House Enacts Amendments to Oil Pollution Act, Outer Continental Shelf Lands Act; Measure Awaits Senate Action

Under pressure to respond to the Deepwater Horizon oil disaster, both houses of Congress have been holding hearings which have led to proposed legislation to amend the liability and spill response portions of the1990 Oil Pollution Act (OPA), and the leasing provisions of the Outer Continental Shelf Lands Act (OCSLA), along with a potpourri of other reforms. A two year-long effort in the 111th Congress to enact comprehensive energy reform has stalled and been declared dead by most political observers. Instead, the U.S. House of Representatives passed a bill on July 30, 2010 called the Consolidated Land, Energy and Aquatic Resources (CLEAR) Act (H.R. 3534), that would add restrictions on offshore oil drilling and beef up response, safety and liability provisions in current law. A companion Senate bill, the Clean Energy Jobs and Oil Company Accountability Act of 2010 (S. 3663), has been drafted and awaits action by the Senate, perhaps this coming week. If the Senate acts, both houses would return from the August recess to negotiate a compromise bill to send to the President.

Spill Liability, Prevention and Response

The House-passed bill, CLEAR, would make a number of changes to OPA and other laws which govern oil spill liability, prevention and response. Regarding liability, the bill would eliminate OPA’s $75 million cap on liability for spills from offshore facilities.[1] The change would be retroactive for “any claim arising from an event occurring before [the] date of enactment, if the claim is brought within the limitations period applicable to the claim.”[2] CLEAR would also add human health (including mental health) damages to OPA’s list of recoverable claims, retroactive in the same manner.[3] Similarly, S.3663 also would remove OPA’s liability cap and make other similar changes in the spill liability regime.

Regarding spill prevention, the House bill would require Department of Interior (DOI), which permits offshore facilities through a bureau former known as Minerals Management Service (MMS),[4] to impose additional safety equipment standards for systems (including blowout preventers), and add independent third-party certification requirements. DOI also would be required to set performance requirements for cementing blowout preventers and mandatory safety and environmental management systems for operations on the OCS.[5] The House bill also proposes to tighten safety standards for energy-related vessels operating in the Gulf,[6] including requirements that only U.S.-built and U.S.-owned vessels may “engage in support of exploration, development, or production of resource in, on, above, or below the exclusive economic zone.”[7] The build-American requirement is subject to waiver for vessels currently under contract or in the event that no U.S.-built facilities are available to meet lease requirements. S. 3663 would make similar, though less extensive, changes to the environmental conditions imposed on OCS operations.[8] It does not include the House bill’s build-America requirement.

Amendments designed to improve future spill response planning and execution are scattered throughout the House bill. Facilities would be required to develop response plans for worst-case discharges, which would be subject to governmental review and approval.[9] Methods for responding to worst-case underwater blowouts would have to be studied and evaluated.[10] Memoranda of Understanding would have to be developed to clarify the responsibility of the Environmental Protection Agency, Coast Guard, DOI, and other federal agencies in preventing and responding to spills. Coastal states would be eligible for grants to improve spill response planning.[11] New programs, such as the Offshore Technology Research and Risk Assessment Program and the National Oil and Gas Health and Safety Academy, would be developed to focus on prevention and response. Similar, but less extensive, provisions are included in S. 3663.

To address the ongoing spill response in the Gulf, the House bill would create a “Gulf of Mexico Restoration Task Force,” including governors of the Gulf Coast States and federal agency heads, tasked with creating a “comprehensive, multi-jurisdictional plan for long-term restoration of the Gulf of Mexico,”[12] followed by annual reports to Congress. The National Oceanic and Atmospheric Administration, meanwhile, would be required to establish a “comprehensive marine environmental monitoring and research program for the marine and coastal environment of the Gulf of Mexico,”[13] to last at least 10 years. NOAA would monitor the fate of oil released during the Deepwater Horizon spill, and of the dispersants applied to break up the oil, as well as identify environmental impacts. S. 3663 also would establish a Gulf restoration task force.[14]

Responding to concerns that rig workers were not covered by existing whistleblower protections, the House also passed H.R. 5851, the Offshore Oil and Gas Worker Whistleblower Protection Act of 2010. The bill would task the Occupational Safety and Health Administration (OSHA) with investigating and making initial rulings on allegations of adverse employment actions against those who provide information to the government. OSHA currently handles those duties under a number of similar authorities.[15] No similar language has been introduced in the Senate.

Reorganized Minerals Management Service

Earlier this year, the Obama Administration reorganized the MMS, by executive order, into three separate divisions and changed its name to the Bureau of Ocean Energy Management, Regulation, and Enforcement. The House bill codifies that reorganization, formally abolishing the Minerals Management Service (MMS), and dividing its responsibilities between three new Bureaus: the Bureau of Energy and Resource Management (BERM), the Bureau of Safety and Environmental Enforcement (BSEE), and the Office of Natural Resource Revenue (ONRR).[16] The bill also imposes a 2-year restriction on government officials with duties on the OCS from accepting related private employment after leaving government (the so-called “revolving door” provision). S. 3663 would authorize division of MMS functions among two bureaus, one for royalties and revenues, and another for safety and environmental matters.[17]

The House bill states that the reorganization is not intended to disrupt actions already completed by MMS: ongoing administrative proceedings (e.g., proposed rulemakings and review of submitted applications) and pending civil actions are to be continued as if the Act had not been enacted, and federal laws referring to MMS are to be revised to reflect the reorganization.[18] While the bill clearly intends to separate MMS’s development, oversight, and revenue components – in particular creating administrative mechanisms for independent environmental oversight – it is not yet clear what the restructuring’s real impact will have on former MMS personnel and the operation of the federal oil and gas leasing programs.

Leasing Reform – Exploration, Development and Production

The House bill would also significantly amend the Outer Continental Shelf Lands Act (OCSLA).[19] Many of the amendments are intended to, in the words of the bill’s sponsors, “require a more balanced approach to energy development that acknowledges the other resources of the OCS, and to emphasize that energy-related activities should be conducted in a matter that minimizes impacts to the marine, coastal, and human environments.”[20]

A number of the revisions are aimed at limiting who may or may not operate in the Gulf of Mexico. Immediately prior to the law’s passage, the House approved an amendment to the original bill that would lift the moratorium on new drilling operations if rigs meet new safety standards. The bill also contemplates the cancellation of leases and permits if, after a hearing, it is concluded that a spill has occurred and “the threat of harm or damage will not disappear or decrease to an acceptable extent within 30 days.” The previous standard was “within a reasonable period of time.”[21] In provisions directed at the Deepwater Horizon accident, the CLEAR Act would forbid bidding on leases, easements or rights-of-way to parties who had failed to meet their “obligations under [OPA] to provide compensation for covered removal costs and damages;” or had, in the previous seven years, committed “willful or repeated” OSHA violations five times higher than industry average; been convicted of a crime involving death or serious bodily injury; had more than 10 fatalities at its facilities “as a result of violations of Federal or State health, safety, or environmental laws;” or had been fined more than $10 million under the Clean Water Act or Clean Air Act.[22] Again, S. 3663 has similar provisions.[23]

Under the House bill, DOI would be required to submit its proposed lease sales to the Department of Commerce for review of the proposed sale’s “impacts on the marine and coastal environment.”[24] DOI’s ability to grant a lease larger than 5,760 acres would be withdrawn,[25] and DOI would have to determine that leases are “not likely” to cause “serious harm or damage to life … to property, to any mineral (in areas leased or not leased), to the national security or defense, or to the marine, coastal, or human environment.”[26]

The House bill also responds to Kerr-McGee Oil and Gas Corp. v. U.S. Dept. of Interior, 554 F.3d 1082 (5th Cir. 2009). That case involved eight oil leases obtained between 1996 and 2000, subject to royalty relief under the Deep Water Royalty Relief Act of 1995.[27] The leases included provisions that revoked royalty relief when oil and gas prices rose above threshold levels, but before certain statutory volume thresholds were met. The Fifth Circuit struck down these provisions. The Clear Act would prevent DOI from issuing new leases to holders of the affected older leases until the leaseholders renegotiated the payment responsibilities.[28]

Royalties and Funding

A separate title of the House bill would enact a number of amendments to the Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA), 30 U.S.C. § 1701 et seq., governing the revenue collection process for federal oil and gas royalties. The amendments would raise fines for payment irregularities (doubling them) for the first time since 1983; eliminate government interest payments on royalty overpayments to deter overpayment “investment;” and adjust many other aspects of FOGRMA to tighten U.S. royalty payments.[29] The House bill would also impose an additional fee on all oil and gas developed under leases on Federal onshore and offshore lands, totaling $2 per barrel of oil and $0.20 per million Btu natural gas.[30] These provisions do not have a counterpart in the Senate bill, as introduced by Senator Reid.

The revenue provisions of the Act would benefit the Land and Water Conservation Fund, the principal source of federal funds for land acquisitions for parks and recreations services, used by the National Park Service, Bureau of Land Management, Fish and Wildlife Service and Forest Service, as well as in a matching grant program for states.[31] While federal oil and gas leasing revenues previously made up a part of LWCF funding, the $900,000,000 per year allocation was subject to Congressional appropriations and allocation. The Act would establish permanent funding based entirely on OCS lease revenues, although Congressional appropriations committees would continue to assert allocation authority. [32] A similar proposal would provide permanent funding, subject to Congressional allocation authority, for the federal Historic Preservation Fund.[33] The two funds would also be extended through 2040. The Act also creates an Emergency Migratory Species Alternative Habitat Program to reduce impacts of the Gulf Spill on migratory fish and birds. The program will focus primarily on habitat restoration.[34] S. 3663 also would provide a permanent authorization for the Land and Water Conservation Fund.[35]

Other Energy Provisions

The Senate bill contains several provisions derived from more comprehensive energy bills introduced earlier in the session, including a program to promote natural gas-fueled and electric vehicles, and to utilize the Home Star program to subsidize residential energy efficiency retrofits.[36] The bill also would require disclosure of the chemicals used in hydraulic fracturing, the technique used to extract natural gas from tight shale formations, the use of which is growing rapidly in the northeastern U.S.[37]

Conclusion

The House has now passed its version of an oil spill bill, but the fate of the legislation remains uncertain. The Senate has a packed agenda for this last week before its August recess. If the bill fails to clear the Senate this week, it may still be taken up in the short pre-election fall session, but the Senate calendar will be crowded with appropriations bills and a variety of other priority bills.

For more information about energy legislation, please contact Svend Brandt-Erichsen, Adam Orford, or any member of Marten Law’s Energy practice.