-2009, the Secretary of Energy would determine 
     the required annual percentage, which would be greater than 
     the baseline percentage but less than 7.5%. In 2010-2015, the 
     percentage would be 7.5%. The RPS credits would be subject to 
     a cost cap of 1.5 cents per kilowatt hour, adjusted for 
     inflation.

                       Section 403. Net metering

       This section would amend PURPA by requiring all retail 
     electric suppliers to make available to consumers ``net 
     metering service,'' through which a consumer would offset 
     purchases of electric energy from the supplier with electric 
     energy generated by the consumer at a small on-site renewable 
     generating facility and delivered to the distribution system. 
     This section also would clarify that States are not preempted 
     under Federal law from requiring a retail electric supplier 
     to make available net metering service.

              Section 404. Reform of section 210 of PURPA

       This section would repeal prospectively the ``must buy'' 
     provision of section 210 of PURPA. Existing contracts would 
     be preserved, and the other provisions of section 210 would 
     continue to apply.

          Section 405. Interconnections for certain facilities

       This section would amend PURPA to require a distribution 
     utility to allow a combined heat and power or a distributed 
     power facility to interconnect with it if the facility is 
     located in the distribution utility's service territory and 
     complies with rules issued by the Secretary of Energy and 
     related safety and power quality standards.

    Section 406. Rural and remote communities electrification grants

       This section would amend the Rural Electrification Act of 
     1936 to authorize the Secretary of Agriculture, in 
     consultation with the Secretary of Energy, to provide grants 
     for the purpose of increasing energy efficiency, lowering or 
     stabilizing electric rates to end users, or providing or 
     modernizing electric facilities for rural and remote 
     communities and Indian tribes.

                  Section 407. Indian tribe assistance

       This section would amend the Energy Policy Act of 1992 to 
     require the Secretary of Energy to establish a grant and 
     technical assistance program to assist Indian tribes to meet 
     their electricity needs. Among other things, the program 
     could provide assistance in planning and constructing 
     electricity generation, transmission, and distribution 
     facilities.

        Section 408. Office of Indian Energy Policy and Programs

       This section would authorize the Secretary of Energy to 
     establish an office within the Department of Energy to 
     coordinate and implement energy, energy management, and 
     energy conservation programs for Indian tribes.

             Section 409. Southeast Alaska electrical power

       This section would authorize appropriations as necessary to 
     ensure the availability of adequate electric power to the 
     greater Ketchikan area in southeast Alaska, including an 
     intertie.


         TITLE V--Regulation OF MERGERS AND CORPORATE STRUCTURE

     Section 501. Reform of holding company regulation under PUHCA

       This section would repeal the Public Utility Holding 
     Company Act of 1935 (PUHCA). In addition, FERC and State 
     regulatory commissions would be given greater access to the 
     books and records of holding companies and affiliates.

                 Section 502. Electric company mergers

       This section would amend the FPA by conferring on FERC 
     jurisdiction over the merger or consolidation of electric 
     utility holding companies and generation-only companies. This 
     section also would streamline FERC's review of mergers. In 
     addition, this section would require that FERC consider the 
     effect a merger could have on wholesale and retail electric 
     generation markets.

            Section 503. Remedial measures for market power

       This section would amend the FPA to authorize FERC to 
     remedy market power in wholesale markets. This section also 
     would authorize FERC, upon petition from a State, to remedy 
     market power in retail markets.


                   title vi--electricity reliability

      Section 601. Electric reliability organization and oversight

       This section would amend the FPA to give FERC authority to 
     approve and oversee an Electric Reliability Organization to 
     prescribe and enforce mandatory reliability standards. 
     Membership in the organization would be open to all entities 
     that use the bulk-power system and would be required for all 
     entities critical to system reliability. The Electric 
     Reliability Organization would be authorized to delegate 
     authority to one or more Affiliated Regional Reliability 
     Entities, which could implement and enforce the standards 
     within a region.

             Section 602. Electricity outage investigation

       This section would amend the Department of Energy 
     Organization Act to establish in the Department of Energy a 
     board to investigate and determine the causes of a major 
     bulk-power system failure in the United States.

             Section 603. Additional transmission capacity

       This section would amend PURPA to give the Secretary of 
     Energy authority to call and chair a meeting of 
     representatives of States in a region in order to discuss 
     provision of additional transmission capacity and related 
     concerns.


                  title vii--environmental protection

           Section 701. Nitrogen oxides cap and trade program

       This section would clarify Environmental Protection Agency 
     authority to require a cost-effective interstate trading 
     system for nitrogen oxide pollutant reductions addressing the 
     regional transport contributions needed to attain and 
     maintain the National Ambient Air Quality Standards for 
     ozone.


                   title viii--federal power systems

              Subtitle A--Tennessee Valley Authority (TVA)

                        Section 801. Definition

             Section 802. Application of Federal Power Act

       This section would subject TVA to relevant provisions of 
     the FPA for purposes of TVA's transmission system, but would 
     provide that any determination of the Commission would be 
     subject to any other laws applicable to TVA, including the 
     requirement that TVA recover its costs.

                    Section 803. Antitrust coverage

       This section would subject TVA to the antitrust laws 
     effective January 1, 2003, except that TVA would not be 
     liable for civil damages or attorney's fees.

                      Section 804. TVA power sales

       This section would permit TVA, effective January 1, 2003, 
     to sell electric power at wholesale to any person. With 
     regard to sales at retail, this section would permit TVA to 
     sell (1) to existing customers or (2) to customers of an 
     existing wholesale customer of TVA, if the distributor has 
     firm power purchases from TVA of 50 percent or less of its 
     total retail sales, or if the distributor agrees that TVA can 
     sell power to the customer.

        Section 805. Renegotiation of long-term power contracts

       This section would require TVA to renegotiate its long-term 
     power contracts with respect to the remaining term; the 
     length of the termination notice; the amount of power a 
     distributor may purchase from a supplier other than TVA 
     beginning January 1, 2003, and access to the TVA transmission 
     system for that power; and stranded cost recovery. This 
     section would require that, if the parties are unable to 
     reach agreement within the one year, they would submit the 
     issues in dispute to the Federal Regulatory Commission for 
     final resolution.

                  Section 806. Stranded cost recovery

       This section would provide the Commission with the 
     authority to provide TVA with stranded cost recovery

                   Section 807. Conforming amendments

       This section would make conforming amendments to the 
     Tennessee Valley Authority Act.

[[Page S5292]]

              Subtitle B--Bonneville Power Administration

                        Section 811. Definitions

             Section 812. Application of Federal Power Act

       This section would subject Bonneville to relevant 
     provisions of the FPA for purposes of Bonneville's 
     transmission system, but would provide that any determination 
     of the Commission would be subject to a list of conditions, 
     including a requirement that the rates and charges are 
     sufficient to recover existing and future Federal investment 
     in the Bonneville Transmission System.

   Section 813. Surcharge on transmission rates to recover otherwise 
                          nonrecoverable costs

       This section would require the Commission to establish a 
     mechanism that would enable the Administrator to place a 
     surcharge on rates or charges for transmission services over 
     the Bonneville Transmission System under limited 
     circumstances in order to recover power costs unable to be 
     recovered through power revenues in time to meet Bonneville's 
     cost recovery requirements.

                        Section 814. Complaints

       This section would clarify that the PMAs may file 
     complaints with the Commission.

                Section 815. Review of Commission orders

       This section would clarify that the PMAs may file a 
     rehearing request or may appeal a Commission order.

                   Section 816. Conforming amendments

       This section would make conforming amendments to the FPA, 
     the Federal Columbia River Transmission System Act, the 
     Pacific Northwest Regional Preference Act, the Pacific 
     Northwest Electric Power Planning and Conservation Act, and 
     the Bonneville Project Act.

 Subtitle C--Western Area Power Administration (WAPA) and Southwestern 
                      Power Administration (SWPA)

                        Section 821. Definitions

             Section 822. Application of Federal Power Act

       This section would subject SWPA and WAPA to relevant 
     provisions of the FPA for purposes of the transmission 
     systems of SWPA and WAPA, but would provide that any 
     determination of the Commission would be subject to a list of 
     conditions, including a requirement that the rates and 
     charges are sufficient to recover existing and future Federal 
     investment in the transmission systems.

   Section 823. Surcharge on transmission rates to recover otherwise 
                          nonrecoverable costs

       This section would require the Commission to establish a 
     mechanism that would enable the Administrator to place a 
     surcharge on rates or charges for transmission services over 
     the SWPA or WAPA Transmission System when necessary in order 
     to recover power costs unable to be recovered through power 
     revenues in time to meet SWPA's or WAPA's cost recovery 
     requirements.

                   Section 824. Conforming amendments

       This section would make conforming amendments to the 
     Department of Energy Organization Act and the Reclamation 
     Reform Act of 1982.


                       title ix--other provisions

 Section 901. Treatment of nuclear decommissioning costs in bankruptcy

       This section would amend the Bankruptcy Act to provide that 
     decommissioning costs be a nondischargeable priority claim.

  Section 902. Energy Information Administration study of impacts of 
                   competition in electricity markets

       This section would amend the Department of Energy 
     Organization Act to direct the Energy Information 
     Administration to collect and publish information on the 
     impacts of wholesale and retail competition.

                 Section 903. Antitrust savings clause

       This section would provide that nothing in this Act would 
     supersede the operation of the antitrust laws.

Section 904. Elimination of antitrust review by the Nuclear Regulatory 
                               Commission

       This section would eliminate Nuclear Regulatory Commission 
     antitrust review of an application for a license to construct 
     or operate a commercial utilization or production facility.

             Section 905. Environmental law savings clause

       This section would provide that nothing in this Act would 
     alter environmental requirements of Federal or State law.

             Section 906. Generating plant efficiency study

       This section would amend the Department of Energy 
     Organization Act to require the Secretary of Energy to issue 
     a report on the efficiency of new and existing electric 
     generating facilities before and after electric competition 
     is in effect.

                   Section 907. Conforming amendments


              title x--amendments to internal revenue code

  Section 1001. Treatment of bonds issued to finance output facilities

       This section would amend the Internal Revenue Code to 
     clarify the status of tax-exempt bonds used to finance 
     utility facilities owned by municipalities. The section would 
     grandfather current tax treatment for bonds that exist 
     already, continue to permit public utilities to issue tax-
     exempt bonds in the future for new electricity distribution 
     facilities, and eliminate their ability in the future to 
     issue tax-exempt bonds for new transmission and generation 
     facilities.

              Section 1002. Nuclear decommissioning costs

       This section would amend the Internal Revenue Code to 
     clarify that an investor-owned utility could take a tax 
     deduction for the amount paid into a qualified nuclear 
     decommissioning fund for any taxable year, notwithstanding 
     the elimination of ``cost of service'' ratemaking.

   Section 1003. Depreciation treatment of distributed power property

       This section would amend the Internal Revenue Code of 1986 
     to clarify that distributed power facilities have a tax life 
     of 15 years.

  Section 1004. Tax credit for combined heat and power system property

       This section would amend the Internal Revenue Code to 
     provide an 8 percent investment credit for qualified combined 
     heat and power (CHP) systems placed in service in calendar 
     years 2000 through 2002. The measure would apply to large CHP 
     systems that have a total energy efficiency exceeding 70 
     percent and to smaller systems that have a total energy 
     efficiency exceeding 60 percent.

 Mr. BINGAMAN. Mr. President, at the request of the 
administration, I am today joining with my good friend Senator 
Murkowski, the Chairman of the Energy and Natural Resources Committee, 
to introduce the president's electricity restructuring legislation.
  The administration has presented Congress a fully comprehensive set 
of legislative proposals. For the first time we have detailed 
provisions on every major issue affecting the electricity industry as 
it moves into the new world of competition. Significantly, the 
president's comprehensive proposals include a framework for the 
transition of the Bonneville Power Administration and the Tennessee 
Valley Authority into the new competitive arena.
  In considering the administration's proposals, Congress should look 
to areas that complement the states' ongoing restructuring activities, 
while leaving the key decisions on retail competition to state and 
local authorities. Let me mention three areas for federal concern. 
First, I believe Congress should remove federal impediments to states 
that chose to implement retail competition. Second, we should take 
steps to improve the regulation of interstate transmission and assure 
the continued security and reliability of the nation's grid. And third, 
Congress should ensure that fair competition can operate at both the 
wholesale and retail levels. These are the issues that only Congress 
can address.
  Mr. President, Congress should not dwell any longer on whether retail 
competition is good or bad, or whether or not it will benefit all 
consumers--the states are already making these decisions. It should be 
clear to all senators that retail competition for electric power 
generation is quickly becoming a reality. Nearly half of the states 
have now enacted restructuring legislation. Last month, New Mexico 
enacted restructuring legislation that will soon bring retail 
competition in electricity to my state.
  The consensus is growing on the need for federal legislation focused 
narrowly on wholesale transactions, interstate transmission, and 
reliability. Mr. President, this is not a simple question of ``de-
regulation'' versus ``re-regulation;'' this is about keeping America's 
high-tension grid system secure, reliable, and economical. The federal 
role in regulating interstate commerce in electric power is clear. I 
hope we will move forward soon to resolve, at a minimum, the critical 
federal issues.
  Rather than commenting here on the pros and cons of any particular 
provision in the president's bill, I will wait until the administration 
has a fair opportunity to explain the bill to the Energy Committee in a 
legislative hearing. I know the committee already has a very full 
plate, but I hope the Chairman will find time to hold a hearing soon on 
this important topic.
  Mr. President, Congress still has time to pass vital federal 
electricity legislation, but we've got to get the process underway 
promptly. I hope the administration's proposals will help fuel interest 
in the Senate. Today America has the world's best electric power 
system. Let's not wait until serious problems develop to begin making 
the needed changes in federal regulation. Electricity is too important 
to the nation to leave critical federal issues unresolved.
                                 ______
                                 
      By Mr. MURKOWSKI:
  S. 1049. A bill to improve the administration of oil and gas leases 
on Federal land, and for other purposes; to the Committee on Energy and 
Natural Resources.

[[Page S5293]]

      federal oil and gas lease management improvement act of 1999

                                 ______
                                 
      By Mr. MURKOWSKI:
  S. 1050. A bill to amend the Internal Revenue Code of 1986 to provide 
incentives for gas and oil producers, and for other purposes; to the 
Committee on Finance.


                 energy security tax policy act of 1999

  Mr. MURKOWSKI. Mr. President, the production of oil and gas in the 
United States is fast becoming a thing of the past. I am introducing 
two bills today to halt, and if possible, reverse that trend.
  The economic consequences of the 1973 oil embargo were severe and 
long lasting. Whole sectors of our economy underwent significant 
changes and dislocations. Parts of the United States were plunged into 
recession which remained for a decade as they adjusted to the 
fluctuations and insecurity of energy supplies in the 1970's. At the 
time of the embargo, imports made up 36% of our oil consumption.
  Our foreign policy was modified to reflect our growing dependence and 
protecting oil-producing regions of the world took on a new importance. 
By the time of the Gulf War of 1990-91, oil imports were roughly 50%.
  Today, the United States depends upon foreign sources for some 56% of 
our supply. This is despite Corporate Average Fuel Efficiency (CAFE) 
standards for cars which have almost doubled gas mileage. This is 
despite the creation of the Department of Energy. This is despite the 
untold billions of dollars which have been invested by U.S. industry in 
energy-saving equipment and processes in order to remain competitive in 
a world economy.
  If no changes are made in federal policy to protect our domestic oil 
and gas industry--the ``pilot light'' of our nation's economy and 
security upon which all productive enterprise depends--our future 
indeed may be bleak. The Department of Energy predicts 68% dependency 
on foreign oil by the year 2010. This is just shy of a doubling of our 
oil imports since the embargo of 1973.
  In two recent hearings the Senate Energy & Natural Resources 
Committee examined the state of the domestic oil and gas industries and 
their future. What we learned has been the impetus for my introduction 
of these bills today.
  During the past 18 months, 136,000 U.S. oil wells and 57,000 gas 
wells have been shut in. 50,000 men and women throughout the United 
States have lost their jobs in these industries--15% of all employees. 
With operating oil rigs at an all-time low and new investment in the 
U.S. drying up, the future for domestic production of oil and gas is 
grim.
  While the consumption of natural gas is favored by the Administration 
as a means to reduce emissions, unless changes are made now in federal 
policy to make production and delivery of natural gas easier, the 
projected 50% increase in the need for natural gas by the year 2010 
will not be met without severe price shocks for American citizens.
  The price of oil today is high enough for investment in the U.S. by 
those who will or can still invest in our domestic oil and gas economy. 
However, the fact is that the fundamentals for investment in America 
are not good. Access to prospective areas is severely restricted, 
environmental costs are extremely high and production rates from U.S. 
wells are liable to be quite low, in comparison to other areas in the 
world.
  The U.S. is a mature and high cost oil producing region of the world. 
In response to a changing world oil market, other producing countries 
are undertaking changes in their government policies to attract and 
retain economic investment in what they properly consider to be an 
important national industry.
  For example, the United Kingdom has undertaken a significant 
regulatory reform effort to speed, simplify and provide certainty to 
investments in their energy industry. They are actively reviewing their 
tax and royalty systems to adjust them to the new realities of the 
world energy markets. Colombia, likewise, is undertaking major 
reductions in royalties to attract and retain investment. These nations 
and others have determined that they must compete with the rest of the 
world for investment capital, and are thus moving to make their nations 
more attractive to such investment. The U.S. lags far behind.
  The first of the bills I am introducing is identical to a measure 
being introduced in the U.S. House of Representatives by Congresswoman 
Barbara Cubin, Chairman of the Subcommittee on Energy and Mineral 
Resources. It makes significant changes in the oil and gas leasing 
policies of the United States, by simplifying procedures and granting 
more certainty for those who choose to invest in our domestic energy 
business.
  This legislation grants States the option of assuming federal 
regulation of oil and gas leases within their borders, after a federal 
decision to lease is made. States already perform identical functions 
on their lands, and this would standardize regulatory functions within 
a State's borders. The States are closer than the federal government to 
oil and gas leasing activities within their borders, and are best 
positioned to make timely and responsible regulatory decisions. In 
return for opting to assume the specified federal responsibilities for 
these activities, the States would receive payment of up to 50% of the 
costs currently assessed them by the federal government for these 
functions. Federal ownership of the lands would continue.
  An important part of this legislation clarifies that the federal 
government can no longer charge States via the existing ``net receipts 
sharing'' program for the costs of programmatic planning activities on 
federal lands unrelated to mineral leasing activities. This would stop 
creative legal interpretations by the Department of Interior like that 
which charged Utah for the government's secret planning which resulted 
in the creation of an enormous National Monument in that State. This 
type of creative accounting undermines the respect of the citizenry in 
their governmental institutions, and with this bill, we will plug this 
leak in the public trust.
  The legislation also assists States by dropping the requirement that 
their share of mineral leasing on federal lands within their borders be 
reduced by the government's costs of administering mineral leasing if a 
State opts to assume the federal government's responsibility for 
regulation of oil and gas activities.
  In order to speed development of secure sources of domestic oil and 
gas by making federal practices more competitive with the rest of the 
world, I have included in the bill certain provisions which are 
intended to correct federal practices which are hastening the flight of 
oil and gas development capital to foreign shores.
  One recurring criticism from those who would like to invest in 
America's domestic energy development is the uncertainty they encounter 
when they do business with their own federal government. In order to 
make investment decisions, they must have some certainty about when 
they might reasonably be expected to be able to actually take 
possession of, and invest capital in, a federal lease. Moreover, the 
government is increasingly charging potential lessees for governmental 
activities before they have any reasonable expectation of being granted 
a lease. This is akin to charging customers just to stand in line to 
buy a lottery ticket for a drawing which may never be held. This is 
absurd, and is a clear signal to potential investors that the U.S. 
cares little about whether the investment is made here or abroad. This 
legislation will reverse that signal and provide the certainty that 
investors need.
  Additionally, my legislation would establish reasonable and 
responsible time frames for the government to respond to requests for 
permits. If legally-required analyses could not be undertaken by the 
government within a reasonable time, the applicant could be offered the 
opportunity to contract for such analyses by an independent party for 
the government's use. My bill would allow the applicant to receive a 
credit against royalties due from eventual production in the area for 
such costs, in recognition of the fact that the more rapidly lands are 
leased and put into oil or gas production, the more revenues the 
government will receive and the quicker it will receive it.
  My legislation also sets fair but rigid performance deadlines for the 
completion of federal lease decision-making.

[[Page S5294]]

One of the most frequent concerns I hear from small companies 
throughout the country in the oil and gas producing business is the 
snail-like pace of federal decision-making. Customers of government 
services deserve a ``yes'' or ``no'', instead of the endless series of 
``maybes'' to which they have become accustomed. They deserve no less, 
and I seek to correct that deficiency before all oil and gas investment 
flees our shores.
  Coordination among federal land management agencies over leasing 
policies is also long overdue. The bill requires the Secretaries of the 
Interior and Agriculture to report to Congress with recommendations 
explaining the most efficient means of eliminating duplication of 
effort and inconsistent policy between the Bureau of Land Management 
and the Forest Service with respect to the treatment of oil and gas 
leases.
  The U.S. government and the public deserve to have the best knowledge 
possible about our domestic supplies of energy. The legislation I am 
introducing today initiates a modern, science-based energy inventory 
process to be undertaken by the Secretary of Interior and the Director 
of the U.S. Geological Survey. Technology for determining oil and gas 
availability has revolutionized the private sector; it is time for this 
quantum leap information to be used by the government.
  I am particularly happy to include as Title 4 of the bill a provision 
that Senator Don Nickles recently introduced as S. 924, concerning 
federal royalty certainty. This would put an end to the seemingly 
intractable problem that has sprung up between lessees and the 
Department of Interior over the issue of where oil is to be valued for 
royalty purposes. While other nations around the world are taking steps 
to become more competitive for energy investments by changing laws to 
encourage investment and provide certainty to possible investors, this 
recent back-door royalty increase by the Administration has sent a 
strong signal to domestic producers that they are no longer welcome 
here. Title 4 merely clarifies what congress has been saying all 
along--that oil should be valued for royalty purposes at or near the 
lease. This clarification is absolutely essential if consumers are to 
receive the 30 trillion cubic feet of gas the Administration says they 
will demand in a decade at a cost they can afford.

  The final title of the legislation will serve as a strong signal to 
our domestic industry that we value the jobs they provide for our 
neighbors and the investment they make right here at home. It 
recognizes that when world oil prices make investments in American 
energy production uncompetitive with foreign investments, the U.S. will 
adjust our take from the current direct royalty to a system which 
promotes jobs and investment in down times and increases royalty and 
U.S. production later. Specifically, it calls for a 20% credit against 
royalties due the federal government against capital expenditures 
during times of lowered oil and gas prices. If a landlord discovered 
that his rental units were vacant because they were overpriced compared 
to the competition, he would drop the price to attract renters. The 
federal government should do the same.
  The legislation would also adjust the definition of what constitutes 
a ``marginal'' oil well, and allow for suspensions of leases at the 
lessee's option when oil prices dip precipitously.
  This bill is a comprehensive attempt to bring some of our mineral 
leasing laws and regulations up-to-date with the realities of today's 
world energy markets. Our domestic industry is dying on the vine 
because of a combination of governmental actions and inactions, complex 
regulation and outdated governmental approaches to this important part 
of our national economy. We need to take steps to make sure that the 
``pilot light'' of our economy does not go out, and it is my belief 
that this legislation will go a long way to ensuring its continuing 
contributions to our nation's strength.
  Mr. President, the second measure that I am introducing today will 
redress some of the unfair tax penalties that hinder the continued 
development and modernization of a domestic oil and gas industry. In 
particular the legislation focuses on aspects of the alternative 
minimum tax (AMT) that have a perverse effect on the industry, 
especially when energy prices are low.
  Mr. President, in adopting the AMT in 1986, Congress stated that its 
purpose was to ``serve one overriding objective: to ensure that no 
taxpayer with substantial economic income can avoid significant tax 
liability by using exclusions, deductions and credits.'' Yet the 
unintended consequence of the AMT is that companies with high fixed 
costs, such as the oil and gas industry, can face higher effective AMT 
tax rates when the price of oil is low than when the price is high. In 
other words, when oil and gas companies are struggling to cope with low 
world prices, the AMT serves to impose a tax penalty simply because 
prices are low.
  Let me give you an example of the perverse effect of the AMT. If the 
price of oil is $10 a barrel and an oil and gas company sells 100,000 
barrels of oil, the company's revenues would be $1 million. If its 
production costs were $500,000, its gross profits would be $500,000. If 
the company took advantage of percentage depletion and other oil and 
gas incentives, it could reduce it's taxable income to $100,000 and owe 
$35,000 in taxes. However, because the AMT takes back many of these oil 
and gas incentives, the same company would be subject to a $90,000 AMT. 
That is a 90 percent tax rate.
  By contrast, assuming the same fixed costs and incentives, if the 
price of oil was $20 a barrel and the company had $1.1 million in 
taxable income, its regular tax rate would only be 35 percent and it's 
AMT liability would be only 26.4 percent. Mr. President, that is not 
the way the AMT was designed to work.
  My bill tackles this problem head-on. It eliminates the AMT 
preferences for intangible drilling costs, percentage depletion, and 
the depreciation adjustment for oil and gas assets. In addition, it 
eliminates the impact of intangible drilling costs, depletion and 
depreciation on oil and gas assets from the adjusted current earnings 
adjustment. Finally, the proposal allows the enhanced oil recovery 
credit and the Section 29 credit to be used to offset the AMT.
  In addition to trying to resolve the AMT problems that face the 
industry, I have adopted a portion of a bill introduced by Senator Kay 
Bailey Hutchison that attempts to maintain viable independent producers 
and ensure that marginal wells stay in operation. Marginal wells are 
those that produce less than 15 barrels a day. In reality they produce 
on average about 2.2 barrels of oil a day. While individually these 
wells may not seem like important components of our domestic energy 
supply, together they produce as much oil as the United States imports 
from Saudia Arabia. To maintain these marginal wells, the legislation 
includes a marginal well tax credit of $3.00 per barrel in order to 
prolong marginal domestic oil and gas well production.

  Mr. President, in an effort to stimulate enhanced recovery of oil and 
thereby increase U.S. production, my legislation enlarges the 
definition of enhanced oil recovery by including horizontal drilling in 
areas of Alaska where the only feasible method of recovering some oil 
is to use such methods. In Alaska, it is just not economically feasible 
to search for oil by moving drilling platforms from area to area. 
Instead, the oil companies attempt to locate oil by using a single 
drilling platform and employing horizontal drilling techniques to 
search for oil. My legislation recognizes these economic realities and 
encourages further development of horizontal drilling techniques so 
that we can recover oil more feasibly.
  Finally, Mr. President, this second measure addresses a problem that 
has recently arisen with natural gas gathering lines. These lines are 
used to transport natural gas from the well-head to a central 
processing facility for processing before it can be transported via 
trunk lines to an end user such as a distribution facility. The Federal 
Energy Regulatory Commission (FERC) exempts gas processor gather lines 
from FERC jurisdiction because they are classified as gas gathering 
equipment that is part of the production facility, not pipeline 
transportation under FERC rules.
  IRS has taken the position that these lines should be depreciated 
over a 15 year period if they are owned and operated by an entity that 
does not produce oil or gas transported in the line. However, if gas 
transported in the line is

[[Page S5295]]

owned by the producer, the line can be depreciated over 7 years.
  Mr. President, this rule does not make sense. The depreciable life of 
an asset should depend on the use of the asset and not who owns the 
asset. For that reason, my legislation clarifies that these gathering 
lines are depreciable over 7 years no matter who the owner of the 
pipeline is.
  Mr. President, there are many other tax changes that have been 
proposed to assist the oil and gas industry. It is my view that the 
proposals I have offered will, over the long term, improve the health 
of the industry in the most cost-effective manner.
  I ask unanimous consent that the text of the two bills be printed in 
the Record.
  There being no objection, the bills were ordered to be printed in the 
Record, as follows:

                                S. 1049

         Be it enacted by the Senate and House of Representatives 
     of the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Federal 
     Oil and Gas Lease Management Improvement Act of 1999''.
       (b) Table of Contents.--The table of contents of this Act 
     is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Definitions.
Sec. 4. No property right.

   TITLE I--STATE OPTION TO REGULATE OIL AND GAS LEASE OPERATIONS ON 
                              FEDERAL LAND

Sec. 101. Transfer of authority.
Sec. 102. Activity following transfer of authority.

          TITLE II--USE OF COST SAVINGS FROM STATE REGULATION

Sec. 201. Compensation for costs.
Sec. 202. Exclusion of costs of preparing planning documents and 
              analyses.
Sec. 203. Receipt sharing.

               TITLE III--STREAMLINING AND COST REDUCTION

Sec. 301. Applications.
Sec. 302. Timely issuance of decisions.
Sec. 303. Elimination of unwarranted denials and stays.
Sec. 304. Reports.
Sec. 305. Scientific inventory of oil and gas reserves.

                  TITLE IV--FEDERAL ROYALTY CERTAINTY

Sec. 401. Definitions.
Sec. 402. Amendment of Outer Continental Shelf Lands Act.
Sec. 403. Amendment of Mineral Leasing Act.
Sec. 404. Indian land.

                TITLE V--ROYALTY REINVESTMENT IN AMERICA

Sec. 501. Royalty incentive program.
Sec. 502. Marginal well production incentives.
Sec. 503. Suspension of production on oil and gas operations.

     SEC. 2. FINDINGS AND PURPOSES.

       (a) Findings.--Congress finds that--
       (1) State governments have a long and successful history of 
     regulation of operations to explore for and produce oil and 
     gas; the special role of the States was recognized by 
     Congress in 1935 through its ratification under the 
     Constitution of the Interstate Compact to Conserve Oil and 
     Gas;
       (2) under the guidance of the Interstate Oil and Gas 
     Compact Commission, States have established effective 
     regulation of the oil and natural gas industry and subject 
     their programs to periodic peer review through the 
     Commission;
       (3) it is significantly less expensive for State 
     governments than for the Federal Government to regulate oil 
     and gas lease operations on Federal land;
       (4) significant cost savings could be achieved, with no 
     reduction in environmental protection or in the conservation 
     of oil and gas resources, by having the Federal Government 
     defer to State regulation of oil and gas lease operations on 
     Federal land;
       (5) State governments carry out regulatory oversight on 
     Federal, State, and private land; oil and gas companies 
     operating on Federal land are burdened with the additional 
     cost and time of duplicative oversight by both Federal and 
     State conservation authorities; additional cost savings could 
     be achieved within the private sector by having the Secretary 
     defer to State regulation;
       (6) the Federal Government is presently cast in opposing 
     roles as a mineral owner and regulator; State regulation of 
     oil and gas operations on Federal land would eliminate this 
     conflict of interest;
       (7) it remains the responsibility of the Secretary of the 
     Interior to carry out the Federal policy set forth in the 
     Mining and Minerals Policy Act of 1970 (30 U.S.C. 21a) to 
     foster and encourage private sector enterprise in the 
     development of economically sound and stable domestic mineral 
     industries, and the orderly and economic development of 
     domestic mineral resources and reserves, including oil and 
     gas resources; and
       (8) resource management analyses and surveys conducted 
     under the conservation laws of the United States benefit the 
     public at large and are an expense properly borne by the 
     Federal Government.
       (b) Purposes.--The purposes of this Act are--
       (1) to transfer from the Secretary to each State in which 
     Federal land is present authority to regulate oil and gas 
     operations on leased tracts and related operations as fully 
     as if the operations were occurring on privately owned land;
       (2) to share the costs saved through more efficient State 
     enforcement among State governments and the Federal treasury;
       (3) to prevent the imposition of unwarranted delays and 
     recoupments of Federal administrative costs on Federal oil 
     and gas lessees;
       (4) to effect no change in the administration of Indian 
     land; and
       (5) to ensure that funds deducted from the States' net 
     receipt share are directly tied to administrative costs 
     related to mineral leasing on Federal land.

     SEC. 3. DEFINITIONS.

       In this Act:
       (1) Application for a permit to drill.--The term 
     ``application for a permit to drill'' means a drilling plan 
     including design, mechanical, and engineering aspects for 
     drilling a well.
       (2) Federal land.--
       (A) In general.--The term ``Federal land'' means all land 
     and interests in land owned by the United States that are 
     subject to the mineral leasing laws, including mineral 
     resources or mineral estates reserved to the United States in 
     the conveyance of a surface or nonmineral estate.
       (B) Exclusion.--The term ``Federal land'' does not 
     include--
       (i) Indian land (as defined in section 3 of the Federal Oil 
     and Gas Royalty Management Act of 1982 (30 U.S.C. 1702)); or
       (ii) submerged land on the outer Continental Shelf (as 
     defined in section 2 of the Outer Continental Shelf Lands Act 
     (43 U.S.C. 1331)).
       (3) Oil and gas conservation authority.--The term ``oil and 
     gas conservation authority'' means the agency or agencies in 
     each State responsible for regulating for conservation 
     purposes operations to explore for and produce oil and 
     natural gas.
       (4) Project.--The term ``project'' means an activity by a 
     lessee, an operator, or an operating rights owner to explore 
     for, develop, produce, or transport oil or gas resources.
       (5) Secretary.--The term ``Secretary'' means--
       (A) the Secretary of the Interior, with respect to land 
     under the administrative jurisdiction of the Department of 
     the Interior; and
       (B) the Secretary of Agriculture, with respect to land 
     under the administrative jurisdiction of the Department of 
     Agriculture.
       (6) Surface use plan of operations.--The term ``surface use 
     plan of operations'' means a plan for surface use, 
     disturbance, and reclamation.

     SEC. 4. NO PROPERTY RIGHT.

       Nothing in this Act gives a State a property right or 
     interest in any Federal lease or land.
   TITLE I--STATE OPTION TO REGULATE OIL AND GAS LEASE OPERATIONS ON 
                              FEDERAL LAND

     SEC. 101. TRANSFER OF AUTHORITY.

       (a) Notification.--Not before the date that is 180 days 
     after the date of enactment of this Act, a State may notify 
     the Secretary of its intent to accept authority for 
     regulation of operations, as described in subparagraphs (A) 
     through (K) of subsection (b)(2), under oil and gas leases on 
     Federal land within the State.
       (b) Transfer of Authority.--
       (1) In general.--Effective 180 days after the Secretary 
     receives the State's notice, authority for the regulation of 
     oil and gas leasing operations is transferred from the 
     Secretary to the State.
       (2) Authority included.--The authority transferred under 
     paragraph (1) includes--
       (A) processing and approving applications for permits to 
     drill, subject to surface use agreements and other terms and 
     conditions determined by the Secretary;
       (B) production operations;
       (C) well testing;
       (D) well completion;
       (E) well spacing;
       (F) communization;
       (G) conversion of a producing well to a water well;
       (H) well abandonment procedures;
       (I) inspections;
       (J) enforcement activities; and
       (K) site security.
       (c) Retained Authority.--The Secretary shall--
       (1) retain authority over the issuance of leases and the 
     approval of surface use plans of operations and project-level 
     environmental analyses; and
       (2) spend appropriated funds to ensure that timely 
     decisions are made respecting oil and gas leasing, taking 
     into consideration multiple uses of Federal land, 
     socioeconomic and environmental impacts, and the results of 
     consultations with State and local government officials.

     SEC. 102. ACTIVITY FOLLOWING TRANSFER OF AUTHORITY.

       (a) Federal Agencies.--Following the transfer of authority, 
     no Federal agency shall exercise the authority formerly held 
     by the Secretary as to oil and gas lease operations and 
     related operations on Federal land.

[[Page S5296]]

       (b) State Authority.--
       (1) In general.--Following the transfer of authority, each 
     State shall enforce its own oil and gas conservation laws and 
     requirements pertaining to transferred oil and gas lease 
     operations and related operations with due regard to the 
     national interest in the expedited, environmentally sound 
     development of oil and gas resources in a manner consistent 
     with oil and gas conservation principles.
       (2) Appeals.--Following a transfer of authority under 
     section 101, an appeal of any decision made by a State oil 
     and gas conservation authority shall be made in accordance 
     with State administrative procedures.
       (c) Pending Enforcement Actions.--The Secretary may 
     continue to enforce any pending actions respecting acts 
     committed before the date on which authority is transferred 
     to a State under section 101 until those proceedings are 
     concluded.
       (d) Pending Applications.--
       (1) Transfer to state.--All applications respecting oil and 
     gas lease operations and related operations on Federal land 
     pending before the Secretary on the date on which authority 
     is transferred under section 101 shall be immediately 
     transferred to the oil and gas conservation authority of the 
     State in which the lease is located.
       (2) Action by the state.--The oil and gas conservation 
     authority shall act on the application in accordance with 
     State laws (including regulations) and requirements.
          TITLE II--USE OF COST SAVINGS FROM STATE REGULATION

     SEC. 201. COMPENSATION FOR COSTS.

       (a) In General.--Subject to the availability of 
     appropriations, the Secretary shall compensate any State for 
     costs incurred to carry out the authorities transferred under 
     section 101.
       (b) Payment Schedule.--Payments shall be made not less 
     frequently than every quarter.
       (c) Cost Breakdown Report.--Each State seeking compensation 
     shall report to the Secretary a cost breakdown for the 
     authorities transferred.
       (d) Limitation on Amount.--
       (1) In general.--Compensation to a State may not exceed 50 
     percent of the Secretary's allocated cost for oil and gas 
     leasing activities under section 35(b) of the Act of February 
     25, 1920 (commonly known as the ``Mineral Leasing Act'') (30 
     U.S.C. 191(b)) for the State for fiscal year 1997.
       (2) Adjustment.--The Secretary shall adjust the maximum 
     level of cost compensation at least once every 2 years to 
     reflect any increases in the Consumer Price Index (all items, 
     United States city average) as prepared by the Department of 
     Labor, using 1997 as the baseline year.

     SEC. 202. EXCLUSION OF COSTS OF PREPARING PLANNING DOCUMENTS 
                   AND ANALYSES.

       Section 35 of the Act of February 25, 1920 (30 U.S.C. 
     191(b)) is amended by adding at the end the following:
       ``(6) The Secretary shall not include, for the purpose of 
     calculating the deduction under paragraph (1), costs of 
     preparing resource management planning documents and analyses 
     for areas in which mineral leasing is excluded or areas in 
     which the primary activity under review is not mineral 
     leasing and development.''.

     SEC. 203. RECEIPT SHARING.

       Section 35(b) of the Act of February 25, 1920 (30 U.S.C. 
     191(b)) is amended by striking ``paid to States'' and 
     inserting ``paid to States (other than States that accept a 
     transfer of authority under section 101 of the Federal Oil 
     and Gas Lease Management Act of 1999)''.
               TITLE III--STREAMLINING AND COST REDUCTION

     SEC. 301. APPLICATIONS.

       (a) Limitation on Cost Recovery.--Notwithstanding sections 
     304 and 504 of the Federal Land Policy and Management Act of 
     1976 (43 U.S.C. 1734, 1764) and section 9701 of title 31, 
     United States Code, the Secretary shall not recover the 
     Secretary's costs with respect to applications and other 
     documents relating to oil and gas leases.
       (b) Completion of Planning Documents and Analyses.--
       (1) In general.--The Secretary shall complete any resource 
     management planning documents and analyses not later than 90 
     days after receiving any offer, application, or request for 
     which a planning document or analysis is required to be 
     prepared.
       (2) Preparation by applicant or lessee.--If the Secretary 
     is unable to complete the document or analysis within the 
     time prescribed by paragraph (1), the Secretary shall notify 
     the applicant or lessee of the opportunity to prepare the 
     required document or analysis for the agency's review and use 
     in decisionmaking.
       (c) Reimbursement for Costs of NEPA Analyses, 
     Documentation, and Studies.--If--
       (1) adequate funding to enable the Secretary to timely 
     prepare a project-level analysis required under the National 
     Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.) 
     with respect to an oil or gas lease is not appropriated; and
       (2) the lessee, operator, or operating rights owner 
     voluntarily pays for the cost of the required analysis, 
     documentation, or related study;

     the Secretary shall reimburse the lessee, operator, or 
     operating rights owner for its costs through royalty credits 
     attributable to the lease, unit agreement, or project area.

     SEC. 302. TIMELY ISSUANCE OF DECISIONS.

       (a) In General.--The Secretary shall ensure the timely 
     issuance of Federal agency decisions respecting oil and gas 
     leasing and operations on Federal land.
       (b) Offer To Lease.--
       (1) Deadline.--The Secretary shall accept or reject an 
     offer to lease not later than 90 days after the filing of the 
     offer.
       (2) Failure to meet deadline.--If an offer is not acted 
     upon within that time, the offer shall be deemed to have been 
     accepted.
       (c) Application for Permit To Drill.--
       (1) Deadline.--The Secretary and a State that has accepted 
     a transfer of authority under section 101 shall approve or 
     disapprove an application for permit to drill not later than 
     30 days after receiving a complete application.
       (2) Failure to meet deadline.--If the application is not 
     acted on within the time prescribed by paragraph (1), the 
     application shall be deemed to have been approved.
       (d) Surface use Plan of Operations.--The Secretary shall 
     approve or disapprove a surface use plan of operations not 
     later than 30 days after receipt of a complete plan.
       (e) Administrative Appeals.--
       (1) Deadline.--From the time that a Federal oil and gas 
     lessee or operator files a notice of administrative appeal of 
     a decision or order of an officer or employee of the 
     Department of the Interior or the Forest Service respecting a 
     Federal oil and gas Federal lease, the Secretary shall have 2 
     years in which to issue a final decision in the appeal.
       (2) Failure to meet deadline.--If no final decision has 
     been issued within the time prescribed by paragraph (1), the 
     appeal shall be deemed to have been granted.

     SEC. 303. ELIMINATION OF UNWARRANTED DENIALS AND STAYS.

       (a) In General.--The Secretary shall ensure that 
     unwarranted denials and stays of lease issuance and 
     unwarranted restrictions on lease operations are eliminated 
     from the administration of oil and gas leasing on Federal 
     land.
       (b) Land Designated for Multiple Use.--
       (1) In general.--Land designated as available for multiple 
     use under Bureau of Land Management resource management plans 
     and Forest Service leasing analyses shall be available for 
     oil and gas leasing without lease stipulations more stringent 
     than restrictions on surface use and operations imposed under 
     the laws (including regulations) of the State oil and gas 
     conservation authority unless the Secretary includes in the 
     decision approving the management plan or leasing analysis a 
     written explanation why more stringent stipulations are 
     warranted.
       (2) Appeal.--Any decision to require a more stringent 
     stipulation shall be administratively appealable and, 
     following a final agency decision, shall be subject to 
     judicial review.
       (c) Rejection of Offer To Lease.--
       (1) In general.--If the Secretary rejects an offer to lease 
     on the ground that the land is unavailable for leasing, the 
     Secretary shall provide a written, detailed explanation of 
     the reasons the land is unavailable for leasing.
       (2) Previous resource management decision.--If the 
     determination of unavailability is based on a previous 
     resource management decision, the explanation shall include a 
     careful assessment of whether the reasons underlying the 
     previous decision are still persuasive.
       (3) Segregation of available land from unavailable land.--
     The Secretary may not reject an offer to lease land available 
     for leasing on the ground that the offer includes land 
     unavailable for leasing, and the Secretary shall segregate 
     available land from unavailable land, on the offeror's 
     request following notice by the Secretary, before acting on 
     the offer to lease.
       (d) Disapproval or Required Modification of Surface Use 
     Plans of Operations and Application for Permit To Drill.--The 
     Secretary shall provide a written, detailed explanation of 
     the reasons for disapproving or requiring modifications of 
     any surface use plan of operations or application for permit 
     to drill.
       (e) Effectiveness of Decision.--A decision of the Secretary 
     respecting an oil and gas lease shall be effective pending 
     administrative appeal to the appropriate office within the 
     Department of the Interior or the Department of Agriculture 
     unless that office grants a stay in response to a petition 
     satisfying the criteria for a stay established by section 
     4.21(b) of title 43, Code of Federal Regulations (or any 
     successor regulation).

     SEC. 304. REPORTS.

       (a) In General.--Not later than March 31, 2000, the 
     Secretaries shall jointly submit to the President of the 
     Senate and the Speaker of the House of Representatives a 
     report explaining the most efficient means of eliminating 
     overlapping jurisdiction, duplication of effort, and 
     inconsistent policymaking and policy implementation as 
     between the Bureau of Land Management and the Forest Service.
       (b) Recommendations.--The report shall include 
     recommendations on statutory changes needed to implement the 
     report's conclusions.

     SEC. 305. SCIENTIFIC INVENTORY OF OIL AND GAS RESERVES.

       (a) In General.--Not later than March 31, 2000, the 
     Secretary of the Interior, in consultation with the Director 
     of the United States Geological Survey, shall publish, 
     through notice in the Federal Register, a science-based 
     national inventory of the oil

[[Page S5297]]

     and gas reserves and potential resources underlying Federal 
     land and the outer Continental Shelf.
       (b) Contents.--The inventory shall--
       (1) indicate what percentage of the oil and gas reserves 
     and resources is currently available for leasing and 
     development; and
       (2) specify the percentages of the reserves and resources 
     that are on--
       (A) land that is open for leasing as of the date of 
     enactment of this Act that has never been leased;
       (B) land that is open for leasing or development subject to 
     no surface occupancy stipulations; and
       (C) land that is open for leasing or development subject to 
     other lease stipulations that have significantly impeded or 
     prevented, or are likely to significantly impede or prevent, 
     development; and
       (3) indicate the percentage of oil and gas resources that 
     are not available for leasing or are withdrawn from leasing.
       (c) Public Comment.--
       (1) In general.--The Secretary of the Interior shall invite 
     public comment on the inventory to be filed not later than 
     September 30, 2000.
       (2) Resource management decisions.--Specifically, the 
     Secretary of the Interior shall invite public comment on the 
     effect of Federal resource management decisions on past and 
     future oil and gas development.
       (d) Report.--
       (1) In general.--Not later than March 31, 2001, the 
     Secretary of the Interior shall submit to the President of 
     the Senate and the Speaker of the House of Representatives a 
     report comprised of the revised inventory and responses to 
     the public comments.
       (2) Contents.--The report shall specifically indicate what 
     steps the Secretaries believe are necessary to increase the 
     percentage of land open for development of oil and gas 
     resources.
                  TITLE IV--FEDERAL ROYALTY CERTAINTY

     SEC. 401. DEFINITIONS.

       In this title:
       (1) Marketable condition.--The term ``marketable 
     condition'' means lease production that is sufficiently free 
     from impurities and otherwise in a condition that the 
     production will be accepted by a purchaser under a sales 
     contract typical for the field or area.
       (2) Reasonable commercial rate.--
       (A) In general.--The term ``reasonable commercial rate'' 
     means--
       (i) in the case of an arm's-length contract, the actual 
     cost incurred by the lessee; or
       (ii) in the case of a non-arm's-length contract--

       (I) the rate charged in a contract for similar services in 
     the same area between parties with opposing economic 
     interests; or
       (II) if there are no arm's-length contracts for similar 
     services in the same area, the just and reasonable rate for 
     the transportation service rendered by the lessee or lessee's 
     affiliate.

       (B) Disputes.--Disputes between the Secretary and a lessee 
     over what constitutes a just and reasonable rate for such 
     service shall be resolved by the Federal Energy Regulatory 
     Commission.

     SEC. 402. AMENDMENT OF OUTER CONTINENTAL SHELF LANDS ACT.

       Section 8(b)(3) of the Outer Continental Shelf Lands Act 
     (43 U.S.C. 1337(b)(3)) is amended by striking the semicolon 
     at the end and adding the following:
       ``Provided: That if the payment is in value or amount, the 
     royalty due in value shall be based on the value of oil or 
     gas production at the lease in marketable condition, and the 
     royalty due in amount shall be based on the royalty share of 
     production at the lease; if the payment in value or amount is 
     calculated from a point away from the lease, the payment 
     shall be adjusted for quality and location differentials, and 
     the lessee shall be allowed reimbursements at a reasonable 
     commercial rate for transportation (including transportation 
     to the point where the production is put in marketable 
     condition), marketing, processing, and other services beyond 
     the lease through the point of sale, other disposition, or 
     delivery;''.

     SEC. 403. AMENDMENT OF MINERAL LEASING ACT.

       Section 17(c) of the Act of February 25, 1920 (30 U.S.C. 
     226(c)) (commonly known as the ``Mineral Leasing Act''), is 
     amended by adding at the end the following:
       ``(3) Royalty due in value.--
       ``(A) In general.--Royalty due in value shall be based on 
     the value of oil or gas production at the lease in marketable 
     condition, and the royalty due in amount shall be based on 
     the royalty share of production at the lease.
       ``(B) Calculation of value or amount from a point away from 
     a lease.--If the payment in value or amount is calculated 
     from a point away from the lease--
       ``(i) the payment shall be adjusted for quality and 
     location differentials; and
       ``(ii) the lessee shall be allowed reimbursements at a 
     reasonable commercial rate for transportation (including 
     transportation to the point where the production is put in 
     marketable condition), marketing, processing, and other 
     services beyond the lease through the point of sale, other 
     disposition, or delivery;''.

     SEC. 404. INDIAN LAND.

       This title shall not apply with respect to Indian land.
                TITLE V--ROYALTY REINVESTMENT IN AMERICA

     SEC. 501. ROYALTY INCENTIVE PROGRAM.

       (a) In General.--To encourage exploration and development 
     expenditures on Federal land and the outer Continental Shelf 
     for the development of oil and gas resources when the cash 
     price of West Texas Intermediate crude oil, as posted on the 
     Dow Jones Commodities Index chart is less than $18 per barrel 
     for 90 consecutive pricing days or when natural gas prices as 
     delivered at Henry Hub, Louisiana, are less than $2.30 per 
     million British thermal units for 90 consecutive days, the 
     Secretary shall allow a credit against the payment of 
     royalties on Federal oil production and gas production, 
     respectively, in an amount equal to 20 percent of the capital 
     expenditures made on exploration and development activities 
     on Federal oil and gas leases.
       (b) No Crediting Against Onshore Federal Royalty 
     Obligations.--In no case shall such capital expenditures made 
     on Outer Continental Shelf leases be credited against onshore 
     Federal royalty obligations.

     SEC. 502. MARGINAL WELL PRODUCTION INCENTIVES.

       To enhance the economics of marginal oil and gas production 
     by increasing the ultimate recovery from marginal wells when 
     the cash price of West Texas Intermediate crude oil, as 
     posted on the Dow Jones Commodities Index chart is less than 
     $18 per barrel for 90 consecutive pricing days or when 
     natural gas prices are delivered at Henry Hub, Louisiana, are 
     less than $2.30 per million British thermal units for 90 
     consecutive days, the Secretary shall reduce the royalty rate 
     as production declines for--
       (1) onshore oil wells producing less than 30 barrels per 
     day;
       (2) onshore gas wells producing less than 120 million 
     British thermal units per day;
       (3) offshore oil well producing less than 300 barrels of 
     oil per day; and
       (4) offshore gas wells producing less than 1,200 million 
     British thermal units per day.

     SEC. 503. SUSPENSION OF PRODUCTION ON OIL AND GAS OPERATIONS.

       (a) In General.--Any person operating an oil well under a 
     lease issued under the Act of February 25, 1920 (commonly 
     known as the ``Mineral Leasing Act'') (30 U.S.C. 181 et seq.) 
     or the Mineral Leasing Act for Acquired Lands (30 U.S.C. 351 
     et seq.) may submit a notice to the Secretary of the Interior 
     of suspension of operation and production at the well.
       (b) Production Quantities Not a Factor.--A notice under 
     subsection (a) may be submitted without regard to per day 
     production quantities at the well and without regard to the 
     requirements of subsection (a) of section 3103.4-4 of title 
     43 of the Code of Federal Regulations (or any successor 
     regulation) respecting the granting of such relief, except 
     that the notice shall be submitted to an office in the 
     Department of the Interior designated by the Secretary of the 
     Interior.
       (c) Period of Relief.--On submission of a notice under 
     subsection (a) for an oil well, the operator of the well may 
     suspend operation and production at the well for a period 
     beginning on the date of submission of the notice and ending 
     on the later of--
       (1) the date that is 2 years after the date on which the 
     suspension of operation and production commences; or
       (2) the date on which the cash price of West Texas 
     Intermediate crude oil, as posted on the Dow Jones 
     Commodities Index chart is greater than $15 per barrel for 90 
     consecutive pricing days.
                                  ____


                                S. 1050

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Energy Security Tax Policy 
     Act of 1999''.

     SEC. 2. ELIMINATION OF CERTAIN AMT PREFERENCES FOR OIL AND 
                   GAS ASSETS.

       (a) Depletion.--Section 57(a)(1) of the Internal Revenue 
     Code of 1986 (relating to depletion) is amended by striking 
     the second sentence and inserting the following: ``This 
     paragraph shall not apply to any deduction for depletion 
     computed in accordance with section 613A.''
       (b) Intangible Drilling Costs.--Section 57(a)(2)(E) of the 
     Internal Revenue Code of 1986 (relating to exception for 
     independent producers) is amended to read as follows:
       ``(E) Termination of application to oil and gas 
     properties.--In the case of any taxable year beginning after 
     December 31, 1998, this paragraph shall not apply in the case 
     of any oil or gas property.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.

     SEC. 3. DEPRECIATION ADJUSTMENT NOT TO APPLY TO OIL AND GAS 
                   ASSETS.

       (a) In General.--Subparagraph (B) of section 56(a)(1) of 
     the Internal Revenue Code of 1986 (relating to depreciation 
     adjustments) is amended to read as follows:
       ``(B) Exceptions.--This paragraph shall not apply to--
       ``(i) property described in paragraph (1), (2), (3), or (4) 
     of section 168(f), or
       ``(ii) property used in the active conduct of the trade or 
     business of exploring for, extracting, developing, or 
     gathering crude oil or natural gas.''
       (b) Depreciation adjustment for purposes of adjusted 
     current earnings.--Paragraph (4)(A) of section 56(g) of such 
     Code (relating to adjustments based on adjusted current 
     earnings) is amended by adding at the end the following new 
     clause:

[[Page S5298]]

       ``(vi) Oil and gas property.--In the case of property used 
     in the active conduct of the trade or business of exploring 
     for, extracting, developing, or gathering crude oil or 
     natural gas, the amount allowable as depreciation or 
     amortization with respect to such property shall be 
     determined in the same manner as for purposes of computing 
     the regular tax.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.

     SEC. 4. REPEAL CERTAIN ADJUSTMENTS BASED ON ADJUSTED CURRENT 
                   EARNINGS RELATING TO OIL AND GAS ASSETS.

       (a) Intangible Drilling Costs.--Clause (i) of section 
     56(g)(4)(D) of the Internal Revenue Code of 1986 (relating to 
     certain other earnings and profits adjustments) is amended by 
     striking the second sentence and inserting the following: 
     ``In the case of any oil or gas well, this clause shall not 
     apply to amounts paid or incurred in taxable years beginning 
     after December 31, 1998.''
       (b) Depletion.--Clause (ii) of section 56(g)(4)(F) of the 
     Internal Revenue Code of 1986 (relating to depletion) is 
     amended to read as follows:
       ``(ii) Exception for oil and gas wells.--In the case of any 
     taxable year beginning after December 31, 1998, clause (i) 
     (and subparagraph (C)(i)) shall not apply to any deduction 
     for depletion computed in accordance with section 613A.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.

     SEC. 5. ENHANCED OIL RECOVERY CREDIT AND CREDIT FOR PRODUCING 
                   FUEL FROM A NONCONVENTIONAL SOURCE ALLOWED 
                   AGAINST MINIMUM TAX.

       (a) Enhanced Oil Recovery Credit Allowed Against Regular 
     and Minimum Tax.--
       (1) Allowing credit against minimum tax.--Subsection (c) of 
     section 38 of the Internal Revenue Code of 1986 (relating to 
     limitation based on amount of tax) is amended by 
     redesignating paragraph (3) as paragraph (4) and by inserting 
     after paragraph (2) the following new paragraph:
       ``(3) Special rules for enhanced oil recovery credit.--
       ``(A) In general.--In the case of the enhanced oil recovery 
     credit--
       ``(i) this section and section 39 shall be applied 
     separately with respect to the credit, and
       ``(ii) in applying paragraph (1) to the credit--

       ``(I) subparagraphs (A) and (B) thereof shall not apply, 
     and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the enhanced 
     oil recovery credit).

       ``(B) Enhanced oil recovery credit.--For purposes of this 
     subsection, the term `enhanced oil recovery credit' means the 
     credit allowable under subsection (a) by reason of section 
     43(a).''.
       (2) Conforming amendment.--Subclause (II) of section 
     38(c)(2)(A)(ii) of such Code is amended by inserting ``or the 
     enhanced oil recovery credit'' after ``employment credit''.
       (b) Credit for Producing Fuel From a Nonconventional 
     Source.--
       (1) Allowing credit against minimum tax.--Section 29(b)(6) 
     of the Internal Revenue Code of 1986 is amended to read as 
     follows:
       ``(6) Application with other credits.--The credit allowed 
     by subsection (a) for any taxable year shall not exceed--
       ``(A) the regular tax for the taxable year and the tax 
     imposed by section 55, reduced by
       ``(B) the sum of the credits allowable under subpart A and 
     section 27.''
       (2) Conforming amendments.--
       (A) Section 53(d)(1)(B)(iii) of such Code is amended by 
     inserting ``as in effect on the date of the enactment of the 
     Energy Security Tax Policy Act of 1999,'' after 
     ``29(b)(6)(B),''.
       (B) Section 55(c)(2) of such Code is amended by striking 
     ``29(b)(6),''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.

     SEC. 6. TAX CREDIT FOR MARGINAL DOMESTIC OIL AND NATURAL GAS 
                   WELL PRODUCTION.

       (a) Credit for Producing Oil and Gas From Marginal Wells.--
     Subpart D of part IV of subchapter A of chapter 1 of the 
     Internal Revenue Code of 1986 (relating to business credits) 
     is amended by adding at the end the following new section:

     ``SEC. 45D. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL 
                   WELLS.

       ``(a) General Rule.--For purposes of section 38, the 
     marginal well production credit for any taxable year is an 
     amount equal to the product of--
       ``(1) the credit amount, and
       ``(2) the qualified crude oil production and the qualified 
     natural gas production which is attributable to the taxpayer.
       ``(b) Credit Amount.--For purposes of this section--
       ``(1) In general.--The credit amount is--
       ``(A) $3 per barrel of qualified crude oil production, and
       ``(B) 50 cents per 1,000 cubic feet of qualified natural 
     gas production.
       ``(2) Reduction as oil and gas prices increase.--
       ``(A) In general.--The $3 and 50 cents amounts under 
     paragraph (1) shall each be reduced (but not below zero) by 
     an amount which bears the same ratio to such amount 
     (determined without regard to this paragraph) as--
       ``(i) the excess (if any) of the applicable reference price 
     over $14 ($1.56 for qualified natural gas production), bears 
     to
       ``(ii) $3 ($0.33 for qualified natural gas production).

     The applicable reference price for a taxable year is the 
     reference price for the calendar year preceding the calendar 
     year in which the taxable year begins.
       ``(B) Inflation adjustment.--In the case of any taxable 
     year beginning in a calendar year after 2000, each of the 
     dollar amounts contained in subparagraph (A) shall be 
     increased to an amount equal to such dollar amount multiplied 
     by the inflation adjustment factor for such calendar year 
     (determined under section 43(b)(3)(B) by substituting `1999' 
     for `1990').
       ``(C) Reference price.--For purposes of this paragraph, the 
     term `reference price' means, with respect to any calendar 
     year--
       ``(i) in the case of qualified crude oil production, the 
     reference price determined under section 29(d)(2)(C), and
       ``(ii) in the case of qualified natural gas production, the 
     Secretary's estimate of the annual average wellhead price per 
     1,000 cubic feet for all domestic natural gas.
       ``(c) Qualified Crude Oil and Natural Gas Production.--For 
     purposes of this section--
       ``(1) In general.--The terms `qualified crude oil 
     production' and `qualified natural gas production' mean 
     domestic crude oil or natural gas which is produced from a 
     marginal well.
       ``(2) Limitation on amount of production which may 
     qualify.--
       ``(A) In general.--Crude oil or natural gas produced during 
     any taxable year from any well shall not be treated as 
     qualified crude oil production or qualified natural gas 
     production to the extent production from the well during the 
     taxable year exceeds 1,095 barrels or barrel equivalents.
       ``(B) Proportionate reductions.--
       ``(i) Short taxable years.--In the case of a short taxable 
     year, the limitations under this paragraph shall be 
     proportionately reduced to reflect the ratio which the number 
     of days in such taxable year bears to 365.
       ``(ii) Wells not in production entire year.--In the case of 
     a well which is not capable of production during each day of 
     a taxable year, the limitations under this paragraph 
     applicable to the well shall be proportionately reduced to 
     reflect the ratio which the number of days of production 
     bears to the total number of days in the taxable year.
       ``(3) Definitions.--
       ``(A) Marginal well.--The term `marginal well' means a 
     domestic well--
       ``(i) the production from which during the taxable year is 
     treated as marginal production under section 613A(c)(6), or
       ``(ii) which, during the taxable year--

       ``(I) has average daily production of not more than 25 
     barrel equivalents, and
       ``(II) produces water at a rate not less than 95 percent of 
     total well effluent.

       ``(B) Crude oil, etc.--The terms `crude oil', `natural 
     gas', `domestic', and `barrel' have the meanings given such 
     terms by section 613A(e).
       ``(C) Barrel equivalent.--The term `barrel equivalent' 
     means, with respect to natural gas, a conversion ratio of 
     6,000 cubic feet of natural gas to 1 barrel of crude oil.
       ``(d) Other Rules.--
       ``(1) Production attributable to the taxpayer.--In the case 
     of a marginal well in which there is more than one owner of 
     operating interests in the well and the crude oil or natural 
     gas production exceeds the limitation under subsection 
     (c)(2), qualifying crude oil production or qualifying natural 
     gas production attributable to the taxpayer shall be 
     determined on the basis of the ratio which taxpayer's revenue 
     interest in the production bears to the aggregate of the 
     revenue interests of all operating interest owners in the 
     production.
       ``(2) Operating interest required.--Any credit under this 
     section may be claimed only on production which is 
     attributable to the holder of an operating interest.
       ``(3) Production from nonconventional sources excluded.--In 
     the case of production from a marginal well which is eligible 
     for the credit allowed under section 29 for the taxable year, 
     no credit shall be allowable under this section unless the 
     taxpayer elects not to claim the credit under section 29 with 
     respect to the well.''
       (b) Credit Treated as Business Credit.--Section 38(b) of 
     the Internal Revenue Code of 1986 (relating to current year 
     business credit) is amended by striking ``plus'' at the end 
     of paragraph (11), by striking the period at the end of 
     paragraph (12) and inserting ``, plus'', and by adding at the 
     end the following new paragraph:
       ``(13) the marginal oil and gas well production credit 
     determined under section 45D(a).''.
       (c) Credit Allowed Against Regular and Minimum Tax.--
       (1) In general.--Subsection (c) of section 38 of the 
     Internal Revenue Code of 1986 (relating to limitation based 
     on amount of tax), as amended by section 5(a)(1), is amended 
     by redesignating paragraph (4) as paragraph (5) and by 
     inserting after paragraph (3) the following new paragraph:
       ``(4) Special rules for marginal oil and gas well 
     production credit.--
       ``(A) In general.--In the case of the marginal oil and gas 
     well production credit--

[[Page S5299]]

       ``(i) this section and section 39 shall be applied 
     separately with respect to the credit, and
       ``(ii) in applying paragraph (1) to the credit--

       ``(I) subparagraphs (A) and (B) thereof shall not apply, 
     and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the marginal 
     oil and gas well production credit).

       ``(B) Marginal oil and gas well production credit.--For 
     purposes of this subsection, the term `marginal oil and gas 
     well production credit' means the credit allowable under 
     subsection (a) by reason of section 45D(a).''.
       (2) Conforming amendments.--
       (A) Subclause (II) of section 38(c)(2)(A)(ii) of such Code, 
     as amended by section 5(a)(2), is amended by striking ``or 
     the enhanced oil recovery credit'' and inserting ``the 
     enhanced oil recovery credit, or the marginal oil and gas 
     well production credit''.
       (B) Subclause (II) of section 38(c)(3)(A)(ii) of such Code, 
     as added by section 5(a)(1), is amended by inserting ``or the 
     marginal oil and gas well production credit'' after 
     ``recovery credit''.
       (d) Coordination With Section 29.--Section 29(d) of the 
     Internal Revenue Code of 1986 (relating to other definitions 
     and special rules) is amended by adding at the end the 
     following new paragraph:
       ``(9) Election not to take credit.--No credit shall be 
     allowed under subsection (a) with respect to production from 
     any marginal well (as defined in section 45D(c)(3)(A)) if the 
     taxpayer elects to not have this section apply to such 
     well.''
       (e) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 of the Internal 
     Revenue Code of 1986 is amended by adding at the end the 
     following new item:

``45D. Credit for producing oil and gas from marginal wells.''
       (f) Effective Date.--The amendments made by this section 
     shall apply to production in taxable years ending after the 
     date of the enactment of this Act.

     SEC. 7. ALLOWANCE OF ADDITIONAL ENHANCED OIL RECOVERY METHOD.

       (a) In General.--Clause (i) of section 43(c)(2)(A) of the 
     Internal Revenue Code of 1986 (defining qualified enhanced 
     oil recovery project) is amended to read as follows:
       ``(i) which involves the application (in accordance with 
     sound engineering principles) of--

       ``(I) one or more tertiary recovery methods (as defined in 
     section 193(b)(3)) which can reasonably be expected to result 
     in more than an insignificant increase in the amount of crude 
     oil which will ultimately be recovered, or

       ``(II) a qualified horizontal drilling method which can 
     reasonably be expected to result in more than an 
     insignificant increase in the amount of crude oil which will 
     ultimately be recovered or lead to the discovery or 
     delineation of previously undeveloped accumulations of 
     crude oil,''
       (b) Qualified Horizontal Drilling Method.--Section 43(c)(2) 
     of the Internal Revenue Code of 1986 (relating to qualified 
     enhanced oil recovery project) is amended by adding at the 
     end the following new subparagraph:
       ``(C) Qualified horizontal drilling method.--For purposes 
     of this paragraph--
       ``(i) In general.--The term `qualified horizontal drilling 
     method' means the drilling of a horizontal well in order to 
     penetrate hydrocarbon bearing formations located north of 
     latitude 54 degrees North.
       ``(ii) Horizontal well.--The term `horizontal well' means a 
     well which is drilled--

       ``(I) at an inclination of at least 70 degrees off the 
     vertical, and
       ``(II) for a distance in excess of 1,000 feet.''

       (c) Conforming Amendment.--Clause (iii) of section 
     43(c)(2)(A) of the Internal Revenue Code of 1986 is amended 
     to read as follows:
       ``(iii) with respect to which--

       ``(I) in the case of a tertiary recovery method, the first 
     injection of liquids, gases, or other matter commences after 
     December 31, 1990, and
       ``(II) in the case of a qualified horizontal drilling 
     method, the implementation of the method begins after 
     December 31, 1998.''

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after December 31, 1998.

     SEC. 8. NATURAL GAS GATHERING LINES TREATED AS 7-YEAR 
                   PROPERTY.

       (a) In General.--Subparagraph (C) of section 168(e)(3) of 
     the Internal Revenue Code of 1986 (relating to classification 
     of certain property) is amended by redesignating clause (ii) 
     as clause (iii) and by inserting after clause (i) the 
     following new clause:
       ``(ii) any natural gas gathering line, and''.
       (b) Natural Gas Gathering Line.--Subsection (i) of section 
     168 of the Internal Revenue Code of 1986 is amended by adding 
     at the end the following new paragraph:
       ``(15) Natural gas gathering line.--The term `natural gas 
     gathering line' means the pipe, equipment, and appurtenances 
     used to deliver natural gas from the wellhead to the point at 
     which such gas first reaches--
       ``(A) a gas processing plant,
       ``(B) an interconnection with an interstate natural-gas 
     company (as defined in section 2(6) of the Natural Gas Act 
     (15 U.S.C. 717a(6))), or
       ``(C) an interconnection with an intrastate transmission 
     pipeline.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to property placed in service before, on, or 
     after the date of the enactment of this Act.
                                 ______
                                 
      By Mr. MURKOWSKI (for himself and Mr. Bingaman (by request)):
  S. 1051. A bill to amend the Energy Policy and Conservation Act to 
manage the Strategic Petroleum Reserve more effectively, and for other 
purposes; to the Committee on Energy and Natural Resources.


             ENERGY POLICY AND CONSERVATION ACT AMENDMENTS

  Mr. MURKOWSKI. Mr. President, pursuant to an executive communication 
referred to the Committee on Energy and Natural Resources, at the 
request of the Department of Energy, I introduce a bill cited as the 
``Energy Policy and Conservation Act Amendments.'' The bill would amend 
and extend certain authorities in the Energy and Policy Conservation 
Act which either have expired or will expire September 30, 1999. I 
would like to submit a copy of the transmittal letter and the text of 
the bill and ask that it be printed in the Record. I do this on behalf 
of myself and Senator Bingaman.
  The Act was passed in 1975. Title I of the Act authorized the 
creation and maintenance of the Strategic Petroleum Reserve that would 
be used to mitigate shortages during an oil supply disruption. Title II 
contains authorities essential for meeting key United States 
obligations to the International Energy Agency.
  The proposed legislation would extend the Strategic Petroleum Reserve 
and International Energy Program authorities to September 30, 2003. It 
would also delete or amend certain provisions which are outdated or 
unnecessary.
  I ask unanimous consent that the bill and the executive communication 
which accompanied the proposal be printed in the Record.
  There being no objection, the materials were ordered to be printed in 
the Record, as follows:

                                S. 1051

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,
       Section 1. This Act may be cited as the ``Energy Policy and 
     Conservation Act Amendments''.
       Sec. 2. Section 2 of the Energy Policy and Conservation Act 
     (42 U.S.C. 6201) is amended--
       (a) in paragraph (1) by striking ``standby'' and ``, 
     subject to congressional review, to impose rationing, to 
     reduce demand for energy through the implementation of energy 
     conservation plans, and''; and
       (b) by striking paragraphs (3) and (6).
       Sec. 3. Section 3 of the Energy Policy and Conservation Act 
     (42 U.S.C. 6202) is amended in paragraph (8) by inserting 
     ``or international'' before ``energy supply shortage''.
       Sec. 4. Title I of the Energy Policy and Conservation Act 
     (42 U.S.C. 6211-6251) is amended--
       (a) by striking section 102 (42 U.S.C. 6211) and its 
     heading;
       (b) by striking section 104(b)(1);
       (c) in section 105 (42 U.S.C. 6213)--
       (1) by amending subsection (e) to read as follows--
       ``On or after December 31, 2000, the Secretary shall 
     establish a program for setting the terms of joint bidding by 
     any person for the right to explore for and develop crude 
     oil, natural gas, natural gas liquids, sulphur, and other 
     minerals located on Outer Continental Shelf lands. The 
     program shall consider the goals of ensuring a fair return, 
     encouraging timely and efficient resource development, and 
     other goals as the Secretary deems appropriate. Conditions 
     under which joint bidding will be permitted or restricted 
     will be established through regulation.'';
       (2) by adding subsection (f) to read as follows--
       ``(f) Subsections (a) though (d) of this section shall 
     expire on the effective date of the program established by 
     the Secretary pursuant to subsection (e).''.
       (d) by striking section 106 (42 U.S.C. 6214) and its 
     heading;
       (e) by amending section 151(b) (42 U.S.C. 6231) to read as 
     follows:
       ``(b) It is the policy of the United States to provide for 
     the creation of a Strategic Petroleum Reserve for the storage 
     of up to 1 billion barrels of petroleum products to reduce 
     the impact of disruptions in supplies of petroleum products, 
     to carry out obligations of the United States under the 
     international energy program, and for other purposes as 
     provided for in this Act.'';
       (f) in section 152 (42 U.S.C. 6232)--
       (1) by striking paragraphs (1), (3) and (7), and
       (2) in paragraph (11) by striking ``;such term includes the 
     Industrial Petroleum Reserve, the Early Storage Reserve, and 
     the Regional Petroleum Reserve''.
       (g) by striking section 153 (42 U.S.C. 6233) and its 
     heading;
       (h) in section 154 (42 U.S.C. 6234)--

[[Page S5300]]

       (1) by amending subsection (a) to read as follows:
       ``(a) A Strategic Petroleum Reserve for the storage of up 
     to 1 billion barrels of petroleum products shall be created 
     pursuant to this part.'';
       (2) by amending subsection (b) to read as follows:
       ``(b) The Secretary, in accordance with this part, shall 
     exercise authority over the development, operation, and 
     maintenance of the Reserve.''; and
       (3) by striking subsections (c), (d), and (e);
       (i) by striking section 155 (42 U.S.C. 6235) and its 
     heading;
       (j) by striking section 156 (42 U.S.C. 6236) and its 
     heading;
       (k) by striking section 157 (42 U.S.C. 6237) and its 
     heading;
       (l) by striking section 158 (42 U.S.C. 6238) and its 
     heading;
       (m) by amending the heading for section 159 (42 U.S.C. 
     6239) to read, ``Development, Operation, and Maintenance of 
     the Reserve'';
       (n) in section 159 (42 U.S.C. 6239)--
       (1) by striking subsections (a), (b), (c), (d), and (e);
       (2) by striking subsections (f), to read as follows:
       ``(f) In order to develop, operate, or maintain the 
     Strategic Petroleum Reserve, the Secretary may:
       ``(1) issue rules, regulations, or orders;
       ``(2) acquire by purchase, condemnation, or otherwise, land 
     or interests in land for the location of storage and related 
     facilities;
       ``(3) construct, purchase, lease, or otherwise acquire 
     storage and related facilities;
       ``(4) use, lease, maintain, sell or otherwise dispose of 
     land or interests in land, or of storage and related 
     facilities acquired under this part, under such terms and 
     conditions as the Secretary considers necessary or 
     appropriate;
       ``(5) acquire, subject to the provisions of section 160, by 
     purchase, exchange, or otherwise, petroleum products for 
     storage in the Strategic Petroleum Reserve;
       ``(6) store petroleum products in storage facilities owned 
     and controlled by the United States or in storage facilities 
     owned by others if those facilities are subject to audit by 
     the United States;
       ``(7) execute any contracts necessary to develop, operate, 
     or maintain the Strategic Petroleum Reserve;
       ``(8) bring an action, when the Secretary considers it 
     necessary, in any court having jurisdiction over the 
     proceedings, to acquire by condemnation any real or personal 
     property, including facilities, temporary use of facilities, 
     or other interests in land, together with any personal 
     property located on or used with the land;'' and
       (3) in subsection (g)--
       (A) by striking ``implementation'' and inserting 
     ``development''; and
       (B) by striking ``Plan'';
       (4) by striking subsections (h) and (i);
       (5) by amending subsection (j) to read as follows:
       ``(j) If the Secretary determines expansion beyond 
     680,000,000 barrels of petroleum product inventory is 
     appropriate, the Secretary shall submit a plan for expansion 
     to the Congress.''; and
       (6) by amending subsection (l) to read as follows:
       ``(l) During a drawdown and sale of Strategic Petroleum 
     Reserve petroleum products, the Secretary may issue 
     implementing rules, regulations, or orders in accordance with 
     section 553 of title 5, United States Code, without regard to 
     rulemaking requirements in section 523 of this Act, and 
     section 501 of the Department of Energy Organization Act (42 
     U.S.C. 7191).'';
       (o) in section 160 (42 U.S.C. 6240)--
       (1) in subsection (a), by striking all before the dash and 
     inserting the following--
       ``(a) The Secretary may acquire, place in storage, 
     transport, or exchange'';
       (2) in subsection (a)(1) by striking all after ``Federal 
     lands'';
       (3) in subsection (b), by striking, ``including the Early 
     Storage Reserve and the Regional Petroleum Reserve'' and by 
     striking paragraph (2); and
       (4) by striking subsections (c), (d), (e) and (g);
       (p) in section 161 (42 U.S.C. 6241)--
       (1) by striking ``Distribution of the Reserve'' in the 
     title of this section and inserting ``Sale of Petroleum 
     Products'';
       (2) in subsection (a), by striking ``drawdown and 
     distribute'' and inserting ``draw down and sell petroleum 
     products in'';
       (3) by striking subsections (b), (c), and (f);
       (4) by amending subsection (d)(1) to read as follows:
       ``(d)(1) Drawdown and sale of petroleum products from the 
     Strategic Petroleum Reserve may not be made unless the 
     President has found drawdown and sale are required by a 
     severe energy supply interruption or by obligations of the 
     United States under the international energy program.'';
       (5) by amending subsection (e) to read as follows:
       ``(e)(1) The Secretary shall sell petroleum products 
     withdrawn from the Strategic Petroleum Reserve at public sale 
     to the highest qualified bidder in the amounts, for the 
     period, and after a notice of sale considered appropriate by 
     the Secretary, and without regard to Federal, State, or local 
     regulations controlling sales of petroleum products.
       ``(2) The Secretary may cancel in whole or in part any 
     offer to sell petroleum products as part of any drawdown and 
     sale under this Section.''; and
       (6) in subsection (g)--
       (A) by amending paragraph (1) to read as follows--
       ``(g)(1) The Secretary shall conduct a continuing 
     evaluation of the drawdown and sales procedures. In the 
     conduct of an evaluation, the Secretary is authorized to 
     carry out a test drawdown and sale or exchange of petroleum 
     products from the Reserve. Such a test drawdown and sale or 
     exchange may not exceed 5,000,000 barrels of petroleum 
     products.'';
       (B) by striking paragraphs (2) and (6A), striking the 
     subparagraph designator ``(B)'' in paragraph (6), and by 
     deleting the last sentence of paragraph (6);
       (C) in paragraph (4), by striking ``90'' and inserting 
     ``95'';
       (D) in paragraph (5), by striking ``drawdown and 
     distribution'' and inserting ``test''; and
       (E) in paragraph (8), by striking ``drawdown and 
     distribution'' and inserting ``test'';
       (7) insubsection (h)--
       (A) in paragraph (1) by striking ``distribute'' and 
     inserting ``sell petroleum products from'';
       (B) in paragraph (2) by striking ``In no case may the 
     Reserve'' and inserting ``Petroleum products from the Reserve 
     may not''; and
       (C) in paragraph (3) by striking ``distribution'' each time 
     it appears and inserting ``sale'';
       (q) by striking section 164 (42 U.S.C. 6244) and its 
     heading;
       (r) by amending section 165 (42 U.S.C. 6245) and its 
     heading to read as follows

                            ``Annual Report

       ``Sec. 165. The Secretary shall report annually to the 
     President and the Congress on actions taken to implement this 
     part. This report shall include--
       ``(1) the status of the physical capacity of the Reserve 
     and the type and quantity of petroleum products in the 
     Reserve;
       ``(2) an estimate of the schedule and cost to complete 
     planned equipment upgrade or capital investment in the 
     Reserve, including upgrades and investments carried out as 
     part of operational maintenance or extension of life 
     activities;
       ``(3) an identification of any life-limiting conditions or 
     operational problems at any Reserve facility, and proposed 
     remedial actions including an estimate of the schedule and 
     cost of implementing those remedial actions;
       ``(4) a description of current withdrawal and distribution 
     rates and capabilities, and an identification of any 
     operational or other limitations on those rates and 
     capabilities;
       ``(5) a listing of petroleum product acquisitions made in 
     the preceding year and planned in the following year, 
     including quantity, price, and type of petroleum;
       ``(6) A summary of the actions taken to develop, operate, 
     and maintain the Reserve;
       ``(7) a summary of the financial status and financial 
     transactions of the Strategic Petroleum Reserve and Strategic 
     Petroleum Reserve Petroleum Accounts for the year.
       ``(8) a summary of expenses for the year, and the number of 
     Federal and contractor employees;
       ``(9) the status of contracts for development, operation, 
     maintenance, distribution, and other activities related to 
     the implementation of this part;
       ``(10) a summary of foreign oil storage agreements and 
     their implementation status;
       ``(11) any recommendations for supplemental legislation or 
     policy or operational changes the Secretary considers 
     necessary or appropriate to implement this part.'';
       (s) in section 166 (42 U.S.C. 6246) by striking ``for 
     fiscal year 1997.'';
       (t) in section 167 (42 U.S.C. 6247)--
       (1) in subsection (b)--
       (A) by inserting ``for test sales of petroleum products 
     from the Reserve,'' after ``Strategic Petroleum Reserve,'', 
     and by inserting ``for'' before ``the drawdown'' and 
     inserting ``, sale,'' after ``drawdown'';
       (B) by striking paragraph (1); and
       (C) in paragraph (2), by striking ``after fiscal year 
     1982''; and
       (2) by striking subsection (e);
       (u) in section 171 (42 U.S.C. 6249)--
       (1) by amending subsection (b)(2)(B) to read as follows:
       ``(B) the Secretary notifies each House of the Congress of 
     the determination and identifies in the notification the 
     location, type, and ownership of storage and related 
     facilities proposed to be included, or the volume, type, and 
     ownership of petroleum products proposed to be stored, in the 
     Reserve, and an estimate of the proposed benefits.'';
       (2) in subsection (b)(3), by striking ``distribution of'' 
     and inserting ``sale of petroleum products from'';
       (v) in section 172 (42 U.S.C. 6249a), by striking 
     subsections (a) and (b);
       (w) by striking section 173 (42 U.S.C. 6249b) and its 
     heading; and
       (x) in section 181 (42 U.S.C. 6251), by striking 
     ``September 30, 1999'' each time it appears and inserting 
     ``September 30, 2003''.
       Sec. 5. Title II of the energy Policy and Conservation Act 
     (42 U.S.C. 6211-6251) is amended--
       (a) by striking Part A (42 U.S.C. 6261 through 6264) and 
     its heading;
       (b) by adding at the end of section 256(h), ``There are 
     authorized to be appropriated for fiscal years 1999 through 
     2003, such sums as may be necessary.''
       (c) by striking Part C (42 U.S.C. 6281 through 6282) and 
     its heading; and
       (d) in section 281 (42 U.S.C. 6285), by striking 
     ``September 30, 1999'' each time it appears and inserting 
     ``September 30, 2003''.

[[Page S5301]]

       Sec. 6. The Table of Contents for the Energy Policy and 
     Conservation Act is amended--
       (a) by striking the items relating to sections 102, 106, 
     153, 155, 156, 157, 158, and 164;
       (b) by amending the item relating to section 159 to read as 
     follows: ``Development, Operation, and maintenance of the 
     Reserve.'';
       (c) by amending the item relating to section 161 to read as 
     follows: ``Drawdown and Sale of Petroleum Products''
       (d) by amending the item relating to section 165 to read as 
     follows: ``Annual Report''
                                  ____



                                      The Secretary of Energy,

                                   Washington, DC, March 15, 1999.
     Hon. Al Gore,
     President of the Senate,
     Washington, DC.
       Dear Mr. President: Enclosed is a legislative proposal 
     cited as the ``Energy Policy and Conservation Act 
     Amendments.'' This proposal would amend and extend certain 
     authorities in the Energy Policy and Conservation Act (Act) 
     which either have expired or will expire September 30, 1999. 
     Not all sections of the current act are proposed for 
     extension.
       The Act was passed in 1975. Title I authorized the creation 
     and maintenance of the Strategic Petroleum Reserve that would 
     mitigate shortages during an oil supply disruption. Title II 
     contains authorities essential for meeting key United States 
     obligations to the International Energy Agency. This is our 
     method of coordinating energy emergency response programs 
     with other countries. These programs are currently authorized 
     until September 30, 1999.
       The proposed legislation would extend the Strategic 
     Petroleum Reserve and International Energy Program 
     authorities to September 30, 2003. It would also amend or 
     delete certain provisions which are outdated or unnecessary.
       The proposed legislation and a sectional analysis are 
     enclosed.
       The Office of Management and Budget advises that enactment 
     of this proposal would be in accord with the program of the 
     President. We look forward to working with the Congress 
     toward enactment of this legislation.
           Sincerely,
                                                  Bill Richardson.
                                 ______
                                 
      By Mr. MURKOWSKI (for himself, Mr. Akaka, and Mr. Bingaman):
  S. 1052. A bill to implement further the Act (Public Law 94-241) 
approving the Covenant to Establish a Commonwealth of the Northern 
Mariana Islands in Political Union with the United States of America, 
and for other purposes; to the Committee on Energy and Natural 
Resources.


          northern mariana islands covenant implementation act

 Mr. MURKOWSKI. Mr. President, today I am introducing a 
modified version of legislation that the Committee on Energy and 
Natural Resources reported to the Senate last Congress to address 
various problems that have arisen in the Commonwealth of the Northern 
Mariana Islands. As reported by the Committee last Congress, the 
legislation would have created an industry committee to establish 
minimum wage levels similar to committees that had been created for 
other territories and that still exist for American Samoa. The 
legislation would also have established a mechanism for the extension 
of federal immigration laws if the government of the Northern Marianas 
proved unable or unwilling to adopt and enforce an effective 
immigration system. The legislation that I am introducing today does 
not include any provisions dealing with wages. I continue to believe 
that an industry committee is preferable to outright extension of 
federal wage rates, but the Northern Marianas, the Administration, and 
some of my cosponsors would prefer to have that debate on another 
vehicle.
  Immigration, however, is at the heart of the problems facing the 
Northern Marianas. This legislation reflects the recommendation of the 
Committee on Energy and Natural Resources last Congress. What appears 
on the surface to be a prosperous diversified economy in the Northern 
Marianas, is in fact a far more fragile economy that is becoming ever 
more dependent on a system of imported labor. Unemployment among US 
residents remains high and the public sector is rapidly becoming the 
only source of employment for US citizens residing in the Marianas. The 
public sector workforce has doubled over the past several years and 
payroll is the largest expense of the government. The recent downturn 
in tourism as a result of economic problems in Asia has only served to 
aggravate the situation in the Marianas, increase the pressures on 
public sector employment, and tighten the dependence of the Marianas on 
imported labor for the private sector, mainly garment manufacturing.
  The Commonwealth of the Northern Mariana Islands (CNMI) is a three 
hundred mile archipelago consisting of fourteen islands stretching 
north of Guam. The largest inhabited islands are Saipan, Rota, and 
Tinian. Magellan landed at Saipan in 1521 and the area was controlled 
by Spain until the end of the Spanish American War. Guam, the 
southernmost of the Marianas, was ceded to the United States following 
the Spanish-American War and the balance sold to Germany together with 
the remainder of Spain's possessions in the Caroline and Marshall 
Islands.
  Japan seized the area during World War I and became the mandatory 
power under a League of Nations Mandate for Germany's possessions north 
of the equator on December 17, 1920. By the 1930's Japan had developed 
major portions of the area and begun to fortify the islands. Guam was 
invaded by Japanese forces from Saipan in 1941. The Marianas were 
secured after heavy fighting in 1944 and the bases on Tinian were used 
for the invasion of Okinawa and for raids on Japan, including the 
nuclear missions on Hiroshima and Nagasaki. In 1947, the Mandated 
islands were placed under the United Nations trusteeship system as the 
Trust Territory of the Pacific Islands (TTPI) and the United States was 
appointed as the Administering Authority. The area was divided into six 
administrative districts with the headquarters located in Hawaii and 
then in Guam. The TTPI was the only ``strategic'' trusteeship with 
review by the Security Council rather than the General Assembly of the 
United Nations. The Navy administered the Trusteeship, together with 
Guam, until 1951, when administrative jurisdiction was transferred to 
the Department of the Interior. The Northern Marianas, however, were 
returned to Navy jurisdiction from 1952-1962. In 1963, administrative 
headquarters were moved to Saipan.
  With the establishment of the Congress of Micronesia in 1965, efforts 
to reach an agreement on the future political status of the area began. 
Attempts to maintain a political unity within the TTPI were 
unsuccessful, and each of the administrative districts (Kosrae 
eventually separated from Pohnpei District in the Carolines) sought to 
retain its separate identity. Four of the districts became the 
Federated States of Micronesia, the Marshalls became the Republic of 
the Marshall Islands, and Palau became the Republic of Palau, all 
sovereign countries in free association with the United States under 
Compacts of Free Association. The Marianas had sought reunification 
with Guam and US territorial status from the beginning of the 
Trusteeship. Separate negotiations with the Marianas began in December, 
1972 and concluded in 1975.
  In 1976, Congress approved a Covenant to Establish a Commonwealth of 
the Northern Mariana Islands in Political Union with the United States 
(PL 94-241). The Covenant had been approved in a United Nations 
observed plebescite in the Northern Mariana Islands and formed the 
basis for the termination of the United Nations Trusteeship with 
respect to the Northern Mariana Islands in 1986 together with the 
Republic of the Marshall Islands and the Federated States of 
Micronesia. Prior to termination, those provisions of the Covenant that 
were not inconsistent with the status of the area (such as extension of 
US sovereignty) were made applicable by the US as Administering 
Authority. Upon termination of the Trusteeship, the CNMI became a 
territory of the United States and its residents became United States 
citizens. Under the terms of the Covenant certain federal laws would be 
inapplicable in the CNMI, including minimum wage to take into 
consideration the relative economic situation of the islands and their 
relation to other east Asian countries.
  Although the population of the CNMI was only 15,000 people in 1976 
when the Covenant went into effect, the population now exceeds 60,000 
and US citizens are a minority. The resident population is probably 
about 24,000 with about 28,000 alien workers and estimates of at least 
10,000 illegal aliens. Permits for non-resident workers were reported 
at 22,500 for 1994, the largest category being for manufacturing. 
Tourism has climbed from about 230,000

[[Page S5302]]

visitors in 1987 to almost 600,000 in 1994. Total revenues for the CNMI 
for 1993 were estimated at $157 million.
  The 1995 census statistics from the Commonwealth list unemployment at 
7.1%, with CNMI born at 14.2% and Asia born at 4.5%. Since no guest 
workers should be on island without jobs, the 4.5% suggests a serious 
problem in the CNMI. The 14.2% local unemployment suggests that either 
guest workers are taking jobs from local residents, or the wage rates 
or types of occupation are not adequate to attract local workers.

  The Covenant established a unique system in the CNMI under which the 
local government controlled immigration and minimum wage levels and 
also had the benefit of duty and quota free entry of manufactured goods 
under the provisions of General Note 3(a) of the Harmonized Tariff 
Schedules. The Section by Section analysis of the Committee Report on 
the Covenant provides in part:

       Section 503.--This section deals with certain laws of the 
     United States which are not now applicable to the Northern 
     Mariana Islands and provides that they will remain 
     inapplicable except in the manner and to the extent that they 
     are made applicable by specific legislation enacted after the 
     termination of the Trusteeship. These laws are:
       The Immigration and Naturalization Laws (subsection (a)). 
     The reason this provision is included is to cope with the 
     problems which unrestricted immigration may impose upon small 
     island communities. Congress is aware of those problems. . . 
     . It may well be that these problems will have been solved by 
     the time of the termination of the Trusteeship Agreement and 
     that the Immigration and Nationality Act containing adequate 
     protective provisions can then be introduced to the Northern 
     Mariana Islands. . . .
       The same consideration applies to the introduction of the 
     Minimum Wage Laws. (Subsection (c)). Congress realizes that 
     the special conditions prevailing in the various territories 
     require different treatment. . . . In these circumstances, it 
     would be inappropriate to introduce the Act to the Northern 
     Mariana Islands without preliminary studies. There is nothing 
     which would prevent the Northern Mariana Islands from 
     enacting their own Minimum Wage Legislation. Moreover, as set 
     forth in section 502(b), the activities of the United States 
     and its contractors in the Northern Mariana Islands will be 
     subject to existing pertinent Federal Wages and Hours 
     Legislation. (S. Rept. 94-433, pp.77-78)

  The Committee anticipated that by the termination of the Trusteeship, 
the federal government would have found some way of preventing a large 
influx of persons into the Marianas, recognizing the Constitutional 
limitations on restrictions on travel. In part, the Covenant attempted 
to deal with that possibility by enacting a restraint on land 
alienation for twenty-five years, subject to extension by the CNMI. The 
minimum wage issue was more difficult, especially in light of the 
Committee's experience in the Pacific. The extension of minimum wage to 
Kwajalein was a proximate cause of the overcrowding at Ebeye in the 
Kwajalein Atoll as hundreds of Marshallese moved to the small island in 
hope of obtaining a job at the Missile Range. The CNMI, at the time the 
Covenant was negotiated, had a limited private sector economy and was 
under the overall Trust Territory minimum wage, which was considerably 
lower than the federal minimum wage. The Marianas also had been a 
closed security area until the early 1960's, further limiting 
development. Congress fully expected that the Marianas would establish 
its own schedule and would, within a reasonable time frame, raise 
minimum wages as the local economy grew. At the time of the Covenant, 
Guam's local minimum wage exceeded the federal levels, and the 
Committee anticipated that the Northern Marianas would mirror the 
history of Guam.
  Shortly after the Covenant went into effect, the CNMI began to 
experience a growth in tourism and a need for workers in both the 
tourist and construction industries. Interest also began to grow in the 
possibility of textile production. Initial interest was in production 
of sweaters made of cotton, wool and synthetic fibers. The CNMI, like 
the other territories, except for Puerto Rico, is outside the U.S. 
customs territory but can import products manufactured in the territory 
duty free provided that the products meet a certain value added amount 
under General Note 3(a) of the Tariff Schedules (then called Headnote 
3(a)). The first company began operation in October, 1983 and within a 
year was joined by two other companies. Total employment for the three 
firms was 250 of which 100 were local residents. At the time, Guam had 
a single firm, Sigallo-Pac, also engaged in sweater manufacture with 
275 workers, all of whom, however, were U.S. citizens.
  Attempts by territories to develop textile or apparel industries have 
traditionally met resistence from Stateside industries. The use of 
alien labor in the CNMI intensified that concern, and efforts began in 
1984 to sharply cut back or eliminate the availability of duty free 
treatment for the territories. The concerns also complicated Senate 
consideration of the Compacts of Free Association in 1985 and led to a 
delay of several months in floor consideration when some Members sought 
to attach textile legislation to the Compact legislation. By 1986, 
conditions led the Assistant Secretary, Territorial and International 
Affairs of the Department of the Interior to write the Governor on the 
situation and that ``[w]ithout timely and effective action to reverse 
the current situation, I must consider proposing Congressional 
enactment of U.S. Immigration and Naturalization requirements for the 
NMI''.
  By 1990, the population of the CNMI was estimated at 43,345 of whom 
only 16,752 had been born in the CNMI. Of the 26,593 born elsewhere, 
2,491 had entered from 1980-1984, 2,591 had entered in 1985 or 1986, 
6,438 had entered in 1987 or 1988, and 12,955 had entered in 1989 or 
1990. Of the population in 1990, 21,332 were classified as Asian. The 
labor force (all persons 16+ years including temporary alien labor) 
grew from 9,599 in 1980 to 32,522 in 1990. Manufacturing grew from 1.9% 
of the workforce in 1980 to 21.9% in 1990, only slightly behind 
construction which grew from 16.8% to 22.2% in the same time frame. The 
construction numbers track a major increase in hotel construction. At 
the same time, increases in the minimum wage were halted although wages 
paid to U.S. citizens (mainly public sector and management) exceeded 
federal levels.
  In 1993, in response to Congressional concerns, the CNMI stated that 
it proposed to enact legislation to raise the wage rates from $2.15 to 
federal levels by stages and that legislation would be enacted to 
prevent any abuse of workers.
  Repeated allegations of violations of applicable federal laws 
relating to worker health and safety, concerns with respect to 
immigration problems, including the admission of undesirable aliens, 
and reports of worker abuse, especially in the domestic and garment 
worker sectors, led to the inclusion of a $7 million set aside in 
appropriations in 1994 to support federal agency presence in the CNMI. 
The Administration was not prepared to commit agency resources to the 
CNMI absent the funding, but with an agreement for reimbursement, the 
Department of the Interior reported to the Committee on April 24, 1995 
that:
  1) $3 million would be used by the CNMI for a computerized 
immigration identification and tracking system and for local projects;
  2) $2.2 million would be used by the Department of Justice to 
strengthen law enforcement, including the hiring of an additional FBI 
agent and Assistant US Attorney;
  3) $1.6 million would be used by Labor for two senior investigators 
as well as for training; and
  4) $200,000 would be used by Treasury for assistance in investigating 
violations of federal law with respect to firearms, organized crime, 
and counterfeiting.
  In addition, the report recommended that federal law be enacted to 
phase in the current CNMI minimum wage rates to the federal minimum 
wage level in 30 cent increments (as then provided by CNMI 
legislation), end mandatory assistance to the CNMI when the current 
agreement was fulfilled, continue annual support of federal agencies at 
a $3 million/year level (which would include funding for a detention 
facility that meets federal standards), and possible extension of 
federal immigration laws.
  During the 104th Congress, the Senate passed S. 638, legislation 
supported by the Administration, that in part would have enacted the 
phase in of the CNMI minimum wage rate to US levels in 30 cent 
increments. No action was taken by the House, and, in the interim, the 
CNMI delayed the scheduled increases and then instituted a limited 
increase of 30 cents/hour except for the garment and construction 
industries

[[Page S5303]]

where the increase was limited to 15 cents/hour. The legislation also 
required the Commonwealth ``to cooperate in the identification and, if 
necessary, exclusion or deportation from the Commonwealth of the 
Northern Mariana Islands of persons who represent security or law 
enforcement risks to the Commonwealth of the Northern Mariana Islands 
or the United States.'' (Section 4 of S. 638) At the same time that 
Congress began to consider legislation on minimum wage and immigration 
issues, concern over the commitment of federal agencies to administer 
and enforce those federal laws already applicable to the CNMI led the 
Committee to include a provision in S. 638 that the annual report on 
the law enforcement initiative also include: ``(6) the reasons why 
Federal agencies are unable or unwilling to fully and effectively 
enforce Federal laws applicable within the Commonwealth of the Northern 
Mariana Islands unless such activities are funded by the Secretary of 
the Interior.'' (Section 3 of S. 638)
  In February, 1996, I led a Committee trip to the CNMI. We met with 
local and federal officials as well as inspecting a garment factory and 
meeting with Bangladesh security guards who had not been paid and who 
were living in substandard conditions. Their living conditions were 
intolerable. There was no running water, no workable toilets, the 
shack--and that is being kind--was in deplorable condition. As I said 
at the time, this was a condition that should never exist on American 
soil. It existed in the shadow of the Hyatt Hotel.
  I raised my concerns with the Governor and with other officials in 
Saipan. We were assured that corrective action would be taken. Those 
assurances, especially those dealing with minimum wages, seem to have 
disappeared as soon as our plane was airborne. As a result of the 
meetings and continued expressions of concern over conditions, the 
Committee held an oversight hearing on June 26, 1996 to review the 
situation in the CNMI. At the hearing, the acting Attorney General of 
the Commonwealth requested that the Committee delay any action on 
legislation until the Commonwealth could complete a study on minimum 
wage and promised that the study would be completed by January. That 
timing would have enabled the Committee to revisit the issue in the 
April-May 1997 period after the Administration had transmitted its 
annual report on the law enforcement initiative. While the CNMI Study 
was not finally transmitted until April, the Administration did not 
transmit its annual report, which was due in April, until July. On May 
30, 1997, the President wrote the Governor of the Northern Marianas 
that he was concerned over activities in the Commonwealth and had 
concluded that federal immigration, naturalization, and minimum wage 
laws should apply.
  Given the reaction that followed the President's letter, I asked the 
Administration to provide a drafting service of the language needed to 
implement the recommendations in the annual report and informed the 
Governor of the Commonwealth of the request and that the Committee 
intended to consider the legislation after the Commonwealth had an 
opportunity to review it. The drafting service was not provided until 
October 6, 1997 and was introduced on October 8, 1997, shortly before 
the elections in the CNMI. The Committee deferred hearings so as not to 
intrude unnecessarily into local politics and to allow the CNMI an 
opportunity to review and comment on the legislation after the local 
elections.
  The U.S. Commission on Immigration Reform conducted a site visit to 
the Northern Marianas in July 1997 and issued a report which, in 
general, supports the need to address immigration. The report, however, 
also raises some concerns with the extension of US immigration laws. 
The report found problems in the CNMI ``ranging from bureaucratic 
inefficiencies to labor abuses to an unsustainable economic, social and 
political system that is antithetical to most American values'' but ``a 
willingness on the part of some CNMI officials and business leaders to 
address the various problems''. The report expressed some concerns over 
the extension of federal immigration laws, but that absent the threat 
of federal extension, ``the CNMI is unlikely on its own to correct the 
problems inherent in its immigration system''. The report recommended 
that specific benchmarks for an effective immigration system be 
negotiated and that the ``benchmarks should be codified in statute, 
with provision for immediate imposition of federal law if the 
benchmarks are not met within the prescribed time.'' Specifically the 
report recommended that ``[s]hould the CNMI fail to negotiate 
expeditiously and in good faith, or renege on the negotiated 
agreements, we agree that imposition of federal law by Congress would 
be required.'' (Emphasis in original)

  While the outright exception from the minimum wage provisions of 
federal law in the Covenant is an anomaly, so also was the direct phase 
in to federal levels contained in the legislation as transmitted by the 
Administration. Congress has generally recognized the different 
economic circumstances of the territories and provided for a ``special 
industry committee''. The objective of an industry committee is to set 
wage rates by industry ``to reach as rapidly as is economically 
feasible without substantially curtailing employment the objective of 
the [federal] minimum wage rate'' (29 U.S.C. 208(a)). The committees 
may make classifications within industries. Such committees were 
established for Puerto Rico and the Virgin Islands in 1940 and 
continued until Congress provided for step increases in 1977 for the 
remaining covered industries. An industry committee has been applicable 
in American Samoa since 1956. In 1992, the Department of the Interior 
provided formal Administration opposition to legislation that would 
have extended federal minimum wage rates to Samoa stating that 
``[i]mposition of the United States mainland minimum wage on American 
Samoa would have a serious, perhaps devastating effect on the 
territorial economy and jobs''. The industry committee for Samoa set 
rates for 1996 that ranged from $2.45/hour for local government 
employees to $3.75/hour for the subclass of stevedoring and lighterage. 
Wages for the canneries was set at $3.10/hour.
  While the economic situation of the CNMI is considerably different 
from that of American Samoa, it is not absolutely clear that all 
segments of all industries in the CNMI are capable of sustaining 
federal minimum wage rates. Unlike American Samoa, the minimum wage 
issue in the CNMI appears to involve only temporary non-immigrant 
workers. All U.S. citizens resident in the CNMI appear to be earning at 
or above federal minimum wage levels. The CNMI completed a minimum wage 
analysis in April 1997 by the HayGroup. The analysis recommended 
against a change in current wage rates for at least three years and 
planning to accommodate growth. An industry committee would be able to 
assess the merits of claims by individual industries and structure a 
system that takes into account the individual needs of particular 
industries or sub-classes.
  As I stated earlier, I believe that an industry committee is the 
proper approach. I have not included the provision in this legislation 
due to the opposition of the Northern Marianas, the Administration, and 
several of my colleagues. The Northern Marianas believes that it can 
avoid becoming entangled in the federal minimum wage legislation 
pending in Congress. I don't share their belief, but this is their 
choice.
  The Committee conducted a hearing on March 31, 1998 on S. 1275 and S. 
1100, similar legislation introduced by Senator Akaka and others. The 
Committee heard from the Administration, the government of the CNMI, 
workers and representatives of the local industry, as well as public 
witnesses. At a business meeting of the Committee on May 20, 1998, the 
legislation was amended and then ordered to be favorably reported to 
the Senate. Unfortunately, the Senate did not take action on the 
measure prior to adjournment.
  The portion of the Committee amendment that I am introducing today 
provides for full extension of the Immigration and Nationality Act 
contingent on the Attorney General finding that 1) the Northern 
Marianas does not possess the institutional capacity to administer an 
effective system of immigration control or 2) the Northern Marianas 
does not have a genuine commitment to enforce the system. Neither I nor 
the Committee question the

[[Page S5304]]

commitment of the current administration of the Northern Marianas to 
attempt to rectify the problems that led to this legislation, but we 
are mindful that commitments have been made in the past and then 
ignored. We also recognized that the Commisssion on Immigration Reform 
and others have concluded that some of the problem is structural and 
that a local government simply may not have the capability to maintain 
an effective immigration program within our federal system. As a 
result, the Committee adopted a provision that will take effect without 
further Congressional action if the requisite findings are made. The 
Committee viewed this as a last opportunity for the local government 
and provided that the Attorney General must promptly issue standards so 
that the Marianas is on full notice of what will be required.
  If, however, it does become necessary to extend federal law, the 
Committee also adopted amendments to the bill as introduced to ensure 
that those industries, especially construction, that depend on 
temporary workers for temporary jobs will have full access to alien 
labor as necessary. The Committee was mindful of the concern by the 
hotel industry over access to workers, and accordingly adopted a 
provision that would permit the transition provisions to be extended 
for additional five year periods as long as necessary. The Committee 
amendment required the Attorney General and the Secretary of Labor to 
consult with the Northern Marianas one year prior to the expiration of 
the transition period, and at 5-year intervals thereafter, to determine 
whether the provisions will continue to be needed. The Committee and I 
fully expect that any uncertainty be resolved in favor of the Northern 
Marianas. If the provisions are extended, a similar consultation will 
occur in the fourth year of the extension to decide if further 
extensions are warranted.
  The Committee reluctantly adopted these provisions because it 
believes that conditions in the Northern Marianas leave no alternative. 
Extension of additional federal laws, however, will not resolve the 
problems if federal agencies do not maintain their present commitment 
to administration and enforcement of federal law. A continuation of 
local efforts by the present administration of the Northern Marianas 
will also be necessary.
  Although the legislation contains the one-year grace period contained 
in the Committee amendment from last Congress, the one year has 
expired. The record of the Northern Marianas, and the status of local 
legislation, will determine whether and on what terms federal laws 
should be extended. The action earlier this year by the Northern 
Marianas to lift the moratorium on entry permits for new workers is 
particularly troubling.

  There are legitimate questions concerning immigration and minimum 
wage. We should now have sufficient experience to assess whether the 
Marianas is capable of providing the pre-clearance for any persons who 
attempt to enter the Marianas. The Immigration Commission concluded 
that they are not capable of undertaking such prescreening and 
clearance because they do not have the resources of the federal 
government through the State Department. The United States routinely 
does prescreening in foreign countries as part of our visa process. The 
situation that I saw with the Bangladesh workers should never have 
happened and would not have happened had federal immigration laws and 
procedures been in place and enforced. Reports of other workers who 
arrive only to find no jobs would also never happen. A particularly 
troubling aspect of the current situation in the Northern Marianas is 
the level of unemployment among guest workers. There should be no 
unemployment among the guest workers. If there are no jobs, then the 
workers should not be present. These are legitimate immigration related 
issues. They do not necessarily lead to a federal takeover, but they 
are legitimate issues and it serves no purpose to distort history and 
pretend that the current situation was the goal of the Covenant 
negotiators. That does not make the Marianas corrupt, but if accurate, 
it points out that this Committee was correct when it stated that we 
would need to make changes in the immigration laws prior to termination 
of the Trusteeship so that they could be extended to the Marianas.
  The report of the Immigration Commission also raises legitimate 
questions about the availability of asylum and the lack of civil rights 
since the Marianas is using temporary workers for permanent jobs, 
thereby denying workers the rights they would have if admitted into the 
US with a right of residency. That needs to be addressed. The 
Commission also expresses some grave concerns over outright extension 
of the Immigration laws and questions the willingness or commitment of 
the INS to devote the personnel or resources to effective 
administration. While I fully expect the INS to support the 
Administration position in our hearings on this legislation, I also 
share that concern. We do not need to make a bad local problem an 
equally bad federal one.
  I also think that the focus on the garment industry by the 
Administration and most of the critics of the situation in the Northern 
Marianas is somewhat shortsighted. The advantages that the Marianas can 
provide garment manufacturers in terms of duty and quota free treatment 
expire with the implementation of the multi-fibre agreement. The 
suggestion in the Administration's task force report last year that 
these jobs will move to the mainland if the garment industry is 
curtailed in the Marianas is simply wrong. Those jobs in all likelihood 
are temporary until they move back to the Asian mainland in about five 
years. That, by the way, is well within the transition period 
contemplated under the legislation submitted by the Administration last 
year. The legislation will actually have little or no effect on the 
industry that the Administration is targeting. I should also note that 
the Bank of Hawaii, in its economic study also concluded that the 
garment industry in the Marianas was not likely to last. Other studies 
have also come to that conclusion. The Administration has made it clear 
that they hope the effect of this legislation will be the end of the 
garment industry in the Marianas. Given both the studies and the 
Administration's objective, I do have a question about why the 
President's budget claims about $187 million per year in additional 
revenues from the enactment of the amendments to General Note 3(a). If 
there is no industry, there will be no imports, and there will be no 
revenues.
  The problem is that the Administration does not seem to comprehend 
that the Marianas is the United States. It is not a foreign country. 
The failure of the Administration to enforce federal laws has led to a 
climate conducive to worker abuse and to some sense within the Marianas 
that federal laws will not be applied. On the other side, a large 
population of workers without full civil rights also offers the 
opportunity for people to exploit the situation. I am not happy with 
either side of this debate. The cries for federal takeover are too 
strident and too partisan to ring true. The defense is simply 
unacceptable. In the middle are the workers who apparently no one cares 
about, except for their value in being put on display in the media.
  Complicating consideration of this legislation, however, is the 
Administration's somewhat lackluster response to the flood of illegal 
entries into Guam from China. These individuals are being smuggled into 
Guam by boat. Most of the aliens come from the China mainland from 
Fujian Province, but some have sought entry from the Northern Marianas. 
So far this year, over 800 illegal aliens have been apprehended either 
in Guam or attempting to reach Guam.
  Earlier this year I met with the Governor of Guam. He expressed his 
frustration with the Immigration and Naturalization Service for 
diverting revenues from Guam to the mainland. The result was that Guam 
had to assume the costs of incarceration for these aliens. An article 
in the Pacific Daily News on Sunday May 9 suggested that as many as 
2,000 illegal aliens may already be in Guam. Only after the situation 
became even worse and the national media began to draw attention to 
what was happening, did the White House become involved. As a result of 
that involvement, the Administration has finally begun to pay some 
attention and is beginning to dedicate resources to the interdiction of 
these aliens. The Administration plans to

[[Page S5305]]

send three more Coast Guard vessels and two C-130 aircraft to Guam and 
apparently will reimburse the local government for its expenditures on 
behalf of federal agencies. That response was too long in coming. 
Parenthetically, I would note that INS did not care about extending 
immigration laws to the Northern Marianas until after the Readers 
Digest and other publications began to question the Administration's 
commitment to human rights and the White House became concerned with 
its image.
  A continuing concern for my Committee over the years has been the 
reluctance of Executive Branch agencies, specifically the INS, to treat 
the Marianas as part of the United States. Up until last Congress, the 
INS resisted any attempt to extend the immigration laws to the Northern 
Mariana Islands. That resistance was not based on policy grounds or 
from a belief that the Northern Marianas was operating an effective 
immigration system, but from the narrow administrative concern of not 
wanting to dedicate the personnel and resources. I must admit that I 
have some apprehension over how solid the recent conversion of the INS 
is. Last Congress, they testified in support of the Administration's 
proposal to extend the immigration laws. They promised the Committee 
that they would dedicate the necessary resources to ensure successful 
implementation. Now we see that they are unwilling to dedicate the 
resources in Guam, where federal immigration laws already apply, until 
they are directed to do so by the White House. The situation in the 
Marianas may be sufficiently problematic that we will have to go 
forward with the legislation despite my reservations. I intend to 
closely examine the INS when we schedule hearings on this legislation.

  I also am concerned over the Administration's decision to use the 
Northern Marianas as a holding area for illegal aliens who are 
intercepted at sea. On May 8, the Coast Guard intercepted a Taiwanese 
vessel with 80 people suspected of trying to illegally enter Guam. The 
vessel was escorted to Tinian in the Northern Mariana Islands. 
Apparently the Administration made that decision because the federal 
immigration laws do not apply in the Marianas and that makes it easier 
to repatriate the aliens and prevent them from claiming asylum. If we 
extend the immigration laws, as one portion of the Administration 
wants, we will frustrate the interdiction and repatriation program 
being pursued by another portion of the Administration. The Committee 
will need to sort this out during our hearings. I also will look 
forward to an explanation of why the use of Tinian in the Northern 
Marianas avoids claims of asylum. The asylum requirements are matters 
of international obligation and federal policy. In fact, the failure of 
the Northern Marianas to deal with asylum issues as a matter of local 
legislation was one of the arguments that the Administration made in 
support of the extension of federal legislation. That contradiction 
will also need to be explored. It appears from press reports that the 
Administration plans to consider claims of asylum, but given the 
peculiar situation of refugees from mainland China, it will be 
interesting to see how those claims are processed.
  I am also aware of suggestions in Guam that we need to amend the 
immigration laws to prevent the claim of asylum on Guam. Congressman 
Underwood has introduced legislation to that effect already. I think we 
need to be very careful in considering legislation to extend the 
immigration laws to the Northern Marianas that we do not create an even 
larger problem than the one we already have in Guam. Guam is a single 
island, about 33 miles by 12 miles. The Commonwealth of the Northern 
Mariana Islands is an archipelago of fourteen islands three hundred 
miles long. If we can not adequately patrol Guam, how are we going to 
patrol the entire Marianas? That also is a question that will need to 
be answered before we move this legislation.
  Before the opponents of this legislation start their celebration, I 
want to repeat that I find the conditions and circumstances in the 
Northern Marianas to be unacceptable. I have serious concerns over this 
legislation, but something needs to be done. I am willing to consider 
modifications to the legislation. Last year I included provisions to 
guarantee both construction and tourism sectors access to sufficient 
workers, and I am willing to revisit those provisions or consider other 
changes to support the economy of the Northern Marianas. At some point, 
however, the Marianas needs to take a hard look at the structure of 
their economy. They can not continue indefinitely with the public 
sector being the only source of employment for US residents. They need 
to provide a future for their children. The federal government needs to 
ensure that federal laws are enforced and that they are applied in a 
manner that recognizes the unique circumstances of this island 
community. I support as much local authority and control as is 
possible. There are certain functions, however, that only the federal 
government can effectively perform. There are also certain rights that 
every individual who works and resides in the United States should 
expect to be guaranteed. This legislation will provide an opportunity 
for the Committee to see that those responsibilities are performed and 
that those rights are protected.

                          ____________________