Scaled-back version of the oil spill package may still hit rough waters

A Senate Democratic oil spill response and energy plan — scaled back to help ensure passage — might still hit rough waters on the floor this week.

The evolving package of new offshore rig safety rules and other updates to shore up federal oversight and corporate responsibility in preventing and responding to major oil spills might include provisions Republicans and pro-drilling Democrats argue could hurt small- and mid-sized independent companies that drill offshore.

Senate Democratic committee and leadership aides huddled in the Capitol Building on Sunday to go through the package and plan to do so again Monday morning. The package could be unveiled later Monday.

While details might still be in flux, it is expected to include language approved by the Senate Environment and Public Works (EPW) Committee that retroactively lifts a liability cap for companies.

The main concern with that language is that especially smaller companies might not be able to afford the insurance premiums for projects or be able to receive insurance at all for some riskier projects.

“It’s just a messaging bill and a trap to force Republicans to vote against this bill,” said Robert Dillon, spokesman for Senate Energy and Natural Resources ranking member Lisa Murkowski (R-Alaska).

Sen. Mary Landrieu (D-La.) is working with Republicans and fellow Democrats — including Senate EPW staff — to possibly add language protecting smaller, independent producers, sources said.

But supporters of the language say the massive Gulf of Mexico spill — more so than any changes in the liability cap — has done its part in making some companies rethink whether they should drill in certain waters.

“If you drill, you need to be able to pay for the damages because otherwise, imagine if this particular spill had been done by a ‘small company,'” Sen. Robert Menendez (D-N.J.) said defending the plan on the Senate floor back in May.

“That’s why we have an insurance market” that limits how much risk unsafe companies or a small company with not enough resources to pay for cleaning up a spill in deeper waters can absorb, one Senate Democratic aide added.

Oil companies under state law already face unlimited liability, as well as for federally required cleanup costs. Further, under current law if gross negligence or regulatory violations are found, federal liability caps do not apply.

Menendez and other lead backers of the language contend that the public at large supports the idea.

Sen. John Kerry (D-Mass.), though, acknowledged that political reality might dictate the liability should be raised instead of lifted entirely.

“I think we ought to raise it,” Kerry told Bloomberg’s Al Hunt in an interview that aired this past  weekend. Kerry said Democrats “ought to find out what the political market here [is] and the Senate will bear and get to a realistic figure.”

Democrats — led by Menendez — initially proposed raising the current $75 million liability cap to $10 billion. Critics attacked that increase as arbitrary. Menendez then successfully offered the retroactive unlimited cap in the left-leaning Senate environment panel — a move that was supported by the panel’s Democrats and Sen. David Vitter (R-La.).

Vitter, though, has made it clear he cannot support a package that retains language included in the EPW bill that he says goes too far beyond current requirements for companies to enact worst-case scenario response plans before they are able to produce offshore.

The EPW bill specifies companies would now be required to include a communications plan between parties involved in a containment and cleanup operation, the equipment and other technology a company has to clean up a spill and specifics on addressing blowouts like the one that ruptured a BP-run well and caused the massive gulf spill.

The bill “puts some more meat on the bone” toward the goal already in federal law, one Senate Democratic aide said. Companies, the aide said, have asserted in the past that they can address these worst-case scenarios. “So we’re saying ‘please explain,’ in a nutshell,” the aide said.

Critics contend companies would have to respond to “Doomsday scenarios” and that the language is intended to ensure the curtailing of offshore production.

Landrieu is also working with Murkowski on adding language that would more quickly give a guaranteed share of revenue earned from offshore production to those states where production is occurring off their coasts.

Landrieu has said this is needed so states can address the impact of the Gulf spill and that she needs such language before she can support any energy bill.

She and 23 other senators — including coastal Democrats Kay Hagan (N.C.), Jim Webb (Va.) and Mark Begich (Alaska) — sent a letter to all other senators Thursday advocating the need for revenue sharing. It also includes Gulf Coast senators in both parties and budget hawks from landlocked states.

Energy and Natural Resources Chairman Jeff Bingaman (D-N.M.), who Reid has asked to help lead the effort of cobbling together oil spill plans approved by his panel and others, is a leading critic of the idea. Bingaman argues that the revenue from production in federal waters is intended for all states to share.

Revenue sharing was included in a Senate Republican alternative oil-spill response plan filed late Thursday.

That package also includes language that would give the president the authority to determine liability limits.

“It allows for the executive branch to make a rational, intelligent decision” based on 13 factors such as a company’s safety record and the risk associated with a certain drilling project, Dillon said. “These are things you can make a judgment call based on measurable metrics.”

But the Republican idea is “bizarre,” said one Senate Democratic aide. The market should dictate the price of risk, not the government, the aide said.

Reid this week is moving a narrowly focused four-part plan that in addition to the legislative responses to the Gulf spill will include relatively non-controversial language boosting residential energy efficiency, production of large trucks powered by natural gas and more funding for land and water conservation.

Reid has confidently predicted that the package would get 60 votes, noting that each of the four sections has bipartisan support.

The package also includes an oil-spill response bill approved with bipartisan support in the Senate Energy and Natural Resources Committee late last month. It will also have bills either approved last week by the Senate Commerce Committee or which its members will take up likely Tuesday or Wednesday in a less formal gathering off the Senate floor.

This includes the so-called SHORE Act requiring the Interior Secretary to consult with the National Oceanic and Atmospheric Administration before taking action related to offshore oil and gas development and giving NOAA unprecedented authority in the permitting process.

A second bill would expand the remedies and damages available for parties in maritime personal injury and wrongful death claims.

There is also the question of how to pay for the package.

While the details have been kept largely under lock and key and might still be in flux, sources on and off Capitol Hill say there is strong consideration to include a plan to more than quadruple the current 8-cents-per-barrel tax oil companies pay into an oil spill liability fund.

While the idea to increase the tax to 49 cents per barrel has been met with little resistance, it would have to be moved from a tax extenders package and potentially create a hole that would need to be filled in that package.

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