At that hearing, we heard concerns about whether there would be insurance available to cover the risks of an oil spill. During that hearing, I asked the Coast Guard to work with the parties involved to arrive at a mutually acceptable set of solutions with an interim final rule published. It is now time again for this subcommittee to review the rule and hear from the involved parties as to how it will affect them, and more importantly, how it will affect this country and the consumers of energy dependent upon the system of transport.

It is important that we learn today what this will cost the Coast Guard, the industry, and the consuming public. Is it a reasonable set of rules? Will there be adequate time to allow new guarantor entities to develop and to provide the evidence of insurance coverage for vessels entering U.S. waters by December 28, 1994? Concerns have been expressed that the Coast Guard is depending on the development of new guarantor entities to provide the evidence of financial responsibility.

We don't know at this time whether or not or to what degree these entities will be able to provide these guarantees and, indeed, service the entire market. The Coast Guard needs to proceed, as we have said before, cautiously to ensure adequate coverage and the full ability to provide a response to a spill at reasonable cost to all parties.

The very last thing our country needs is the possibility of a disruption in supplies of the extremely important various products coming to the United States covered by the OPA 90 law and regulations.

I am pleased now to recognize the Ranking Minority Member, my good friend with whom I share responsibility for this Subcommittee and for whom I thank again for his extraordinary bipartisan cooperation with the chair and with the full committee in his work, Mr. Howard Coble.

STATEMENT OF HON. HOWARD COBLE, A U.S. REPRESENTATIVE FROM NORTH CAROLINA, AND RANKING MINORITY MEMBER, SUBCOMMITTEE ON COAST GUARD AND NAVIGATION

Mr. COBLE. I thank you, Mr. Chairman.

I appreciate your calling this hearing regarding the recently released Coast Guard interim final rule, which will implement the financial responsibility provisions for vessels under the Oil Pollution Act of 1990. I realize that the Coast Guard has spent several years attempting to develop a plan which provides a way to guarantee that vessel owners and operators pay for future oil spills, popularly known as "polluter pays". I certainly support the goal of having the polluter pay for his own pollution.

However, the Congress cannot allow a situation to develop, in my opinion, where the lack of availability and/or excessively high cost of oil vessel liability insurance stops the flow of oil into our country. Such a scenario would quickly devastate our economy.

The Coast Guard's detailed Regulatory Impact Analysis concludes that the rule will not cause severe economic disruption, since the two commercial enterprises have indicated that they can provide the necessary guarantees to ship owners and operators. I

am advised that a representative from one of these new ventures, Shoreline Mutual Management, will testify today. I will be particularly interested to hear about Shoreline's efforts to raise the necessary capital to operate, as well as the estimated cost of this future financial guarantee.

I also look forward to hearing, Mr. Chairman, whether the other witnesses who represent the world's oil, insurance, and oil transport industries, think they will be able to operate under this new rule.

I thank the Chairman.

Mr. TAUZIN. I thank you, Mr. Coble.

Mr. Fields has a statement he would like to submit, so without objection, it will appear in the record.

[The statement of Mr. Fields follows:]

STATEMENT OF HON. JACK FIELDS, A U.S. REPRESENTATIVE FROM TEXAS, AND RANKING MINORITY MEMBER, COMMITTEE ON MERCHANT MARINE AND FISHERIES

Mr. Chairman, nearly four years ago I was a member of the Conference Committee that developed the Oil Pollution Act of 1990 (OPA '90). At that time, I strongly supported implementation and ratification of the 1984 International Oil Spill Protocols to provide a reasonable, predictable limit of liability to vessel owners for oil pollution damages.

The International Protection and Indemnity Clubs also strongly advocated adoption of the International Protocols. They informed the OPA '90 Conference Committee members that they would not act as guarantors under OPA '90 if the U.S. did not ratify the Protocols. Unfortunately, the Senate blocked ratification of the Protocols, because they objected to a national limit of liability. Chairman Studds proposed compromise legislative language to implement the Protocols that solved 99 percent of the concerns of the opponents. Regrettably, that proposal was not seriously considered by the Senate conferees, and vessel owners and the Coast Guard were left with no place to turn for coverage for oil pollution damage.

I am terribly concerned that the Coast Guard has chosen to implement the interim final rule for certificates of financial responsibility in such a short time frame. It took the Coast Guard four years to develop this rulemaking, and there is no reason now to rush implementation. Although Shoreline Mutual is attempting to raise the necessary capital investment to issue certificates of financial responsibility under OPA '90, they are still not ready to issue those certificates. This has put oil transporters in a terrible position: in six months, they must find oil spill coverage, or be out of business.

Another concern of mine is the cost of oil spill coverage under OPA '90. I have heard that the cost of coverage under the Coast Guard's interim final rule will be 7 to 9 times more than existing rates. A constituent of mine told me that his coverage under the Coast Guard final rule would cost $1 million per voyage!

Mr. Chairman, clearly, we made a mistake in 1990 by refusing to deal squarely with this issue. I hope the Senate understands the seriousness of this problem, because any disruption of oil transportation this winter could have widespread ramifications. We still have a chance to correct this problem and deal with reality by ratifying the 1992 Oil Spill Protocols which would ensure the continuation of safe, efficient transportation of oil in this country.

I look forward to hearing from today's distinguished witnesses and I will continue to vigorously support efforts to solve this serious problem. I remain convinced that we can protect our fragile coastal investment without displacing dozens of oil transporters.

Thank you, Mr. Chairman.

Mr. TAUZIN. The committee will hear three panels of witnesses and the first witness will be Admiral Robert Kramek of the United States Coast Guard, Commandant of the Coast Guard, accompanied by Mr. Daniel Sheehan and Mr. Robert Horowitz.

It is my understanding we do have a roll call vote that has been called on the journal. It had been my hope that we might have someone here who might continue the proceedings. Since they are

not here, it will be necessary that Mr. Coble and I recess the hearing for this vote. We will be back in approximately ten minutes. The committee stands recessed for about 10 minutes.

[Recess.]

Mr. TAUZIN. The committee will please come back to order. Like that story in the Bible when you invited folks to show up and nobody came, and so you went and got more. We should have a few Members joining us after this roll call is finished, but we want to proceed so that we can expeditiously hear from the many folks who have traveled a long distance to share their thoughts on the record today.

We welcome Admiral Robert Kramek who is accompanied by Mr. Daniel Sheehan, Director of the National Pollution Funds Center and Mr. Robert Horowitz, Chief of the Regulation and Legislation Branch of the National Pollution Funds Center.

Admiral, I understand that you have to leave after your testimony, so I wanted to accommodate you as best we could. We welcome you to the Subcommittee and expect that we are going to have many times together. We hope this one is an enjoyable occasion for you. The Commandant of the United States Coast Guard, Admiral Kramek.

STATEMENT OF ADMIRAL ROBERT KRAMEK, COMMANDANT, UNITED STATES COAST GUARD, ACCOMPANIED BY DANIEL SHEEHAN, DIRECTOR, NATIONAL POLLUTION FUNDS CENTER, AND ROBERT HOROWITZ, CHIEF, REGULATION AND LEGISLATION BRANCH, NATIONAL POLLUTION FUNDS CEN

TER

Admiral KRAMEK. Good morning Mr. Chairman. It is a pleasure to be here this morning to testify before you and address the interim rule for certificates of financial responsibility. On my right is Dan Sheehan and on my left is Robert Horowitz, experts who have spent the last three years developing every aspect of this rule.

Dan is the Director of the National Pollution Funds Center and does more than just work on the COFR issue. The newspapers refer to him as the billion dollar man because he is the guardian of the Pollution Fund. The Coast Guard, as you know, has published an interim rule to implement the financial responsibility provision of the Oil Pollution Act of 1990, and CERCLA. I believe the rule implements the law as intended by Congress and balances the interests of the United States citizens and the maritime industry.

After the Exxon Valdez tragedy in 1989, OPA 90 was enacted by Congress and signed into law. The liability and compensation provisions of OPA 90, however, had been under development for many years prior to that, as you know.

There were many objections to adoption of that law and the proposed law's liability and compensation provisions, so Congress unanimously adopted a liability and compensation regime based on the fundamental concept that the polluter pays for removal costs and damages. In September 1991, the Coast Guard proposed a rule to implement OPA 90 and CERCLA's financial responsibility mandates, but was immediately challenged by the international ship

ping industry for failing to use the rule to insulate that industry from the potential for unlimited liability.

As you mentioned, you held a hearing at that time which thoroughly reviewed the issues and concerns. The industry debate and administration debate has continued for almost three more years. But during that time, OPA 90 was not altered to authorize the Coast Guard to insulate the shipping industry from the possibility of unlimited liability. Accordingly, on 1 July, I signed the interim final rule.

This rule implements OPA 90's and CERCLA's mandate to protect U.S. taxpayers. It does this by enhancing the ability of a claimant to obtain compensation for removal costs and damages, suffered as a result of an oil spill or hazardous substance release, from the polluter or the polluter's guarantor. The rule adopts the themes of the notice of proposed rulemaking, but makes a number of technical improvements in response to comments.

And, Mr. Chairman, we have heeded your charge in 1991 to try to be as flexible as possible, to work together as best we can to get a mutually acceptable rule to all parties. I believe we have done this. That is why it has taken so long.

We have been as flexible as the law allows, in my opinion. But I know everybody is not happy.

I want to congratulate you on holding this hearing. I think it is very, very important to hear from all sides, to see exactly where we are, to measure the progress that we have made in coming up with a rule that we feel is as flexible as the law allows at this time.

The changes we have made since 1991, while technical, also enhance the statutory protections afforded guarantors. It phases in compliance, it permits financial responsibility to be demonstrated through time-tested methods of self-insurance, guarantees of insurance, surety bonds or financial guarantees. It also permits a catchall, other evidence guaranty.

To remain as flexible and responsible as possible, we have adopted an interim rule with a request for comments. This 90-day comment period closes on September 29th. Nevertheless, an interim rule is still a rule.

We solicited further comments because fine-tuning of the technical adjustments, if necessary, is more easily accomplished in an interim rule rather than a final rule, and I would hope it would be seen as a measure of our flexibility. We want to be as flexible as possible to make any changes that need to be made at the last minute.

An issue often raised, and perhaps the most contentious in the context of this rulemaking, was the assertion that guarantors are subject to unlimited liability and, therefore, could not underwrite this exposure.

I don't believe this is true. Congress explicitly limited a guarantor's liability to the amount of financial responsibility and no more. In the past 24 years in this country, we know of no instance in which the guarantor's limits have been breached. We believe amendments made to the guaranty forms will reinforce OPA 90's clear limitation on a guarantor's liability and increase the comfort zone for guarantors. We have also included specific defenses reinforcing OPA 90's protections for guarantors.

Mr. Chairman, the Administration has deliberated a long time because we wanted to be sure we were doing the right thing and not unreasonably prejudicing industry. We also wanted to assure ourselves that we did not stray from Congress' mandate in OPA 90. As time has passed, we are more confident than before that we have made the right decisions. In the time since publication earlier this month, we have been encouraged by responses to our rule. We have talked to and briefed numerous individuals and groups, including the staffs of relevant congressional committees.

The Department of Transportation is committed to assuring the public understands this rule. This month the Secretary met with many of the same groups you have here today to ensure himself that the Coast Guard has taken into account all things that need to be considered and that the rule implements the law and intent of Congress.

The Coast Guard has worked hard as a broker to come up with this rule. If there was a way to find more flexibility for all concerned, the people at the table with me here this morning would have found it. They have dedicated their lives to this type of work. Mr. Chairman, there are many issues to be discussed today. Again, I want to compliment you and the committee for continuing to assure that we have promulgated a rule that best serves our Nation. My experts and myself are ready to answer any questions you or the Members may have at this time.

[The statement of Admiral Kramek may be found at end of hearing.]

Mr. TAUZIN. Thank you, Admiral.

If we can get a layman's clear picture of where the rules now leave the situation, as compared to the initial hearing we had. As I understand it, you have, in this new rule, clearly defined the defenses that are not going to be waived, that are available to guarantors under the new set of regulations. Am I correct that any defense other than the ones listed are waived by virtue of these regulations?

Mr. SHEEHAN. Yes, sir, that is correct.

Mr. TAUZIN. Can you give us a quick list? What policy defenses are available to a guarantor under this rule that possibly was not under the old set of rules.

Mr. SHEEHAN. I would ask my project counsel to do that, since he drafted that particular provision. They are spelled out in the rulemaking. Mr. Horowitz.

Mr. HOROWITZ. The defenses that we have specifically listed included statutory defenses that are available. And we have tried to ensure that the defense that the guarantor's liability is limited to the amount of the guaranty is available in case a claim is made against the guarantor in excess of the amount of the guaranty.

Mr. TAUZIN. So that answers the question of unlimited liability, that the policy can in fact invoke the defense of limitation of coverage to the amount of the policy; correct?

Mr. HOROWITZ. That is right. The limitation is the amount of the guaranty; that is right.

We have also built in a defense with regard to a concern that guarantors might be subject to liability under State law, perhaps unlimited liability under State law as a result of executing the