committee transportation and infrastructure will come to order today in our continuing review of the underlying causes conditions and and factors in involved  spill liability and technical issues since my first term in congress one nine hundred seventy five seventy six shortly after the tory canyon disaster in the english channel and  young then a member of the merchant marine fisheries committee and i participated in much of that legislation always through the all spill liability active one thousand nine hundred nine and open ninety  liability financial responsibility and insurance issues surrounding the deepwater horizon are complex there are estimates that suggest losses associated could result in between one billion and three and a half billion dollars in claims those will far exceed the liability caps that apply to offshore facilities with a limit of seventy five million dollars if the predictions prove accurate total damages will exceed the amount available in the liability trust fund so this tragedy shows the need for a comprehensive review of liability concepts in the laws now in effect when you look at the body of law it goes back at least one hundred fifty plus years existing laws were developed from centuries of maritime history as as i learned back in my first term in congress as one of the maritimes one of the oldest most incrusted bodies of law in existence  the purpose then was to deal with damages to persons and property from accidents involving seagoing vessels the vessel carries a known quantity of oil or other cargo there is a reasonable basis for estimating the worst possible case of damages from release of all of the oil in the cargo of that vessel this in turn establishes a basis for a liability cap and for setting levels of required insurance one of the lessons contrast the deepwater horizon shows that when we're dealing with a facility for drilling rather than a merchant vessel not of oil is unpredictable on known and could be astronomical deepwater horizon also demonstrates that the technology for drilling in deep waters and deeper regions below the sea floor is risk year and more uncertain than merchant vessel technology shows us that we need a financial and liability program based on the technological complexities and the realities of deepwater drilling rather than simply adapting and adjusting concepts that were originally developed for surface vessels in addition to the liability issues the deepwater horizon tragedy shows that deepwater drilling complete reliance on industry does not provide the safety margin nor the safety regime that we need the federal government has allowed the drilling industry to self police self certify self engineer and design in this time that we set new standards and exert authority over safety issues associated deep sea oil drilling as we do with high level aviation operations the issues for consideration this year including raising or eliminating the cap on liability for both cities and vessels raising the levels required for demonstration of financial responsibility a subsidiary issue of importance is whether any changes should be applied retroactively make no judgement on those i want to hear the testimony comes out of this hearing on whether caps and insurance requirements are that exist are and incorporated to existing less existing leases whether the government should be or would likely be in breach of contract liable for damages if liability or insurance rip requirements were raise under existing leases with regard to the liability caps for facilities one option is to remove the caps altogether the major argument against liability caps is that they reduce the incentives for operators to take steps necessary to ensure safety in addition liability caps that are well below the level of damages from the spill will mean persons who suffer damages will have to be reimbursed exclusively from the or oil spill liability trust fund and if there are not enough there's not enough money in the trust fund injured persons either will not receive compensation or may be compensated by taxpayers from general revenues the argument in support of liability caps is that without caps only the largest companies will be willing to drill in the deep water one of the largest companies will be able to run the risk of huge damages and this could lead to less competition for joining leases and lower proceeds to the federal government and selling the rights limiting drilling to the largest companies could result in less daily and reduced supply of oil somewhat different factors are involved when we consider raising or limiting caps for vessels  smaller vessels tug barges carrying home heating oil are subject to a major increase in expense for insurance there may be a loss of shipping capacity that could have done a detrimental effect on consumers the potential damages from guesswork camps for liabilities for facilities rather have not been adjusted since the oil pollution act was enacted and the capture vessels have been raised by law and administrative  action to adjust for inflation so facilities have stayed on adjusted and vessels liability caps have increased the deepwater horizon tragedy shows a need for a balance of about one point six billion dollars with a cap on expenditures of a billion and five hundred million for natural resource damages we've passed legislation to raise the tax on crude oil to thirty four cents a barrel raise the caps the trust fund expenditures to five billion dollars still coast guard tells us that they will run out of money to fight this disaster possibly next week because they will have exhausted the authority for the one hundred million dollar at vance fund i'm a thirteen twenty ten just prior to our previous hearing trans ocean swiss company filed a complaint in federal court in houston to limit its liability to twenty six point seven million under a little known statute the limitation of liability act of eighteen fifty one department of justice a sense filed a motion opposing trans ocean hundred fifty one act was put into place before ship owners had access to insurance encourage american ship owners to invest in shipping and put the american shipping industry on an even footing of competition with its european competitors and allows ship owners to limit their liability to the value of the vessel and the value of our cargo claims for personal injury and death for death and economic losses that are coming for it will can come forward will far exceed the value of the rig in the gulf and whatever was over to trans ocean by by and others in researching the hundred fifty one act which i recall from our earlier days on richmond fisheries com e we found in the in the law of admiralty book gilmore and black observation on that eight hundred fifty one act no doubt when more obscure statutes are drafted the congress will draft them but it is difficult to believe that any future body of lawmakers will ever subpattern this extraordinary effort the only safe thing to do with such a statute is to repeal and maybe that's what we will wind up doing as we examine the existing liability laws we have to consider revisions to death on high seas act the jones act both acted in  hundred twenty s i was prevent persons injured on vessels from recovering non economic damages generally available under tort law that is a broad scope of what i expect in this to cover in this hearing a lot of questions and answers yet to be found i look forward to the testimony and yield now to the gentleman from florida my good friend mr michael thank you mr over starr and i look forward to working with you and one of our responsibilities is to learn from tragedies to learn from disasters and to make certain that we put positive measures in place to make certain that they don't happen again now we can't bring back the loss of eleven lives but people who have lost lives their property or their business their opportunity to earn a living in this country or in the areas affected need our assistance and we need to make certain that we have measures in place to assist those folks that are hurting now let me just say we will be doing legislation i'm told that the leadership has made a decision to have legislation before the fourth of july recess i look forward to cooperating in a bipartisan effort to make certain that we have again in place measures that will assist this committee does have jurisdiction checked it over all liability questions dealing with this matter and the legislation mr oberstar outlined including a national response plan in addition to the liability question and i think that is mr oberstar is also brought some things forth that you didn't talk about a great deal in public today but i think i concur with him and we need to look at lemonade some of the self certifying that the industry has done talk about that and a second but i didn't know too much about how the fund worked i knew we had one in place mr oberstar correct me if you want to put the oil spill liability trust  folks well this was set up some time ago as we as you heard the history of i think back in one nine hundred ninety it was adjusted in two thousand and six for and it's about one point five to one point six billion dollars balance in the fund the thing that is interesting i said well what about people who are hurting are they getting compensation the ones that have operational funds for some cleanup costs and for some other items none of it goes to economic damages at this point now the poor son of a gun that's been hurt by this has to put an application into b first i guess and get get refused before they're eligible now the funds i'm told is already expired so i said i'll enter duce legislation to expand it because we need to have funds available immediately and i'll is there anybody here who doesn't know who is responsible for this spill raise your hand if you don't know who's responsible for the film spill the government and the taxpayers or people have been paying the eight cents  thing the government needs to do is get some payments from b p and responsible parties so that we are just doing this to fraud finance their responsibility in this we should never let b p off the hook or responsible parties off the hook but in the process of changing things you know if you don't want to do damage or you tony want to help reward offenders and penalize people who've done the responsible thing so that's a the first item now of course on the other side of the aisle of first thing they do is we have to raise taxes or fees it's now eighty cents per barrel fee that got us to this one point six billion one point five billion there are some other fines and penalties in there but for the most part it's at eight cents so what did the other side propose in fact they passed it in legislation last week that we increase this to thirty four cents and i don't mind increasing it but i'll tell you one thing i'm not going to pay b p s expenses up front from this fund they should be held responsible or responsible parties pay for that so we may need to adjust this upwards and i have no problem with that i'm the senate has a proposal for forty one cents per barrel but what we've got to do is get the right figure and he had still hold people responsible not use this fund to let people off the hook the other thing too is we need to find some way to allow those who are affected by economic damage their business close down their job  helped in this situation right off so that's the first cab that i have economic damages we now have the seventy five million dollar million dollar cap and i say it's fine to raise that but what we've got to do is be careful that we don't raise it and have consequences unintended consequences when you raise the cap too high what happens what happens small businesspeople small operators cannot get the insurance they cannot meet the liability limits so what do you do you reward the big companies put the second slide up there the one on  number of spills the number well i'm sorry number well this is interesting and this is actually put by the majority staff in to into the report that they provided and i'll tell a majority staff you did a very good job was twenty nine pages was one of the most thorough reports i've read the committee produced mr chairman but this is interesting and what we wanted what we want to do if we raise again the liability the liability on the economic front we don't want to put everybody out of business we don't want to make only the big operators protected and put everybody else out of business because i come from a business background if you can't get insurance if you can't meet these liability caps as a small business person i wouldn't be able to compete now we don't have that many that we have to worry about in deep water if you look at the chart and most of the wells and the activity the drilling done six hundred feet look at that thirty almost thirty five hundred so what we want to do is target and keep responsible those people who are posing the biggest risk and also would other point that i want to make on this mr chairman as we as we do this last week the administration had three different position positions on moratorium on drilling if you watch that and it threw everybody into a panic actually some people are out of business as a result of just a few days of uncertainty in this market and what we've got to do is make certain that we don't have the same kind of havoc when we go forward with these liability proposals again not letting anyone off the hook making certain they're held responsible finally let me just say  that allen who's in charge he was recently quoted will put this in the record may twenty fourth when he asked why doesn't the government take this cleanup over he was very frank that alan is a great and we're fortunate to have a majority said because the government doesn't have any capability now probably the worst thing the administration could have done has on june first they sent the attorney general eric holder down there and eric holder said he's going to launch a criminal investigation i submit that what he did is probably he probably put the biggest damper on the cleanup you could possibly do if you're small business or in business and you're needed or going to be contracted to be involved in the cleanup and the first thing they do is send in the attorneys and the attorney general  start threatening people if they're looking at criminal activity there that's going to that's going to get people out of that business of clean up an activity i think where they need to start and there may be a time for that and i want people held criminally responsible but right now we need to get that cleaned up finally finally there's one other point that i think we should do in cleaning that up now  this is a report that we had because it's a newsweek june seventh we need to start with the minerals management office and the department of interior let me just read this and that investigations in that department which i submitted evidence to under the bush administration says oil companies filled out inspection forms in pencil and then the amas that the department of interior official the inspector traced over their writings in ink now there's a place to start investigating start looking at criminal activity as our own department of interior  issued the permit that set the parameters for drilling and then penciled in their opinion on what was done in inspections something's rotten in denmark and also in oil drilling and the department of  these are all very thorough very factual documented pieces that i personally review and i appreciate i would like to just supplement the gentleman scum and set under the opa ninety law b p must reimburse the federal government to the oil spill liability trust fund last week the obama administration sent b p a sixty nine million dollar bill for reimbursement to the trust fund for expenditures from that fund and under under the act there is there will be no taxpayer expenditures all that for basically we're covering those costs now waiting for reimbursement so i'll send a letter if you want to join me or whatever i want b p to be paying now rather than depleting this fund i don't mind changing it increasing it and we need to adjust it but i'll be damned if i'm going to have that fun to play by forwarding the financing of b p s responsibility and if they've got a sixty nine million dollar bill they sure as hell need to pay it sooner rather than later and there are other exact there are other costs that b p is paying as they must do when something when bills are submitted but the opa ninety  this trust fund so that the coast guard could act promptly in case of and not wait for oil companies to come forward with money and then come back to them and demand funds and do these concurrently but the law itself we're going to change expenditure out of the oil spill liability trust fund per incident it's not that the fund has run out it's that they're limited by law to spending one hundred million dollars out of that fund we need to raise that amount and and change other factors with of the trust fund and further i would note that the eight cent contribution into the trust fund expired at the end of one thousand nine hundred four and fortunately the previous management of the ways and means committee didn't reinstate it until two thousand and six twelve years when the funds are not going into the trust fund i know other members have statements they like to make i would ask them to withhold until our congressional panel  makes their statements and then before the second panel comes all recognize members for individual statements and we will begin with mr holt thank you chairman over star ranking member mike  members of the committee i appreciate the opportunity to testify about the oil spill liability as we speak the oil continues to gush into the gulf that an unprecedented rate we can watch it instantaneously any time of the day or night the environmental effects are already evident along hundreds of miles of coastline from louisiana to florida and despite a variety of efforts top hat top kill junk shot their recent modified top  natural resources in the gulf states and addressing the loss of people's jobs and dislocations resulting from the incident this goes beyond the important questions of just liability that you're considering today i will restrict myself to the liability since the catastrophe began we've all been concerned about the long term economic livelihood of the two hundred thousand people employed by gulf coast fishing two point eight million people employed in florida in the tourism industry and so forth and all americans who rely on the gulf of mexico for economic livelihood b p should be liable for every last cent of the natural resource and economic damage it caused not the small business owner not the restaurant or not the vacation home rent er not the fisherman not the american taxpayer revisiting the liability issue is long overdue as the chairman said it's been two decades since they all pollution act was enacted in response to the exxon val under this act oil companies are required to cover the full cost of quote removal however the laws set a seventy five million dollars cap for liability for other office other losses such as economic losses and the cost of providing extra public services after the for the response for a catastrophe of the magnitude that we see now seventy five million dollars is laughable initially b p said it would cover quote all necessary and appropriate cleanup costs and quote more recently it said it would pay for all legitimate claims including those above seventy five million dollars if you look at the last decade of b p s operations in the u s you see a decade of b p s management repeating lee disregarding safety and environmental rules in ways that are deadly and dangerous the current spill in the gulf the explosion of the texas texas city refinery in two thousand and five that resulted in the deaths of fifteen people and injuries to more than one hundred and  hundred fifty the four explosions along the alaska pipeline due to corrosion in two thousand and eight two thousand and nine to two hundred thousand gallon spill in prideaux bay pipeline in two thousand and six the fault of acacia of compliance reports in the carson refinery  california over a period of years why should the american people trust b p and history shows this history and the rest of the history shows that mild sanctions and lower liability limits do not provide adequate care prudence and preparation it's fair to ask if b p s word is enough it's nice that b p says it will cover claims over the legal limit of seventy five million dollars it sounds good but it doesn't satisfy me and it shouldn't satisfy you i don't think it should satisfy any member of congress i disagree with the administration that b p s word is sufficient the liability cap needs to be raised to ensure b p is legally responsible and it needs to be raised retro actively the law allows that therefore i've introduced the big oil bailout prevention act which would raise the liability cap for offshore well spills from seventy five million dollars to ten billion dollars those provisions would be made retroactive as permitted by environmental law president so that the deepwater horizon incident would be covered under the bill the bill has nearly seventy co sponsors including a dozen or so members of this committee i'm glad that the transportation infrastructure committee is holding this hearing today and i'm sure that other members and witnesses who are testifying today will help us figure out what is the proper level of liability if ten billion dollars is too low then we should set it at a level that will ensure that those responsible are fully liable and the people affected do not have to spend the rest of their lives fighting with  and other companies in court limits should be set not by the size of the company for example so as not to disadvantage smaller companies rather limits should be set by the possibility of the possible expense of harm injury and damage the deepwater horizon is the most catastrophic spill that we've experienced in a fair and just world companies like b p which made over sixteen point nine billion last year should pay for every cent of the message made not taxpayers our bill is clear the buck stops with the oil companies it shouldn't spill over to taxpayers the american people clearly want to see congress holding b p accountable and it's fair for them to ask why congress nearly seven weeks later is only now getting around acting i urge the committee to act quickly to reassure the american people that we will hold b p accountable and bring the big oil bailout prevention act to the floor of the house expeditiously i thank you for the opportunity to testify i look forward to working with you on this legislation thank you professor for your very thorough presentation  i thank you chairman oberstar ranking member mike and all of my colleagues on the committee we must x with to update this outdated oil pollution act of nine hundred ninety that says it all  it we've learned a lot from this from b p s oil disaster in the gulf of mexico that isn't just affecting all gulf states america's economy just when we have fought to come out of this  recession wreaks havoc on our economic recovery but i'm confident especially mr chairman we would and breadth of knowledge on these issues we will be able to bring legislation to the fore to the swiftly to address this outdated law it is very difficult to characterize liability in this case when we're talking about the worst environmental disaster in our nation's history and those of us living on the gulf coast we're going to be living with the impact of this disaster for years and years to come i met last week with  tourism officials fisherman environmentalist on st pete beach and you know the the oil isn't washing up in the tampa bay area yet and we hope and pray it will not but there are still very significant economic impacts that we're dealing with cancellation cancellations of hotels and vacations and they're able to come to chronicle the fishermen are beside themselves because they'll go off the west coast one hundred miles to where the fishing grounds are and the commerce department said don't go there because it's not safe we've got to make sure that this is when we update the act that we are really looking at at the true economic impact and you have very talented staff professional staff here and i look around and they're very thoughtful and knowledgeable members and we've got to ensure that when we update the act there delving into the legal terminology that is used when you look at the the terminology that you use responsible parties are we really able to capture everyone in this scenario or a future scenario that is a responsible party removal cost removal costs include the cost of removing spilled oil from water and shorelines or taking of other actions that may be necessary to minimize or mitigate the dam much the public health or welfare is that broad enough recover ble damages cover among other things injuries to natural resources destruction of property loss of subsistence use of natural resources public services but i'm concerned that that doesn't go far enough we have an economist  from the university of central florida yesterday that said the potential impact on our economy is over ten billion dollars that's his early estimate and that the state of florida alone could lose one hundred ninety five thousand jobs like i said mr chairman just when we're coming out of this the economic disaster so we you've got to put all of your talented folks to work and i asked all of the committee members to get into this term the terminology of this legislation it's not a complicated act the oil prevention act but if we take mr holt bill which i'm a co sponsor of and i'm heartened to know that so many of you are co sponsoring we take that we've got to update it so that we prevent these that we're able to do to compensate folks in our economy in the end in addressing the environmental impact and one other thing that the ranking member has ra if an oil company that's drilling cannot get insurance because they can't cover the risk the potential damages should they be drilling at all if we cannot ensure that that we can mitigate the harm and damages and they can't get insurance should that operation be going on in america's waters these are not the water of big oil company these are the resources of the people of the united states of america and they deserve all the protection that we can bring so i thank the committee very much for your attention and all of your ongoing efforts to address this her random disaster that is not just the gulf coast disaster but it's it's all of our thank you thank you very much castor for your very thoughtful presentation and just as a much for the invitation to provide testimony this morning and to the ranking member to all of the members that are here let me thank the piano committee for the important jurisdiction and leadership that you give to so many of these issues publicly again i want to acknowledge the lost lives of those who have lost their lives and my sympathy to the family of the eleven workers who lost their lives on the deepwater horizon but also to the many impacted employees who stories are now being told who are suffering from post traumatic stress disorder and we know that this is not only catastrophic as it continues but it is catastrophic in the lives of so many americans i believe america is crying out for action now and therefore i believe congress would be excused for looking at all of the legislative initiatives and amending them and reforming them retroactively that always poses a lot of sticky questions and concerns because congress wants to do the right thing but i don't believe america wants to wait around and pat us on the back for legislation that will be enacted for operation after this tragic incident i recently had the opportunity to join my colleague and friend chairman of the subcommittee on the coast guard elijah cummings and my friend corinne brown the chairman of the real committee as we went out over the gulf last week to look at the operations that were clearly mind boggling first the fire boats were spewing water on fires the burn then you could see the oil lines going through the  then of course you can see the enterprise which is trying to draw up the oil spill my friends this is catastrophic it is overwhelming it is going to continue and i come from oil country in the city of houston and so i would suggest that we look at this the way that we have talked about a seamless in a g policy or green energy has all been on the basis of trying not to hand out destination over to terrorists that is important and therefore i think as we become thoughtful in this process i think we need to have that as part of our consideration but we also need to raise this beyond the level of an individual company and say that this is the oil industry problem that as they proceed for permanence in shallow water and deep water one of the legislative aspects of our work should be the reforming of how permits should be issued and therefore i believe no permit should be issued without insurance obviously at a certain level but also recovery plan i can tell you for sure that the water drilling is like a surgeon who knows how to do heart surgery to open the patient perform the surgery but with no idea how to close on the surgery that patient dies and even though i come from this industry and represent thousands who are now frightened about their jobs i believe for their safety and security and those that i've spoken to they want increased liability they want safety for their jobs to be protected long range so i believe that we need first of all to raise that cap and then i think we need to look at as the chairman so articulate mentioned the various legislator initiative the all pollution act  they're filing and maybe the process is working well let me tell you this first of all the offices are closed by the company they're here today that close the next day the second thing is fishermen oystermen and shrimpers don't necessarily have the paperwork that an accountant has they have their boats they go out order may impact and b p is asking them to provide the kind of documentation that you would think the greatest accountant would have they're not trying to cheat when i sat down with these folks they said we simply need to get our money the last payment they got was in maine five thousand dollars therefore they asked whether they could get a six month lump sum we thought that was something they were responding to because the claims process is so erratic well lo and behold they had a meeting on monday and that meeting resulted in a zero response we don't know what you're talking about we have to keep doing what we're doing and right now the shrimpers the fishermen and the oyster men are literally dying because they have no way of providing for their families i think they want congress to act now whether we demand that there be a claims process that is set independently away from b p and whether or not you then we need to be deliberative on how that process is calculated i also think it is important that we independently assess how many gallons are going out of the of the deepwater spill at this point so that any funding payments is not based on industry assessment but our assessment i do believe it is important to act now immediately to provide for the coast guard to draw down on that fund beyond the hundred million dollars the coast guard says it is absolutely imperative that chairman there is something called the multi district courts claims process and i would suggest and this is overlapping jurisdiction that as the attorney general jim hood said the multi district has to form all these cases into one court and not allow these cases be filed in state court i would suggest that the anti injunction at be amended to specify that no federal court may enjoin parallel litigation pursued by a state in its own courts that will allow florida and of a particular states to have cases if necessary also as i indicated the lifting of the cap should be done immediately and i would suggest that we engage as you are doing today the oil industry collectively on providing for answers to how you put in recovery plan if you are trying to get a permit the death on the high seas act i think is extremely important and only allow for peculiarity damages to be collected this of course mr chairman is what you said it is because when this industry was formulated this bill legislation was one thousand and twenty all they could think of is ships and captains they couldn't think of off shore drilling to the level that we have now and they didn't want to say that a bad weather storm was going to be there for that captain i'm going to be introducing legislation that will add punitive damages as well to the issue of the death on the high seas in addition the jones act mr chairman only allows a refers to see mn many of those who died were engineers one of the witnesses that came before the judiciary committee was the father of gordon jones i believe he was an engineer and spoke of the fact that his widow could only receive the kunar e damages and the punitive damages for what may have been  may become the most a refrig tragedy that we could experience i believe that there should be an immediate correction of that right now so that those who have lost their lives their families will not suffer mine i just conclude by adding this point in a story about linda smith who had a restaurant has a restaurant with all of our savings in it called the alligator cafe but it's in houston texas where most people would assume that she relies on the lose louisiana crop if you will of oysters and shrimp and fish and i might tell you mr chairman it's darn good how business is literally almost shut down one because people are asking whether the product is contaminated too because you cannot get product when i spent time in new orleans there were restaurants were closed because they indicated that they could not get products we've seen a number of stories that are now part of the collateral damage so i would suggest that in addition to the lifting of the cap that there needs to be an immediate assessment of whether or not a recovery plan needs to be part of the permanent process legitimate permitting process of the eminent lifting of course the cap amending the death on the high seas and  the jones act is required now and then allowing states to be able to file their own lawsuits in spite of the multi district litigation that i believe came after the valdez the valdez of course was a tanker spill this is an oil spill of large proportions never seen before and i will just close by saying i represent roughnecks they are frightened for their jobs these are hardworking americans and i want to protect them to what i hope most of all is that congress will be deliberative in their response that they will move quickly that the auto industry will see it is in their advantage to collaboratively work to make sure that this never ever happens again a heart surgeon would not operate on a patient and not know how to save them that's what happened with the deepwater horizon drill and i think it is imperative that we act now thank you thank you very much for your testimony for your firsthand experience with those in the gulf and i would say that on the on the matter of safety of operations we don't let our planes leave the ground unless they have all the redundancy needed to get that aircraft safely back on the ground that seven miles in the air there's no curb to pull over look under the hood see what's wrong we get it right before you leave and when the aircraft returns there are redundant systems safety of aircraft approaching the runway one hundred sixty five miles an hour it has flaps that the ploy automatically so the aircraft down when it hits the ground or thrust reversers that kick in and then the brakes apply any one of those is supposed to stop that aircraft but under certain conditions even that isn't enough but we ensure in aviation but  it's a mile below the ocean surface at a depth below that which our los angeles class nuclear submarines can operate we don't have sufficient redundancy and  protection backup and we have to in the industry self certification one question one question i have should your bill be retroactive for the incident in the gulf i want to make clear mr chairman that that it should be it candy it is it is written that way and i think that is what the american people want and we have research to say that the law i'm not the best person to to testify on that i think we'll get a lawyer not a physicist do this time i could you have a question well let me first let me make one thing clear that  i don't think there should be any limits on economic liability and also if there is negligence these people need to be held accountable if somebody if there's negligence jones you know there are laws that law absolutely limits exactly  that that's the first thing i think my point to as when you set terms of blanket terms for again increasing some of the liability responsibility what we don't want to do is end up with only the b p s and the royal dutch shell and the others as the only ones that can play in this game and what you don't want to do is accidently put tens of thousands of people in the industry out of business because you've created a very limited playing field in which very few can participate there are many subcontractors  small business people in this business who just by the action last week for a few days some of those people have been put out of business so we're talking about creating stability and responsibility and then i point again to the staff's chart mr hall you saw the staff chart and you saw how limited that actually the deepwater wells the deepwater drilling activity is would you have a problem with again focusing on where the potential risk is and making certain that those that are actually taking on that risk or that additional liability we could limit that scope so we are putting the small guys out of business thank you mr mica as i tried to make clear in my testimony the the the judgment the operative thinking should be not whether a small company can afford the insurance the consideration should be how much damage might possibly be done and just eventually aaron said a plane doesn't take off if it doesn't have insurance you don't first ask is it owned by a small company or a large company you ask does it have the insurance but there are different levels of insurance and people who are in the industry and yes i want first i want no limits on economic responsibility and if there's negligence and i have no problem increasing the cap but i think you just said what i was saying as those that incur that type of risk should be covered and held responsible and people with lesser risk shouldn't for example a small operator cannot get ten billion dollars worth of liability coverage but that may not be the person that's drilling that's a person that is a subcontractor or a small business person in the industry you want those with a higher liability have a higher responsibility of making certain that they're insured are covered or can meet that liability otherwise and i think ms castor has made my point that same saying it seems to me and i would ask if you would agree that if a company undertakes an activity the result of which may lead to billions and billions of dollars worth of damage in the end result either that company's going to pay for that damage or the people who are damaged are going to be an recompensed or the taxpayers are going to pay for the damage there are no other alternatives you think of any other alternatives ok that being the case then someone who says that well eliminating the liability cap for that would say small companies can't do that business why shouldn't we say small companies can't do business that put billions of put millions of people at risk of billions of dollars unless they can cover their risk that they set up mike let me repeat thank you mr nadler the the chairman said it well with regard to aviation if you're not insured you don't fly you don't ask whether it's a large company or a small company a mom and pop airline or not if you can't cover the damages then you shouldn't be engaging in the activity and i think that i think that's the end of the statement which is another way of saying that it's a company that either a very large company that can cover the damages should do it or government should do it or nobody should do it insurer and the insured it alternately how do you quantify the risk in this disaster where they downplayed the risk i think now has demonstrated what the true risks are and it's enormous and it's it's probably not have to worry about liability caps because it only gets smaller companies from doing it is really saying that even the people who are damaged should not be recompensed that the environment should be at risk the community that has what we call independent oil producers i think there is a distinction between the insurance that major airlines have versus the mom and pop  airplane that a family takes out on a sunday afternoon joyride certainly the death and disaster that may come about  s devastating no matter what you say but i do think there is something to the concept of a tiered review when you look at the graph there are about three thousand applications for zero to two hundred feet  water drilling only about a thousand permits what i've indicated is that i believe whatever permit you seek you should have a define that it recovery plan what happened with the deepwater horizon is that they were in the  the highest levels of technology in terms of drilling and what they had a poor response in terms of recovery but you're talking about companies that are in the top five in terms of well and certainly unfortunately this tragedy the sky's the limit but when you look at the independents you can tear the recovery here and i mean recall you my time let me just say in the few seconds left that i would agree obviously if the risk is limited then the liability can be limited but and it may be that there are two years and i'm not familiar with technology but where the risk is really limited in the liability can be limited but where the risk is very very large you cannot limit that liability unless you are willing to have the taxpayers of the public and the liability at the liability potential is so large that it's not insurable that that's the market telling you you shouldn't engage in that activity and we should heed the mark in that kind of situation and we'll have plenty of time to engage with our colleagues as we progress with this bill over the next couple of weeks so i appreciate the  of members of the committee and those on the panel thank you for your contributions i know each of you has committee responsibilities as well and we'll conclude this panel and continue with our second thank you mr chairman let me begin by thanking you for holding this hearing on the liability issues under the oil pollution act as if it's late for the gulf coast oil spill i obviously support efforts to greatly raise or eliminate the liability cap in the act i've heard the argument that the cap is razor eliminated then drilling companies will not be able to get insurance but that would be the market telling us that we shouldn't be doing this kind of drilling or not in this way without greatest safety requirements and oversight the government should not be in the business of shielding companies from the check of the free market and providing cover for bad or overly risky behavior i've also heard it said that we don't need to raise the cap because he will ignore the cap and cover all damages if b p can afford to do that why do they need a cap in the first place frankly i'm very concerned that despite b p statements they ultimately won't pay for all the damage is caused by this disaster b p says it will pay quote all legitimate claims but who will make the determination of what is legitimate and on what basis of their not statutorily required to pay the claim so far b p has refused to answer that question and there are certain types of damages not covered on the o p s namely personal injury and punitive damages i have tried to get p to accept responsibility for example for health problems caused by this disaster and so far they have refused to do so b p is trying to look like a good actor that will cover all the damages but the fact that b p refuses to acknowledge liability for health problems tells me they have no intention of paying such claims and the b p doesn't pay it that means it will fall upon the taxpayers and the victims themselves making matters worse is b p s use of toxic chemical dispersants the only thing that the toxic chemical have accomplished as far as i can see is to hide the true nature of the true extent of the damages by getting this stuff off off the surface of the water where can be picked up more cheaply but where it is visible and causing these huge undercut underwater plumes to form the plumes that b p treacherously denies exist we are basically edge up in this toxic stuff all over the gulf as we did agent orange in vietnam i have a deep personal concern about this because it reminds me of the world trade center disaster in my district the government authorized the use of these dispersants and saying everything is safe there's no need for respirators yet everyone knows that the fire is logic and the meantime people are getting sick  c e o had the nerve to insinuate that people got sick from food poisoning well osha seems to think it's probably just from the heat so sick workers are filing injunctions against b p to try to enforce respirator use on their own this is crazy chairman ober and i wrote the p a and osha asking that respiratory protection be enforced but based on some of the statements in the press so far i'm not optimistic i cannot believe we are repeating the same mistake again the same mistake we made in the weeks after nine eleven when the united states government caused thousands of people to get sick by denying that the eye was toxic and we're doing it again only this time b p is doing it and then and and and having thousands of workers working what amount to unsafe conditions and they are going to get sick some of them a getting sick and b p is going to deny liability i cannot believe we are repeating the same mistake again and personally causing even more harm to the people of the gulf coast well b p could get off the hook i urge everybody here to start asking these questions him and oberstar i know you share these concerns and i thank you for aggressively pursuing this issue these issues on behalf of the people of the gulf coast and of the entire gulf coast region because i believe that all the harm we're now seeing in some of the states one in the gulf other two others and that and then we have to go to our with thank you thank you mr chairman i think it's great that you are holding this hearing to examine oppose changes to the liability limits of stablished under the oil pollution act as we know several members on both sides of the capital proposed to drive it dramatically raise or even eliminate statutory caps on liability i want to ensure our committee reviews these proposals closely to determine their impact on operations in the maritime industry which could be very far reaching i hope today's hearing will be the first step and a process that resets liability in a way that is commensurate with the risk and potential damages associated with activities on board the vessel or facility i strongly believe we should raise the liability limits in two thousand and six i was the lead sponsor of a bipartisan bill that restructured and raised these limits for the first time since congress originally passed in one thousand nine hundred we were forced to do this because three successive administrations failed to follow the laws requirement to periodically adjust the limits according to inflation well they have finally done that for vessels the current administration has still not done so for offshore facilities if the administration have followed the law and adjusted limits for offshore facilities like the deepwater  cap on damages for this incident would be more than fifty million dollars higher than the current seventy five million dollars cap this adjustment could be made immediately and i urge the administration to do so soon as possible the administrative action would be a good first step but i agree we must raise liability standards to account for the significant changes that have occurred in the offshore drilling industry since one thousand nine hundred a look forward to working with the chairman you mr chairman of the full committee and the chairman of the subcommittee to develop legislation that adjusts lidl liability limits to come in line with a risk however as we undertake this process we must not fall into the trap of treating all vessels and facilities in the same manner i think it is important the risk for a major oil spill from a small non tank vessel is not the same as the risk associated with an oil laden tanker vessel or an offshore dr operation the current spill in the gulf of mexico has presented the federal government with a new set of challenges not forseen during the development of o p m i hope our witnesses would share their suggestions on new or amended authorities necessary to respond to the car in future spills i want to thank all the witnesses for participating in the hearing and look forward to working with the members of the committee as we move forward on this legislation to protect our waters thank you mr  on liability while this commute is last meeting focused on what went wrong and how we have gotten to where we are today today's hearing workers on what needs to be done and to make sure a similar disaster does not happen again today's witnesses out how will bhagavan lab alien financial responsibility power of the of and the resulting damages this issue is becoming increasingly as congress continues its investigation of b p oil spill disaster this committee should rightly question whether or not the question the current seven about me and and obviously we think is worth more than it should ask important voices about how much liability we should expect or oil companies to maintain and how much financial responsibility we should expect them to have when accidents of this nature happen according to the watch and pose earlier this week b p is currently capture has much of a fifteen thousand barrels a day with this latest effort this is in sharp contrast to the amount the b p s report is leaking it seems to me that we have to rely on b p for data and information and we have no way of confirming it given that we may not know the full extent of the oil spill for years to come it might not make sense for us to in any amount of financial responsibility by b p and other companies and this is what we are here to discuss today while the end astore of this investor might be told for decades we have an obligation to see those responsible this meal held accountable for their actions not only to the people of the gulf calls but to the american people we also have an obligation to learn from this disaster and make necessary changes to our laws and update our laws to ensure companies are held accountable in the future i thank you mr chairman i look forward to hearing the witnesses thank you for your statement just despite the limitations on your businesses fishermen and destroying our ecosystem as well impacting people's physical and mental health issues i represent a district that is directly impacted by the deepwater horizon disaster and i feel the pain and the suffering of my people and want to do everything that that i can to address to their needs therefore i support the raising of the liability cap mr chairman we must do it in a very deliberate ways that will prevent the loss of thousands of jobs in louisiana a nother decision that might have unintended consequences  is the administration's decision to impose a six month moratorium on deepwater drilling again the primary issue that we have here is the issue of safety and how to prevent the same disaster to happen in the future about the same time louisiana is very much dependent on the oil and gas  industry and to impose a six month moratorium will cost louisiana approximately forty thousand jobs i do believe that we need a time period in order to back to all of the rigs that are in the deep water portion of the gulf and to ensure that they have the plans and the procedures necessary to prevent a disaster from happening about the same time i hope that we move at least administration move in a very responsive way asked to limit the potential job loss to the state of louisiana again the deepwater horizon disaster is a disaster of grave magnitude and it is impacting and destroying the lives of thousands of my constituents and we must do everything that we can ask the federal government to help those who are in need to provide a long term recovery plan for the district as well as to rebuild the coast and the wetlands of louisiana that are being destroyed by marie the a visiting here from florida welcome them thank you very much for your enterprise and for your work and you with experience learned you'll be helping us prevent future transportation i'm pleased that we are here today holding our second hearing on the water horizon incident today's hearing will enable us to examine whether liability limits for offshore facilities and vessels under the earlier and have had an opportunity to see firsthand the astounding devastation that has resulted from the blowout at the condo well site b p has said that regardless of the current legal liability they will pay all costs associated with the spill the government must be aggressively very vigilant in holding b p to its commitment i have been deeply concerned about reports that b may be nickel and dime in the gulf called close residents and businesses many thousands in the gulf are facing the loss of their livelihood for what may be a long time to come and by extension they're facing the risk of losing their homes businesses and the futures for which they have worked their entire lives based on my discussions as recently as this monday with the federal officials in the gulf i'm confident that the government is working diligently to require that b p s process claims as expeditiously as possible but this must continue to be a top priority and i question whether it of seventy five million dollars in liability for the damages that spill from an offshore facility my cause is unrealistically low given what we are now and see and it's obvious when we see all of the problems associated with this spill it is imperative that this cap be raised to a level that reflects the extent of the potential consequences associated with spills from larger facilities further on the current statutes facilities are not required to demonstrate more than one hundred fifty million dollars in financial responsibility although it is apparent their protection liabilities may be many times that figure as we consider mr chairman the appropriate live building level for our children facilities we must also assess the appropriate level of financial responsibility they should be required to demonstrate the current threshold of one hundred fifty million dollars is and realistically below the extent of the potential liability in light of what has happened in the gulf we will also consider the added adequacy of care and lively capsule vessels unlike facilities vessels  karen lee required to demonstrate financial responsibility for the full amount of their liability and we must consider what impact a liability increase would have on the smaller vessels that are critical particularly our domestic maritime commerce and commerce that said over the longer term it is also imperative predators that we move away from our dependence on oil simply seizing offshore drilling is not being answer particularly if that means we just import increasing amounts of war from nations that seek those payments to destroy us reducing our demand in creating reliable alternative energy sources are essential steps we  institute thank you for being with us you've heard concerns expressed by colleagues on the first panel by members of this committee and we look forward to your presentation thank you very much supports nine point two million jobs including many in the offshore development business and provides most of the energy the nation needs to power the economy and our way of life the tragic and heartbreaking accident in the gulf was unprecedented and our thoughts and prayers go out to the families who lost loved ones to the workers who were injured and to all of our neighbors in the gulf who were affected the people of the oil gas industry understand our responsibility to find what happened and why and work in cooperation with government to come up with recommendations for improving this process across the board have already assembled the world's leading experts to conduct a top to bottom review of offshore drilling procedures from operations to emergency response and our industries providing data and expertise to the federal government to stop the flow of oil clean up the environment and understand the causes and correct as congress considers legislative changes that impact the mastic oil and natural gas production from offshore resources it is critical the proposals both protect the tax payers and advance our country's energy and economic interests this nation's energy and economic security demands must be met by increased domestic oil and natural gas production now and for several decades to c we want to work with the congress the administration as we consider the best ways to protect taxpayers and to provide our country its energy needs the oil pollution act of one nine hundred ninety s stablish oil spill liability trust fund as an important insurance policy to cover the costs of potential economic damages from oil release from exploration production or transportation accidents it's funded by a per barrel tax on the oil industry that's been mentioned earlier not by the taxpayers we accept that responsibility to ensure this important safety net is adequately funded well into the future are proposing to increase liability limits for economic damages from seventy five million to ten billion or even to remove the limit altogether we recognize that changes are needed but believe that some proposals to arbitrarily raise or remove the funds cap would threaten the viability of offshore operations and could significantly reduce u s domestic oil and natural gas production cost jobs and harm us energy security we are not alone in this assessment as independent insurers and analysts have reached similar conclusions preliminary analysis indicates the following are some anticipated results of increasing the liability allowed amounts for economic damages from seventy five million to ten billion let me share just a few some of the leading insurance companies in the oil and gas market  told congress that they would be able to offer adequate insurance protection for offshore operations making the economic risk of conducting offshore operations too great for small med and even large sized companies estimates indicate that aside from national oil companies owned by foreign governments only a few of the very largest oil and natural gas companies could meet a potential ten billion dollar financial assurance test for self insurance lack of insurance created by a ten billion dollar cap would in effect push all small medium and even most of the major and a great it companies out of the gulf an estimated one hundred seventy thousand direct and indirect jobs are supported by the oil and natural gas industry in the gulf of mexico as a companies it could meet the self assurance threshold account for about fifteen percent of the total gulf production raising the liability cap would place about one hundred forty five thousand jobs at risk even the largest companies would see premiums for additional insurance skyrocket raising overall costs for offshore operations by as much as twenty five percent the impacts could be devastating for example woods mackenzie estimates that just a ten percent increase in development cost could render seven current discoveries sub economic reducing production jobs and putting seven point six billion in future government revenue at recess the conclusion mr chairman this congress considers this issue thoughtful consideration must be given to harmonize the need to provide necessary resources to this important industry funded safety net to protect our environment while allowing us to safely and reliably provide the energy our nation relies on for our economic and energy secur for offshore exploration activities we're committed to providing quick and constructive input to this important policy debate and will provide our recommendations to use that concludes my statement thank you mr chairman thank you we certainly look forward to receiving that set of recommendations and i would urge you to get it in within a week we don't have much time or we have a goal of getting a package of bills from several committees ready for introduction before the july fourth recess mr anderson welcome thank you for participating with us your testimonies of particular interest thank you very much  clubs which in turn collectively ensure over ninety percent of the world's ocean going tonnage ninety five percent of the world's ocean going to tank or just a few words about what protection and an indemnity associations are they are commonly referred to as clubs for historical reasons because shipowners going back as far as the mid nineteenth century reckon the need for new forms of insurance to cover compensation to third parties such as injuries to crew and passengers damaged cargo interest and collision these liabilities were insured on a mutual basis the shipowner's pool their resources and mutual associations and most recently as pollution has become a concern and ship operations and i cover is now available to cover removal costs and damages resulting from pollution incidents up to one billion dollars again cover is provided on a mutual basis and it's important to note that cover is available worldwide for virtually all types of vessels in arising from liabilities in many many different jurisdictions cover as provided for liabilities that arise directly in connection with the operation of a ship it's important to note that p and i cover is not available on a mutual basis for offshore oil exploration and production facility facilities although there is limited to cover available on a fixed premium basis the clubs operate on a very unique claim sharing pool for claims that exceed the individual club's retention which is currently eight million dollars the pool is re insured by commercial reasons for sure is worldwide including virtually all major insurance in the us market and through these pooling arrangements the group member clubs are able to offer the highest levels and broadest range of cover for the benefit of victims of marine casualties mr chairman you've already pointed out i think very eloquently the difference between the resources to respond to a worst case discharge which is defined as the destroyers of the vessels entire cargo or fuel carrying capacity in adverse weather conditions another important distinction between vessels and offshore facilities is that the enforcement and oversight vessel safety and environmental protection is been to has been delegated to the u s coast guard mr chairman i work with the u s coast guard almost daily basis in compliance issues and i don't need to tell this panel that the coast guard does not rely on industry self certification or self assessment coast guard personnel or motivated dedicated highly trained individuals who carry out systematic and vigorous on site inspections of all deciles entering u s ports to verify compliance with federal law and regulations and international conventions and statistics compiled by the pollution fund center show that the coast guard control program in partnership with the shipping industry has led to significant makes ships able to trade in the united states covers however are supplied by independent dedicated companies and they are not provided by the club for providers rely on the same system system of reinsurance clubs eighty five percent of all ship owners trading to the us is one of these dedicated covert providers it's important to realize as i said that these providers are reliant on the same system  of reinsurance of the p and i clubs current proposals to remove caps on liability or to have a one size fits all limit regardless of vessel capacity or type would require an enormous increase in reinsurance capacity at a time whether it is questionable whether this capacity would be available reinsurance market is very broad in the sense that it must respond to a great variety of casualties such as floods earthquakes and other disasters and in a given year that capacity may be very limited so the reinsurance capacity is finite and dependent on the risk perception of the reinsurance markets and on the essential on the experience of the reinsurance market in any given year with respect to these other claims the current proposals which would essentially strike out any limit for removal costs and replace the current vessel limits which are a  an unquantified damages limit would lead to an uninsured ship owner liability and it would bring to an end the current system of certification of financial responsibility which would in turn mean that ships would have to cease trading to the united states or that would be relegated to sub standard ship owners who are willing to take risks and the company assets essentially on delivery of oil cargos to our country mr chairman that concludes my remarks thank you very much for your time and i'm willing to answer any questions the committee may up but thank you very much your this is you've drawn are very important and we'll come back to those questions ministrations proposals going in one direction and we're looking at bifurcation of the responsibilities those of with a fleet of u s flag tug boats barges and ferries on the east coast united states i'm testifying this morning on behalf of the american waterways operators the national trade association for the inland and coastal tugboat towboat and barge industry our company another a w all members are in the business of marine transportation not oil exploration or production mcalister telling an a w a those three hundred fifty member companies share a deep commitment to marine safety and environmental stewardship our thoughts and prayers go with the deceased and all of those who are impacted we understand that no spill is acceptable to damage the natural environment and they jeopardize our ability to stand business we did not come to this realization this april our industry woke up long ago two decades ago congress passed the oil pollution act of one nine hundred ninety our fundamental message today is this with respect to vessel spills open and is working let me cite a few examples tank barge oil spill volumes have plummeted ninety nine point six percent since you passed over ninety with a record low of four thousand three hundred forty seven gallons spilled in all of two thousand and nine to put that in perspective that's about the same amount of oil that's estimated to be escaping from the ocean floor in the gulf every ten minutes with nearly sixty nine billion gallons of oil transported by barge on us waterways this means that ninety nine point nine nine percent of the oil move by tank barges is being moved safely more than ninety percent of the us bank barges are double hold five years ahead of the schedule you said in open ninety since open ninety our industry has been challenged to lead improvements in safety and stewardship above and beyond the requirements of law and regulation and we've done so developed in one thousand nine hundred four the a w l responsible carrier program which is a safety management system for tugboat and barge operators has long been a condition of membership in the a w l all a w l members must undergo an independent third party audit every three years companies that fail their audit forfeit membership in two thousand and four a to join the coast guard in supporting legislation to bring telling vessels that are a coast guard inspection regime and require all towing vessels to have a safety management system mr chairman we join you in urging the department of homeland security to publish its notice of proposed rule making the liability and financial responsibility provisions of open ninety has been an important contributor to this record that's a loaners must demonstrate financial responsibility up to the limits that were raised by congress in two thousand and six and by the coast guard in two thousand and nine to keep up with inflation those limits can be breached and eventually gross negligence willful misconduct or violation of regulation today liability limits for vessels or two or three times higher than they were in one thousand nine hundred and the mechanism is in place to continue increasing the limits over time in exercising its oversight mission we urge the committee to be mindful of this history and potentially severe consequences of changes in the liability and financial responsibility regime for vessel owners and current statutory and regulatory framework reflects a careful balance it ensures that vessel owners have access to appropriate levels  insurance cover typically a billion dollars for companies that have taken their coverage through the p and i clubs if the cost of a spill exceed those limits claims are then paid by the oil spill liability trust fund you've been discussing this fund is not drawn from the general treasure to shift the cost of this bill to u s taxpayers rather it is essentially a supplemental insurance pool that is funded by the oil industry itself were troubled by proposals to further increase liability limits for vessel owners as a reaction to the current disaster tank vessels are not oil production facilities a worst case discharge from a vessel is a quantifiable amount as you've pointed out the liability limits for vessels unlike limits for offshore facilities have already been increased by congress and the coast guard for a vessel owner unlimited liability is not insurable however it is not only unlimited it is not only unlimited liability that places vessel owners at risk proposals to raise liability limits also threaten to raise the cost of insurance to a level where responsible small and medium sized companies cannot afford it we urge the company the committee to be sensitive to the impact of its changes on responsible tax paying american companies that provide family wage jobs for tens of thousands of american citizens we urge you to recognize the differences between a tank barger a telling vessel and an oil rig and we urge you to be thoughtful and you dishes as you exercise your very important oversight responsibility thank you thank you very much thank you chairman over star ranking member member mike and members of the committee for inviting me to testify here today my name is robert hard way and i'm president and economist for the insurance information institute an international property casualty insurance trade association based in new york i've been asked by the committee to testify on the insurance implications of the deepwater horizon accident and specifically i will address the following three issues the insurance arrangements in place at the time of the deepwater horizon accident the immediate and current insurance market reaction to the accident and the potential my a reaction to proposed changes by congress to various acts governing the limits of liability associated with offshore drilling activity since april twentieth when a fire an explosion on the deepwater horizon tragically claimed the lives of eleven workers we've seen an estimated eight hundred thousand barrels of oil spill into the gulf of mexico through june first and this is shown in figure one of at the back of my testimony this makes the deepwater horizon event the second largest oil will blowout in world history and the largest ever in the us approximately eight times larger than the magnitude of the largest prior a vent by way of reference it's also three to four times larger than the  event given these sobering statistics and from an insurance perspective offshore oil platforms are among the most difficult and complex commercial risks to insure in the world they feature a number of risk financing components such as self insurance hi retentions and deductibles traditional insurance reinsurance which is insurance for insurance companies participation in mutual insurers the use of captives and even accessing the capital markets many of the largest offshore energy operators are self insured now in terms of discussing some of the coverages the key coverages that are in place i do list a page long i have a page long list of these in my testimony i will not go through what is in the written testimony there but basically this coverage is provided these offshore operators with protection for physical loss for instance the rigs in the pipes but also the liability losses they might have obviously to workers but also in terms of pollution and other sorts of liabilities they may incur now specifically with respect to the operators involved in the deepwater horizon disaster b p had a number of partners the partners outside of b p all had private insurance protection in place as i mentioned however b p which was the lead in this particular in this particular endeavor with a sixty five percent interest in the project was self insured b p did self insure and part through the use of a captive known as jupiter insurance which had six billion dollars of capital on the day the event did occur this protected it mostly against property losses but in effect b p s prodigious earnings power are in fact its insurance policy now ultimately in terms of when we add together the private insurance sector losses that we're seeing from the other parties again it's still so to still too soon to tell ultimately where we will wind up but estimates today range from private insurance that will be contributed to recovering from this event to be in the range of one point four to about three point five billion dollars now in terms of the immediate market response to the event the global energy market response to the deepwater horizon loss has in fact been quite orderly capacity has not fled the market prices have indeed risen but commensurate with the rapidly changing outlook and demand for liability coverage is in mounting on certainty over government action related to both future and potentially retroactive liability estimates are that the cost of insurance for drillers operating in the gulf of mexico has increased from fifteen to fifty percent depending on the nature of the operation in terms of capacity the third party the typical third party limit for liability coverage that can be purchased on the market is approximately one billion dollars and that has not changed in the wake of the deepwater deepwater horizon event could in fact unleash one of the largest tort actions in united states history as displayed in figure two at the back of my testimony a total of one hundred twenty six deepwater horizon lawsuits have been filed through may twenty fourth  against just the four primary companies involved in terms of potential market impacts associated with changes in the oil pollution act of one nine hundred ninety six since the deepwater horizon incident there's been a great deal discussion in congress and at this hearing of course about changing the limits of liability from those that existed originally under the act from seventy five million to a number in the vicinity perhaps of ten billion dollars now currently the opi a features a compulsory liability insurance structure combined with strict liability rules for oil producer pollution damages associated with offshore energy facilities these parties are responsible for offshore facilities must establish and maintain oil spill financial responsibility capability to meet their liability for removal costs and damages associated with oil discharges that capability is demonstrated in a variety of ways but most importantly through insurance now in the wake of the deepwater horizon spill as we mentioned congress has proposed raising the limit from under o p eight to ten billion dollars from the current seventy five million and as discussed already the typical maximum mailable third party liability coverage today is somewhere between one and perhaps if you stretch it one point two and perhaps even one point five billion dollars but as a practical matter energy insurers and reinsurers simply cannot at the current point time provide ten billion dollars in capacity there are a number of reasons for this the entire global energy insurance market currently consists of no more than three billion dollars in premiums annually and higher limits of liability will increase the demand for coverage perhaps greatly potentially exhausting available capacity underwriting for very low probability extremely high severity of vents it's very challenging for insurers and reinsurers and the higher cost of coverage of course as we've already heard could disadvantage the smaller offshore operators that do not have the resources to self insure the current tort liability environment increases uncertainty as to the frequency and severity of future events as i mentioned if congress retroactively raises the limits of liability under oath and they will do so in the future raising potential future payouts unexpectedly thereby increasing the uncertainty and cost associated with offering such coverage in the near future so in conclusion while the availability of liability coverage in offshore energy insurance markets remains at predict water horizon  levels it is unlikely that the insurers at the current point in time could provide limits sufficient to meet a proposed ten billion dollars limit in terms of what's being discussed today under the context of revised oil pollution act thank you for the opportunity to economics and a lot of other titles that you wear and i thank you for the kind introduction and thank you chairman over star ranking member mica and members of the committee for inviting me here today the deepwater horizon disaster as a worst spill that our country's experienced in both economic and environmental terms a key purpose of my testimony today is to use economic theory and evidence to take a critical look at the economic incentives around drilling decisions that impact the chances of future oil spills as i see it we have two objectives related to oil drilling the first to support energy security through increased energy production in the united states the second objective is to protect the environment by making sure that energy producers put the appropriate safeguards in place against oil spills and other environmental damages these two objectives are often in conflict with each other the american people depend on the government to determine the appropriate level type and location for drilling  trying to set safety standards and conduct inspections the government faces in information disadvantage relative the industry with that information disadvantage it is crucial the drillers face the proper economic incentives to prevent spills however this is not the case under the current law as been pointed out today the one thousand nine hundred pollution act cap firms liability for economic damages from oil spills of seventy five million and this cap affectively shields companies from responsibilities for their just from responsibility for their decisions this misalignment of incentives is a classic case of what economists like to call moral hazard firms just behave differently when they're protected from the consequences of their decisions my primary argument here today is that the removal or substantial increase of the liability cap on economic damages is the most effective way to align oil companies incentives with the american people's interests so i want to take a minute to explain why caps are so troubling in aligning oil companies incentives with the interest american people so consider what all company does they make decisions about where to drill and which safety equipment to use based on benefit cost analyses of the impact on their bottom line however the calf distorts companies decisions the company's decision making because it protects them from the full cost of any spills the result is that the cap affectively subsidizes drilling and substandard safety investments like blowout preven in the very locations where the damages from spills would be the greatest in the case of deepwater the deepwater horizon venture b p and its partners made drilling decisions with the legal guarantee of a seventy five million dollars cap on economic damages just put that in perspective many estimates place the economic damages from the spill at more than one hundred times the cap to b p was making decisions under the when is it the cap provides economic incentives for companies to cut corners these incentives will remain as long as the cap is set at such a low level relative to the potential risk in my written testimony i evaluate several the arguments from an economic perspective against lifting the cap and here i'm just going to try and provide a brief summary of some of those conclusions number one lifting the cap will not have a meaningful impact on gasoline prices the us is a small producer in total the us is a small producer in a very large worldwide petroleum market to job losses that may result from lifting the cap would be concentrated at risky drilling sites and what i want to score is these sites are economically viable only because of the protection from the liability cap three lifting the cap does not target small firms rather it call it it will raise the cost of production for firms of all sizes that do not take adequate safety precautions number four the economic case for lifting the cap on damages for shipping companies is as strong as they as it is for raising the cap on drillers my opinion if the cap and liabilities is removed or raised there are a number of important implementation issues and i want to discuss i discuss them in greater detail my statement and i want to summarize them here  number one economic case for a higher cap is equally strong for all well types that include shallow water deep water productive wells and exploratory wells number two and eat increasing the cap must be accompanied by a requirement for proof of liability insurance a certificate of financial responsibility or the posting of a bond to cover potential damages without those requirements increasing the cap could allow for changes in corporate organizations would undermine the purpose of a higher cap number three there's a very strong economic case for raising the cap on new drilling and number for the economic case for raising the cap on existing drilling sites is less clear cut one possibility with some intuitive appeal is a transitional strategy that raises the liability cap on existing operations slowly over the course of several years i want to end with three main conclusions the seventy five million dollar limit on liabilities for economic damages distort oil companies decisions and actually provides economic incentives for spills to take place number two the removal or substantial increase of the liability cap is the most effective way to align oil companies incentives with the interest of the american people and number three it's possible that a higher liability cap would reduce the domestic production of oil if this is the case a higher cap could be paired with targeted policies that promote domestic production and or reduce domestic oil consumption such a achieve both our energy security and environmental goals thank you once again for the invitation to participate in this discussion i'll gladly respond any questions very very fine statement thank you addressed several of the key member mike and members of the committee thank you so much for inviting me to testify before you today i am glad to be able to share at the center for american progress action fund fundamental belief that the liability cap for damages must be changed in other policies put in place and more realistically account for the actual cost of oil the environment and the economy as you know well by now the o p s one thousand nine hundred currently limits b p s liability for this disaster the impact on natural resources and economy to seventy five million dollars which sounds like a big number specially to sound cleanup costs and immediate damages ran to at least two point five billion but these were the early and only immediately quantifiable cleanup and damage caused in fact the damage was much greater as we've heard especially lately and continues to this day more than sixteen thousand gallons of oil remain on the shoreline twenty one years later and some fish populations for instance the pacific herring have never fully recovered fishing communities in that region have seen a decline in income as well as higher suicide and alcoholism or damages that are hard to quantify but are very real under the opium liability cap currently in place exxon would have had to pay only its immediate cleanup costs for the one thousand nine hundred nine still which it ended up paying about one hundred twenty one million dollars in cleanup costs plus seventy five million dollars in damages that means essentially that exxon would have paid just under two hundred million dollars for a spill where the most conservative cost estimates were more than ten times that amount like a fire ninety percent off the actual price of a catastrophic disaster the b p disaster is already more expensive than the exxon still here we have the tragic loss of eleven human lives here we have three times the amount of oil from exxon already in the water with more flowing every day here the obama administration has already spent more on direct cleanup then act on did in one thousand nine hundred nine and we're not fully even in cleanup mode until b p figures out how to stop the disaster from happening cost could go high as high as you've heard as a billion dollars for direct cleanup and between i've heard estimates between eight and fourteen billion for damages how did this happen and what does it have to do with the liability cap here's how it happened over the years all companies like b p as  fellow panels my green stone has testified have had no incentive to base their business decisions including decisions about environmental and human health and safety on the true cost of these decisions with every decision b p made it knew its liability would ultimately be limited to seventy five million dollars on the g o p as mr greenstone has said this cap has a perverse result of actually encouraging risky practices such as drilling in the most environmentally sensitive areas with cheaper equipment and fewer  safety take the current disaster b p could have installed as we've heard a switch to remotely shut off the flow of oil this technology is actually required in other countries like brazil and norway installing a switch would have cost b p five hundred thousand dollars but the company had no incentive to spend extra money on such precautions b p also has a long history of disregarding safety and environmental rules at its pipelines and facilities and ignoring workers or intimidating workers to raise the safety concerns b p has made these choices throughout with the comfortable knowledge whatever happened it's liability for damages will be limited to seventy five million dollars it took a calculated risk one that will affect the gulf region for decades and one that in fact killed eleven people we need to take away the incentive to trade american lives and livelihoods for oil company profits raising or limiting the liability cap is one step toward changing that calculation but we also must begin to count for the other true cost of our oil addiction oil companies receive subsidies including some tax deductions for damage payments under oil spill that cost taxpayers billions of dollars per year they operate in an environment where carbon pollution is not capped and has no real business cost taken together with liability limits these policies or in the case of carbon cap lack of policies create a panelists will begin with mr gerard we expect based on daily reports and observations and comments from admiral allen the incident  manager that will be august before relief wells begin to reach their goal relieve the pressure some countries relief wells to be drilled at the same requirement i'm not aware mr chairman of any particular nation right now that requires a relief well at the same time but i'm happy to go back and review that and to determine as you know there's risks associated every time you drill a well and what we do is we manage those risks each and every time we're happy to take a look at that mr chairman if you've got a particular reference i'm not aware of and i've had that conversation with others others have made that suggestion and i'm not aware that there's industry by government of industry and little capacity by the coast guard to undertake such regulatory action because they don't have an in house capacity we're going to have legislation that will direct the coast guard to establish that capacity to understand the industry much better much better than the minerals management agency has done and we're also considering  directing the coast guard to develop the standards much as the stablish his standards were aircraft and engines would be your view that of the american petroleum institute in response to such a requirement but we had with welcome working with you on that let me make a couple of comments if i could mr chairman related to that the secretary salazar said most recently it would be a mistake to assume that the u s oil and gas industry is not highly regulated we are highly regulated as he commented in public hearing where one of the most highly regulated industries in the country now with that in mind when we talk about standards setting one of the original reasons for petroleum institute in the early part of the last century in one nine hundred twenty four we began a standard setting process this process is a credited by an outside group the american national standard institute that's the same group that accredits for example our national laboratories our governmental labs that do a lot of research and development within that standard setting process we work to develop best proven technologies and best practices and then we promote those across the entire industry not only here in the united states but globally we are at those practices constantly and we review those standards at least once every five years the standard setting processes as accredited to us as the a p i requires that we have open forums and invite all relevant or part other parties to participate in determining what those standards should be so on many occasions we have governmental officials who said in these panels academics industry experts except to develop the standards our standards today we have over five hundred of them  there's two hundred forty or so of them that relate to offshore development another seventy eight of them that have been adopted by governmental entities as part of their regulatory regimes i believe it was  when the congress passed the national technology act and required governmental entities to look at these independent accredited standard setting processes and years than this part of the regulatory system that's what we do we put the best minds together it's audited by outside third parties and our real purpose is to drive to the best highest performance in the area of safety technology as it continues to evolve and best practices now like i say to promote that across the entire industry thank you for those observations we looked at some of those five hundred standards established and some are certainly very well thought through others  account in my judgment for human error and that is that is the direction of aviation safety the redundancy that is built into aviation does not appear to be present in the obvious lack of redundancy in the with the blowout preventer on this particular tragedy and in the gulf so those those are the kinds of issues of categories of concern that we have you know i'll come back liability in accordance with the risk for a major oil   with respect to vessels those limits have already been increased twice once in two thousand and six and again in two thousand and nine in certain industry segments and may be necessary to look at those limits more carefully but i think on balance the existing limits are adequate and one demonstration of that fact is that we've had very very few incidents in fact i believe only two incidents since the inception of  case you'll recall a tanker was proceeding into birth and hit an underwater anchor an obstruction that was not detectable by the vessel so those are the two major incidents involving large  given certain recent incidents i think and part of those may be driven by quite frankly by media and political concerns rather than the actual extent of the environmental damage caused by those incidents but there's no doubt view exactly so i just one question is right whoever can answer it what what sort of limits are imposed on liability in the north sea and what sort of certificates of financial limits are typical not just in the gulf but in other places as well the north sea of course was the site of the piper alpha disaster more than twenty years ago and that produced about three point six billion dollars in insured losses and that was the largest in history for an offshore man i was at that they had three point six billion of and surance on that i mean i don't believe that there are a number of parties involved when you add up all the parties involved we're not in norway does have liability limits as you just heard one thing that's interesting about what it does have liability limits that are in line one thing that's interesting is that those are taken off limits or removed if there's an act of omission from the responsible party for instance not implementing required safety standards and it's interesting to note that for instance the blowout preventer that b p did not put in in this case would have been required if this had been a norway incident so in that case likely the liability cap would have been taken off  well of course we had i was here in ninety and we had a very vigorous debate over negligence versus gross negligence which of century would be more along the lines of omission and we lost that debate but i i think in this case will probably find that that's not going pows very very very unfortunate on the argument that if we had unlimited natural resource damages i'm a little that no one would operate or you couldn't get insurance i'm confused on two levels one is i observe that louisiana has no limit on natural resource damages but i assume there are quite a few rigs operating within the fact i think i've visited one within three miles within their state territorial waters gave a explain how it is that they can do that but if we had unlimited liability for the route that people couldn't it doesn't seem to be a bar there are a number of rigs operating within three miles of the louisiana  yeah so no one can answer that question but that i think that kind of begs the question then the second part would be we haven't thus far and the legislation proposes to change the  financial responsibility so you lift the cap but the call for limit the exposure of the guarantors or insurers the company or the operator responsible party would have the excess over and above the covert so just say we left the culture where it is or perhaps we raise the cover to a quarter of a billion why would that provide a disincentive and a lack of insurability out there because the liability is incurring to the company not to the insurer their their it would be the same as today there are limits on their losses may i yes the problem with that scenario is that i don't know of any reputable shipping company whose board of directors would make a decision to call the united states facing a limited liability or limited continue to distinguish between vessels and offshore facilities i mean i think he's made that point a number of times and so if we were to lift the cap on offshore facilities the operators  know since we already you know would still have a call for i assume they could get insurance up to that amount beyond that the the responsibility of the company dr green zone i'm very concerned about your testimony i think it's excellent testimony but  it raises to me a question and i'm very worried about you talking about moral hazard and at one point you reference the potential of spinning off liabilities and i'm very worried in this case that you know at some point b p is going to decide to create an entity which is relates to this accident and this well and you know perhaps through bankruptcy proceeding and otherwise try and protect the rest their assets have you consider that and you're concerned about that yes congressman the i am quite concerned about that as well i'm concerned about that going forward with future legislation and so that one point i tried to emphasize in my testimony is if you raise the liability cap but don't raise the requirement of having proven insurance at the same level as a liability cap or a coper at the same level what you've effectively done is create a loophole that you can drive a truck through and the consequen and what would happen is i suspect is that major oil companies would then segregate themselves into smaller units and or limited partnerships and the result would be that they could use bankruptcy laws to get around the higher cap you if you if you had no cap it's a little bit more complicated i think i don't know that one could get a ko for it is an outside my expertise but i don't know if one could get on limited call for an unlimited insurance  policy but you would want to try and get the coper the insurance policy or the bonds that you have in the company post as high possible because affectively the cap is not going to bind after you reach that limit what these companies will be able to do is segregate the risk and use bankruptcy to avoid damages beyond whatever the co for the insurance requirement was just if i could think of pursuing that line of thought if in this case with b p could we i mean we were you know it's very problematic to modify a contract or go back and retroactively change a statute but could we ask that at this point as a responsible party would we have to have prove gross negligence in order to get to get them to put up a large bond now i mean i'm just wondering what is your is can we get beyond their president saying oh we'll meet all the jimmy claims every time he says the word legitimate i wonder what that  then secondly i worry about the scenario where their stock goes low enough someone's going to want to try and take him over or they're going to say to heck with this we're going to go bankrupt and get rid of this albatross we have created and they'll be no assets to pay for it is there increase of ten billion dollars it would be pretty devastating if it wasn't crafted proper who who could comply with that would it just as i said earlier i thought it would  you might limit it to the biggest of the big players if that was that was imposed when you see the biggest of the big players let me just clarify that a little bit obviously you'd have to be those that would have financial wherewithal exactly right assume that the shell royal dutch shell i don't know all of the people who are some of the insurers the underwriters and others that we have spoken to and i'm not in the insurance business but they've indicated that at least in those currently operating u s waters it would be less than a handful that would be able to qualify but then they go on to remind us and let me just pull my list here the only other ones that would likely qualify would be what we call the national oil companies which are foreign governments and that's clued venezuela petrobras petro china and others those would be the only ones with sufficient financial wherewithal around the now everything we impose there are consequences and i think what we want to do as well intended now that the fun too was set up to put some cap on economic to be it's clear responsibility that b p needs to be paying us back and sequel in order to keep that from being depleted i have no problem raising the cap and we're probably going to have to do that that emergency cap that's in the and the current legislation but i'm not front financing people who are responsible and should be held responsible  the other question is to this fund was set up to cover the liability above or if something happened say in an orphan spill where you can't you can't identify the perpetrator or go after them  or to cover amounts larger than specified now when you create the fund and you get it we increase the in the first thing everybody around here does is increase the taxes they go from eight what concerns me then now with what's proposed is somewhere between twelve and maybe fifteen billion in the fund and this gentleman over here mr green stone just said these are dummies that are operating these activities and they'll they'll figure out a legal mechanism to limit their exposure so what concerns me is where we're using that fine to  e some of that responsibility that should be inherent the fund was set up if there wasn't some i thought primarily if there was somebody that could be held responsible to say an orphan spill or someone who their resources ran out to cover us over and above that it is that simple correct well i think you've raised a lot of issues there mr mike let me comment on a couple if i can the congressman is i think there's a combination here that needs to be looked at we need to look at this in a broad policy from a broad policy perspective to your point if we create a significant fund in this trust fund how does that play then into the risk equation if the industry is paying for that sun and how do we use that to set it up to balance if you will the potential impacts by an unlimited cap or ten billion dollar cap so that we don't have unintended hearing i went over the bush administration they gave the lease the bush administration the minerals management agency had three criminal investigations we submitted to the record what went on there we looked at when staff prepared that there's only three maybe four dozen at the most that really the deep water permits that have been issued and that's where we have have had the problem does anyone know of  or protections that we didn't have so what you want to do is focus where we have the risk is my point someone should pay the premium and be held responsible for economic damages  again and i'm not sure what the magic figure the number is but we don't want to let anyone off the hook mr girard congressman i'd just add one other context will comment there is we have been drilling in the gulf of mexico for over sixty five years and we have drilled forty two thousand wells out there and this incident this tragic incident is unprecedented and when you look across the specter of what's been going on  look at some backup because if you look at the two biggest bills that i went back and research some of the one nine hundred seventy nine the biggest bill in the gulf history was an off the united states it was off of mexico and it went for nine months for from from us but we should have some backup system in place i don't off the coast guard should contract it or we should get the oil companies so that we're not developing a bell after the fact or top hat or whatever so that we we have a backup system there's no here's the thing there if you go look at what was required there's no backup system here and i want it for the ones that are issued here but i think in the interest of preserving us our environment in the future in florida you know we're going to get the brunt of whatever happens particularly off of cuba that we should have a backup system ready to go with tested technology to stop this in its tracks we're learning a lot about this because i understand this is sort of a new venture closing one of these down with that kind of a break at that depth so maybe we could look at choir man in that area for a backup redundancy provisions as well as the requirement for skills development by the coast guard to get up to speed get ahead of the minerals management service clearly had no no such mineral management service issued a multi state environmental impact statement for a proposed five year lease in the outer continental shelf estimated the likelihood of three spills from platform drilling that would produce fifteen hundred barrels for each spill completely missed the target totally missed the reality of what has happened and the impacts from oil spills out of the five year lease w described as minimal and we've heard that from from which has a terrible record to say the least they were convicted in federal court  misdemeanor action and given an eighteen month suspended sentence on a twelve million dollars fine of criminal penalties for their actions on the faders on the north slope will recognize hazardous materials and e everybody hip boots on the ground but it's kind of afterthought we've called up over i think fifteen thousand national guards from four states florida mississippi alabama louisiana and the coast  has spent over one hundred million dollars to date and they're coming back to congress this week to read another hundred million dollars and so is the concern that there is a cap and a big and dollars with a five hundred million only environmental damage and i guess i got a couple of quick questions in the briefing that we had one of them asked the question about the five hundred thousand technology  have this in place as another backup because they say they have five known was working and so they said that it works on shadow drilling but not to this and when i listen to television and the i was on the impression that the debt was like five thousand feet it is not five thousand is about fifteen thousand feet a lot like three miles deep so we know technology available for this problem but can you respond to that first outside my expertise but i do know that offshore deep offshore drilling rigs in norway and brazil for instance are required to have backup technology such as the acoustic backup aventure that b p did not install in this case s clear only what is their found definition of legal claims will be what recourse do states like my state of florida have if they declare bankruptcy or something like  what are we doing to ensure that the taxpayers will not be left on the hook for this problem something that we at the center for american progress have recommended is putting and i believe it's being followed up on by members of congress is putting some amount of money into an escrow fund now from the revenues so that we don't run into the situation going back to mr de fazio comments as well there is a real concern among a lot of people that we're going p will either find a way to not pay the claims that are currently being played but paid by the federal government that will run up against the limits in the trust fund there's a real need to see the money right now put aside and kept safe and i think we recommended that that happen both for short term recovery costs and for going to an early point on the side those may include things like a conservation corps to do some of this cleanup actually creating jobs not just paying claims but the second thing is we need to look at the long term and we've recommended potentially not just b p but all the oil companies involved in drilling in the region putting some portion of funds into some kind of a new gulf recovery fund that would look at long term don't the drillers or the shippers don't bear the full costs of whatever their actions are and as long as that's the case the interests of the oil companies and the interest of the shippers will diverge from the interests of the american people so i don't know anything about the specific ask what are we doing the oil spill liability trust fund does exist to help fund spills where the responsible party is either unavailable or the  liability limits have been reached so i think open ninety is already achieving what you're asking about what are we doing to set aside granted this bill is a very significant one but i think that as you review this legislation and you look at alternatives for how you  wish to amend it you need to be careful with what you do because right now you have a balanced system that's encouraging responsible entities to engage in maritime commerce in a in  in economic environment where they have adequate insurance to put fill their liabilities and granted those liabilities are limited but you have responsible entities there as you increase those limits or you maybe even make those limits unlimited you are creating an economic environment where some companies perhaps my company at some point is not going to be able to get the insurance that you may ask us for the and either either we would have to step out of business or we would have to roll the dice and continue to function in a liability scheme where we did not have adequate insurance and i think over time what you could see is a marketplace which is divided between very large liability is capped twenty six point seven million based on a maritime statute eighteen fifty one do you think that need to be updated and you said something that appalling i don't feel that your just last summer twenty seven people got killed so we got a culture here that if you don't have strong incentives which are combat than actual salmon incentives then the companies are not doing what they supposed  to acknowledge what you're saying about the current situation in the gulf of mexico and i don't know the facts of what's going to happen there legally it's a complex situation and i can't disagree with you either but i can tell you as for our company and the thousands of other companies that are operating under this open ninety law there is a balance there has been struck twenty years ago it's been amended several times over the last twenty years and t radically change the balance of that law is going to have consequences on many many many businesses other than british petroleum let me just close this situation in the gulf is radical change how we do business and so we get to take a look at what we're doing and how we can protect the environment and how we can protect the public and that is our responsibility to hold everybody accountable and not hold the today what i haven't heard from the industry going back to mr mcallister saw him at open and what i haven't heard from the industry is that we've been twenty years without a major catastrophe but we have learned our lesson and there will be a new generation of blowout preventers there will be a new generation of skimmers there will be a new generation of booms there will be a new generation of technology so that this doesn't happen again i mean it's fair to say boom technology has improved one iota in forty years and i realize we're a market based economy and for twenty years there really hasn't been a market for improvements because we haven't had a disaster but i'm not hearing any reassurance from the industry that you guys got the message and you're going to do better and let me take a step further behind you as a coast guard admiral admiral shields what i don't have a clear delineation of mr chairman i think we need to know is who's going to determine if this new generation of things work is the going to be responsible you know we tried letting the private sector come up with all the all the solutions we put all of our faith in him that they would have blowout preventers that work that they have skimmers that work that they would have booms that work it didn't so the first thing that negligence willful misconduct you know we are going back to what everyone else is saying we're basically waiting for a judge somewhere to say that b p was guilty of gross negligence or will misconduct and therefore as a limited liability i don't know if anywhere in the law that term is defined so again i think if you ask the american people if after forty days a company has not kept its leak in the bottom of the ocean is that gross negligence and willful misconduct i mean should we as a congress the term and give them a certain find out amount of time or a finite amount of volume to be spilled and say if you cross th threshold you're automatically guilty of it because in my opinion in the absence of clear and precise laws we're leaving some judge given him a free hand to come to a bad judgment and i don't think the american people want that so i would hope that one of the things that we try to do is at least set a legal threshold of what constitutes gross negligence or willful misconduct and lastly mr mr chairman we spoke about the us and i want to have m mcallister possibly talk about it i have been i'm someone who represents shipbuilders and mariners and shrimpers and oystermen and people in the tourism business all of which have been affected i take personal offense that the vessel that did this was built in korea i take personal offense that it was chartered in the marshall islands i take personal offense that the profits went to switzerland i take personal offense that the shipbuilders who didn't get the contract to build it won't get to run the shrimp boats is some or make a little extra money will get take the kids fishing on a weekend because the sound is polluted probably can't go swimming on the beach i mean for those folks this is just injustice after injustice a and if we're going to chase somebody down to pay the bill at the end of the day i can tell you if the people of south mississippi couldn't get the folks in springfield illinois to bake claims after hurricane katrina you're going to have a heck of a time chasing somebody down the marshall islands whistling a baby's bills devices to keep this from happening and to respond should it ever happen again thank you for the question congressman tater and let me just reassure you here in behalf of the broader industry we get it and we understand what you're saying and we take this as a sober reminder that we have to look we have to reexamine everything we do how we do it and how we can do it better let me just give you a couple quick anecdotes of what we're doing today this thing first happened we were called by secretary salazar we sat down with them at the highest levels of the industry across the board we mediately sat down and created a task force of the best minds and put together ideas where we thought we could improve practices and increase some of the regulatory processes a lot of that was reflected in the president's announcement in the secretary's announcement because we understand our commitment not only to our employees and their safety and to the environment but to the country as a whole we recognize these are u s waters we also recognize we have a key role to play to provide the energy for this economy where sixty percent of all the energy consumed in the united states so we recognize that role the other things we're working on right now is we have three other task forces when i was focused on liability as i mentioned of the chairman earlier and we want to be very responsive to you and figure out a way to make some changes in  without destroying the underlying activities in the vessel traffic beat in the deep water except for a and also to preserve the potential opportunities for others in the business community be they mid size small and others and that's why i say through the oil spill trust liability trust fund to use that potentially as as pooling the risk where we can make sure this doesn't come back on taxpayers we recognize our obligation as an industry to whether we're focused on with task forces once again we do these in collaboration with the best minds with the government individuals is on control at the seabed floor the very issue that's been raised here today about technologies and other things in the last one is on response while there have been some improvements in the booms and others clearly we need to look harder at that we need to spend more money in research and development this bill is unprecedented we have lessons to learn we understand and we will learn those lessons we want to work with this committee the congress and the administration to make sure as we come through this very difficult time that the public policy that's developed in this highly charged environment is such that we can continue to do what we do well for many years to provide the energy the country needs to fuel our economy not only for those of you down the coastal states but across this land and elsewhere so we can enjoy the high standard of living we do today so i will convey your comments and sentiments back to the industry and give you my commitment in the role of the head of their trade association we understand and we're going to do that produced an estimate of the likelihood of three spills from platform drilling in deep water that would produce fifteen hundred barrels for each spill that is wrong on the face of it so lacking in and perception of the of the risks involved in drilling at those depths that it's it's unspeakable is that you know it's one thing for business to go out and make money that's important we all want that but i think going along with that is a certain certain responsibilities and it does appear and as i went down there and i saw what i saw or that there is a disconnect here some kind of way and i think that i know your  industry is doing a whole lot of wonderful things but and i've said it in the coast guard subcommittee over and over and over again that i do not want us operating in a culture mediocrity because when we do that what happens is this kind of thing apennines and what i'm saying is that i think actually i tell my kids i tell them i said you have two tracks that you've got to go down in light one it's your destiny the other one is your development and i said you've got to be you have to both and i wonder sometimes where that what i see what happened here with b p it seems like the destiny they were shooting off and doing real fine going way down in below the sea but the development part and when i say development i mean and  that's part of the problem and then the chairman and i'm so happy that he's the chairman is taking this on trying to make sure that we have the expertise that we need in the coast guard and the m and m and then if we if we don't emit m m m s if we don't have the expertise we can talk all the stuff we want if we don't have the people that can properly inspect the rigs you know we keep talking about when the rubber meets the road everything's going to be fine well guess what bullets in coming over the wire when the rubber meets the road we discovered is a road and that's part of the problem that we saw happen in katrina was seeing it happen in a lot of ways and so i just wanted to throw that out for whatever it's worth but let me go to you mister you know do you do you believe that the estimated one billion dollars to around three point five billion dollars in liabilities oh by insurance firms in association with the deepwater horizon incident could exceed all premiums paid for insurance for offshore facilities in the past year and what does this mean for potential impact for this event  from this event on the industry in office i'm sure facilities to be frank with you i believe that it will exceed exceed three point five b n i think it will be much higher than that and i'm just wondering what you what how does it what happens  not their net income or profits it's the premiums that they generate from this bid that is the gross that's right that's the gross another word to use insurance companies get to how much two and a half to three billion dollars a a year in premiums that they earn from this business period period ok now now the expectation is you are going to see events along the lines of deepwater horizon every year they're very very rare so it just isn't any type of insurance there are years when your bottom line can be larger than your nature of the of the insurance business what will also happen in this instance is while some of the losses have already been paid such as for the sink the value of the craft itself the deepwater horizon is a total loss some of the losses will emerge over time liability losses don't all emerge instantaneously emerge over a period of years so insurers will be paying that out of cash flow over the next couple of years and  obviously this impacts the capacity in the marketplace and the cost of insurance as i mentioned is rising in the gulf area fifteen to fifty percent to fifty percent being among the deepwater rigs and fifteen in a shallow water rigs so the market has been orderly as i mentioned insurers are accustomed to these sort of to large scale losses not typically this large but it is something that the industry does contemplate and plans for and b and so the largest  financial responsibility for a vessel appears to total just over five hundred million dollars is that right well the the larger drillers can obtain a billion dollars or so or even more in terms of in terms of third party liability coverage so it's larger than that they're not going to obtain all of that from one individual insurer it's a program that gets put together what is your biggest and then  and what is your biggest concern with regard to all of this the main we as i see it it seems as if there is going to be limited but when i think about all of the folks in affected by this incident and then i think about the fact that you that you can be we can be in a position where the liability is so great that some folk i think has been mentioned here by you mr mcallister i think what folks wanting to be able to get insurance is that that was your concern m certainly and you know the question is i mean what is the reasonable i mean the way you know as we all want to address the problem but we want to address it in a way that makes sense  cheese resolution where folks can kinda get around what we're trying to do because then we just fall right back to that rubber meets the road kind of situation with regard to payments that is paying for these problems so and we don't want to fall back on the american people so where where where where is the what's the most reasonable way to do it so that we cover all of the that we want to cover and so the american people don't get stuck with these kinds of situations assuming something like this would happen again god forbid i think when we think about cutting edge technologies in the deepwater horizon in deep water ultra deep water drilling is an example of one of those of leap look at the history of this over the past century or so what we see is extraordinary new technologies being rolled out when you think about aviation when you think about spaceflight when you think about satellites when you think about even marine navigation when you think about the internet what happens all of these encounter very substantial problems and you the way that you solve these in the end is not through insurance it's it's not through limits or higher limits of liability ultimately what winds up happening is there has to be a dedication towards better risk management process practices here part of the answer is of course regulation and throughout the entire process financial responsibility has had to be proven and each and every one of these industries but at the end of the day what do we have we have sound risk management what causes an airplane to crash and now it's safer than ever to fly on in a around the world what used to cause large ships to crash at sea and that doesn't really happen anymore these are the sorts of things we don't have to worry about too much in the days of the titanic you're worried about hitting an iceberg or another or another ship so what we wound up  having technological innovations which allowed us to improve the risk management process practices a variety of them that come together and i think i've been impressed in the course of american history as to how this is reduced losses and this is even occurred in the in the offshore petroleum business this is a terrible event that's happened but if you look at over the past forty years both the number of vents both large and small as well as the total spillage whether we're talking about offshore platforms or whether we're talking about events involving tankers all of this these processes have gotten safer over time or we can have setbacks yes can we learn from those absolutely  d and i think that's what's going to happen here it's going to be risk management the best practices that in the end are what are going to make the biggest difference comments though dr hardwick about safety in aviation should be accompanied with an observation that the f a a has the skills equal to those of the industry to know the capabilities of engines and airframes and we have in addition an investigative agency the national transportation safety board that also has those skills and we have a rigorous regime of oversight and a periodic issuance of notices to airlines to their maintenance operations inspection or upgrading of equipment to an operating parts on the aircraft that doesn't exist in the minerals management service or in the coast guard because we have so relied on the industry for so many years that must and there has to be a backup oversight who's had great experience in this industry new mexico good to have you thank you thank you mr chairman and ranking member and i also want to thank all of the panel for being here today it's been an arresting  to listen to this this question and answer and i really do look forward to working with the chairmen and leaders on both sides of the craft legislation that responds to this this aster and i focused in a responsible way but as one of the only members that if not the only member of congress with direct experience in drilling all in gas wells i think i'm in a unique position under stand the facts and to hold b p accountable for the deeper rise in this faster you know there are some things that we have to do and first we have to clean up the mass and we have to compensate the victims of this tragedy we must hold responsible parties that cannibal and to make sure that this never happens again and we need to understand that some of the responsible parties are ours lockman mineral management services but this is primarily a b p problem you know as we do this and pass the legislation that we passed we need to be sure that we don't act in haste that we don't legislate out of anger or out of fear to ensure as we work really hard to ensure the safety and the laws that we need to from the from the liability states we need to take care not to negatively impact the ability of smaller  companies to compete both offshore and across america let let's let the p f a actively put the smaller companies out of business because of some painting with too broad of a brush and and when we need to be painting  we go here and investigate this accident and get all the facts i think we're going to be pretty pleased with the that's available the technology that's available we might not be so happy with that we utilize but we'll be pretty happy with  what's available but i do think you know that just like small businesses all across this country is the backbone of our economy and the backbone of america the small and gas companies are the backbone of the oil and gas industry and we need to keep that in mind that we don't put penalties on the industry that hurt the smaller companies that the larger companies can work around and you know that hold responsible people responsible at this time you know and take whatever measures we need to responsibilities that b p needs to accept that they have and they need to stand up to and you know the first one is that their responsibility is to their employees you know they need to provide them with a  good safe workplace all of the things that anybody would need to be sure that they get to come home then they owe it to the industry and they you know so many people in the industry work very hard and bad by all the rules and everything and don't try to take shortcuts and then they owe it to the citizens of the gulf coast in the united states to claim that to claim the mass that they made the mass and they need to clean it up you know and i guess that gets me to what  think is a something that we're going to have to be real careful about as we move forward and that is how we structure and not let any of i'll comment on this they want to how do we structure the law bill and the limits to ensure that that independent  and gas producers can still buy insurance and participate in the gulf while at the same time share in the citizens of the gulf that the financial stability is there to  take care of a problem that they may have i think i did hear a suggestion earlier that they could be staggered or staged in a particular way i mean it's clear that many of the small operators that you're talking about simply don't have the ability to create an economic and environmental disaster along the lines of what we've seen with respect to british petroleum so clearly a tiered approach to this where some sort of formula is developed in terms something that we would take a look at and we certainly don't expect many of the small drillers you represent that are in your district to have anywhere near the same capability as a b p in terms of the environmental damage so this kind of tiered so i want to focus on that because obviously there must be an environment where small and large companies can operate can be competitive and efficient but the problem with that formulation alone is that when push comes to shove under the current statutory framework the taxpayer really bears the real risk and when i think as dr greenstone pointed out that when that happens you know companies can operate in a way that doesn't effectively take into consideration what the real risk is or the insurance industry in terms of its insuring that  that risk and so that's my concern that the liability limit that we have under current days dollars versus especially in the sort of deep water accidents that you know that the risk in fact doesn't allow for the real allocation of responsibility and so i'm wondering for example when i think about some of the smaller spills i think earlier was referenced a spill in the gulf of mexico there was another one in the in the timor sea in which it was only at two hundred fifty three feet but it took a couple of months before it was able to be contained and then with a relief well and by the way mr gerard my understanding is that canada in fact had required relief wells until b p such a set that they've begun to loosen those regulations for relief wells even just this last december and so you know we're in a circumstance i think where the industry the allocation of risk is not full enough to allow for that competitiveness in terms of determining and investigating new technologies but also place enough of a burden on the industry so that it operates a little bit more more safely and with greater concern i mean we saw this for example in the financial sector you know in which you know you just had total lax regulations bad products risky behavior and at the end in that game to the taxpayer bore the bore the burden here i think of b p representatives that right here were mr anderson is just a couple of weeks ago and at that time they had revised their estimates from a thousand barrels a day to five thousand barrels a day in estimating that the worst case scenario was two hundred fifty thousand barrels a day but they weren't insured for two hundred fifty thousand barrels a day and now today just a couple of hours ago it looks like the independent sort of group of scientists is estimating this to be about twenty eight thousand barrels a day and perhaps more than that and so what that's saying to me is that  could say well you know if we're going to suffer fines in addition to our liability limit then we'll take on the possibility of only having to pay out twenty million dollars or so in those kind of fines or if it's a twenty eight thousand barrel a day spill as we are now beginning to believe or perhaps more it's more like six hundred million dollars for that for that spill so i wo what the relationship and perhaps a doctor greenstone you can answer this the relationship between the gross negligence provisions rather than simple net it's combined with the seventy five million dollar liability  limitation and what that does in fact to depress the proper allocation of risk among the entity so could we consider from a statutory standpoint changing that gross note negligence to absolve oneself so i can't talk in great detail about gross negligence but let me just make a few points related to the point about the cap from an economic perspective there is no reason to have differentiated caps for and depending on where the oil being drilled or depending on the type of company and the reason which i tried to emphasize today is the reason is you then put a wedge between the oil company's interest and the american people's interest and that has showed up in the deepwater horizon case i think there's a more subtle way in which that affects facts the industry in the long run it effectively removes incentives for developing the technologies  reduce risk in the long run because there's no price for it there's no market for developing new technologies to new and better blog providers and so there's even a as i said there's a there's a subtle longrun impact and finally there's one other thing that's come up if the capital raise i just will make the point that i'm very confident that oil companies that are taking adequate safety protections we have no problem getting insurance is the only companies would have a hard time are the ones where insurance would find it not a good bet and would want to raise prices to the point where no one buy it and then there's another point about the rising premiums it's related to all of this which is if boiled companies are already taking adequate safety provisions then there will be no rising premiums and i think that's so this claim about the rising premiums i think it all bears closer scrutiny thank you and if i could just  also we've heard suggested a couple of times that we should look at small medium and large companies differently so i take it that you would share the view that we shouldn't attach different kinds of liability limits based on those saws or scope of companies not to take full responsibility or consider the full potential of their actions and that creates this incentive for not taking proper precautions and lastly and i'll close and thank you mr chairman for allow me to go over just a bit but leslie back to this point of gross negligence because i would like to know if there is a way to capture the economic impact when you have sitting out there you can only lose your limit if you act if there is an action of gross negligence and what that does to affect the economics of you're making a decision as a business person about where to allocate your risk or what risk to take i'm concerned about that being that high a bar being set out there so that a company could you know internally to its own operations well you know what the liability  applicable federal safety or operating regulation which is a proximate cause of the of the incident failure to cooperate with federal officials and the spill response failure to report a spill failure to lend assistance consistent with the national potentially plan there are a number of other grounds for breaking through the limits of liability and are open particularly the safety and operating regulation requirement so that's one thing but i just want to go back to i think your concern also mr cummings i'm hearing your concern about what i think is really confined to the offshore oil industry and i think there's a little bit of confusion about the differentiation between the risks here in terms of insurance cover right now in terms of vessel liability for oil spills there is very little risk to the u s taxpayer because historically we've seen since open ninety came into effect almost no situation where the fund is been called upon to respond to damages to a spill these are the vessels you have many layers of private risk absorption including the covert system which i've talked about before  system really depends very much on gradation of risk and point i wanted to get across if you're considering raising levels of liability and certainly removing caps on liability you have to look at the specific risks in that industry and there was a great difference between international shipping which really involves navigational risks of moving cargo from point to point and drilling and deep ocean environments and an untapped oil field and so if you are considering yield to mr olson and in just a moment mr gerard the pressure at the eighteen thousand foot level below mud line where the oil reservoir has been located is by various estimates in the range of twenty three hundred to twelve thousand pounds per square inch p s i was the blow pressures i assume it was but let me go back to inquire that mr oberstar i don't want to speak for b p but i'm assuming through their typical practices they're testing for the expectation of what they might encounter as they go into the reservoir and that the way the system should be it designed and tested to operate against those pressures from oil at that depth and against the thicker casing of steel for the pipe at that level which is different from the thickness of steel for three hundred to six hundred foot well correct i will have to inquire of b p obviously to get the answer that we will do what we can to get supply pressures of that of those numbers that i just cited then even if the sheer had worked and had been able to cut through the steel and shut off the flow it might it might nonetheless have exploded at that level we don't know that because it has we don't test it that's right well we haven't we haven't pulled it up to see what the situation let me do this thank you mr chairman i've got a couple smart people with me we have a whole group of individuals we probably should come up and sit on the staff and we can walk you through the details of these standards any program the one clarification i'd like to make the to make sure it's understood in our certification process on the standards for example in a blowout preventer we certify the manufacturer to make sure they have the quality can capability to build such products we don't certify the products here between aviation safety and maritime safety and we passed the coast guard authorization bill that substantially dramatically impact changes the way the coast guard will conduct marine safety  i won't go into all those specifics but it addresses this bill addresses the senate has passed a similar bill doesn't have our provisions and we're working those out in conference  before conference but the human factor in drilling operations the master of the vessel is licensed by the coast guard means the meeting that that person has to meet certain standards but to the best of my knowledge the drill master is not licensed by anyone by any government organization that is hired by the company certified by the company to be capable but there is no government standard no federal government bionics and power plant i mean airframe and powerplant technician and if that technician does not sign off the on that aircraft it doesn't move that's kind of standard i'm looking for in this industry understand these individuals are highly trained in what they do and we go back and answer the question as to what certification processes aside from standard training we i want to get to the issue of the limit on the insurance liability insurance the current seventy five billion dollars that was part of the oil pollution act of one nine hundred ninety as you know there are proposals the administration here with in congress up to ten billion dollars or even some indefinite proposals i represent the twenty second congressional district texas and we have a significant petrochemical industry a lot of houston ship sailing there throughout the greater houston area and i was back home last week i can't tell you how  afraid the operators were in the in the offshore industry if this provision were somehow becomes law you know again many of them can't afford it a lot of these are small businesses smaller operators they can't afford and cannot purchase a ten billion dollars or an indefinite cover an indefinite liability for some sort of spilled and so i just want to get your thoughts is that what you're hearing from your members and what we do to help that w congressman thanks for the question is it the insurance industry is indicated in your been a number of letters sent to the hill that there's not sufficient capacity within the industry to meet those limits therefore you would reduce down to only a handful of the largest companies in the world to be able operate because they would self insure clearly having an impact one estimate done by a third party suggests that of a hundred and seventy thousand people employed in the gulf of mexico with such a limit you put at risk one hundred forty five thousand of those jobs just merely by raising that cap on liability so as an industry we think it's an important part to have a conversation about what that should be and what this system should be if you will to make sure the taxpayer doesn't burn bear the burden of any particular spill but we do think there's got to be balanc this to make sure that at the end of the public policy making process we still have the ability to generate and produce the energy our economy requires moving forward so we share your concerns and think that's a very small and medium sized companies be able to get insurance policies going forward at the cap is raised to ten billion or some indefinite limit and one thing i just want to point out is insurance rates are based on the risk they're not based on the size of the company so long as the companies undertake an adequate safety provisions a little hard for me to understand why they would have a hard time to get a policy i also want to talk to a related point which that the current size insurance market isn't very big and so will not be able to insure such a large risk but only big companies would be able to do it and they would have to self insure if we think back to this last decade it's very it's not hard to see that wall street is quite capable of shifting money around to new markets in the last two years of the housing market but to shifting around to new markets where there's opportunities to the extent that there was a higher cap that would create a new market and i have great confidence that wall street would find a way to shift capital to this sector and be able to write insurance policy that much higher with much higher limits that are currently being  written a comment or two on this i agree absolutely that insurance rates at the end of the day are going to be based on risk and they're going to be based on the track record of the individual company involved but at the same time if a company is going to be obliged to demonstrate a very very high threshold of ultimate potential responsibility beyond what the insurer would have potentially offered in terms of coverage the insurer itself caps its own risk it sets a limit to the coverage and if there is another standard set by the government where whereby instead of a billion dollars is going to be ten billion dollars that particular driller even if they've never had a claim is going to wind up paying more because the insurer has more dollars ultimately at risk it has to tie up more dollars in order to hold that pretty much in reserve it winds up having to pay that claim outside of the world of the offshore and off shore and insurance industry i can only think of one particular major type of coverage where there is unlimited liability and it's market that's completely falling apart it's michigan's no fall automobile system it has costs and that's exactly what's happening in that particular state make a comment and i just want to also reemphasize the role of reinsurance in this industry it's not simply a question of a single insurer being responsible for damages but also whether the capacity exists in the reinsurance market and the experience i think in the international group is there are there is not infinite capacity in the market that's already been  demonstrated by the exxon valdez where the group could not complete its reinsurance contract because of the magnitude of the damages it will be compounded now by an order of magnitude by removing liability caps and b imposing a one size fits all damages cap on all responsible parties under the act as i said before if you have major events in the world such as earthquakes floods storm damage as we had with katrina rita that's going to put incredible state strains on the on the reinsurance market the capacity simply isn't there i would very much disagree that the insurance industry is comparable to wall street and coming up with different financial instruments the market that we're talking about is much more limited uncovers a very very broad range of risks besides simply offshore drilling and exploration thank you very much for your perspective this ass and that is base with love here back at the moratorium based on the knowledge of anyone on the panel how can we address at the same time the issue of safety preventing another disaster happening in the future about the same time trying to limit the economic impact of the mark torey i'm right now there is a six month moratorium imposed is there any way for us to do the review work that we have to do without extending  l way up to the six month period without compromising safety issues we think there is congressman and you've probably read in our statements or heard the key to where we are now in the moratorium is you know there were thirty three operations underway that were just stopped and told to cease each one of those drilling operations had attached to it about fourteen hundred jobs that totals forty six thousand jobs that were put in limbo as a result of the mor we think it's very appropriate to take a pause to scrutinize and look closely at what's going on in the gulf from the safety stand for point for protection of the environment that we think there may have been better ways to do that without having such severe economic disruption take place we believe one of the ways it could have done is move quickly for increased inspection and oversight of those sort of three operation i think within the first week or so they'd inspected nine of them and as an industry we recognize and welcome that additional scrutiny to come out look closely to make sure the testing the inspections or other things are taking place like you were very concerned that we're compounding the economic challenge in the gulf this tragic incident has caused severe distress and now we're going to compound that if we continue to pull back on the other economic activities that have  provided for strength in the goal for all these years yeah yeah i think the moratorium obviously has severe economic consequences then obviously there are a lot of them are concentrated in your district you know just speaking for the farm i had one solution would be instead of having moratorium for this six month period you could have a much higher cap and see it could be kind of a trial run to see our businesses operate with a higher cap on the liability damages anyone else with any ideas any comment on the question posed by nicholas my next question i guess to mr gerard that you basically conveyed  idea that i'm pretty sure many members of many every a lot of people in my district will support is to look at an increase in law bill t but doing it in a way that would be the my office a copy of that proposal if you don't mind if you would yield any information submitted requests to witnesses to the committee will be distributed to all members standard practice ok that's that's fine it will be sure that you receive with that i get back to bounce my time thank you mr gerard you said that or you suggest that the proposal to go to ten billion dollars is too severe what is the number between seventy five million and no limit that the industry would support and we haven't yet decided what we think a fair number would be however  we have looked closely at for example some of the letters we've received from some in the insurance industry who typically underwrite these policies and they're down closer to think some of the comments that were made here by the gentleman on the panel today that they said the capacity in this area is one one point two maybe one point five at most and again i'm not in the insurance business i don't fully appreciate all the nuances of that but i think it's important to search in the we take that in consideration and then we look at that from spreading that risk and decide what the best policy should be i realize this isn't the energy committee but we've also got to take into that equation the role and the impact it has on the energy production in our society today thirty percent of all or well comes out of the gulf seventy percent of all that comes out of the deep water and said actually eighty percent of that i'm sorry and of the eleven percent of our natural gas that comes out of the gulf forty five percent of that is in deep water so there's a very serious economic energy dynamic that we think needs to be considered as well as talking about what the right level of the cap might be and will we get some feedback on that very true but there's also an echo another economic factor fifty percent of the fish shellfish of the nation come from the gulf  hundred thousand jobs in the recreational fishery industry and i think the advantage of having a long service in the congress is to have been present when the body of law was created and i remember very well in the aftermath of the tory can and the amoco could ease the hearings that we held in richer in the fisheries committee on the extent of liability that should be imposed upon the industry and the repeated  claims that you had to have a number against which the industry could insure and that became the standard for oil pollution liability in the seventy eight act in the eighty eight eighty nine act in the open ninety those were all those were measures aimed at known quantities we know how much oil there was on that's another eighteen thousand feet further and the amount of oil in that reservoir is only an estimate you have an unknown  which it's very difficult to ensure i understand that so if if that damages are in excess of a billion five billion or ten billion dollars whose responsibility is it then i think the other consideration we should talk about we were talking about the liability cap but we're also talking about the trust fund it's paid into by industry as you know the house pas provisions recently to add ten billion dollars to that trust fund the senate is now considering legislation to add fifteen billion dollars to that we think that's another piece of the equation if you will that should be considered as we try to manage that risk it's been talked about that's that's really what we're doing is trying to manage that and that's a fund to which all of the industry contributes that's not just a company it comes from company responsibility it's assessed at the refinery with the intent to pick up both the imported in the domestically this liability and cleanup which is a basic principle of the superfund act goes back to what i said in this committee room twenty five years ago waste motor oil you had wastes from grease from from automobile maintenance and you collected it all you just dumped it in you know you're all responsible and they had to have a seventy eight and eighty eight eighty nine and ninety seeking only about surface vessels so mr anderson there are thirteen of these non for not pollution liabilities for a vessel but they do not issue documents necessary to enable a vessel to taint certificate of financial call for that financial responsibility to operate in u waters banking for those certificates comes from other insurance firms some of which are in bermuda like the the b p vessel built in korea registered the marshall islands with a registry maintained in reston virginia to what extent does the imposition of direction action against firms providing backing for coke first factor into the p and i club's decision not to provide such backing and i feel i'm preaching to the converted mr chairman as i know that you were present for the hearings for the original hope in ninety as you know that the problem for the clubs was the direct action provision and open id and the principle that  insurance is basically a contract between the shipowner member and the and the individual club where as the member undertakes to keep his vessel in every city where they condition and pay premiums in exchange for payment of claims and the direct action provision would essentially mean that the club's assets are at risk even though the shop owner may not be operating in accordance with club rules and and again we deal with the principle of mutuality that the clubs cannot put assets at risk simply because of one jurisdiction and poses very stringent requirements as opposed to world wide trading jurisdiction's the i mean the mechanics of the of the cofre system right now have operated i think in a very excellent manner because in my experience i don't know many cases of any where the gallant tour company the bermuda corporation's actually been called upon to respond and the vast majority of cases the p and i club is in the front line of payment of pollution claims the code for basically is there as a backup and that we are case of the clubs for reasons of perhaps individual members who are not complying with rules would not be trying but the guarantor is basically there as the industry and the trade would say as a ticket to trade to the united states it's a requirement to have a guarantee but as a practical matter least with respect to the shipping sector it's not in the first line of response to an oil pollution incident either in terms of payment of cleanup costs or third party damage it's well stated one of the problems with out is that again because of the market capacity if you are increasing limits as some of the administration bills are proposing that's going to happen over a spilled effect on all of the market so that the costs for every operator whether it be a vessel operator or a rig operator or a small driller is going to be increased astronomically because the reinsurance costs will be increased well the bermuda operators practice to be an icon will already have been involved in the response because it's involved from day one when we got a report of an oil spill we will have correspondence on scene dealing with the financial response of that spill so once again the guarant corporations and again keep in mind that these are not simply paper corporations they have the same reinsurance contracts essentially that the clubs so they are backed up by first quality insurance on both the european u s markets this is not a simply a paper operation that's necessary to get the tickets right they can respond through reinsurance again in the event of a spill but again going back to the basic operation of open ninety which with respect to vessels has operated very very efficiently for twenty years we have not had to call upon the guarantors to respond because the piano clubs are there in the forefront of the response whether it comes to removal costs of the government the reinsurers whether there be muda or elsewhere and you you do have a relationship and you communicate with each other absolutely i mean we would deal with a guarantor is obviously they're going to be very concerned to know there your testimony refers back to the lack of any workable substitute to the international groups insurance program threaten to cause withdrawal of the majority of the world's commercial shipping from the us straight but  if liability limits were raised or limited what that same circumstance occurred today if they were raised or unlimited or eliminated or eliminated it's certainly what i mean i think we are if some a the proposals were to come into effect i think quite frankly we would be facing a similar trainwreck to the scenario that we faced back in one nine hundred ninety s mr upstart you know probably better than anybody else there are simply requirements using their own assets they have to rely on piano insurance to do that and on the reinsurance so we would be faced with the same situation we had back in one thousand nine hundred where basically the wheels of commerce would come to a grinding halt if we had unlimited liability or if we had a one size fits all liability limit to third party damages those risks really would not be insurable or would be insurable at an astronomical cost of the industry and that would cause smaller operators as mr mcallister as already said probably to cease their operations and that really raises the question of the capacity in the reinsurance sector a doctor hard read dr green stone you have comments on the ability of the first line insurance and the reinsurance sector to back up but ten billion dollar spill liability yeah i think i'm not an expert on of the personal reinsurance markets but i think one thing is clear as are currently constructed they would sounds like they would have a difficult time  responding to higher limits but we've learned it when you watch the massive flows of capital fly from sector to sector from country to country what would happen if it did lesson from that is when there are opportunities so the wheels of commerce were going to come to a grinding halt what would happen is that's a tremendous opportunity for some new firms to enter that market where a series of new firms enter that market and the result is it might not be the same people providing the insurance but there would be new providers of those insurance because people would be willing to pay for it why have they been willing to pay for it because the industry up until now is had so few massive spills  're out there evaluating risk that's really what what what they're what they're doing and in evaluating risk they look at the record of the industry to some degree i think they're evaluating risk and they're evaluating what the cap is because the companies are only asking to be insured up to the cap and so as i understand the concern that's been raised is that if you raise the cap the current insurance doctor heart rate if i could on that insurance is very different from the banking industry and that's why during the financial crisis precisely zero property casualty insurers failed and so far three hundred banks did the reality is is capital doesn't go flying around the insurance industry at a touch of a mouse you cannot suddenly just because there's an opportunity to write ten billion dollars in limits i'd be very wary of a con if a company that came in tomorrow and said they knew how to do that  because not even the companies have been around for a hundred years doing that today if anyone could do it they could do it and they're not that might tell you something so the reality is is that while some additional capacity can potentially we brought into the markets we're talking about orders of magnitude greater than what currently exists idle capital having to stand by which is going to need to earn a risk appropriate rate of  return just for that one in fifty year type of that very very expensive to do in some be attractive and on the margins absolutely and the billion billion and a half number we're talking about right now includes  share of lost that would be paid by the reinsurers it's really spread around the globe it's already a global marketplace but i can't see a situation where for such massive limits that would require extraordinary underwriting street scenario where the insurance industry is not able to respond to damages that has not been a problem up to now because of the quality of the reinsurance the clubs are able to procure under their contract of insurance  industry working together to create an insurance program of billion dollars it's possible and the way it can be done is for example in the  program you have the first tranche i don't know what it is maybe eight hundred million maybe it's more than that and then there's a second tranche that may come through with the trust fund that already exists and whatever that number may be and then the re insurers take tranche is above that let's say you want ten billion it's not just one company be multiple companies each one assessing the risk the thing that's critically important here is that you now have the insurance companies themselves involved in the risk you're not totally dependent upon the government regulators assessing the risk the risk of a blow out of the risk of a particular piece of equipment doing the job you now have multiple insurance companies reinsurance companies involved in taking an assessment because they have money at risk the other point that i want to make is one brought up by mr greenberg greenstone excuse me you could not be more right about the economics we have seen this over and over again we see it in flood insurance it's much discussed in earthquake insurance as long as you put a cap on the potential liability you then have incentiv risky behavior now if we want to incentivize risky behavior leave a cap where it is today and you'll continue to have risky behavior because it is financially in the interest of the operator to run the risk you know what the maximum potential liability  it's seventy million big deal i can make seven hundred million by drilling this well i'm going to drill the well so you buy super imposed on the risk a limitation you have incentiv rest the same thing applies here the shipping industry i'm not focused on that but certainly with regard to drilling whether it's shallow water or deep water you need to build the cost the risk potential into the cost of this activity if you don't we're just going to continue to have problems you will also by the way have problems even if you do belted in but you will guarantee  minutes remaining should there be two standards for insurance one for these very big operations and one for smaller operations and then they can the case in open ninety that eventually was dropped but that would make the own of the of the product liable also and the purpose in and previous legislation was dropped in open ninety was to engage the owners of the oil and forcing the vessel owners to move to double hull operations if if the owner of the oil was liable for the spill and then they would take care that the vessel in which their product was carried was the safest that could be that would have had a devastating effect on home heating oil operators because the oil water might be able the filling station or home heating oil operator somewhere in the hinterland of the united states who have no ability to to provide financial backup for a spill so that provision was dropped but should there be two standards for your organization smaller operators and those several hundred thousand tonne tankers on the high  seas well i think that's a good point and in fact the matter is if you look at open ninety right now it already does make that differentiation there are various different liability limits in open ninety and in fact open ninety even differentiate between single skin vessels and double skin vessels and i think you know there's a lot of talk about whether this differentiation or these liability limits somehow incentivize reckless behavior but i think it is worthwhile to look back at at how the existing differentiation between types of operations and types of that souls has incentivized responsible behavior i think it's a success story  there's a been a lot of focus on the p and i clubs but the open ninety law that you're talking about also affects fishing vessels ferry boats non tank vessels of all sorts and not all of those vessels are in the p and i clubs not all of those vessels carry a billion dollars worth of insurance they carry insurance that is appropriate for the limits of liability that have been set up for them and seeing if if everybody is  is required to jump up to those high levels of insurance i think you may see that some modes of transportation are going to become unaffordable and i'd like to highlight here that the maritime transportation is the most efficient and in my view environmentally responsible mode of transportation for lots of cargo in america we produce fewer emissions than you would produce by truck we get cars off the road and trucks off the road and i think it's important to keep in mind what's going to happen with the cargo that's being carried on america's waterways if a large expense for required insurances is placed there  and there's no question insurance is based on risk so if you require if you impose a larger liability cap and more risk you are going to require more money go out the door to pay for the insurance but that risk will have a number of other questions that i will submit have staff submit for your response for the record any supplemental comments that you have or obs of a in the material that mr girard is supposed to has already committed to providing for his do that within a week we will be developing legislation on wide range of issues liability and co for vessel liability  cap per incident limit on borrowing from the trust fund americanizing the us economic zone the eight hundred fifty one limitation of liability act and seven other items  that are in my agenda to address have legislation developed and for an overall oil spill response package that speaker is going to put together for the by the end of this month the committee will stand in recess and panel three will resume in roughly forty minutes and mr craig dunn the director of the national pollution funs center and i think some of you or your associates out through the morning and afternoon session this heard a good deal of the testimony given and ranking member members of the committee thank you for the opportunity to testify today about issues related to liability and financial responsibility in the offshore oil production area before i begin i'd like to take a moment to express my condolences to the families of those who lost their lives to those who were injured in the explosion and sinking of the deepwater horizon the explosion and fire that took place aboard the deepwater horizon and it's still a boil that followed have created a potentially unprecedented vironment of disaster for the people in fragile ecosystems of the gulf coast this disaster has been met with a massive and coordinated response from the federal government led by president obama the activities have been focused as they must be on stopping the oil spill and preventing and mitigating its effect while admiral allen and the unified command have directed these efforts that are part of justice is looking ahead to issues of financial responsibility and liability are mandated to make sure that we recover every dime of taxpayer ones that the united states spends and all of the removal efforts or damages caused by this catastrophe we've been working tirelessly and we continue to do so to carry out this mandate and ensure that the american public does not pay for damages for which others are responsible at the direction of the attorney general we've been monitoring the situation on the ground coordinating our efforts with the state attorneys general and working with our federal partners agencies and natural resource trustees to make sure that we measure and track every bit of cost incurred and damage to the united states the states in the environment those responsible for these events must be held accountable to this and we will enforce the appropriate civil and if warranted criminal authorities to the full extent of the law this administration will explore all legal avenues to make sure that those responsible for this disaster pay for all of the devastation to have caused some of these avenues arise under the oil pollution act or opa which is a subject of my testimony today as you know opal was passed in the wake of the exxon  disaster to provide specific legal authority for dealing with the consequences of oil spills well but designates responsible parties who first and foremost are required to clean up oil spills and then pay removal costs and damages in its current form open to contain conditional caps that in some is also said that it will not look to the federal government for reimbursement of the claims that it pays in excess of a cap we expect b p to uphold these commitments rest assured however that the united states is committed to making sure that all responsible parties are held fully accountable for the cost and have imposed on our people our communities and our natural resources with respect to open itself the liability provisions of zero but have not been updated in some time and it is clear that the liability caps must be adjusted and in some instances lifted altogether we convinced that the old liability framework is simply inadequate to deal with a potentially catastrophic consequences of oil spills for the future the liability provisions for to be covered by all but should be reviewed and increased as appropriate to reflect the inherent risks associated with those activities in particular we support removing caps on liability for oil companies engage in offshore drilling we want to ensure that those companies have every incentive to maximize safety to avoid spills before they happen and if for some reason as bill still occurs those companies must build up their full responsibility for all of the damages their actions impose arbitrary caps on the liability of offshore drilling implicitly subsidizes drilling procedures that may not maximize safety and we must remove those caps to decrease the risk of futures bills and ensure that if this bill happen the  opportunity to testify about the minerals management services authority for all spill financial responsibility pursuant to the oil pollution act of one thousand nine hundred i've worked with many members of this committee in my role as the director of the bureau of land management i'm a twenty eight  interior secretary salazar appointed me as acting director of the minerals management service i appreciate the opportunity to be part of the minerals management service organization for as long as secretary salazar needs me our focus at m m s has requirements and today the coast guard and m m s the only administers the oil offshore oil spill financial responsibility program under this program the coast guard has authority over vessels and m m s has authority over offshore facilities and associated pipelines located seaward of the coastline that handles store transport all except for deepwater ports this gave the secretary of the interior among other things the authority to ensure that the designated applicant has the financial resources necessary to pay for the cleanup caused by all discharges from covered off shore facilities such as the deepwater horizon pursuant to the regulations each covered offshore facility must have a single designated applicant that must demonstrate the ability to pay a specified amount ranging from thirty five million to one hundred fifty million depending upon the worst case all spill discharge volume these regulations also prescribe methods for demonstrating all spill financial responsibility and the requirements for submitted related information open ninety said both lower and upper limits for financial responsibility coverage the lower limit of ten million dollars for state waters and thirty five million dollars for o c s waters and the upper limit of one hundred fifty million an applicant can demonstrate their financial capability to meet their all spill financial responsibility requirement by self insurance commercial insurance third party and domestic asian surety bonds or alternative methods at the m a m s directors approval for example in the old spill financial responsibility b p corporation chose  of an oil spill from an offshore facility the liability of the responsible party is not limited to the level of their old spill financial responsibility the responsible party is liable for all removal costs of the spilled oil and also liable for damages from the spill it is important to note that under the oil pollution act all spill financial responsibility programs attempts to balance the need for the responsible party to have sufficient financial resources available for adequate cleanup in the unfortunate event of an oil spill against financial obligations that are so burdensome as they result in a chilling effect on the ability of smaller companies to operate and do business on the outer continental shelf because there is no camp ca on a responsible parties liability for removal costs the limits also take into consideration additional layers of protections established by open ninety such as the oil spill liability trust fund which covers calls for which the responsible party is unable to provide the administration supports a significant increase in liability for operators of offshore oil and gas facilities and welcomes the opportunity to engage with members of the congress to take her out where appropriate limits should be set distinguished members of the committee i'm grateful for the opportunity to testify today about the oil pollution act of one thousand nine hundred limits of liability in financial responsibility my role as the director of the national pollution fund center or m p f c in this response covers four areas first i find the federal response using amounts congress made available from the oil spill liability trust fund the so called emergency fund second i ensure there is a responsible party is advertising its availability to pay claims for removal costs and damages if claimants are not fully compensated by a responsible party they may present their claims to the n p f c for payment from the fund third i recover federal response crossing claims paid by the fine from any and all responsible parties finally i administer the vessel certificate of financial responsibility program which ensures that vessels operating in the us waters have demonstrated that they are financially able to pay their obligations under obama with respect to limit liability the responsible parties in this case are liable under open for all will removal costs open does provide for seventy five million dollars cap on liable damage liability under its offshore facility provisions but that opel limit as with all vessel and facility limits under the may not apply under certain circumstances including gross negligence willful misconduct or violation of federal regulations whether there isn't any effective cap on layer liability for damages under opa in respect to deepwater horizon determined and pens further investigation and coordination with the department of justice i can't comment further on how cost or damages may eventually be shared or portions or how liability for cost and damages may ultimately be enforced against responsible parties or against any other person under the law i will note that b p s stated that it does not intend to a certain limit and that it intends to pay all legitimate response cost and damages the m p s c has provided federal funding through the o s l t f to over eleven thousand spills from all sources over the last nineteen years since opal was enacted there has not been a spill from either an onshore or offshore facility that is tested opel limits provisions limits are believed to have been exceeded only fifty one times and in all cases those have been oil pollution from a vessel the m p s see cements an annual report to congress on the limits of liability and the adequacy of those limits and we can make that available to anybody that hasn't  with respect to financial responsibility the n p f c issue certificates of responsibility to over twenty two thousand vessels that are required to demonstrate that they can pay if they cause an oil spill in u s waters  responsibility are not required for vessels under three hundred gross tons unless those smaller vessels are tranship ing or lighter ing petroleum products in the easy it's important to note however that these smaller vessels are still alive under op are simply not required to carry a certificate of financial responsibility this would apply for example to smaller fishing vessels as well as most pleasure craft vessel operators can demonstrate that they meet the financial responsibility requirements through insurance self insurance or a financial guarantor ople liability limits were amended by the delaware river protection act of two thousand and six which include vessel limits by approximately forty to fifty percent and create a different limits for single hole and double hold tank individuals communities and businesses have suffered as a result of this spill the open regime is working to ensure a robust federal response that those damage from the spill are compensated and that the polluter pays the department supports the administration's review of the existing liability resume and we look forward to working with congress to set liability limits and caps that properly reflect the risks associated with oil spills thank you for the opportunity to testified today and i look forward to your our congressional panel and a great deal of conversation about oil spill liability and its limits involves one raising the seventy five million dollars to some number above that as you heard in the previous panel mr girard was not prepared to respond whether it's whether should what number it should be between seventy five million and reviews we requested from legal sources that we would not there would not be a constitutional prohibition that there might be other legal implications could you address that issue be removed for offshore drilling because we think that will create the best incentive for ongoing activities to invest in safe technologies that will ensure that a spill of this magnitude never occurs again with respect to other activities onshore activities transported by vessels we think that those liability provisions need review and we'd like to work with congress on deciding what what are the most appropriate level at which to set caps if at all with respect to this question of retroactivity our focus is on going forward with the idea that we would like a new availability regime to apply to all activities going forward recognizing that there may need to be a reasonable transition period to allow orderly transition in the industry the last let me take on the last set of questions which relate to constitute all or other issues related to making changes in the liability structure retroactive i think we think there are very strong arguments that congress could enact legislation that would have a retroactive effect and indeed congress  nact legislation all the time but as retroactive impacts here congress would be enacting broadly to address problems related to compensation and clean up of oil spills and it would certainly have a rational legislative purpose in doing so so we think there were strong arguments but effective constitutional defense more likely these issues may arise in the context of a breach of contract action where i think we also think that there are good arguments and there would be substantial defenses to a breach of contract  to increase liability in this area and so anyone who is going to operate in the context of for example offshore oil drilling knows that congress has that explicitly in statute that it has the authority to increase liability and so i administration recommend the on the matter of the standard of judicial review or determination or assessments of natural resource damages the recommended change it appears a proposal would change the standard of review from rebuttable presumption to arbitrary and capricious test based on review of the operating record why are you proposing this change and what would be the significance of moving from rebuttable presumption to arbitrary capricious in proposing that change mr chairman we were development of the record on natural resource damages is going to be done by natural resource trustees in the federal government state and into an indian tribal governments over the over a number of years and they will compile of an enormous record documenting the damage here our view is that again in line with the way most litigation over a government administrative record is conducted the standard ever view is preferable we think it will streamline litigation and again we think it's consistent with the way most agencies build records and litigate over those records but mr taylor was here real personal property real or personal property subsistence revenues profits and earning capacity public services within all of those categories i listed there are very specific references for natural resources damage to injury or loss or loss of use of natural resources including reasonable cost of assessing the damage we've covered by us trustee a state trustee an indian tribe trustee or foreign trustee it's very very specific real or personal property the law says damages for injury to or economic losses resulting from destruction the real personal property recoverable by a claimant who owns or leases that property but it doesn't say whether if you're living in if you're a travel agent in michigan and your clients drop their plans to travel to one of the gulf states because of their concern of oil spill whether that person has a claim and whether it is legitimate how would that be determined in that circumstance and a and his office and the coast guard are charged with finding i have a tremendous amount of experience in this area mr abbey how many of the firms that conduct drilling or production operations in the gulf of mexico self insure their risks i don't have the specific numbers but that's certainly something that we can share with you for the record that's fine with you mr chairman i will say that d p what you have heard from earlier  testimony was self insured yes but in supplying that information give us the size of the size of those operations abadi those operations and your assessment of whether they could or would ensure unlimited liability for the facilities well again the i asked of the previous panel the reinsurance market does is it capable of  handling an amount in excess of seventy five million beyond ten billion or unlimited they didn't have a very concise answer to that question will get you the information that you requested m e probably one hundred fifty miles mr abby i guess i want to get your thoughts on i think it was wrong that the m m s granted b p exemptions from environmental review but what has happened this is obviously been a mistake reported the washington post and other things i've got three questions relates to this category are these exemptions still being granted number one number two can you please tell us why deepwater horizon was granted these exemptions and are these exemptions common practice or an exception to the rule and i get i bring this up because you know i was told for a long time because i'm one of the one member at least in florida that was against offshore drilling as relates to off our beaches anyway and i was told what's happened in terms of some closure in the in the gulf could not happen we had the deepwater technology the capability so it's shocking to me and we had people want to drill three miles off our beach and i've been consistently against that so that's why this is so important as i think of the agency i'm quite familiar with the beaches there and in the state of florida and wonderful resources they are i've spent a lot of time down there and join those opportunities to swim in the guy and to take advantage of the other resources in that part of your state let me let me say that the spill of this magnitude certainly is unprecedented and we're learning an awful lot of lessons as a result of the events that are currently dealing with in the gulf of mexico today i don't have the specific numbers of how many exemptions have been granted i would really need a little more specificity relative to the exemptions you're talking about i will say this though as we go forward we are looking at all safety requirements that we have applied in the past we are making changes we made changes late as yesterday afternoon regarding the issuance of notices to lessees for operations both in deep water as well as shallow waters in the gulf of mexico those requirements for for those operators in the shallow waters requires them to certify that they're meeting many of the safety requirements that came out of the thirty day safety report that was issued to both secretary salazar in the present united states couple of weeks ago we are also requiring the c e o s of the companies who are operating to actually verify and to sign their names to the to the fact that they are complying with all those new requirements we are taking actions to move forward based upon the lessons that we have learned from this event i am not here to defend past practices from the minerals management service but i would also say that there's a number of investigations underway as well as a president presidential commission that are looking into the facts of the matter and we'll let those facts speak for themselves in the meantime there's a lot of business that needs to be done we're looking at the opportunities to improve our overall performance so that the safety that you're looking for relative to any future drilling is assured let me ask you since the implosion and the go off we've been giving consistently get been giving exemptions implosion today i mean it says let's start to talk about the past too much but just in terms of what's happened in the last say two months because it's my understanding we're still given exemptions environmental exemptions and i can't imagine why would even give any consideration to that congressman buchanan you're probably talking about the categorical exclusion that are allowed under underneath the categorical exclusions are used when there has been previous environmental analysis performed that has been deemed sufficient to cover the proposed action from an applicant we are certainly reviewing the environmental requirements that we have placed upon the operators in the past we are looking at making some adjustments over the course of the next couple of weeks we have not reached final determination of how we'll move for but i can assure you that that issue is being addressed not only within the department cheerier but we're working in close partnership with the council on environmental quality to determine how best to move forward it common for these inspections to be missed what are you doing to make sure that other rigs are not missing their monthly inspections that are these are there consequences for missing these inspections congressman it's my understanding that the minerals management service strives to perform inspections once a month that is the goal that's the target that is incorporated into the annual work plans there are some months that are are missed as a result  weather that won't allow the helicopters to get out and some of the deepwater facilities there may be some other reasons why a particular platform was not inspected each month but it is a goal it's my understanding based upon the records that i've read that the minerals management service has done quite well and meeting that target not one hundred percent by any means but they have done quite well and meeting the targets of trying to me to form inspections on on the platforms that they manage on a monthly basis where they are saying they have missed sixteen monthly inspections i can understand missing a couple or being pushed off but how could you miss sixteen of the matter four years that's almost half of the inspections is that just for b p i mean  numerous news accounts that you know b p may try and shed itself of these obligations by going into bankruptcy and you know forming one company over here with everything else that's performing well in one company over here where the failed well you have thoughts on that congressman this is an issue we've obviously seen similar reports it is an issue of real concern to us because we want to make sure that the responsible parties truly have the wherewithal to compensate the american people for the damage done so this is something that we have been focused on we are reviewing our options and hope to be able to report back to you soon about the action will take and then if we look to the future if we were to bonding or i mean are there things you can think of we could do if we wanted to significantly increase the gap to be sure that there were assets there that couldn't be removed certainly i think in addition to looking at liability caps i think it's appropriate to reconsider the certificates of financial responsibility which provide on the front end a surety that payments will be available to be made in the event of a disaster such as this so i think we need ministration also believe that we should one take another look at those and think about whether they need to be adjusted as well as developing additional regulatory authority to allow them to be adjusted or modified over time as we learn about new or different risks i think that is certainly a component of if you can have those thoughts quickly because i expect we may we may act very soon on these issues and we want to do things that make sense and provide more security in assurance the american public you know just i would just observe i'm particularly concerned about that that first one and give you an example right in that neighborhood there was a company i believe was called entergy that bolt generated and distributed like christine louisiana after all their lines blew down in the hurricane they did they went to the p s c which happened to be  captive to their interests and said you would like to split the company i would like to put all our distribution system over here and put our energy generation over there on the p c it's a great idea that's the be really efficient so they ended up with a totally bankrupt destroyed distribution system which very much delayed the recovery of southern louisiana and over here a very profitable and ongoing energy producing company and i worry that b p could do the same thing so i hope you have your best and most rigorous people looking at how we prevent them from scamming us that trees and forestry issues but on these a raised concerns and in a couple of hearings about the blowout preventers and there were reports and evaluations done by m m s his own employees and in cooperation with some engineers from b p and other oil companies saying there were significant concerns about the capabilities of these blowout preventers to sever the pipe and seal off the well even if it was in functioning condition which job some certain percentage of the time are we going to take steps to require that all of the existing wells let alone new ones have blowout preventers that have proven capabilities to actually work in addition to looking at their maintenance records congressman de fazio we took steps yesterday to do just that we issued a notice of two lassies requiring them to perform certain checks and tests and to certify by a reliable third party independent review or that such tests are the operations pass those tests and to require the c e o s of those companies to verify that they are in compliance with our all of our safety requirements as well as the law and if they sign that verification could we attach some special sanctions than anyone who might certify that inappropriately i would look to mr  raise that question earlier with the american petroleum institute whether the they set the standards for the blowout preventer and i asked for other their standards had been tested against the pressure of the oil reservoir at eighteen thousand feet below the mud floor and and pressures of two thousand three hundred side to thirteen thousand whether the one of the shear could cut through that thickness of pipe and they said i don't know we'll get back to you but they're the ones who should know this coming could i just ask what the timeline on having that testing done  before any new wells are drilled right and but i'm concerned about there are some as i understand the blowout preventers are used in the in both in the extreme lord torrey initial drilling and their use until the well becomes operational yes so are there any deepwater wells out there that are in that state where they're blowout preventers are in place now or are there you of course there are there is a moratorium on any new deepwater drilling there are some maintenance  actions that are being allowed they will be required to comply with the notices to last season we issued yesterday for all those actions mr cummings thank you very much chairman just going just following up on that who who make who does this certifying when you say an independent party and i'm not you know what there was a there would have been a time i would never even think of asking this question but the integrity of these systems so so upsetting and i see that we just seen that we have these gaps where people are not doing what they're supposed to do i'm not knocking you i'm just talking about in general so i'm trying to figure out what a sort of fires are  o chairman talked about the standard so who are the sort of fires and how do we know that we've got the right people doing the certification you follow me i do congressman tom and we're looking to engineers professional engineers as well as consultants we are also seeking from the documentation they were requesting from the operators to provide a full listing of the qualifications of that third party who are using to verify that such a quip meant  can meet the standards we will be reviewing the qualified qualifications of those consultants or professional engineers to make sure that they are the best that are available at least to the companies and to and that has the credibility and integrity that they need to provide us as well as the american public greater assurance that the actions that are going to take place are going to be done so in the safest manner because one of the things that happens in the law is that when somebody goes to a lawyer and ask for advice on certain things and the lawyer gives in advice then in some instances they can go back and say you know a lawyer gave me advice and that's how that's why i acted the way i acted and and and in some if i said i'm fine and the next thing you know we've got problems germany produced one certainly because i've worked together with the done a lot on this as relates to the banking and financial services crisis and this brings to mind the ratings agencies you pay them for a rating and they would then rating shot and we're worried about the same thing here as opposed to perhaps the government designating in there being you know and i think that's where the just exactly right that's exactly right if i could respond to that care because it's a valid concern this is this sort of occasion does not take away there are no mystery sponsibility to do our own routine checks and verification we intend to continue the inspections and we have been performing to make sure that the equipment that are being used will also pass our own inspections but in lieu of our own inspectors going out there and making a determination in every case we are asking the companies themselves like the operators themselves to also provide us that third party independent verification ok now regard to people who are qualified to even do the inspections because what we see here it seems like we've got the industry that's speeding alon so far as to be in the industry that's kind of expensive way probably to get it so i'm trying to figure out what mechanisms are in place to make sure that we have the people in place in government of course and pay what some folks pay private industry  d trying to figure out what is the plan there i think after this incident i'm sure our antennas are going up to be even more careful with regard to inspections and whatever but i want to make sure and the chairman wants to make sure that we've got people in place to do the inspections we've seen some problems and certain inspections work regard to the coast guard and some met other matters safety matters and we have people to come in and testified to say that they had personnel in the coast guard that were looking at their equipment and given inspections and that they were totally equipped to do that that's a sad commentary but this is this is where the rubber does meet the road and i'm just trying to figure out what do you see with regard to that issue well there's the minerals management service and ministers of thousands of leases  offshore we have sixty one inspectors we have eleven engineers are devoted to doing those type of the inspections of that sixty one inspectors of the sixty one inspectors i believe if i remember the numbers are right there is about fifty inspectors in the gulf of mexico where most of the operations are occurring as you have read as i have some of these inspectors have worked previously in the industry themselves they gain experience working within the industry we based upon that experience based upon their ability to know what to look for and how to how to document any deficiencies they noted on these platforms and to report back so that we can take appropriate actions to address any deficiencies while you just just one last thing here have you do you know of instances where you sent inspectors out who were not fully qualified to do the inspections that we were that we needed done to the degree that they needed to be done congressman cumm again i have a very limited spirits of the minerals management service i'm not aware of any inspector this not qualified to do the job they were asked well i'm ask you can you give us a document i mean if you can go back to your files and provide us with any information because this is something that the chairman has been i've sat in meeting with him yesterday with the speaker and he was very i mean he's very we are concerned about this because we want we want we do we cannot have cultures of mediocrity we just can't because it's too much at stake and  we want to make sure we we we want to make sure that we have a pipeline sort of we can have the people if we don't have them have them in place so that they can do what needs to be done because we can do all of this stuff we have all the standards in the world if we don't have people who are competent and people with integrity doing this stuff i mean we might as well be playing golf flying a kite we we have common goals in that regard up to the judgment of a judge ultimately some judge could say forty something days of pushing all out into the gulf of mexico ruining thousands of people's lives eleven deaths some judge could just make an arbitrary decision that this is not gross negligence or willful misconduct is that correct but certainly the interpretation of both those terms would be up to a judge i will say that certainly but both gross negligence and willful misconduct  interpreted in hand many different federal statutes so i think there is and there is an established case law but they're not specifically defined in this statute again mr chairman with that point i would certainly hope that the legislation being drafted would try to establish at asked in in last week's hearing for a side by side comparison of the coast guard inspections versus foreign flag inspections that were allowed in the case of the deepwater horizon it is just in the past few minutes been supplied to me by the coast guard i would ask that that be submitted for the record without objection stored mr fairlie again i've only had about two minutes to look at this so please forgive me if i read it to you but we'll start with structure stability and loading contrast that with a floor and flag vessel where they do a spot check for the condition of doors cargo hatches vans railings combings ladders a spot check of term stability they would have inspected for proper installation they would have tested operation of all systems and equipment for compliance and they would witness third party maintenance inspections and inspect the material condition of fire safety equipment i would contrast that with what did occur where the coast guard in this instance because it was a foreign flag vessel review certificates of third party maintenance inspections so basically if the folks in the marshall islands for a fee or for whatever reason chose to just issue is it typical then that these guys are living by the rules that was good enough now missed a lot of things are going to come out of here i would hope one of the things the united states justice department would be insisting on for those vessels operating in the united states territorial waters they gotta live by rules they can't get a pass from some third world country that that says this is good enough and we as a nation shouldn't be expecting the word of some third world country that this is good enough obviously the dead eleven dead mariners and thousands of people whose lives has been affected by this and mr chairman again u s territorial waters we should not be relying on somebody else's self check off list that they are living by the rules going back to the question of who defines gross negligence has there been any effort on the part of any of your agencies to come up with what you think is a fair definition of that in this instance congressman we have not focused on writing a definition but we would certainly be happy to work with the committee formulating the principles that you enunciate it is to have a under the federal response plan again we are both from mississippi just this week i inspected the contractors that b p hard as far as their land cleanup of visited one of the vessel agency is the coast guard is any by within our nation the lead agency to look over what should be a comprehensive plan and in the absence of a comprehensive plan is anyone stepping forward to say and this is goes guard any is that is the department almost security is any way does anyone have the legal authority to to turn to b p and say this is what your response plan ought to look like we gave you forty something days to come up with one and we're not satisfied with what you got i can answer that and that the national incident commander admiral allen and the f o s the on scene are running the response and so they do have the authority to direct b p and any response efforts  and that's can be pretty broad that they deem are required to respond to this so that's that's my whole point is anyone giving them a specific list of things to do based on the mistakes that were made in louisiana apparently the mistakes that have been made where water washed up on the florida panhandle is anyone giving them a list of saying you need more skimmers out there you need a greater presence don't wait for it to hit the beach and again asking this is a form of question because i received each day by the joint command indicating what supplies are needed in order to accomplish the goals that are being laid out to protect the resources along the gulf coast based upon those those requests there are decisions that are being made by the incident commanders to move forward and provide the supplies and the actions that are that are necessary in order to meet those goals so as audiology to by mr bennett there  your agencies stepping forward to propose a new generation since since we all got caught flat footed on this or any of your agencies stepping forward was a new generation blowout preventers skimmers containment booms collection booms because it it's just a sad fact that technology has not really progressed one iota in the past twenty years and we we sat back and hoped that the private sector would do it they didn't or any of your agencies making recommendations of what those things ought to look like now if i can speak for the coast guard and probably everybody that this event is of such magnitude that the answer is yes everything is on the table everything is being looked at and no stone going to be left unturned as to where we go to make it right for the future that all research taken into account and further to the gentleman's question and i've discussed this with him and with mr cummings and we're going to  in the crafting of legislation we're going to set standards for the coast guard and a regime under which a coast guard and minerals management service both can acquire the skills know how the understanding of the technology this industry to be able to do the certification and do the oversight that is necessary and to do it with knowledge of the industry we've got to get closer to the airline sector than then we are today when  standards of the international maritime organization which which allow only six to eight hour review compared to a two to three week review of the u s flagged vessel operating in our territorial waters those are two widely different standards acceptable but more important as it is the reality that the coast guard doesn't have the personnel the skills the training the thank you for putting this hearing together it's an extraordinary hearing and it's setting the stage for some very very important legislation earlier we talked about the financial liability issue i just came from an interview and i was asked the question i guess this goes to the attorney general i just asked a question that b p has accepted responsibility what if they turn around and say well but there are limits to the liability what action and what opportunities are available to us to hold them to their earlier and present acceptance of full responsibility and full payment congressman  we will unquestionably pursue them to require them to fulfill their promise i would i would note that there are many legal avenues that we can pursue to ensure that they pay the full measure of damages here whether it's b p and other or other trans ocean or other potential responsible parties we talk often about the liability cap but as i mentioned in my opening statement it is conditional it is it does not exist if there is a gross negligence or violation of any safety operational or construction regulation that could be deemed to approximately cause the explosion i would note that my colleagues at the mineral management service have many many regulations and so we anticipate  that whether or not the facility commitment we will pursue b p trans ocean whoever the responsible party to the fullest extent that we can well exactly so and but however that pushes the responsibility to the government to prove negligence or the other factors that you just described nevertheless i'm pleased to hear your response the second point i want to raise is that let's assume b p really is going to wind up in financial trouble as a result of this there are rumors circulating that b p is interested in providing some ten billion dollars of dividend going out to their shareholders  if that is in fact what they intend to do do you have the ability to issue an injunction to tell them to hang on to that money that it might actually be needed for cleanup we are concerned we've seen reports with respect to b p we've all scene reports about trans ocean and a planned dividend and we are concerned that we will we want to ensure that these companies have funds available to compensate the taxpayers the individuals harmed  have decided on what steps to take i would tell you what an insurance commissioner in california did when faced with a situation where an insurance company that was in trouble decided that they would take the assets and run i went to court the next moment got and got what amounted to an injunction on to the money so that it was available to the policyholders i would highly suggest that the justice department take whatever action is necessary to make sure that none of these companies in this particular moment during this period of time is allowed to issue any debit and to move any of their assets away and away from the company to the shareholders or to anyone else and if you don't do that i'm going to be all over you in a way that you will not like we share your concern because i've been there and i've done it i know it can be done was just reading this report by the department of interior and it's shocking about the problems that they had it m m s and i'm trying to figure out what are we doing to turn around that culture  where people are says potential source said m m s inspectors allowed alling gas production company personnel located on the platform to fill out inspection forms and so in other words the company was sort of self certify and in basically committing fraud mr perot fraud i mean that's what i consider this when i think about and then accepting a gift and things of that nature i'm trying to figure out first why have there been people who have been fired  what are we done to begin to straighten this mess out now because we still m m m m ass is still conducting business and i want to make sure that people who are basically who we think are guarding guarding us and taking care of us i'm not stabbing us in the back and that's exactly what this is so the question is i know you only manage what time but i mean what is being done to turn that concert around because i'm assuming some of those people are still there and that's something that is a major problem major and let me tell you another reason why is a major problem one of the things that one of the things that about leadership is people if they trust you they will submit and say ok i know you've got everything under control and it'll work out well this is just this report basically says we can't trust the very people that we're supposed to trust and that we pay to that we pay you to guard us so what is being done to turn that culture around and i'm not blaming you because you knew but i want to know what's going to find i appreciate you asking the question first and foremost is my understanding congressman cummins that there were the allegation that people are our industry employees were filling out those forms in pencil and sent in a man to the inspectors and all the inspectors were doing their writing you are using their pants right over the pen raised over port is my understanding based upon the documents that i have read is that that's unfounded that did not occur i have seen those same reports that you just alluded to but it's my understanding based upon follow up reviews that did not take the case as far as other deficiencies or other allegations of misconduct secretary salazar has been very adamant from his very first day as secretary of interior to implement a very high standard of conduct based on our own ethical values that we have within the department to make sure that all of our employees understand what the expectations are and that they're going to be held accountable let me also say that even though i have just short period of time with the minerals management service as the acting director i've had the pleasure of working with m m s employees for a number of years and in many different roles i have found everyone i have ever associated with the work with to be professional and ethical and and even though there are some findings based upon the reviews that have been conducted and i'm sure there may be some other deficiencies noted in the ongoing investigations it is our intent to look at every deficiency that may come about from these reviews and we're going to deal with those deficiencies in the appropriate manner thank you very much michel but i just want him on to make sure that when these kinds of reports come out i'm hoping that this is not and i know you're there and there those are the people you work with but i mean if we have reports like this i can't believe it just fell out of the sky so we need to i mean i would not i would hate for us to have this kind of information and then just sort of dust under the rug and say all right it doesn't exist everybody is the greatest employee that ever lived you know and i don't we don't i'm sure ninety nine point nine percent of them are but at the same time i think we need to be very careful with that no one is more irritated about the conduct of some of those employees in the employees of the minerals management service because it does brain this this scrutiny this allegations of inabilities incompetence to the table and no one is very happy with that implicated of having engaged in illegal activity falsifying records and we need independent verification of that you have been in inspector general in the department and that i g office should take this issue under under review and submit a written report with his findings and be specific about it we do that with the u s department of transportation and no interior is not to be represent the district where katrina hit but homes were destroyed out right a lot of homes were did damage but went a lot always were damaged by water those homes that were damaged by water have repeated questions from homeowners saying what if that water that didn't damage last time what if this time it's got crude mixed in with it now it is my understanding that the refinery in chalmette louisiana when the dam burst there flooded approximately eight hundred homes and it took them several years of litigation for the refinery to pay those eighteen hundred homeowners what they would do now that there has been a legal precedent set in that case and i believe some other cases making a request of you i think you could give a great many gulf coast residents or coastal residents around this country if your department would step forward and say the president has been said even if it's an act of god that company is responsible and if you i'd like you to respond to that well i can't speak to that prior incident but if we're talking about the deepwater water horizon incident  think it's pretty clear that if there is damage to property arising out of oil water that has come from from the deepwater horizon i don't think there's any question that falls within that within the category of damages that should be compensated those individuals should be writing because because the reason being is that people shouldn't have to go to court you shouldn't have to hire a lawyer you shouldn't have to wait years to get paid and i think if b p knew what the ground work rules were from the justice department it be more likely to settle those claims a lot quicker i think that the whole idea behind open was to so that people wouldn't have to go to court and wouldn't have to spend years waiting when their property was damaged as a result of an oil s i think you heard it very clearly says from the front line of the of those in the in harm's way from this tragedy i have a question for the panel perhaps more we've talked just in this exchange about next generation technology and certification and bring in coast guard personnel skills to a new level and into a new to go to a direct appropriations draw a comparison with the aviation trust fund airline passengers pay on their airline ticket tax into the trust fund which finances construction of runways and taxiways which pays for the facilities and equipment that is the air traffic control technology that guides aircraft safely into pacer eighty percent of the operations are air traffic control system meaning the controllers is it fair to drop parallel between these two mr chairman i think it would be fair in fact as you probably know in addition to paying for response costs and claims the trust fund is already available to fund implementation and capacity of implementing open ninety two several federal agencies so i don't think would be unreasonable to look at the trust fund is a potential source of funding to if needed to do more l activities that qualify for categorical exclusion i am really surprised when i read number ten approval of an off shore lease or unit exploration development production exclusions have also been addressed in some manner with previous documentation or environmental analysis whether or not the minerals management service has utilized categorical exclusions appropriately is one of those areas where you have under review right now and cooperation with the council for environmental quality we're looking at how this bureau or this agency has been using categorical exclusions to authorize some of those specific actions and based upon that joint review will make a determination what we might need to do differently my review of these fifteen categorical exclusions looks to me i've done a fair amount of this kind of work for years  written by the industry for the industry for its own benefit you need to take a broom and sweep through this whole listing and clean up clean house with this the this is this this is shocking we would never see anything like this in aviation we never see it like this in the motor carrier safety administration this is appalling and it needs it needs a house cleaning i cannot disagree with you as far as the of category exclusions in the appropriateness of category exclusions we look forward to the receipt of the information requested in course of this afternoon's hearing and was then within ten days because we expect to draft legislative this language in cooperation with the minority on the committee and and to be part of a package of legislation be introduced at the speaker's request before the july fo recess so that gives us about three weeks to get all this work completed we look forward to hearing from you thank you very much for your testimony today and for your dedication to public service