THE FEDERAL REQUIREMENTS FOR VESSELS TO OBTAIN EVIDENCE OF FINANCIAL RESPONSIBILITY FOR OIL SPILL LIABILITY UNDER THE OIL POLLUTION ACT OF 1990 WEDNESDAY, JUNE 26, 1996 U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION, COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, The subcommittee met, pursuant to notice, at 10:04 a.m. in room 2167 Rayburn House Office Building, Hon. Howard Coble (chairman of the subcommittee) presiding. Mr. COBLE. The Subcommittee on Coast Guard and Maritime Transportation will come to order. The ranking member, the gentleman from Tennessee, Mr. Clement, is en route. I don't like to penalize people who have, in a timely way, made the effort to be here, so we will start the hearing, and then when Bob gets here we'll pick it up. Before I give my formal statement I want to visit informally with you all for just a minute. The environment is an issue that remains volatile, and any time anyone suggests any changes, he or she is automatically labeled an extremist. I sort of resent that. In fact, strike that, I don't halfway resent it, I thoroughly resent it. I don't know of any democrat, republican, liberal, conservative, who is in favor of oil spills, who is in favor of dirty water, who is in favor of dirty air, but just because people suggest possibly applying different standards to these problems does not mean that we're not in favor of a sound environment. So I just wanted to get that out front before we start our hearing today. I welcome the gentleman from Tennessee. Bob, it's good to have you here. Mr. CLEMENT. Thank you, Mr. Chairman. The subcommittee is meeting today to hear testimony on the Federal requirements for vessels to obtain evidence of financial responsibility for oil spill liability under the Oil Pollution Act of 1990. As you all no doubt know, we will generally limit opening statements to the chairman and the ranking minority member. If other (1) members have statements, they may be included in the hearing record. I welcome all of you to today's hearing to review the Coast Guard's implementation of the financial responsibility requirements for vessels under the Oil Pollution Act of 1990. It has been several years since the Coast Guard issued the first certificate of financial responsibility for vessels operating in U.S. waters. The witnesses today have firsthand experience with the current regulatory regime and will give the subcommittee a valuable perspective on the effectiveness of the Coast Guard's system. The business section in Sunday's "Washington Post" featured an article on the oil industry's emphasis on vessel safety that is credited with sharply reducing the risk of major oil spills in United States waters. The oil industry recognized that oil spills are not only bad and harmful for the environment; they're bad and harmful for the business community. I commend the oil transportation industry for working to ensure that oil transportation in U.S. waters is as safe as possible. Of course, when oil spills do occur, the spiller must promptly respond to the spill and compensate the victims of the oil spill. The Oil Pollution Act of 1990 established a system that was designed to clean up spills and compensate oil spill victims promptly and hopefully without costly litigation. Under the Oil Pollution Act, vessel operators must demonstrate that they have a reasonable level of assets available to clean up the oil that they may spill and compensate victims for oil spill damages. Today's hearing will focus on the effectiveness of the Coast Guard's implementation of the financial responsibility requirements under the Oil Pollution Act. We must make sure that the Federal financial responsibility requirements for the oil industry are implemented in the most cost-effective manner possible. Every dollar that is required to pay for Federal regulatory requirements is a dollar that may be diverted from vessel safety improvements. We must, it seems to me, develop a common-sense oil spill regime that encourages oil spill prevention to the greatest extent possible, while at the same time avoiding unnecessary regulatory requirements that add little to the environmental protection. This is what I had in mind when I uttered my informal statement. The Chair is now pleased to recognize my friend from Tennessee, the ranking member of the subcommittee, Mr. Bob Clement. Mr. CLEMENT. Thank you, Mr. Chairman. The chairman and I have a real friendship, as well as a real respect for one another, and it's a pleasure working with him at any time. Thank you, Mr. Chairman, for scheduling this hearing on certificates of financial responsibility commonly referred to as COFRS, that are required under the Oil Pollution Act of 1990 to help insure that vessel owners have the sufficient resources to pay for the cleanup and damages related to any oil spill they may cause. Mr. Chairman, as you may recall, we both were original co-sponsors of the Oil Pollution Liability Compensation Act of 1989. We served on the Subcommittee on Coast Guard and Navigation in the 101st Congress when this bill was written. Today's hearings will give us the opportunity to review how these revisions of OPA have been implemented by the Coast Guard. We'll receive testimony on the impact of COFR requirements on the industry, and be able to see the extent to which these COFRS will be used to pay for the cleanup of oil spills and compensate those that suffer losses from these accidents. Two weeks ago this subcommittee received much testimony on the Jones Act. Some carriers testified that they would like to use old single-hull tankers to transport grain in the coastwise trade once they reach their phase-out date under OPA. However, it has been brought to our attention that these vessels may continue to have a tanker COFR, even though they are not moving oil in bulk but are moving bulk grain products. It is this type of a requirement that increases the cost of moving dry bulk products in the coastwise trade, when compared to moving dry bulk products on foreign-flagged dry bulk carriers. Again, thank you, Mr. Chairman, for scheduling these hearings. I look forward to hearing the testimony of the Coast Guard, the tanker industry, and the insurance industry on their views on the certificate of financial responsibility requirements for oil spill liability under the Oil Pollution Act of 1990. Mr. COBLE. I thank the gentleman. Without objection, any opening statements by members of the subcommittee will be made part of the record. I am now pleased to introduce our first panel: Mr. Daniel Sheehan, director of the National Pollution Funds Center, United States Coast Guard. Mr. Sheehan, as you know, we try to, on this subcommitteewell, strike that. We ask our witnesses, if they can, to present their oral testimony within a 5-minute time frame. If you can't do that you will not be keel-hauled and hauled off to jail. We're not on a real inflexible run today, but we do have other meetings scheduled today, so if you and the other witnesses can keep in mind, if you can stay on or about the 5-minute range, that will be appreciated. Keep in mind, of course, all written testimony will be made a part of the record. It's good to have you with us, Mr. Sheehan. TESTIMONY OF DANIEL F. SHEEHAN, DIRECTOR, NATIONAL POLLUTION FUNDS CENTER, U.S. COAST GUARD Mr. SHEEHAN. Thank you, Mr. Chairman. I will try and meet those guidelines. Mr. Chairman, members of the Coast Guard Subcommittee, it is my pleasure to be here this morning to address the economic impact of certificates of financial responsibility. The acronym, of course, as many of you know, is COFRS. The Oil Pollution Act of 1990 significantly expanded a program which had its genesis in the Federal Water Pollution Control Act. The principle upon which the program is based and which is embodied in the law, itself, is that a polluter be able to demonstrate the ability to pay for pollution cleanup and damage up to certain specified limits. OPA 1990 raised those limits significantly above what was in the FWPCA, as well as substantially expanding the scope of damages that a polluter was potentially liable for. When I last testified, in July of 1994, the Coast Guard had just published the interim final rule implementing the OPA 1990. To say that the time between the 1 July publication and the 28 December implementation deadline for self-propelled tankers was one of substantial activity certainly understates the incredible effort that was undertaken by the national and international financial community, ship owners and operators, the insurance and surety industry, and, indeed, members of the international group of P&I clubs, themselves, to find acceptable mechanisms to address the requirements laid down in OPA 1990. As you may recall, when we testified in July of 1994 our estimates, assuming a worst-case scenario of cost projections, were that it could cost the maritime industry and ultimately the American public approximately $450 million a year for this COFR program. As indicated in our written testimony today, those costs are substantially lower and are in the range of $70 million per year. What do the citizens of the United States get for that $70 million? They get the assurance that vessels which ply the waters of the U.S. and are subject to OPA-and this includes most types of vessels and varieties of vessels above 300 gross tons-that they have the financial resources to respond for spill removal and for the broader range of damages that individuals, companies, and other entities might suffer as a result of the spill. They also are benefiting from companies that are clearly doing a better job in the maintenance and operation of their fleets. Our Coast Guard field inspectors are reporting this positive change, and the statistics are beginning to verify their qualitative observations. The total oil spill and prevention and response system in the United States has been markedly improved through the system integration and coordination brought together by OPA 1990, and certainly through the active cooperation and participation by the maritime industry, the numerous Federal agencies, State and local governments, and all through the participation, as well, in the area planning committees. It's my view that title one of OPA 1990 is a full partner in that system, and that the COFR provisions play a critical role. The value of the COFR provisions has been demonstrated time and again. As a case in point, I would refer to the unfortunate spill that occurred in Rhode Island in January. The spill occurred from a barge, and it's an example of the impact that the law has had with respect to the financial impact and standpoint of this law. WQIS, whose president is testifying today, was the COFR guarantor for that barge. His organization promptly stepped forward with funding for the removal, as well as establishing a claims office to handle the myriad of claims that ensued. COFRS are part of the overall system that was implemented and improved as a results of OPA 1990, and it's my belief OPA 1990, and it's my belief that the improvements that Congress envisioned when it passed OPA 1990 are being realized, and that the Amer |