“Fuel Oil ‘Crisis’ Looming for Isle Energy Producers,” screamed a headline in the Hawai`i Tribune-Herald of March 1, 1992. “A major supplier will end shipments; insurance blamed,” read the sub-head.
The Hilo paper was not alone in its hysteria. Across the state, newspapers began reporting that as a result of a federal law passed in 1990, inter-island shipments of heavy fuel oil (the kind left over from the refining process and which is burned in electrical power generating plants) would be curtailed. Occasioning the report was the announcement by Pacific Resources, Inc., that as of the end of March, it would no longer be willing to expose itself to the risk imposed by federal law of unlimited liability in the event of an oil spill.
The newspaper-reading public in the state may be forgiven if they now believe that federal law is placing an onerous burden on oil shippers. The reporting on this topic uniformly failed to mention that the “unlimited liability” provided in federal (and, as a corollary, state) law obtained only in very limited — and extremely justifiable — circumstances: namely, when a spill occurred as a result of “gross negligence or willful misconduct”; when it “was proximately caused by” a violation of “an applicable federal safety, construction, or operating regulation by the responsible party” or its agent; or when, regardless of the cause of the spill, the responsible party failed to report the incident “as required by law” or failed “without sufficient cause” to comply with a clean-up order issued by the Coast Guard.
Legacy of the Exxon Valdez
The scapegoat in all this is the 1990 Oil Pollution Act (discussed in some detail in the December 1991 [url=/members_archives/archives_more.php?id=786_0_33_0_C]”Oil Contamination is Pervasive”[/url] article of Environment Hawai`i). That law, drafts of which had been circulating for two decades, finally was enacted by Congress in the wake of the catastrophic oil spill caused by the grounding of the tanker Exxon Valdez in Alaska’s Prince William Sound.
Cleaning up that mess cost Exxon and the public more than $2 billion dollars. That said, the liability limits expressed in what has become known as OPA ’90 are modest indeed. Oil-carrying barges with a capacity of up to 3,000 tons are liable for no more than $3.6 million. (The actual scale of liability is $1,200 per gross ton or $2 million, whichever is greater.) Vessels with larger capacity are liable for $10 million or $1,200 per gross ton, whichever is greater. (Tankers calling at Honolulu are usually no larger than about 30,000 tons, translating to a potential liability of $36 million. Capacity of the largest inter-island barges are no more than about 8,000 tons, for a liability of $9.6 million.)
According to PRI, however, new shipping rules based on OPA pose “a substantial risk to the viability of a company’s continuing operations, particularly because human error is always a possibility and strict no-fault liability is imposed.”
While PRI was curtailing shipments of heavy residual fuel oil, it stated it would be willing to continue shipments of lighter, more volatile (and also more expensive) fuels, such as diesel and gasoline. The so-called non-fossil fuel producers of power, which is to say sugar companies dependent on PRI for shipments of heavy fuel to produce baseload power when bagasse supplies run low, would be forced to purchase the pricier fuel or renege on their power-production contracts.
(Hawaiian Electric Industries, whose Big Island subsidiary, HELCO, purchases power from these sources, also has a barge line. When asked whether Hawaiian Electric would take up the slack and ship the heavier oil to these independent power producers, HEI President Robert Clarke said the potential profit from such shipments was more than offset by the liability exposure. Reminded that liability was unlimited only in extremely qualified circumstances — when gross negligence, willful misconduct, failure to report, or safety infractions obtained — Clarke indicated that those defenses to unlimited liability were insufficient to induce his firm to ship heavy fuel oil to its power providers, even though at the time, the Big Island was being subjected to rolling power blackouts on an almost daily basis.)
The Legislature to the Rescue
Chapter 128D of Hawai`i Revised Statutes — the state’s so-called Superfund law — contains no limit on liability. Instead, it calls for the party or parties responsible for an oil spill to assume liability “for all costs of removal or remedial action incurred by the State, any other necessary costs of response … and damages for injury to, destruction of, or loss of natural resources.” Like federal law, state law, too, provides for defenses against liability, including acts of God, acts of war, and acts of third parties other than employees or agents.
The federal Oil Pollution Act allows state laws to be more restrictive, but never more lenient. That is, so long as the federal law provides for unlimited liability (under certain circumstances), a cap on liability at the state level will be meaningless.
This did not keep the oil industry in Hawai`i and its allies from seeking (successfully) to get the Legislature to amend state law. According to a report in the Honolulu Advertiser of March 31, HEI President Clarke acknowledged that “the two laws are a problem,” referring to the state and federal statutes. “But we ought to start with the one we can do something about,” he added.
PRI soon reached an agreement with its Kaua`i clients, providing for continued shipments of heavy oil through the end of the year. The HEI shipping subsidiary, Hawaiian Tug and Barge, announced it would make deliveries to HEI-owned utilities on Maui and the Big Island through the end of 1993. A grateful Legislature responded by passing out House Bill 1817.
This bill establishes a ceiling on liability in state law, but only for inter-island barges — and even then, only when they are carrying heavy fuel oil. Tankers are excluded as are, one presumes, barges carrying other fuel products.
The liability cap, at $700 million, is far greater than the $10 million cap on liability for barges of roughly 8,000 ton capacity that exists in federal law (with exclusions for gross negligence, willful misconduct, et cetera). However, inasmuch as state law previously allowed for unlimited liability without qualification (that is, irrespective of whether a spill was caused by negligence, misconduct, or violations of safety regulations), the $700 million limit represents progress after a fashion — in the eyes of industry, at least.
Sweetening the Pot
House Bill 1817 does more: Essentially, it allows the sugar companies (“non-fossil fuel producers”) to recover any increase in costs resulting from their having to switch to higher-priced, lighter fuels if residual fuel becomes for all practical purposes unavailable. The sugar companies can collect the difference from the electric utilities to which they sell power. Those utilities, in turn, can pass on the cost to the ratepayers through an automatic rate-adjustment clause. Those who pay higher electric costs need not be limited to the pool of customers served by the “non-fossil fuel producers.” House Bill 1817 states: “At the commission’s discretion, the higher rate payable by the public utility … may be passed on to ratepayers statewide” if the increase, spread among the ratepayers in the affected utility alone, exceeds 15 percent, and if that “statewide increase is otherwise appropriate and in the public interest.”
The conference committee report accompanying the final draft of House Bill 1817 — at nine pages, the committee report is longer than the six-and-a-half page bill — explains that it is not the intention of the Legislature to allow sugar companies to pass on to ratepayers any costs they might experience in retrofitting their power generating plants to make them more suited to burning fuels lighter than the residual oil. To deal with this, the conference committee report suggests that the sugar companies might want to apply for assistance to the state’s agricultural loan and capital loan funds. “Your Committee anticipates that the administrators of those loan programs will consider any application by a non-fossil fuel producer with care,” the report states.
Evolution of a Bill
Although the final legislation may be regarded as the achievement of a milestone — the establishment of the cap on liability — during legislative debate, industry was proposing (and the Senate was considering) even more radical approaches.
One would have lowered liability for barges to the levels set by federal law ($2 million for vessels of 3,000-ton capacity or less; $10 million for larger vessels). That version of the bill, however, would have allowed, as federal law does, for unlimited liability for spills caused by willful misconduct or gross negligence.
Another draft would have done undercut the principal of joint and several liability for spills, allowing one or another responsible party to pay for the cleanup of only that portion of a spill that, “by a preponderance of the evidence,” may be attributable to the party’s actions. That draft also would have reopened a number of other issues that were debated in the 1991 legislative session, when the Legislature was in the process of making wholesale amendments to the state Superfund law, Chapter 128D.
Be It Resolved…
The Legislature adopted two concurrent resolutions intended to address the business community’s concerns over liability for oil shipments. One calls on the Coast Guard to consider factors other than insurance alone in setting rules for determining financial responsibility, as required by the federal Oil Pollution Act.
That resolution is premised on the notion that the U.S. Coast Guard is in the process of promulgating rules “which will not allow vessels to use their existing insurance as evidence of financial responsibility.” The resolution concludes by urging the Coast Guard “to consider vessel insurance as evidence of financial responsibility, or to modify the tests for self-insurance and guarantees so as to allow the inclusion of insurance as an asset in these tests…”
Actually, according to a Coast Guard spokesman, certificates of insurance will be accepted as testament to a shipper’s financial responsibility under OPA. The Coast Guard will be requiring only that shippers show insurance sufficient to comply with the new standards of liability set by the federal law. In other words, while existing certificates of insurance may not be sufficient, the Coast Guard is not at all proposing to eliminate insurance as a means of establishing financial responsibility.
The second concurrent resolution calls on the Department of Health and the Department of Business, Economic Development and Tourism “to study the impact of state and federal oil carrier liability legislation on inter-island shipments of oil.” That resolution charges the departments with reviewing six separate issues — every one of which concerns one or another potential economic impact to shippers. Potential environmental consequences, or consequences to the state’s tourism industry should a spill occur, are not mentioned at all in the charge to the departments. Nor are they asked to consider weighing what effect there might be on the attitudes or behavior of oil shippers if they are relieved of the need to act responsibly — that is, to avoid gross negligence and willful misconduct among employees, managers, or agents — in order to qualify for limits on liability might have upon the actions of the shippers themselves.
Volume 2, Number 12 June 1992