lex tonight, -- >> tonight, david cameron and nick clegg on their new coalition government and remarks from gordon brown as he left number 10 downing street, tonight on c-span. >> supreme court nominee, elena kagan is meeting with senators in front of her nomination. -- providing unique insight about the court, available now in hong kong -- in hard cover and as an e-book. >> now this senate hearing on the gulf of mexico oil spill and the offshore oil drilling industry. you will hear testimony by the u.s. the chairman of the -- the u.s. chairman thebp. this portion is about one hour 45 minutes.

>> the rep for bp is lamar mckay. transocean ltd. was the owner and operator of the deep water horizon rig that exploded on april 20th. is the primary offshore drilling contractor in the deep waters of the gulf of mexico, providing rigs to many of the deep water exploration development wells and its representative on this well is stephen newman, its

chief executive officer. halliburton is the oil-field services provider that was subcontracted to provide a range of services on the deep water horizon, including the cement and casing program of the well that experienced a disastrous blow out. its representative on this panel is tim probert, the president of business lines and chief safety and environment officer. as i indicated, we are asking all witnesses to be sworn today. if each of you would stand and raise your right hand, i will administer the oath to you. these elements where the testimony you are about to give to the committee on energy and natural resources should be the truth, the whole truth and nothing but the truth? please be seated. as with the previous panel, your entire written statement will be made part of the record. we would ask that each of you

take a five or six minutes to make the main points that you think we need to understand, starting with you, mr. mckay, the mr. newman then mr. probert. >> chairman, ranking members, many -- members of the committee, i am the president and chairman of bp america. we have experienced a tragic series of events. three weeks ago tonight, 11 people were lost in an explosion and fire aboard the transition deepwater horizon. 17 others were injured. -- the transocean deepwater horizon. my sympathy goes out to our friends to the loss -- who have had such a terrible loss and those in the gulf coast communities whose lives and livelihoods are being impacted. over the last few days, i have seen the response firsthand and of talked to the men and women on the front line. there is a deep and steadfast resolve to do all we humanly can

to stop the leak, contain the spill, and minimize the damage suffered by the environment and the people of the gulf coast. as a responsible party under the oil pollution act, we will carry out our responsibilities to mitigate the environmental and economic impact of this incident. our efforts are part of a unified command that was established within hours of the accident and provides a structure for our work with department of common security and interior as well as defense, energy, osha and other federal agencies as well as effected states and local governments and embittered -- and transocean. we are grateful to president obama and of the resources they have provided. we are grateful to the governors, congressional members, state agencies, and local communities of

mississippi, alabama, louisiana, texas and florida. i want to underscore that the global resources of bp art committed to this effort and have been from the outset. nothing is being scared. everyone understands the enormity of what lies ahead and is working to deliver an effective response at the wellhead, on the water, and at the shoreline. before i describe our round-the- clock efforts to respond to this series of events, i want to reiterate our commitment to find out what happened. figuring out what happened and why it happened is a complex process. we are cooperating with the joint investigation by the department of homeland security and interior and investigations by congress. in addition inbp has commissioned an internal investigation whose results we plan to share -- in addition, bp has commissioned an internal

investigation has resulted plan to share. it is inappropriate to draw any conclusions before all of the facts are known. as we speak, our investigation team is locating and analyzing data, interviewing witnesses, and reviewing and assessing evidence. today, i think it is important to give you and the american public an idea of the questions we are asking. there are two key sets of questions here and we are actively exploring both of them. first, what caused the explosion and fire on board the transocean deep water horizon rig. second, why did the transocean block printer failed to shut the well and release the wit -- release of the rig? how hydrocarbon's could have entered the well bore. bp as the lease holder and operator of the well, hired transocean to drill a well. transocean as an owner and operator of the rig, had

responsibility for the safety of drilling operations. we do not know yet precisely what happened on the night of april 20th, but we do know there were anomalous pressure test readings prior to the explosion. these could have raised concerns about control to replace mud with seawater in the well in preparation for the cement plug. but through our investigation, we hope to learn more about what happened and was done in the hours before the explosion. apart from looking at the causes of the explosion, we are examining why the blowout preventer or bop as it is called, did not work as a fail- safe to close the well and prevent an oil spill. the bop remains a critical piece of equipment to ensure that will control up until the time the well is sealed with a cement plug and is temporarily abandoned. we will continue full speed ahead with our investigation, keeping all lines of inquiry

open until we find out what happened and why. at the same time, we are fully in gauged in efforts to respond to these events. our sub-sea efforts to stop the flow of oil involved for parallel and concurrent strategies. activating bop would be the preferred course since it would diminish the flow at the source. unfortunately, this has proved unsuccessful so far. we are working on a containment system which would place large enclosures or contain in chambers atop the leaks and conduct flows to the surface. there have been technical challenges however. engineers are working to see of the challenges can be overcome. we have begun to drill the first of two wells designed to intercept and permanently secure the original well. we began drilling the first on may 2nd and expect to begin drilling the second later this week. this operation could take approximately three months. a fourth effort, known as a top

kheel, uses a two to inject a mixture of multi-sized particles into the blog printer to cap the well. it is a proven industry technique and has been used industry-wide, but never in 5,000 feet of water. on the open water, about 300 response vessels have been utilized and about 1 million feet of boom is available with more than another 1 million feet still available. we're also using biodegradable dispersants being applied from airplanes and boats. we have applied technique to apply dispersant at the leak point on the seabed. we are analyzing options for this techniques for their use. to protect the store line, we are protecting the coastguard cause the most massive shoreline protection effort ever mounted. 13 staging areas are in place and over 4000 volunteers have been trained. we recognize there are both

environmental and economic out -- economic impact. british petroleum will pay all cleanup costs and is committed to paying legitimate claims to a loss and damage is caused by this bill. tragic and unforeseen as this accident was, we must not lose sight of why british petroleum and other energy companies are operating in the offshore, including the gulf of mexico. the gulf provides one in 4 barrels produced in the united states, a resource our economy requires. bp in the entire industry are under no illusions about the challenges we face. we know we will be judged by our response to this crisis. we intend to do everything in our power to bring as well under control, to mitigate the environmental impact of this spill, and to address economic claims in a responsible manner. no resource available to this company will be scared. i can assure you that we and the entire industry will learn from this terrible event.

we will emerge from a stronger and safer. thank you for the opportunity to appear before you today. i would be happy to answer your questions. opportunity to speak before you today. i would be happy to answer questions. >> thank you. mr. newman, go ahead. >> members of the committee, thank you for the opportunity to speak with you today. my name is steven newman. i am the chief executive officer with transocean ltd. it's a leading offshore drilling contractor with 18,000 employees worldwide. i am a petroleum engineer and have spent years working with and on drilling rigs. i've worked a transocean more than 15 yea. i am incredibly proud of the contributions are company has made to the energy industry during that time. today i sit before you with a heavy heart. the last few weeks have been a time of great sadness and

reflection for our company and for me personally. nothing is more important to me and to transocean than the safety of our crew members. our hearts ache for the widows, parents, and children of the 11 crew members, including nine transocean employees, who died in the deepwater horizon explosion. these. were exceptional these we are committe -- these were exceptional men. over the last few weeks we have seen great acts of courage and kindness in our colleagues and in our communities. that was embodied by the 115 crewmembers who rescued from the deepwater horizon and were as worried about the fate of their colleagues as they were about their own safety. it was embodied by the brave men and women of the u.s. coast guard who provided on-site

response and search and rescue efforts, and by medical professionals and family and medicalwho received the injured crew members when they arrived on shore. it is embodied by our friends and colleagues at transocean and across the industry who have rallied to help the families of those lost. this has been a very emotional time for all of us at transocean. it has also been a time of intense activity in effort who. immediately after the explosion, transocean began working with bp and the unified command in the effort to stop the flow of hydrocarbons from the oilwell. our finest engineers and operational personnel have been working with bp to identify and pursue options for stopping th flow as soon as possible. our drilling rigs are involved in drilling a relief well and the drillship called the

discover enterprise is standing by on location to carry out the unique oil recovery operations in the gulf. we will continue to support to bp and the unified command in all of these efforts. at the same time we have been working hard to get to the bottom of the question that this committee and the american public want and deserve an answer to. what happened on the night of? april 20 how do we assure the american public it will not happen again? -- what happened on the night of april 20? transocean has assembled an independent team that includes dedicated transocean and industry experts. they will be interviewing people who have potentially helpful information and studying the operations and equipment involved. because the drilling process is a collaborative effort among contractors, and subcontractors, the process of understanding

what led to the april 20 explosion and how to prevent such an accident in the future must also be a collaborative. our team is working side-by-side with others, including bp and governmental agencies, and the investigative efforts will continue until we have satisfactory answers. while it is early to know exactly what happened on april 20, we do have some clues about the cause of the disaster. the most significant clue is that these events occurred after the well construction process was essential complete. drilling had been finished on. april 17 the oilwell had been sealed with casing and cement. for that reason, the one ing we do know is that on the evening of april 20 there was a sudden catastrophic failure of the cement, the casing, or both.

without a failure of one of those elements, the explosion could not have occurred. it is also clear that the drill crew had very little, if any, time to react. the initial indications of trouble and the subsequent explosions were almost instantaneous. what caused that sudden violent failure? was the oilwellroperly desned? were there problems with the casing and the fuel assembly? was the casing properly cemented? and the oilwell effecvely sealed? were all protests run on the cement and the casing? nor the blowout preventers damaged by the surge that emanated from the well? did the search put debris into the bop, which prevented them from crossing the pipe? these are some critical questions that need to be answered in the coming weeks and months.

until we know exactly what happened on april 20, we cannot determine how best to prevent such tragedies in the future. but regardless of what the investigation uncovered, ours is an industry that must put safety first. we must do so for the sake of our employees, for the sake of their families, and for the sake of people all over the world who use and enjoy and rely on oceans and waterways for their sustenance. thank you again for the opportity to speak today. i am hpy to answer any questions. >> thank you very much. mr. probert? >> members of the committee, thank you for inviting halliburton to testify. we will continue to work with you and your staff to collect the factual data that will enable an understanding of what took place and that we can --

and what we can collectively do to ensure domestic oil and gas production is undertaken in the safest and most environmentally possible manner possible. if the catastrophic blow out and spread of oil in the gulf of mexico or tragic events for everyone. on behalf of the entire lliburton family, we extend our heartfelt sympathy to the families, the friends, the colleagues of the 11 people who lost their lives and those workers injured in the tragedy. as we hope you can appreciate, neither halliburton or any other party can make a judgment or offer any credible theories about what happened until at a minimum the oilwell owner has interviewed everyone on the deepwater horizon to recreate the daily log of activities on april 20. in absence of that, we should not be making a rush to judgment. the weber, two things can be said with some certainty. -- however. the casing was put in place.

had the it bop functioned as expected, the catastrophe might not have occurred. for more than 90 years holabird has provided a variety of production -- halliburton has provided a viety of products and services to ensure the life cycle of reservoirs. with respect to the mississippi canyon to 52 well, halliburton was contacted by the owner to provide cementing, directional drilling, real-time data acquisition and data delivery rvices for t personnel on board the oil rig and on shore. since the blowout, halliburton has been working at the direction of the owner to assist in efforts of bringing the oi well under control. this includes intervention support to help secure the damaged oilwell and assistance

in dealing one or more relief wells. at the outset i need to emphasize that halliburton is a service provider and is contractually bound to comply with the oilwell owner's instructions immolated to work activities. the construction of a deep water well is a complex operation involving the performance of many tasks by many parties. while the owner has ultimate responsibility for planning and approving, much of the daily activities are directed. cement can be used to prevent movement of fluids between formations and to bond and support the steel casing. there are many external factors which affect the design. and the execution. these include variability of the geometry, the relative location of hydrocarbon reserves, and hydrocarbon content of

associated drilling fluids. the centralized replacement on the production casing, the drilling fluids, a conditioning program, and t cement replacement design used for the well were implemented as directed by the owner of the oilwell. as shown on the diagram which is attached to my prepared remarks from a design so there was no connuous cement column throughout the entire well board. 24 hours prior, halliburton had completed the cementing of the ninth and final if production casing in accordance with the program. following the placement of the slurry, the casing ceiling was done in the tazing hangar. as required by mms and as directed by the oilwell owner, a pressure test was conducted to demonstrate the integrity of the production casing strength. results of the positive test

were reviewed by the owner and the decision was made to proceed with the well program. the next steps include the performance of a negative pressure tests which tests the integrity of the casing assembly. it is conducted under the direction of the owner and mms requirements. we understand halliburton requires a pressure applied during the test. after the negative test was completed, halliburton cementing personnel were placed standby. we understand the drilling contractor replaced the dense drilling fluid in the riser with seawater prior to the planned placement of the final cement plug. if the drilling fluid being transferred directly to a workload standing by. the final cement plug would have been installed inside the production stream and enabled the planned temporary abandonment of the oilwell. but prior to that point in the

oil well construction plan, the halliburton personnel would have set the cement plug, the catastrophic incident occurred. as a result, the final cement plug was not set. halliburton is condent the cementing work on the mississippi the252 was completed in accordance with requirements. thank you for the opportunity to share with you. i look forward to answering your questions. >> thank you very much. i just note for all senators we are in the middle of a vote. i guess we are halfway through a vote. so we will plan to keep the hearing going. if senators want to go ahead and te and then return to ask questions, you are encouraged to do that. let me start with some questions. mr. probert, in one of your last

statement said you understand the drilling contractor proceeded to displace the riser with seawater prior to the planned placement of the final cement plug. is that standard operating procedure? >> that is an operating ocedure which is commonly used. >> there is no safety problem in doing that as a normal matter? >> what that effectively does is it reduces the density of fluid in the riser. as a result of that, it reduces the hydrostatic head which is bearing down on the well head. >> i would have thought that you would want as much pressure in the oilwell, tao would pressure, as possible until you have the plug in place. am i wrong? but there's no question that

question hydrostaticshead would of been reduced during the course of that process, but it is a process undertaken prior to the setting of the final cement plug. >> ok. let me ask a very general question about it. i think you make reference to the need to recreate the daily log of activities that occurred on the oil rig. i think that was your comment. is all of the da that was available on the oil rigrior to the explosion, is all of that information -- has that been preserved and is it information that is being made available to t government investigators at this time, mr. mckay? >> as in the stand, there's quite a bit of data located on a remote server from the oil rig

onshore. that data has been prerved. all data, everything we can get our hands on and turnover is being turned over, yes. >> mr. newman if, is that your view? but that there would be some amount of written data that would've been on the oil rig at the time of the event, obviously that data is no longer available to us. whatever there was has been transferred electronically or sent into our offices prior to the event is being preserved and provided to the government. >> did you have a remote server that was capturing this data away from the oil rig just as mr. mckay indicated bp did? >> the only distinction i would draw is that bp data would have been real time. our data has some delay in the replication of our data, so are sequence of events ends at 3:00 in the afternoon on the 20th.

>> do you have all that data preserved? >> yes, all that data has been preserved and made available as requested. >> ok. one of the issues that is going to be focused on probably when we have secretary salazar next week is whether there were efforts made to improve or to strengthen the safety requirements for this type of drilling operation that mms made that were not successful, that the industry resisted. are there any aspects of this that you are aware of, mr. mckay, where t mms was urging additional safety precautions to be taken that the industry was noin compliance with? >> no, i am not aware of any.

some people of reference to a letter that went to comment to the mms about safety regulations where we were providing comment as to the nature of, a prospective nature of regulations. we suggested that performance standards should be set off, companies should be made to adhere to those performance standards. we de recommendations for on how we thought regulations could be made better, but we have not submitted anything that would try to slow down or limit safety regulations. >> mr. newman, do you have any knowledge of circumstances where your company or industry more generally has been resistan to efforts by mms to impose stricter safety requiremts? >> senator, i would draw a distinction between discussions with regulatory authorities and regulation. we have participated in discussions when the topic being discussed would have specific applications to our business or

where we would have expertise that we could bring to bear on those discussions . when regulations are passed, we stand in full compliance. >> did you have a comment? >> we also worklosely with the mms in developing standards for certain processes which are undertaken. >> ok. thank you all. senator mikulski? >> thank you, mr. chairman. in reading through the testimony of each of the three of you -- and this was alluded to by senator menendez, that he suggested there is the transference of liability or finger-pointing. i have stated that there is going to be plenty of time to try to figure out who is to blame. that will go on. i think we preciate and recognize that. you suggested, mr. mckay, that,

as the owner and operator of the deepwater horizon, that transocean -- not suggesting that the liability there, but you are transferring it. mr. newman is suggesting it is noth bop at all, that that was not the cause. and that we should be looking to something that could cause a catastphic failure su as the casing or cementing. mr. probert take all the way back to the owner of the oilwell at bp. i would suggest altria view that we are all in this together, because this incident is affecting -- it will have an impact on the development of our energy policy for this country. if we cannot continue to operate and convince people that we can perform safely, then not only will bp not be out there but the

transoceans will not be out there to drill and halliburtons will not be there to provide cementing. mr. mckay, i want to ask you some questions about what is happening right now. we have been watching with fascination the containment dome and whether it's going to work. it's not encouraging. it's disappointing to many. we are now watching the ongoing efforts with the drilling of the two relief wells, recognizing that is two months away. now discussing the nowhitop hil. we're not certain how much volume is coming out on a daily basis. the issue with the disbursement, i would like to understand from you whether or not we have the

supply of dispersants that we need, whether we are getting them out there not only at the surface but at the seabed in a manner that is aggressive. en the exxon valdez incident happened, we delayed some critical methods that we've perhaps could have contained it, whether it was burning or dispersants. i would like to think there have been no delays, th. can you give me some assurae we are moving aggressively to break up as much as we can't? >> yes, we have two levels of dispersant that we are utilizing. one is that the suace. it is phone every day when the weather permits. that has been very impact will so far. >> did you have enoh of that? >> yes. what we have done is worth the

supply chain such as our chemical supplier, which supplies 75 thousands a day sustainably. that amount should cover the amount using at the surface on the water as well as what we hope to do. we have just done a subsea test yesterday. it ended at 4:40 this morning. bp is making sure the correct monitoring is in place or will be in place. we hope to be getting approval pretty soon for further dispersant. >> is this the first time epa has done this testing and the deep water levels, testing dispersants for safety and effectiveness? >> i believe this is the first use at 5,000 feet and the first test. >> it stuns me that we know we need to use dispersants in the

event of an oil spill, but we have not put in place the testing necessary. we have probably lost days where we could have been acting while we are waiting for the testing to play out. that's more than frustrating. litani ask you, -- let me ask you, you just indicated the final cement plug was not yet placed prior to the blowout. this is contrary to a certain media accounts out the. the question is why is that significant? i want to make sure i am clear. the we --was the oilwell case and completined when the blowout occurred? but there are conflicting reports in the media. i can confirm the final plot was not said.

as we heard this morning, the concept of multiple barriers is very important. that blood would have been the final barrier before the oilwell would have beenemporarily suspended, as was the plan for completion at a later date. >> be have a vote that we have to get off to, but there's one qution. what tests were conducted? what kind of maintenance logs are in place for the cemen works? >> in fact there is no direct test that was performed on the cement. >> do you usually do a direct test? >> the direct tests were to be performed would be called a temperature log or a cement bond log. that's the only test to determine the actual effectiveness of the bond between the cement sheets, the formation, and the casing. when is that typically conducted?

>> that is conducted after two prior tests. the first test is a positive pressure test which is conducted to test the integrity of the casi itself. the second ia negative test which is designed to test the integrity of the casing hangar seals or the seal assembly which contains the casing. .

>> i would have to differ on that particular point to these gentlemen. >> it would seem to me that we would want to know whether or not the tests were conducted and what those tests were. that seems to be key to what could have taken place. >> i think everyone is working very hard to make sure the data is made available so that the reconstruction of events can take place. >> do you have that data? >> i have not had a chance to review the data. i know that is being reviewed -- i know there should be data from interviews, as not physical, digital data from the servers. that will be a large part of the investigation, to understand that sequence. >> we're going to take a short recess until we can return from these votes. we will standard recess a few minutes.

[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> >> one of the things i have found troubling and others are

concerned is that's there did not seem to be an emergency plan in place that could address how to deal with this bill once it happened. i know there is a lot of investigating relative to what actually happens, but, as you said, somebody from british petroleum said, this was a spill that was unthinkable. but once that happened, the strategy around the containment dome seemed to be not a plan that had been thought through in any significant way prior to the accident. i would like to ask what kinds of measures bp has had in place to address this sort of spill and why did it take the actual

spill before the company came up with the idea of the containment dome and had tested it to see how it might work? before the company came up with an idea for how to deal with it? >> spill responses have heretore concentrated on dealing with oil at the circ surface. there has been a contingency plan that has worked conditionally well. the point you bring up is aut intervention. we have not dealt with the situation like this before. obviously, it is a specifically difficult situation, 5,000 ft. of water. i think after this is under

control and thought about in hindsight, there will be some ideas about how to make the response better. we are learning as we go. it is something that needs to be looked at. >> how much research and development does your company to on the deep waters bills -- deep water spills? is this an area of any focus? can you quantify how much money is being spent on research and development in this area? >> i cannot quantify how much is being spent. >> are you at bp doing research in that area, how to respond to deep water spills? >> we're working very hard on

our spill response. intervention is something that needs to be looked at further. >> and you? >> we areot currently engaged in any research or development in regards to a deep water spille. >> halliburton's focus has been around intervention in the form of relief wells. >> are you aware of anyone in the industry who is researching how to handle a deep water spille? anybody at universities, for example? >> the question is, in a specific situation, we are dealing with fluids and depth of

water that have not been debt -- and not been dealt with before in actuality. there are60 companies working on this as well as government agencies. i really do think that what we learn from here is going to impact the industrand how well we do this. >> i appreciate that, and i think we all understanthe enormous response and the commitment that bp now has to respond to this accident. my question really is, should we not be more proactive about recognizing that when we are drilling at these depths, that despite all precautions, there is the potential for disaster, and therefore, we should have research under way that would show us how to respond in case of the disaster? you can take that as a statement

rather than a question. >> i guess the normal routine is to go back and forth. senator sessions? >> thank you. dealing with is exceedingly important. if we do not get this oil from off our shores, we ll have to get oil that is produced off- shore somewhere else. it is important to the economy. it is important to jobs. it is important to our nation's ability to be competitive in the world marketplace, but it has to be done safely. maybe we have become a bit too complacent in the work that we are doing here. first, let me follow up.

it is a bit odd to me that immediately after this blowout occurred and we began to see the leaks, the idea came that we needed a containment think it could go over the leak -- thing that could go over the leak. but several weeks to construct. -- that took several weeks to construct. why is it that something like that wasn't already constructed, and those sorts of things already examined when you are dealing with a deep water? >> it is extremely hard to predict the specifics of the situation.

the emergency system disconnect did not activate or released the disconnect. that then impacts what type of solution we have to use to address the problem. this is a situation where we had a riser bend over the seabed. is impossible to predict that. the intervention we have been doing haseen focused on trying to get the blowout preventer activated. >> always basicallysking was, should you not have anticipated that these kind of things could occur, and that this kind of dam

would be need and have something already constructed? >> what i would say is that as we learned from this iident, we will understand what type of capability -- it would have been difficult to have predied what would have been needed. >> there was an article today about the removal of the mud. did bp direct that the reverse procedure would be undertaken and ask the middle management service to alter the normal requirements and to displace the mud before the plugging operation began?

>> i have not read that article so i cannot comment directly. >> do you work for bp? >> i do. >> according to this, bp asked permission from a middle management service to dispce the mud befe the final plugging operation had begun. mud weighs about0% more than water. as the heavy mud was taken out and replaced by much lighter seawater, that is when the well blew up. that is what the workersaid pierre> i am not familiar with the individual procedure on the well. the investigation will look at the procedure, the directions, the decisions and the process but we used. but not under review of that yet.

-- process that we used. i have not done a review of that yet. >> do you know whether bp made that decision? >> because bp are the operators of the well and the permit holder and have the relationship with the mms,it there was a discussion about whether or not there was -- whether or not it was appropriate to proceed, that conversation would have taken place between bp and mms. >> i concur with that view. >> that is his view, but what do you know? >> we have no knowdge of that

discussion, however if the discussion took place, bp would be the leaseholder. >> what knowledge do you have about the decision being made to remove the mud and replace it with seawater? >> the only information we have is what i told you. >> but it is unusual, is it not? >> >> it was not utilized previously. 'm afraid i cannot tell you -- >> but it was not a normal procedure, yes or no? >> it has been used on multiple occasions in the gulf. >> hasn't been used on less than 10% of procedures? you are under oath. i am asking you a simple

question. what percentage of times today removed and the mud before they finished the plug? is it less than 50%. >> i do not know. >> you do not know? >> know. -- no. the responsibility for that decision lies between t leaseholder -- >> i did not a you about that. do you know? >> i would not be able to quantify the percentage of wells. >> well, this article indicates that it is unusual. are you aware of any times that this has been done before? . .

>> it is my understanding that you are the lease operator. it is also my understanding that if you are found to be grossly negligent, you can -- you will automatically be pressed by the law to exceed the $75 million liability cap. but my question is, if you are not found to be grossly negligent, is bp prepared to pay the full extent of real economic damage, not just to the individuals -- the individual

businesses, but to parishes, and other governmental entities that are expanding huge amounts of money to contain this incident? >> we have been very clear -- >> speak right into the microphone. >> our ceo has been very clear and we are going to pay all legitimate claims. all legitimate claims. >> define legitimate. >> substantiated claims. i cannot define the term -- here is the intent. the intent is to be fair, responsive, and expeditious and, as to the $75 million that you mentioned, we think we are going to exceed that, obviously and that is irrelevant. we have been very clear, we're going to pay the claims and the entire resources of bp are behind this. >> i am happy that we made the

step yesterday, but for the small businesses, and there are many, small and large affected by this catastrophe along the gulf coast, the small business administration yesterday has made clear that on an individual basis, 6000 small business disaster loans that are still pending in this same area from the last disasters we had can be deferred and new loans can be given until these claims can come full circle. my next question is to mr. newman. if not, is larger than you quest for >> we are the largest offshore drilling contractor in

the world. >> to your knowledge, has a blow out of this magnitude in terms of volumes build in an uncontrolled fashion for this length of time ever happened in the offshore waters of the united states or anywhere else to your knowledge? >> the only when it comes to mind is the one in mexico which believe happened in the 1970's. >> do you know how deep that well was? do you have any recollection? ? i have eight -- new line >> i have a vague recollection that that was from a jack up. >> that incident was well documented in shallow waters. the incident referred to by my colleague in new jersey was in 200 feet of water. this is in 5,000 feet of water, 18,000 feet deep.

given that, what are the regulations for these ultra deep wells that you can just comment briefly on that give our people confidence that this deep drilling can be done safely. obviously, it was not in this case. it is there anything you can offer that shows you as the primary driller in the world -- do you have special meetings or requirements? did you not anticipate this to happen? >> with respect to applicable regulations with have to do in our case with specifically the blowout preventer, the regulations in the u.s. required to control stations on the rig and on the deep water horizon, regulations require that you have 3 ram printer and one annular printer.

in the case of the deep water horizon, it was fitted out with five rampart vendors and three annular regulators. it was in excess of the regulations. in the case of the deep water horizon, in addition to manual operation from the rig, the bop system was fitted out with two automatic response systems and an rov intervention system. in terms of satisfying, and in fact far exceeding regulations with respect to the blog printer, we certainly complied. -- the blowout preventer, we certainly complied. >> thank you. mr., there has been with bp a series of horrific accidents over a number of years. again and again, major safety problems, problems that have resulted in hundreds of millions of dollars in fines being paid

by your company, settling criminal charges, and in each case, as far as i can tell, and i have looked back at the explosion of the texas city refinery, the fire at the lighting refinery, violations at the toledo refinery, the failure to maintain the pipeline system on the north slope, the company also says the same thing -- i want to have your reaction because we've all said that we a understand the specific cause for the deep water horizon disaster is not known. but this sure fits in my view a pattern, a pattern of serious safety and in our mental problems at bp, and the company ellises the same thing -- we are going to toughen up our standards, we're going to improve standards and deal with risks. and that another such accident takes place and we have more finger-pointing. my question to you is why hasn't

bp unable to change its corporate culture and and this pattern of accidents? >> in 2005 and 2006, you mentioned some incidents that were extremely serious. i believe we are changing this company. i believe it is being changed to its core. our ceo in 2007 took over the reins and his single mantra has been safety and compliance operations. . changing this country. we've put in management systems that are covering the world in a consistent and rigorous way. >> tell us what management systems you put in a that would have taken all possible precautions in this kind of problem? it seems to me -- i'm hearing about reports of various things that others in the industry are

doing, various types of computer models and the like that they test. what specifically have you done to put in place changes that redu the likelihood of these times of accidents that bp has a history of being involved in? >> i believe our operation and management system is as good as anyone. i cannot point to any deficiencies to point out to you. the investigation will be importt in terms of something mess. i know of nothing that points me in that direction such as deficiencies in the operating system. >> and with respect to the changes that you put it into thousands the -- 2007, and i am looking at the comments from tony hayward, operations failed to meet our own standards. improved risk-management -- these are just quotes.

you're telling me that you know of no deficiencies but i am still not clear what changes the company has made sense those comments from tony hayward. we know for a fact -- what is on the record? we cannot pinpoint the cause of this disaster. everyone stipulates that. we know that there has been a pattern of problems at bp, and i am trying to get you to tell me what changes -- concrete changes have been implemented since tony hayward made that statement in 2007. >> several -- we have board level safety and normal and ethics audit that is very active. we have group organizational risk committees that have been installed by tony hayward at the very top. we had an operational management system that has been standardized and is being put in place in every single location in the world. i believe it is very rigorous

and very complete. i will let knowledge that we have had issues and we have got to change some of the areas of the company. >> what has to change in the company? you say you have to make changes at the company pared that is what i want to hear about. >> the operation and management systems we are installing everywhere in the world that are consistent and rigorous to a higher extent than they have been in some areas of the world. in the gulf of mexico -- in the gulff mexico, we've been extremely safe. we have a tremendous track record of compliance. what i am telling you is that i am not aware of or seen deficiencies in the gulf of mexico system. >> and i am still not clear what changes have been made after tony heyward said that there were going to be changes made. >> it gets down to the culture of the company. >> insured does and the culture of this company has been on accident after another. >> we're notinished and we

will never be finished. >> i will hold the record open at this point. i would like to see an itemized list of what actually has been change when tony heyward said that there were going to be changes. he told me there are no deficiencies. i am not clearbout the changes. >> center mendes. -- senator menendez. >> we are sitting in the room where the hearings were held in the sinking of the titanic. that ship was so technologically advanced tt it could not sink. unfortunately despite these claims, but technological marvels ended in tragedy. when i looked at this tragedy, is not only the course of the loss of those lives which will amend and the enormous damage

being done to the gulf region, but i lood at the peace response here. -- add vp's response here. bp certified that it had "capability to respond to a worst case discharge resulting from the activities proposed in our exploration plan." what i see as a company not prepared to address theorse case scenario. a company that is flailing around trying whatever they think of next to try to deal with the worst case scenario that you all had the ability to do. you seem to be jumping from action to action, which we all hope and pray can work. that does not give me the sense of a plan that was ready to be implemented in the way -- in the

worst-case scenario. is that not a fair conclusion? >> let me explain what we're doing. we have multiple parallel efforts at every level of this column -- crisis. we're working o the blowout preventers. we have eight remote operated submarines around the blow out the better trying to get it to command. we're dealing with a unique and specific situation. we have aggressive spill response as part of the national contingency plan for the gulf and the bp response plan which i think works well. we're fighting aggressively offshore. we are skimming and protecting the shoreline with bones. we're prepared to clean up and deal with anything that gets to the shore. we're prepared to deal with the economic impact. >> i appreciate your let me of what you are attempting to do.

once is more credible than the other. there was first that don't that you tried to lower over the spill. -- the dome that you tried to lower over this bill. and then there is going to be good job shot, or tires and golf balls would be shot down the blowout preventer to claude the lead. i do not get the sense that you are truly prepared for what the certification you made

shore of those crewmembers. that included providing them with clothing, because many of the more awakened from their beds when the explosion happened. it included providing them with food and water and medical care. they had left a rate under such extreme circumstances that many of them -- they had left the rig with such extreme

circumstances that many of them would have no identification with them to use at the airport. it included a preliminary gathering of facts. the statement you are referring to is in exercising our attempt to facilitate that. we ask them if they had any information related to the cause of the event. asked if they were injured. i do not think it is appropriate to characterize those statements as waivers. >> we will leave that judgment for the investigation as it unfolds. it has left in many people's mouths a sour taste about what the intent was for the deep water, whether it was to support the workers or defend the deepwater from potential liability. i know you are conducting your own investigations. will the results and analyses as

well as any testimony you generate be available to the federal government and the congress? >> yes, it will. >> i think this event has such an impact on our business and our industry that it behooves us to share everything we can with respect to understanding exactly what happened, so that we can prevent it from ever happening again. >> similarly, i would add that we will share any information and use this as a basis for ensuring that the industry is safe and environmentally sound as we move forward into the future. >> i have one final question for the three of you. i had the great honor to share the subcommittee in the house on space and aeronautics. i am extreme -- i am aware of the extreme conditions that make

it difficult to work, such as what nasa works in. nasa has had its experience with accidents. while they may be few and far between, it does not make it less catastrophic or tragic. it seems unfathomable to me that we did not have been the focus on technological improvements in spill cleanup technologies since the exxon bobbies accident 10 years ago. -- exxon valdez accident 10 years ago. we have 20th-century technologies responded to what has happened. i would welcome your comments. >> i think the improvements are in the deployment and usage of some of the technology, as well as what we were talking about earlier -- the subsea dispersant, which is a new potential technology that could be effective and could use a lot less for the impact that it may have. there is quite a bit of new technology being developed.

>> mr. newman? >> senator, under the provisions of the international maritime organization, which we're obligated to comply with, because we operate marine assets, we are required to have a shipboard will pollution plan aboard every ship, which deals with the chemicals and materials that we deal with, such as diesel for our engines, cleaning products, and things like that. we work closely with the providers of those materials to ensure that our shipboard pollution plans are as robust and comprehensive as possible to deal with the materials we have on our drilling rigs. >> our primary focus has revolved around intervention of existing wells that may be challenged as a result of some kind of well control issue. that is where most of our effort has been focused.

>> i know senator shaheen asked a similar question. her understanding and mine was that nobody is doing any research to address the deep water spills. that needs to be pursued. and these to be done in the short term and immediately. >> thank you. senator cantwell? >> i want to follow-up on--- on my colleague senator landrieu's question. how are we going to pay for this. -- how are we going to pay for this? you said you would pay all viable claims. what are viable claims? are you talking about a legal standard where you are found to have gross negligence? >> let me explain. we want to be very responsive and direct with claims where people and businesses are affected. we have been clear that we want to stand behind that.

the we mean it. that is our intent. the klan saw to have some basis and substantiation. we have been clear about the $75 million -- the claims have to have some bases and substantiation. we have been clear about the $75 million. mostly we have had claims from fishermen and people who do not have the cash to make ends meet because there are a fork. we're concentrating on that right now. -- because they are out of work. we are concentrating on that right now. we're meeting local needs and we will go from there. >> how do you determine a viable claim? it sounds like bp is saying maybe the fault lies with the red operators -- rig operators and trans ocean is saying it lies with the centers --

cementers, and then they are saying it might be someone calls this fall. is that part of the -- someone else's fault. is that part of the discussion? >> liability, blame, fault -- we are a responsible party. our obligation is to deal with this bill, clean it up, and make sure the impact of this bill -- the spill is compensated. >> no matter how much it is? >> every legitimate claim and the full resources of our company are behind this. >> there are cost estimates that say it could be as high as $14 billion. will you pay all claims? >> we will pay all legitimate claims, yes.

>> mr. chairman, i think that is the question before us. this is a panel and discussion about how we're going to move forward. it reminds me of when we had -- you have this room for the big investigative hearings. i was here when the challenger blew up and we had a big discussion about what the fault was behind the system. we found out there were system failures. there were many problems. here was a freezing of the temperature and the o ring but there were many other problems that led to dead. and i think that is what we're going to find here as well, that there is too cozy a relationship with mms and the oversight within the industry and the various things by colleagues have been talking about with the blowout preventers and other things. there is much more oversight and detailed that needs to be made here. i think the question that is going to remain is how we are going to clean up $14 billion of

oil spill or whenever the number is, and that we really have an accounting here of how that is going to work. we have to move forward with preserving that area. mr. newman, i do not know if you have any comments about that, because i definitely feel the case for defense is being built here this morning. >> i guess i would agree with the way mr. mck has characterized it. liability and culpability and altman responsibility for the events that resulted in the incident or one thing, and responding to the economic impact of the event is another thing. i think the way the senator explained it coincide with my understanding which is as police operating -- police operator and a well honor, that falls on pp. -- lease operator and the well

owner, that falls on bp. >> there needs to be a safer environment to develop oil and gas resources. it is in the interest of all of us, the nation' energy security, that we learn from this andontie to take those learning and build them into our future operating procedures and technologies. >> 41 opinion, what i've learned from this situation is time for us to diversify of oil. thank you, mr. chairman. >> you wish to put something in the record. >> i just have some documentation about the value of the louisiana seafood industry which is more than $3.4 billion. i want to put that in the record. >> i think all senators have had a chance to rest around of questions. let me now start on the second

round. senator murkowski, did you have questions? >> i will be very brief, mr chairman. mr. mckay, there was an associated press article the referenced -- that reference of comprehensive blow out a plan for the deepwater horizon. the article states that bp had not filed a specific comprehensive blow out volume -- plan. it indicated that it was not required to file because it got trigger certain conditions triggered in the mms report. the article goes on to speculate that if there had been on site- specific plan, it would help to facilitate a quicker response. can you comment on this? was there in fact an exemption?

did you file a side-specific comprehensive blowout plan? >> in reference to the exclusion granted by nss -- mms for specific wells in the area, when the sale is conducted an environmental impact statement is done, and extensive anbar most study, then there are brit in formal assessments in areas within that lease sale. that environmental assessment is utilized as the informal assessment for internal wells and you apply for an elusion because they are already done. that is what they did. that is an industry practice and in assess practice. -- and mms practice $3 would it have help bp, transocean,

halliburton in this instance had there been a specific plan? >> i do not think it is called aid blowo prevention plan. >> i am going off of an ap article. i apologize. >> we filed our scenario around as well and the anbar mall assessments that were done, impact to spill response plans, those are clear and very extensive. i do not think the individual well location within an area of an informal assessment would have been any different. i do not know that for a fact but that is what i believe. >> you maintain because mms did not require this, there was no necessity for b's part in doing anything? >> i do not believe so. i think we were under the standard and practice. >> the same question to all three -- given where we are

after this incident, had you ordered any additional safety measures or modify procedures for operation outside the u.s. based on this incident? >> yes, we of requested that all of bair -- -- we have requested that all of our rig modifications that may of been made to a blowout pventers, we have instituted some incremental testing on a blowout preventers worldwide, and sent notices to all of our businesses worldwide that are doingeep water drilling, and we have communicated with mms everything we understand about that. they are incorporating what we are learning here into new testing -- i do not know what will come out, but new ideas around how to ensure safety around these incidents. >> the you have any reason to

believe that the deepwater horizon gop was modified? -- bop was modified? >> we do have reason to believe that they were modified. i do not know the extensive -- the extent of that modification $3 assuming there were any modifications, would they have beenerified? >> they were notified and never performed in 200 that were done at b's request and that bp's expense. >> what were those modifications? >> as i mentioned in a comment eaier,op on the deepwater horizon is fitted with five lem from vendors on the rig. -- preventers on the rig. one preventer to test ramp.

it allowed for more efficient testing for the bop. >> while with that my face it -- modification have been requested? >> testing and perhaps the well construction process. it has an impact on the efficiency of the operation. to the extent at we can make the process more efficient, it has clear benefs in terms of the overall time required to drill the well. >> have you ever done such a modification? >> yes, ma'am. >> multiple times? is this standard one deeper water wells? >> on rigs that have blowout preventers that are prevented -- fitted with a number of ram the vendors that exceed requirements, we have converted rams boto bop's. >> have there been any

incidents? >> no incidents related to that modification. >> let me ask you the same question. within your interest outside the united states, you requested any additional safety measures or modification procedures as a result of this incident? >> we operate a consistent standard of policies and procedures, maintenance practices, and opeting practices across the transocean lead throughout the world. in the aftermath of this incident, until we find out what may of contributed to the cause of events, we have not changed any of that standard transocean system of policies and procedures are around the world. >> other than to alert our organization around the world to this incident, firstly, an secondly we operate with a standard set of procedures.

it is certainly our expectation thats we learn from this and didn't, there will may well be some changes in the process and procedures or other approaches which we would then implement as partf the global standard. the way on the findings of the analysis of the reports of this incident. -- that will wait on theinding of the analysis of the reports of this incident $3 let me ask this question. one of the issues the first panel talked about was the known limitations on the ability of these share ram sheer rms to function under these circumstances, whether there were joints and the drill shout, that they are expected to cut, that sort of thing. do you agree that the sheer ram cannot cut the stool joints these -- cannot cut these tool

joints? and is that not a severe design flaw? public there are several drills that the sheer rams are incapable of sharearing? >> i do not support the contention that that is a design flaw because the industry recognizes those implementations and are strict operating procedures place to account for the inability of the shear rams to ashear every tool. >> they would apply tovery preed -- eve personnel operating under that bop? >> they understand what those operating procedures are free billboard do you believe that they were following them in that case chris des moines >> i do.

>> even though the proper operating procedures were followed, the failure of the shear rms to stop the explosion from occurring, it is not a problem with the degn of bop, not a problem with the wavy bop was operated, or managed? how do you explain the fact that this bop was not able to prevent this blow out? >> the operating procedures i referred to earlier were applied to the process these our people used when they are manipulating pike in the bop or through the bop. running drill pipe sat down to the bottom to put the drill bit on the bottom of the bolt to continue to drill, pulling that

drill bit back up through the bop, running casing down through the bop to progress at casing operation, the operating procedures i am referring to that our people were following relate to situations where our people are in control of the pipe that is going through the block. >> that were not in control of the time that this accident occurred? >> without knowing today senator what is behalf -- inside the bop, it is entirely possible that there is material inside the bop that would have come from well bore, not from the transocean people on the rig. >> from the well itself. >> yes, sir. >> let me go ahead. >> let me put an additional information into the record. i think it will be important. the commercial fishermen in the gulf of mexico harvested 1.2 7

million pounds of fish and shellfish, and generating $69 million in revenue. 68% of our commercial auses from the gulf of mexico. that is one industry at risk. both have been pushed into slips and harbors, unable to operate. the amount of economic damage continues to mount. i am encouraged by what you say, that there will be no limit to true economic damage, because it will be substantial, whether it is $14 billion or something up to that map, we do not know. it is important that the gulf coast, for the people of the gulf coast, from florida all the way over to texas, to know that bp and the operators will be there to protect their economic interests. we want to make sure that the government agencies like the

small business administration, like commerce, like other industries can step up and help us do this difficult time. but because my eyes are leaning forward even despite the fact that, i want to ask a question about all tread deep drilling. -- ultra deep drilling. there are currently 120 ultra deep sites drilling today. is that correct? that is my information. do any of you dispute that? ok. awesomely 120 drilled as we speak. -- approximately 120 drilled as we speak will be required internationally to make sure that this does not happen. the requirements that you say you exceeded that mms requires for the deep water drilling, are our requirements the highest

internationally, or are there other nations that require higher safety standard them what mms requires of us to do this type of exploration and production? >> the regulatory regime that we operate around the world, and we operate in about 30 countries. they very from very minimal to quite stringent. i would characterize the u.s. has closer to the end of being quite stringent in terms of very well described rolls. -- but we're not the most skirt -- stringent. >> i think there are aspects of the regulatory regime in places like the u.k. and norway tha might be charactized as being re stringent than the u.s.. the board you are also testifying that there are some places where the regulations could be quite collapse. idging lax -- you are also teifying that there are some

places were the regulations could be quite lax $3 some operating practices are consistent thrghout the world regardless of the regulatory vironment we're operating in. >> you would say that the requirements -- and we have a great deal of responsibility in this subcommittee -- you would say that the standards that we promote in this committee and here in this congress has international implications because what we require you to drill in the gulf, you normally would follow those around the world. it is important for us to get this right. would you say that is true or not? >> because of the opportunity that the administration and the congress have to influence the way thing are done in the u.s., it does have international implications. >> let me ask you this, mr. newman. your company just recently acquired another drilling operor which i think caused you been to become the world's

largest. my question that some of my constituents might be thinking, are you too large to be safe? what kind of parameters are in place -- and you said, mr. mckay, you've acquired other companies to be a quite large operator. what would you say, mr. newman, to give us confidence that with this most recent acquisition, did you double your safety operators? could you comment about that? >> europe concerning -- the combination that took place in november 2007. the combination of those compans in the integration of such a large work force, i think, in hindsight it went extremely well. i think that was due in large part to the strong operating cultures and strong safety culture that both of those organizations had.

both organizations prided themselves on the focu of safety, a focus on customer satisfaction, and a focus on quality and performance of our drilling equipment. so i do not think it had an impact on our ability to operate safely -- safely. >> and this committee has to give some focus on emerging on some of these companies and to the extent in which they operate to make sure that they have consistent policies throughout. thank you. >> senator sessions. >> the follow up a bit on the removal of the mud, the wall street journal today says that it is common practice to for wet cement down into the pipe. the wet cement which is heavier than the drilling mud sinks down through the drilling mud.

the mud is the removed after the plug is in place. in this case, a decision was made shortly before the explosion to perform t remaining task in reverse order. which is to take the money out first. but the chairman of the department of petroleum engineering at texas tech agrees that this is an unusual approach because normally you would not evacuate the pipe from the sea floor to the raid until you were done with the last plug at the sea floor. he said that in an interview. i guess i will ask you, mr. mckay, do you agree that normally you would not do that? >> i do not have specific knowledge of the procedure for this well. and whether refer circulating was part of the procedure or not, that will be part of the explanation.

>> mr. newman, was that normal? >> it is normal practice to remove the drilling mud from the riser prior to disconnect think re -- disconnecting the triser from the well. i don't have any specific knowledge of the order of the events as they took place on tuesday evening the 20th, because our recordf a man's ends earlier. -- of events ends earlier. >> would you agree that that was normal? >> i certainly don't want to be non responsive to your request, send a third, concerning your question which was is this normal procedure and is this undertaken on a regular basis? that is something i do not have knowledge of today but i would be more than willing to gather -- attempt to gather the information for you, it should it be helpful to you.

>> mr. mckay, had the mud not been removed first and replaced by sea water, would that have made the blow out more less likely in your opinion? >> i do not know. >> mr. newman? >> i think that calls into question thectual mode of failure. until we can determine that, i think any hypothesis about the impact of the mud that indeed -- in the riser would be premature. >> we need to gather the information, reconstruct the sequence of events, to be in position to establish exactly what took place. >> mr. newman, i suppose you work for a number of companies. you ill for them. i'm intrigued by my colleagues

$10 billion cap on strict liability legislation. i think it is something we should consider. but i understand that there could be a result that it would favor only the super major oil producers, because the sum of money is so large. you think that lar of money, of maun for that much -- a bond for that much, would that keep competitors out of the business? >> i am not sure i want to comment on public policy, but i think congress ought to take into consideration all the potential ramifications, including theommercial ramifications of such a policy. >> did you have additional questions? the worst i know that we're trying to wrap this up. i wanted to go back to mr. mckay because i think this issue of

who pays for this cleanup is still critically important. mr. mckay, it just going back -- happy to have other witnesses chime in. it was literally last year it that the last part of the exxon valdez clean-up was settled. when all the way to the supreme court. are you going tovoid that by paying legitimate claims in advance? i know you cannot stop anybody from suing you, but would you pay in advance of the process? >> we are paying legitimate claims right now. yes, i am. obviously we cannot keep that but we are saying exactly what we maine. we're going to pay legitimate claims. >> the harm to the fishing industry, both short-term and long-term, all you're going to pay. >> we're going to pay all

legitimate claims $3 if it is an impact from tourism you're going to pay. >> all legitimate claims we're going to pay. >> long-term damages to the fishing industry? >> i cannot quantify or speculate on long term. i do not know how to find it. >> additional troubles from depleted fisheries in their recovery. >> we're going to pay all legitimate claims. >> shipping impact. >> legitimate claims. >> impact on further drilling operations. i am talking about things that were part of the exxon valdez. what i am saying is that i think the american people are most anxious about this. let me go back. they said in to frame a process of liability. we obviously only have so much money in that. i know my colleagues are not

going to waive that. to make the rich reactive -- to make that retroactive is probably iossible. you have the best buys that money can hide but -- by behind you, so i want to make sure that we really understand what you're saying you're going to be committed to today, because a long-term impact of this is going to be for 20 years. we cannot sustain this kind of behavior or cost, and i want to make sure that we're getting full answers to the coverage that you are really signing up for today. >> i am trying to give you a clear answer as i possibly can. we're trying to be extremely responsive, expeditious, meet every responsibility we have as a responsible party, and that means pay all legitimate claims. that is our intent, and i cannot speculate on every individual case, but i can tell you this is

not about legal words. this is about getting it done and getting it done right. >> and impacts to the pristine beaches that we have in this area, those are legitimate claims? but yes, it impacts the beaches, it impacts commerce, yes. >> mr. chairman, i am one who hopes that we never get into the situation where we are in court debating about what is now a legitimate claim. you're making a big presentation here that you are stepping up to these responsibilities and i hope that that is true. and i hope, mr.hairman, that we will go back on the legislation we have passed out of this committee, that included an opening up further of the gulf, and passed legislation to reconsider that. this is clear evidence that the beaches of destined don't need to be subject anymore will threaten the future. >> thank you very much. if tre are no other questions, you have any more,

setor sessions? >> i thank senator cantwell for pursuing that line of inquiry. i think there is some confusion about it. i try to look at all law on it. legally use still remains subject the all the normal trespass and pollution walls of the state if you damage property or beaches. is that correct? of course i do not under spawned that law in detail but we're skeptical all laws. >> the provisions in the pollution that that provide for these damages, strict liability damages, expressly stated in the act that that does not abrogate existing state law. i do feel that that is part of it but i believe again for answer is you should do what is right and compensate fully and

not try to utilize technical defenses that are not legitimate. thank you, mr. chairman. >> let me just thank the witnesses for their testimony and indicate tt if members have additional questions, that they want to submit for the record, they should do so by the end of business tomorrow, thursday. if you folks would be able to respond to [unintelligible] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

>> on wednesday, oil executives were back on capitol hill, along with representatives from transocean and halliburton to answer questions from the house energy subcommittee. you can see that full hearing on our website at c-span.org. this portion is about 90 minutes. >> this meeting will come to order. we have a hearing titled "inquiry into deepwater horizon

gold coast oil spill." we have a number of manners -- members present. welcome them and there will be allowed to submit britain's statements for the record -- we welcome them and they will be allowed to submit written statements for the record. full committee members will be asked -- will be asking questions. members were not on either committee are welcome to observe, but it will not be permitted to give verbal open statements and ask questions, due to time constraints. you now have 10 minutes for your opening statements. other members will be recognized for their three minute opening statements. i yield to mr. waxman for his opening statement. . i yield to mr. waxman for an opening statement. >> thank you very much. la month a owout occurred at

an oil rig drilling in deep water off the gulf of mexico. 11 people lost their lives in an environmental calamity is now unfolding in the gulf as oil gushes from the well. and it threatens the coast. we're here today to begin the process of understanding what went wrong and what we need to do to prevent future catastrophes. the investigation is at its early stage. but already we have learned some key facts. bp, one of t world's largest oil mpanies, assuredongress and the public that it could operate safely in deep water and that a major oil spill was next to impossible. we now know those assurances were wrong. halliburton, one of the world's largest oil service companies says that it had secured the well through a procedure called cementg and that the well had

passed a key pressure test. but we now know this is an incomplete account. the well did pass positive pressure tests, but there is evidence that it may not have passed crucial negative pressure tests according to a senior bp official, significant pressure discrepancies were observed in at least two of these tests which were conducted just hours before the explosion. transocean, one of the world's largest operators of drilling rigs, says it has no reason to believe that the rig's fail-safe device called a blowout preventer was not fully operational but learned from cameron that the device had a leak in a crucial hydraulic system and a defectively configured ram. and we know there are major questions about the effectiveness of bp's response

to the spill. the company said it could manage a spill of 250,000 barrels a day, yet it's struggling to cope with this blowout which is releasing only 5,000 to 25,000 barrels a day. the more i learn about this accident, the more concerned i become. this catastrophe appears to have been caused by a calamitous series of equipment and operational failures. if the largest oil and oil service companies in the world had been more careful, 11 lives might have been saved and our coastlines protected. it's dangerous to drill for oil a mile below the ocean's surface. an accident can wreak environmental havoc that destroys livelihoodsnd imperils fish and wildfire. the oil companies make billions of dollars from taking these

risks but they don't bear the full costs when something goes drastically wrong. in the course of our investigation, we've received over 100,000 pages of documents. the story that these documents and our interviews tell us is a complicated one. at this early stage in the investigation, we have far more questions than answers. but we have learned some important facts which chairman stupak, chairman markey and i will describe in our statements. there are four principal areas of inquiry that our committee is pursng. the first involves questions related to well integrity. we know there was a failure of the well because gas surged up the riser and exploded on the rig. we will be invtigating what caused the breach in well integrity and who was responsible. the second area of inquiry involves what happened on the

transocean drill rig. there are pressure monitors on the rig that feed information constantly to the drill operators and there are panels on the rig that control the operations of the blowout preven ter and the drill string. we'll be examining what the drill operators knew and what decisions they made. in the rest of my statement i'll discuss what we've learned about these two areas of the inquiry. our third area of inquiry invoes the blowout preventer which is also cald the b.o.p. this is supposed to be the last line of defense against a blowout of the well, but it failed. we have learned a lot about the blowout preventer and chairman stupak will summarize this part of our investigation. the final area of inquiry involves the response of bp and other companies to the spill. they promised to contain any spill, but they're not

succeeding. chairman markey, who chairs our energy subcommittee and the collect committee on energy independence, will cover this area of our inquiry in his opening statement. we recently received a document from bp called "what we know." it was prepared on may 6th, and it summarizes what bp knew about the spill at that time. and i want to focus on the first four bullets. i alsosk unanimous concept, mr. chairman, that this document and other documents cited during this hearing be made part of the official hearing record. >> without objection, so be it. >> the first bullet says, "before, during or after the cement job an undetected influx of hydrocarbons entered the well bore." what this means is that there was a breach somewhere in the well integrity that allowed methane gas and possibly other hydrocarbons to enter the well. the second bullet says "the 9/7

inch casing was tested. the 9 7/8 inch casing hanger packoff was set and tested and the entire system was tested." bp explained to us that this refers to a positive pressure test in the well. what this means is that fluids were injected inhe well to increase the pressure and to monitor whether the well would retain its integrity. the well passed this test. rigs like deepwater horizon keep a daily drilling report and transocean has given us the report for april 20th, the day of the explosion. it's an incomplete log because it ends at 3:00 in the afternoon, about seven hours before the explosion, but it confirms that the three positive pressure tests were conducted in the morning to the early afternoon.

the next bullet says "after 16 1/2 hos, waiting on cement, a test was performed on the well bore below the blowout preventer." bp explained to us what this means. halliburton completed cementing the well at 12:35 a.m. on april 20 and after giving the cement time to set, a negative pressure test was conducted around 5:00 p.m. this is an important test. during a negative pressure test, the fluid pressure inside the well is reduced and the well is observed to see whether any gas leaks into the well through the cement or casings. according to james dupri, the bp senior vice president for the gulf of mexico, the well did not pass this test. mr. dupri told committee staff on monday that since test

results was not satisfactory and inconcsive, significant pressure discrepancies were recorded. as a result another negative pressure test was conducted. this is described in the fourth bullet. ring this test, 1400 psi was observed on the drill pipe while 0 psi was observed on the kill and the choke lines. acrding to mr. dupri this is also an unsatisfactory test result. the kill and choke lines run prosecutor the drill rig 5,000 feet to the blowou in the tests, the pressure is measured at any point from the grill ranged -- from the drill should be the same, but the test showed that pressures in the pipe were significantly higher. you explained that the results

could signal that an influx of gas was causing pressure to mount inside the well bore. another document provided to the committee is labeled "what could have happened." it was prepared on april 26, 10 days before the first document. according to bp, their understanding of the cause of this bill has evolved considerably since then, so this document should not be considered definitive. . describes the two negative pressure tests and the pressure skrepgss that were recorded. what happened next is murky. mr. dupri told the committee staff that he believed the well blew moments aer the second pressure test. but lawyers forp contacted the committee yesterday and provided a different account.

according to bp's counsel, further investigation is revealing that additional pressure tests were taken and at 8 p.m., company officials determined that the additional results justified ending the test and proceeding withell operations. this confusion among bp officials appears to echo confusion on the rig. information reviewed by the committee describes an internal debate between transocean and bp personnel about how to proceed. what we do know is that shortly before 10 p.m., justwo hours after well operations apparently resumed, gas surged from the well up the riser and the rig exploded in a fireball. this hearing and future hearings the committee will conduct in the coming weeks will explore these questions, our goal is to learn what caused the fatal explosion so that congress and

the executive branch can act to prevent future disasters. but as we focus on these narrow questions of what happened and why, we also need to keep the broader perspective in mind. our national energy policy is oken. and nothing illustrates this better than this massive spill. our dependence on oil and other fossil fuels is fouling our beaches, polluting our atmosphere and undermining our national security. one lesson is already apparent from the catastrophe in the gulf. we need an energy policy that emphasi emphasizes clean renewable sources of energy. now, we can't snap our fingers and transform our energy economy overnight. if we do not have the courage to taken the oil companies and take desizive steps to reduce our overreliance on oil when the consequences of doing nothing

are so clear, we may never start down the path toward a clean energy economy. mr. chairman, i look forward to today'hearing and i thank the witnesses for appearing and for their cooperation in the investigation. >> thank you, mr. chairman. next i'll go to mr. barton, ranking member of the full committee for an opening statement. your opening statement, please? >> thank you. thank you, chairman stupak. i'll submit my written statement for the record and speak extemporaneously because i think based on what chairman waxman just said, we need to kind of set the parameters. there is nobody on either side of the aisle in this subcommittee for the full committee that doesn't want to get the facts o the table about what happened down in the gulf of mexico approximately a month ago, why it happened, what can be done to prevent it from happening in the future and

remediate any damages both human and environmental. the 11 pple that lost their lives is the primary tragedy. the fact that 5,000 barrels a day of oil is spilling out of the well and coming to the surface and beginning to wash up on some of the beaches in louisiana and alabama is a problem, but it is a problem that can be remediated. i want to focus on some of the things that chairman waxman said right at the end of his statement when he made the comment that if we can't take on the oil industry as if this was some sort of an adversarial situation between the people and the industry. nothing could be further from the truth. the united states of america is the greatest nation in the world because we're based on the premise of freedom for every individual in this country, that

freedom is enunciated in the declaration of independence. our founding fathers had the foresight and the wisdom and so far our political leadership for the last 200 years has said the best way to protectur freedoms is to provide maximum economic opportunity through a free market capitalistic system. we're one of the few nations in the world that have let the private sector develop our natural resource base that has given us the most productive economy, the largest economy literally the united states economy by itself is approxim e approximately a third of the total world' gross product. that is not a consequence of government. it is a consequence of free men and women to maximize their opportunity and in so doing

create economic opportunity for everybody in the world. we're in a situation now where if we're going to have additional domestic energy production in a way that maintains our existing lifestyle, it is going to be because we develop our natural resource base both onshore and offshore. i have absolutely no problem with the alternative energy sources wther it be solar, wind, ethanol, hydro -- you name it. but there is a reason that we're an oil-based economy. it's because that barrel of oil refined into all the products that flow from it have a tremendous, tremendous productivity potential. you can take a gallon of gasoline and you can power a 4,000-pound car with 4dults in it at 60 miles an hour in air conditioned comfort down the highway all the way from new

york city to los angeles, california. now, we do not want on either side of the aisle to have people have to import more and more foreign oil. whether we like it not, the only real place to find significant additional oil deposits in meaningful quantities is in the outer continental shelf. now, we've had an accident. it is not an act of god. the amount of pressure, the amount of gas and oil that came up that borehole is something that was foreseeable. it is something that could have been and should have been contained. the blowout prevention equipment that was on that rig had a design capacity that should have controlled that explosion. it didn't. the facts that we have uncovered in this investigation through the documents that have been

provided show that there was in all probability shoddy maintenance. there were mislabeled components, the diagrams didn't depict the actual equipment, but that was not an act of god like a hurricane or an earthquake or a volcano that man can't control. now, through the efforts of this subcommiee and the full committee and some of the other committees, we'll get to the bottom of it. we'll find out the facts and we'll take corrective measures to present that -- prevent that from happening in the future whether legislatively or regulatory or best practice changes through the industry, but what we should not do, mr. chairman, is make a decision to fence off the outer continental shelf, to use this as the equivalent of the three mile island accident for nuclear power and set back domestic oil

and gas production in the int intercontinental shelf for the next 20 or 30 years. it would not only be a mistake but a disservice to the american people. i don't want to take on the industry. i want to work with the industry. i want to work with the congress. i want to find out what the problem was. i want to solve that problem and i want to move forward. i don't want the united states of america to continue to import 12 million to 14 million barrels of oil a day. that one well in the gulf although british petroleum has not been explicit, that one well probably has the potential to produce 50,000 barrels of oil a day. to put that in perspective, there are a million oil wells oducing onshore texas producing 200,000 -- producing a million barrels. that's 5 barrels a day per well in texas. this one well, this one well is the equivalent to 10,000 oil

wells in texas. that one well in full proction is 1% to 2% of the production capacity existing in the gulf of mexico today. mr. chairman, we can't fence that off. we can correct the problem. we can prevent the problem, we can try to change the technology. but do not use this hearing, use this acciden as an excuse to take away from the american people the probably the biggest domestic energy resource we yet have to develop on the north american continent. with that, mr. chairman, i yield back the balance of my time and look forward to hearing from the witnesses. >> thank you, mr. barton. i'll do my opening statement now. three years a almost to the day this subcommittee held a hearing into british petroleum disasters at texas city and on the north slope of alaska. the 205 texas city refinery explosion resulted in the death of 15 workers and injured more than 170 people.

as a resultf that accident and bp's failure to correct potential hazards faced by employees at texas city, osha that is twice slapped them with fines totally $100 million. several reports criticize management at the texas city facility including bp's own 207 report of the management accountability project which stated and i quote "a culture that evolved over the years seemed to ignore risk, tolerated noncompliance and accepted incompetence." in march of 2006 bp discovered their pipeline on alaska's north shore -- north slope, excuse me, had spilled more than 200,000 gallons of oil on the tundra making it the largest in north slope history. our hearings discovedhat cost-cutting measures resulted in decreased maintenance and inspections of the pipeline and bp's management culture deterred individuals from raising safety concerns. since our last hearing, bp has

experienced continual problems on the north slope. september 2008, september 29th, 2008 an eight-inch high pressure gas line at the y pad location separated sending three pieces of pipe to the tundra. one segment landed 900 feet from the pipeline. roughly 30 minutes later a second unrelated incident occurred on the "s" padhere there was a gas release. january 15th, 2009 a disk cleaning pick became lost in the transit line during deoiling allowing gas to pass around the pick and travel through skid 50 to pump station number 1 causing a significant venting of gas into the atmosphere and complete shutdown of the transaction ago pipeline. october 10th, 2009. at the central compressor complants low pressure flare staging valves were stuck closed causing them to travel and activated and caused the gas to

vent to the atmosphere. november 28th, 2009. an 18-inch three-phase common line near lisburn production center caring crude oil, produced water and natural gas ruptured saying its contents over an estimated 84,000 square feet. in addition to these pipeline incidents there have been several permanent injury accidents where employees have been seriously injured or killed. as was the tragic case of mike failen on november 18th when he was crushed between the pipeline and a truck. today we're hear to investigate the latest bp tragedy, one which has resulted in the loss of 11 lives and is well on its way to becoming one of the largest oil spill in our nation's history. let me take a moment on behalf of the entire committee to convey our deepest sympathies to the family, friends and co-workers of those 11 individuals lost on that fateful day. on april 20th an explosion

occurred in the deepwater horizon rig which bp was leasing in the gulf of mexico. 9 rig was owned and operated by transocean, the world a largest offshore drilling operation. on april 22nd, the rig capsized and sank to the floor of the ocean resulting in oil leaks from three separate locations among the twisted wreckage. the world is wondering what went wrong to allow exclusive gas to shoot out of the drill pipe on the deepwater horizon causing the explosion? we heard chairman waxman discuss theories of what may have gone wrong in the well and what went wrong on the rig. i'd like to take a few minutes to discuss issues related to the blowout preventer, the b.o.p., which was the failsafe system that cut off the flee of oil and gas to the rig. in his testimony today, mr. lamar mckay, the president of bp america says blowout preventers are "intended to be failsafe."

but that didn't happen. the blowout preventer used by deepwater horizon rig failed to stop the flow of gas and oil. the rig exploded and an enormous oil spill is now threatening the gulf coast. we now the b.o.p. did not properly engage. it has multiple rams that are supposed to slam shut to pinch off flow around the drill pipe and stop the flow of oil from the well. there are also shear rams in the b.o.p. that are supposed to cut and seal the pipe to prevent oil and gas from knowing. the question we will ask is why did these rams fail? our investigation is at its early stages. but already we've uncovered at least four significant problems with the blowout preventer used on the deepwater horizon drill rig. first, the blowout preventer had a significant leak in the key hydraulic system. this leak was found in the hydraulic system that provides emergency power to the sheer rams which are the devices

supposed to cut the drill pipe and seal the well. i'd like to put on the screen a document that the committee received from bp. this document states "leaks have been discovered in the b.o.p. hydraulic system. the blowout preventer was manufactured by cameron. we asked a senior official at cameron what he knew about these leaks. he told us when remote operating vehicles tried to operate the shear ram, they noticed a loss of pressure. they investigated this by injecting dye into the hydraulic fuel which showed a large leak coming from a loose fitting which was backed off several turns. the cameron official told us that he did not believe the leak was caused by a blowout because every other fitting on the system was tight. we also asked about the significance of the ak. the cameron official said it was one of several possible failure modes. if the leak deprived the shear rams of sufficient power they might not succeed in cutting through the drill pipe and

sealing the well. second, we learned that the blowout prevent had been modified in unexpecte ways. one of these modifications was potentially significant. the blowout preventer has an underwater control panel. bp spent the day trying to use this control panel to activate a variable bore ram on the blowout preventer that is designed to seal tight around any pipe and well. in oth words,inch off the flow of oil. when they investigated why their attempts failed to activate the bore ram, they learned that the device had been modified. a useless test ram, not the variable bore ram, had been connected to the socket that was supposed to act. an entire day's worth of precious time had been spent engaging rams that closed the wrong way because it was wired wrong. bp told us the modifications on the b.o.p. were extensive. after the accident they asked transocean for drawings of the blowout preventer because the

modifications that drawings they received did not match the structure on the sea floo bp said they wasted many hours trying to figure this out. third, we learned that the blowout preventer is not powerful enough to cut flew the drill pipes. we found a transocean document i'd like to put on the screen and it says most blind shear rams are designed to shear effectively only on the body of the drill pipe. procedures for use of bsrs must therefore ensure there is no tool joint opposite the ram prior to shearing. this seemed astounding to us because the threaded joints between the sections of drill pipe make up about 10% of the length of pipe. if the shear rams cannot cut throh the joints that would mean the so-called failsafe device would succeed in cutting the drill pipe only 90% of the time. we asked the cameron officia about the cutting capacity of the blowout preventer on the deepwater horizon.

he confirmed that it is not powerful enough to cut through the joints in the drill pipe. he told us that this was another possible explanation for the failure of the blowout preventer to seal the well. and, fourth, we learned that the emergency controls on a blowout preventer may have failed. the blowout preventer has two emergency control, one called the emergency disconnect system or eds. bp told us the eds was activated on the drill rig before the rig was evacuated. but the cameron official said they doubted the signals ever reached the blowout preventer on the seabed. cameron officials believe it destroyed the communications link before the emergency sequence could be completed. in other words, the emergency controls may have failed because explosion that caused the emergency also disabled communications to the blowout preventer. still, the blowout preventer has a dead man switch which is supposed to activate the blowout preventer when all else fails but according to cameron there

were multiple scenarios that could have caused the dead man switch not to actuate. one is human oversight. the dead man switch may not have been enabled prior to installing the b.o.p. on the ocean floor. one is a lack of maintenance. the dead man switch won't work if the batteries are dead. the dead man switch is connected to two separate control pods on the blowout preventer. both rely on battery power to operate. when one of the control pods was moved and inspected of athe spill began, the battery was found to be dead. the battery and the other pod has still not yet been inspected. there also appears to be a design problem. the dead man switch activates only when three sepate lines that connect the rig to the blowout preventer are all severed. the communication, power and hydraulic lines. cameron believes the power and communication lines were severed in the explosion. but it is possible to hydraulic lines remainedntact which would have stoppedhe dead man

switch from activating. tease are not the only failure enarios that could impair the nction of the blowout preventer. the cameron official we met with described many other potential problems that could have prevented the blowout preventer from functioning properly. steel casings or indicationing hanger could have been ejected and blocked 9 operations of the rams. the drill pipe could have been severed successfully but then dropped -- but then dropped from the rig breaking the seal or operators on the rig could have tried to activate the shear rams by pushing the shear ram control button. this would have initiated an attempt to close the rams but it would not have been successful. the shear rams do not have engh power to cut drill pipes unless they are activated through t emergency switch or the dead man switch. in fact we uncovered an astonishing document transocean prepared in 2001 when it bought the blowou preventer from cameron. i'd like to display the summary

of this. it says there are 2060 separate failure modes that cou require pulling of the b.o.p. according to this report, the predominant failures including ram blocking mechanisms. how can a device that has 260 failure modes be considered failsafe? the problems with the blowout preventer extend to the procedures for testing the device. ceo of transocean steven newman says in his testimony and i quote, we have no reason to believe they wereot operational. they were jointly tested by bp and transocean personnel as specified on april 10th and 17th and found to be functional. this assertion seems to be contradicted by a document prepared by bp on april 27th, one week after the explosion. according to this document and a quote, the blownout protector emergency systems are not typically tested once the b.o.p.

stack is on the seabed. what this means is thathile some functions of the b.o.p. may have been tested in the weeks before the explosion, the emergency systems including the dead man switch and the leaking emergency hydraulic system were unlikely to have been tested. after the alaska pipeline and texas refinery disasters, bp promised to make safety its number one priority. this hearing will raise questions about whether bp and its partners fulfilled this commitment. the safety of its entire operations restedn the performance of a leaking modified effective blowout preventer. this is the first of what certainly will be multiple hearings into this disaster.oup your disposal for answers. thank you for letting us be here today. >> thank you, mr. moore. it should be noted for members, we asked each of our witnesses to have a technical expert with them for help in answering any

technical questions. to our witness, you macon result with your technical experts before responding to questions. if we get to a pointour expert needs to answer directly, we will have them sworn in and hear from them directly. otherwise, we'll look to you for the answers. with that, let's begin our questions. go five minutes this first round, mr. waxman, would you like to begin? >> thank you, mr. chairman. i want to return to a point i raised in my opening statement, a question about a series of pressure tests performed on the well before the blowout took place. my understanding there are two tich types of pressure test, a positive test involves adding fluid into the well to increase and exert additional pressure. this tells the well operator where the fluids can flow from the well into the surrounding formations. a negative pressure test is the reverse, it removes some of that pressure in the well, creating an inward or upward force from

the pressure differential and that would be used to detect flow into the well from a breach in the cement or casing. both tests are important and failure of either test can suggest a failure of the seals or the well's integrity. mr. newman, am i right in my understanding of the significance of these two tests? >> chairman waxman, i would agree with your assessment the successful performance of those tests is critical to understanding the condition and the integrity of the casing and cement and a negative response, netive outcome for either one of those tests would indicate there are potential problems. >> mr. mckay, do you agree with that? >> yes, i do. >> yes. >> i understand that the well passed positive pressure tests on the morning of april 20th, 2010 but i also understand when negative pressure tests were performed later that day, starting around 5:00 p.m., there were anomalous results. let's go back to the document

entitled, "what we know, put out by bp. interest rate says, quote after 16 1/2 hour waiting o the cement, a test was performed on the well bore below the blowout preventer, end quote. and then it says, during this test, 1400 psi was observed on the drill pipe, while zero psi was observed on the kill and choke lines. mr. newman, can you explain why 1400 pound discrepancy in the negative pressure test might signify, and what its importance might be? >> the indication of 1400 psi on the drill pipe would indicate that there was pressure in the well bore being registered on the pressure gage attached to the drill pipe. the absence of pressure on the choke and kill line would indicate a discrepancy between the well bore pressure being measur by the drill pape and

the anulist pressure by the choke and kill line. >> what significance does that have? >> the significance of the discrepancy between the two pressures would lead to a conclusion there was something ppening in the well bore that shouldn't be happening. >> mr. mckay and mr. proverb, do you agree? >> i think difficult to speculate but that discrepancy is critical and in the investigation, we have to tear that apart piece-by-piece. >> we don't have knowledge of the sort of mechanical -- >> i'm just asking if that explanation of a differential is accurate? >> yes, i would say so. >> now, mr. mckay, we were told monday the results were not satisfactory and said they were

a possible warning that gas was seeping into the well and building up pressure inside the bore hole. mr. dupree is your senior official responsible for results in the gulf of mexico. do you agree? >> mr. dupree has been working on the crisis 20 hours a day. i wasn't sitting on meeting you're referring to so i wasn't privy to that review. i would say 1400 psi on the drill pipe and no psi on the choke and kill lines indicates something should be investigated, absolutely. >> the anomalies in the preure testing present a significant pressure that should be investigated just hours before the explosion, tests on the well returned results to signal the possible well failure and influx of gas up the wall, yet it appears the companies did not suspend well operations and now 11 workers are dead and the

gulfcoast region faces catastrophic environmental damage. we need to know if that's the case and why it's the case and it appears from mr. dupree's statement to our staff that was the result of the test that was the negative test that was taken. >> thank you, mr. chairman. i needleack my time. i yield back my time. >> mr. barton, questions? >> thank you, mr. chairman. i've watched the testimony in my office as i did other work and opening statements by the members so i have been participating by video. my first question is genal to the panel. do any of you allege that the incident that occurred should not have been foreseen, that it was such a catastrophic nature the equipment and technology should not have contained it?

do you understand? i see absolutel no response. >> could i respond? >> yes. let me rephrase it. does anybody here believe that the blowout preventer and technology employed in the procedures, if they had worked proper properly, could not have prevented the spill? >> representative barton, it's important to understand the design constraints of a blowout preventer. a blowout preventer is not designed to close around significant debris. the blowout preventer is designed to close around drill pipe and most sizes of casing. but without knowing exactly what's inside the blowout

preventer today, it is difficult to conclude the blowout preventer wasn't subject to conditio that exceed its design constraints. >> well, i'm an ally of oc -- i'm a supporter of ocs drilling. i'm a registered professional engineer. i'm not a petroleum engineer. i'm not a geologist. but my assumption is in order to get a permit to drill, you have to show the mm srs that you'll equipment on-site and drill the well in such a fashion that you can handle expected problems, and there have been millions of oil wells drilled and gas wells, there have been tens of thousands of gas wells drilled in the gulf. it has to be a design parameter that you could have a

catastrophic pressur release or blowout, to use the common term, and i would think that your blowout preventer and your technology, your casing should be designed to handle that. am i wrong? >> the gentleman who's the president of cameron, it's your blowout preventer. >> i can -- congressman -- >> do you understand -- there is a volcano that exploded around this well. i mean, we don't know what happened, but my assumption is -- and if my assumption is wrong, then we have to re-assess the entire ocs drilling program, at if the technology had worked and the people had responded or had time enough to respond, even though you had the accident, it would have been contained, it would have been ut off.

am i wrong about that? >> well, we don't know what happened. i think that's what everyone here is trying to learn. until we know what happens with this investigation, we will not be able to answer whether the blowout preventer that was there was functioning for that particular purpose. our blowout preventers are built and designed to do specific things. we do know they will not sheer and seal casing, that way no but will sheer and seal drill pipe. >> when you get a permit from mms, i guess this would go to the president of bp, you do have to show that if you have some sort of pressure release, you can prevent it escaping into the environment, don't you? >> yes. i believe the permit requires a well construction plan that also requires the blowout preventer

required by the contractor with the permit. to answer your question, i think that, in effect, the well design, the procedures that were used, and the functioning of the equipment are going to be the mainstays of this investigation, and we do expect those to work, absolutely. >> it's my understanding, and i see my time's about to -- it's my understanding that the blowout preventer equipment is still intact, that it's not -- while it may be clogged up, or it may not be properly installed or connected, in terms of the activation mechism, that it's not been damaged, so it just hasn't worked prerly, but it isn't like it's been bent or deformed or impaired, is that correc >> there are no outward external indications of significant

damage. i would caution the committee, the blowout prevent as a result of what's happened, particularly the sink offering the vessel, the blowout eventer was subjected to significant stress. >> i see my time has expired. we will do another round, is that right, mr. chairman? >> yes, mr. barton, i think we will go at least another round. >> okay. >> let me ask about this blowout protector, i spent a little time on it. a blowout protector, like here's your pipe. it's supposed to squeeze it off, right? if something goes wrong, squeeze it like a straw, pinch it so nothing can go up, mr. moore, is that basically correct? okay. i point out four ways in my testimony where this blowout protector could not be working. number one, modifications that bp indicates they didn't know about, transocean said, no, they know about it five years ago. there was the hydrolic leak. that wouldn't have enough pressure so you could pinch this off if it was serious enough, is that correct, mr. moore?

>> that could be a cause, we're not sure. >> you also indicated when you get these joints here, if these joints are in the bop, blowout protector, it won't cut a joint, is that correct? >> if those joints are in the shear ram -- >> it won't cut it. >> besides the dead man's switch, besides giving off even the battery in this case, one control panel we did find, the battery wasn't working, correct? >> that's what we were led to believe, yes. >> let me ask this. this is a 2001 blowout protector for this well? >> correct. it was built in 2001. >> in 2003 and 2004, new regulations came out for blowout protectors, were there not, mr. moore? >> in terms of shearing capacity? >> shearing capacity in particular, yes. >> yes. >> doesn't section 250.416e indicate now it requires the lessee in this case, bp, to provide information that shows that the blind sheer or sheer

rams installed in the bp stack, bop stack are capable of shearing the drill pipe in the hole under maximum or anticipated surface pressures, is that correct? >> i'mot aware of that particular article. >> how about you, mr. mckay, since you're the lessee in this case? is it supposed to make sure the rams share this pipe? >> i'm not personally familiar with the article you're quoting. >> talking about rules of mineral management service rules and regulations that came out in 2003. mr. newman, are you familiar with those? >> i believe, chairman, you're referring to federal code of regulations 30 subsection 250 s, i'm familiar with those. >> and they're supposed to cut these this in half in case there's an accident, yes? >> blind shear rams are supposed to shear the tubular. yes, sir. >> what kind of testing did you, transocean or bp, do to make a determination that the shear rams were satisfactory and could

cut this pipe if something happened? did you do any testing? >> in terms of confirming the capability of the shear rams. >> correct. required under 254.316e. >> it had nothing to do with the hydrolic fluid was leaking out, s there? >> there are regular tests performed on the bop, while the bop is on the rig, prior to its deployment. >> it's on the rig, okay. >> regularly, while the bop is deployed on the seabed. >> right. in fact, section 446b saysvery three days, weather permitting, you must go down and look at the bop on the sea floor, does it not? >> i believe that's correct, chairman. >> did you do that in this case? >> there is an rov, remote

operated vehicle contracted by bp and located on the rig and it's out there for that purpose. >> did it perform any tests on the bop sitting on the sea floor? >> the only tests the rov would perform in that situation, chairman, is a visual inspection, observation of the bop? >> how about something as simple as -- then there's no shear test that's performed on the sea floor, right? there's no shear testing performed on the sea floor to cut this baby? >> during the progress of well construction operations and routine testing that is performed, there is no test where the shear rams are actually subjected to a shearing test. >> so the rov really just goes down and takes a look at it? >> it observes the external observation of the bop. >> is there any test that tests to make sure the batteries are working, so you can view your kill switch to actually shut this thing done? >> because the electronic signals, which transmit back and

forth between the rig and the bop controlystem happen continuously, there would be an indication, if the batteries are dead on the bop, there would be an indication of that on the rig. >> you're sigh don't have to test it because as long as electrical lines are working, that would indicate whether or not a batteries are fully charged? >> that's correct. >> on this case, the battery was supposed to be at 27 amps, it was at 18 amps. did any of your testing show it was under the 27 amps required? >> i don't have any indication, chairman, the tests would have indicated that the charge in the batteries had dropped from 27 to 18? >> would you have documents that would show what the power or the amps of these batteries were? do you have any kind of records that would show that? >> unfortunately, chairman, those records would have gone down with the rig. >> so we have to take the word of those who looked at this control panel, that the battery was basically dead and dead

man's switch would not work, correct? you have no records to dispute that, right? >> i have no records. >> my time is up. mr. burgess, five minut for questions. we will do a second round. >> thank you, mr. chairman. mr. mckay, just to get back to specifics of t modifications of the bwout protector, our what we know form, tab 4, in the evidence binder, modifications that have been discovered in the brought protector system, can you give us the specific modifications that were discovered in the bop system? >> what i was referring to yesterday, while weere doing rov, remote operated vehicle interventions as the crisis has unfolded, we discovered there were modifications made. i don't know personally whether those were the exact modifications that mr. newman referenced done in 2005 or

additional ones. i think that's a very very important piece of the investigation. we found leaking hoses, and, you know, the diagrams we were using realtime did not match the blowout preventer. so that's -- >> mr. newman, if i understood him correctly, suggested that those modifications were requested and were paid for by bp, so it should be possible those records wouldn't have gone down with the ship, would they? we should be able to get that paper trail at some point established, should we not, if there were modifications requested? >> i have looked at the agreement that was signed between transocean and bp, so, yes, we have a copy of that. >> you will mak that available to the committee? >> yes, sir. >> mr. mckay, will you look at your records and help us with -- >> absolutely. >> trying to define that? let me ask a question mr. waxman

was asking about the negative pressure test. once i had read 1400 psi, the other side read zero, what should the other side have read? if the pressure test had been absolutely perfect? yes. >> the way i understand the configuration that was hydraulically connected such as pressure on choke and kill line, it should have been the same. >> identical pressure. i'm just a layman, but there at would indicate some obstruction that would not allow pressure to be transmitted from the drill line to the kill line or vice-versa? >> yes. i can't speculate as to why but they should have been reading the same, from the way they're hydraulically connected, from what i understand. >> going back to the previous issue, committee staffers have been told by your taffe, mr. mckay, when bp attempted to operate one of the blowout protectors variable rams under

water, the device was either mislabeled or not labeled in the way they anticipated. is that correct? >> that is correct. i don't know if that has anything to do with the modifications we requested or not or whether there are different modifications, it is correct. >> do you think the bp approved the modification? >> yoi don't know. that will be a central part of the investigation to determine what modifications were made. >> if it was a mislabeling, you wouldn't have approved the labeling at bp? >> we wouldn't have been involved in the labeling. >> is there any reason why management wouldn't be aware of this? why the labeling? why the discrepancy would exist? >> are you asking me? >> yes, sir. don't you have oversight overwhat happens? >> transocean owns those blowout preventers. >> you have oversight over transocean. they are our contractor, yes. >> let me -- i talked to the

governor's office yesterday, i didn't talk to the governor but i talked to some of his folks. mr. mckay, let me just ask you, they are really concern ed, they've got a coastline because of indentations that is much longer than you wouldthink, just looking at as the crow fliesn the louisiana coast. they have 7700 miles offest stew astew -- ofe estuaries on the coastline. they tell us they are having trouble getting bp to authize additional purchase of additional boom and manufacture of additional boom. seems to me this should be all hands on deck, get the boom locally, get it from global sources but wherever we can, let's get the boom put into position and not go scrambling for it once the oil comes ashore. can you help me with that?

why is the governor's office feeling like they don't have an adequate supply of boom? >> we are accessing, as i said earlier, we have 1.1 million feet deployed and 3.4 million more coming. this is deployment under the coast guard's direction. we have a supply chain cranked up to supply boom as well. >> just if i can suggest, i think there needs to be -- i was impressed when we went down there last week, the cooperation between bp and coast guard and unified command, i have no complaints about what i was seeing but the governor feels or at least the person i was talking to in the governor's 0 office feels they don't have the ability to start the production line on that boom and they're going to need a lot more than what they have. >> i will do two things. one, i will check on that and make absolutely sure. number two, i know of no limits by bp about getting stuff done in terms of boom or anything else.

>> i appreciate your assurance you will check on that personally. the other thing is they don't have the ratio of liaisons to the number of parishes. there might be one liaison for eight parishes. that's not satisfactory. there needs to be one-to-one liaison for the parishes affected. >> okay. thank you. >> time is expired. mr. markey, time to ask questions. >> friday, i flew over the spill and saw a vast area of ocean covered in oil. this is oil from the gulf. we now see thousands of square miles with this awful sludge. and although the spill started about 50 miles offshore, it has now reached the louisiana coastline. you are saying to us that bp is doing everything in its power to ensure that this spill is being

stopped and that you currently estimate that the leaking is 5,000 barrels of oil per day into the gulf. but this isn't the only rig bp operates in the gulf. in its oil response plan for the gulf of mexico, bp identified a worst case scenario for exploratory well explosion from offshore drilling in the gulf of mexico. as a leak that would release 250,000 barrels of oil per day into the ocean, about 30 miles off the coast of louisiana. the specific exploratn plan that you provided to regulators for the horizon well states since bp exploration and production incorporated has the

capability to respond to the appropriate worse case spill scenario, i hereby certify that bp exploration and production incorporated has the capability to respond to the maximum extent practicalable to a worst case discharge. so rht now, deepwater horizon well is leaking an estimated 5,000 barrels per day, about 2% of the worst case scenario of 250,000 barrels, which your company assure dhe government, the american people, that it was capable of addreing in the gulf. so if bp is already using every available resource to combat this 5,000 gallons a daynd

can' stop this worsening, i can't see how in the world you can certify you had the capability to respond to a spill of 250,000 barrels per day. mr. mckay, you had better rethink your certification for a worst case spill of250,000 barrels per day. can you really say now, as you sit here, that that certification is accurate, that you can respond to a daily spill of 250,000 barrels per day? >> what i would say is that we are responding with tee drilling rigs a surface response plan that was in ace, detailed, th largest ever put in place -- >> are you saying to us that you would use exactly the same resources for a spill of 5,000 barrels per day, which is what we have now, as you would for a spill of 250,000 barrels per day? >> each -- each spill

is -- would be specific. this particular one is complicated at the emergency disconnect did not work on top of the blowout preventer, so we are still connected with a reiser that's 4300 feet long. we cannot get another blowout preventer on top of it right now, which would be the normal course i something like normal, but something youould do if the riser -- >> i understand that. right now, bp is scrambling to find enough booms. you're going to use nylons and hair to soak up the oil. i can only conclude that you really don't have the resources to respond to a spill of 250,000 barrels, andhere are wells all over the gulf that are ticking time bombs that could rult in spills of 250,000 barrels per day. do you really think you can certify, again, today, you could respond to a spill of 250,000 barrels per day? >> as i said, we're doing

everything we can. i believe that we will learn things through this, there's no doubt. i believe that those certifications will be with the knowledge th we have. >> i just wish you had a little more humility today. an admission that you don't have it. last week, you tried to plug the leaks with a huge dome, which failed, when it froze up. now, we're reading about a smaller top hat dome. if that fails, the solution looks increasingly despera to plug the leak with a junk shot of golf balls and old tires and knotted ropes, soaking up some of the oil, with hair and nylons, each of your -- each of your companies has represented itse as technology leaders in deep water o and gas exploration and each of you now is flaing about with no clue about how you're going to get out of the mess that you've gotten yourselves into. top hats, golf balls, tires,

hair, nylons, these are not the response actions of companies who are prepared for the worst case scenario accident and capable of carrying out that response plan. the american peopl expect your companies to have a technological response to this disaster, on par with the apollo project, not project runway. and that's what they're seeing, night after night. you need to do better, and you need to prepare for a worst case scenario, for the ticking time bomb that could be out there somewhere off the coast of the united states. thank you, mr. chairman. >> thank you, mr. markey. mr. sullivan, for questions, please. >> thank you, mr. chairman. this is a big mess. i realize that you guys, it's tough to answer these questions. you're probably, if not already, going to sue each other, be suing you, there will be

litigation for years on this, a lot of money is involved, so i understand it's tough tonswer these questions. it's easy to beat up on people when they're down in this situation, so i'm not going to do at. i will focus on something different, even though i think it's bad, we will find out who did this and who's responsible, the investigation will be on-going and we will deal with that then. i'd like to really focus on the solution right now. we can focus on the problem all day long, it will not get us anywhere. someone is responsible, we'll find it out. let's focus on the solution. i'd just like to ask you, mr. newman and mr. mckay, have you ever dealt with a blowout of this magnitude in the gulf ever before or even close? >> we've never dealt with a blowout of this magnitude in the gulf of mexico before. >> no. >> okay. >> both of you are involved in this, your rig, working together, he's a contractor. on the rig, who's quarterbacking

the situation right now? who's in charge? it's his rig so if he's -- you have what do you call installation managers on the rig or offshore installation managers. if he says something, can you override him? how's that working? >> the offshore installation manager on a transocean vessel is the senior most manager out there. that person is responsible for the overall safety of the personl and the vessel. >> what if mr. mackay, he says something, do you accept that? >> yes. >> also, i know you have a lot going on, on the rig, there's people out there in harm's way, working feverishly to get this to stop. also, we talked about the golf balls and hair and all that. i know there's sophisticated efforts going on. cold either of you, mr. mckay, i guess you, elaborate what is going on, on-shore.

do you have a command center. what's that command center doing? they're working 24/7. have you tapped into the industry, other companies, experts, the brightest in the world? what kind of technology are they using? is there video feeds from the floor, what kind of stuff is going on. >> we have several command centers. the source control is in houston. we have over 60 companies working with us across the industry, including our colleagues and partners as well as our competitors. we have the department of defense, the vy. we have labs, the brightest scientific minds in the world in these type of situations worki on it24/7. we have the highest technology in the world working this. we have three different drilling vessels, transocean drilling vessels and six submarines working simultaneously, eight around the blowout preventer. this jump shot is actually a very sophisticated operation, a

manifold is constructed to be utilized in 5,000 feet of water, never been done. the coffer dam was on-hand, we had that for shallow water, utilized in deep water, has hydrate problems, as people know. on the surface, we're using technology with the latest subsurface, dispersements, using subsea dpersal we think is extremely efficient from initiate tests like to get continuous injection going on in that. it is extremely high-tech and the best minds in the world are working it 24-7. >> all these companies and others arenvolved as we speak? >> that's right. >> do you have -- right now, are you drilling wells right now to go into two of them? >> we're drilling two relief wells. one has started and the other will start this weekend. >> i guess the coffer or cap would be plan a. was plan a, would you consider that? >> the coffer dam had hydrate

problems so we're working on a secondary dam for sub containment. >> do you have a variety of methods in case one fails. >> we have different levels attacking the ssurface with permanent securing with relief wells. we have the blowout preventer, which is top kill, is what we call it. then we have the containment and collection system subsea, we have several things working on that. then we have aggressive on the surface attack, which is trying to fight it as far offshore and protect the shoreline, then clean up whatever gets to shore. >> when do you think this is goingo stop? >> we're working every second to get it stopped as fast as possible. there are viable options bng worked that could work in the next few days to couple of weeks and ultimately, the permanent securing would be up to three months or so. >> okay. those wells you're drilling right now, how are those going to plug this well? howould that do it? >> we will drill and intersect

the well just above or right into the reservoir horizon and pump heavyweight kill fluid to ll that well? >> that will take two months? >> it will probably take three months to get there in terms of the relief well. >> that would work right there? >> that's the normal way to kill a blowout around the world, permanently secure it, yes. >> thank you. i have no more questions. >> mr. brayly. >> thank you. i want to focus on the last two minutes at the deepwater horizon well that triggered this catastrophic event. en i go over this accident mine head, i try too understand what was in place to protect the workers from a sudden event like this blowout. i'd like to talk about what happened just before the explosion. cawe bring up the halliburton data screen at this point? you testified that part of your function on this particular well s to provide realtime data

collection. is that correct? >> that's correct. >> and your company produced this particular cha to us as part of the contract you had with bp to perform monitoring of the mud and other data on this rig. is that your understanding? >> that's correct. >> are you generally familiar with how this type of chart is used in well monitoring? >> generally. >> generally. >> what this chart shows is what was happening inside the well and on the rig in the final two hours before the explosion. if you look, this chart is broken down into time intervals that are recorded, beginning at 2010, which would have been 8:10 p.m. that evening, correct? >> mr. braley, it's exhibit number 5. there should be an exhibit ther if you want to look at it. hopefully that helps 0 you out a little bit. it's exhibit number 5. go ahead.

>> this covers a data interval from 2010 or 8:10 p.m. on april 20th, to 2150, which would have been 9:50 that evening. is that the time frame we're talking about? >> it would appear to be so, yes. >> yes. if you look at this chart, there are several abnormal appearing entries, where a line dramatically goes vertical during a time interval between 2146 and 2148. you see that? >> i see that. >> what this suggests is that the pressure in the standpipe at that moment shot up fm 500 psi, pounds per square inch to almost 3500 psi, in the space of about two minutes. that was immediately before the explosion, correct? >> that's immediately before the control -- the contact was lost with the rig, yes.

>> right. >> so this is your company's data. what does this tell us? >> what it says is that at tom point, within two minutes or so of the loss of the transmission, that there was a significant increase in standpipe pressure. >> all right. what's the significae of that, to people monitoring this well for safety and security reasons? >> the significance of this to all parties who would have had access to this data and standard gages which are present on the rig show this would be a significant red flag. >> in addition to gages and this prt-out, are there any other type of built-in safety devices that would trigger a shutdown of the rig? >> i would have to defer that question to mr. newman, as to whetheor not there were any shutdown processes on the rig. >> all rit. mr. newman, are you prepared to

answer that question? >> if you could rephrase the question for me, representative, i'd be happy to take a shot. >> have you ever had surgery, mr. newman? >> i have had surgery. >> right when you're undergoing anesthesia, one of the last things that happen when you're going under, they put a device on your finger to monitor your oxygen. do you remember that device on your finger? >> the surgery i underwent, sir, was a bit traumatic and i was effectively incapacitatedn advance of the surgery so i don't remember. >> just accept forhe purpose of my question, that's what happens to most people, they actually do monitor your oxygen saturation because they don't want you to die on the operating table. >> il take your word for it. >> they are built into that machine the an anesthesia uses that when it gets to a level that i hypoxic, everybody in that operating room needs to

know that. my question to you is in this setting, whatype of alarm bells, whistles, alerts other than pressure gage do people on that rigave available to them to tell them they've got a catastrophic problem unfolding. >> there are a number of early warning indicators present o a drill rig that would alarm for the individuals who are monitoring those, to give them an indication. which particular alarms would have been triggered in this instance depends on exactly what was happening and i don't know the answer to the question about what exactly was happening. >> how do we find out that information? how are those alarms recorded? what logs are kept and what additional information do we know to get to the bottom of what was transpiring on that rig? >> thelarms are monitored on the rig through what we refer to as vms, vessel management system. those alarms are logged and a record is kept of that.

but that vms exists only on the rig. it's not transmitted off the rig. the vms system, along with the logs, would have gone down with the vessel. >> you have no mirrored backup data device so that information is recorded at some other location than on the rig itself >> we do not have realtime offrig monitoring of what's going on, on the vessel. >> do you think that's a failure in the fail safe system that is currently used within the industry, to help understand the events of a catastrophe like this, and learn from it? >> because the decisions regarding continuation of the drilling operations or suspension of the drilling operations are typically taken at the rig site, the first place we want those alarms present is at the rig site. >> but you're aware that technology exists, it's used everyday in businesses all over the country, whereas soon as a bit of information is recorded

at a central location, it can be immediately recorded at a distant site, just avoid this type of catastrophe to prevent that information from being lost forever? >> i'm aware of that technology existing. in fac the reason we have the records you're showing us now is because that technology was employed on this particular operation. >> for this function we're seeing on this chart but not the other recorded data that you've described in your testimony? >> not a realtime replication of the alarm logs. >> all right. thank you. questions? >> thank you, mr. chairman. what would have led to the discrepancy between the blowout protector and the plans or the diagrams of the blowout protector, the diffences? and if in flakt was a difference, was it a factor in

whether or not this well could have been capped immediately? >> congressman, do you want me to respond to thatr -- >> please, mr. moore. >> we were first aware of those changes whene were in the crisis room with bp, when we were trying to function the blowout preventer. but honestly, we do not know whether those would have any impact on whether the bop would function under the circumstances it was put in. we just don't have enough information yet to know the answer to that. >> thank you. how long had the horizon been operating? >> the deepwater horizon went into surface in 2002. >> it's been operating safe lay good while? >> the horizon has drilled approximately 72 wells over that eight year history. >> at the ocean floor, at about 5,000 feet, which is approximately a le, you continued down another 13,000 feet, another 2 1/2 miles to the

reservoir? is that accurate? >> that's an accurate description of the well geometry, yes. >> so this rig has had an exemplary safety record in a sense, as far as its ability to drill and recover natural resources, is that fair? >> i think that's a very fair assessment, congressman. the deepwater horizon had a seven year history with no lost time accidents. the deepwater horizon in its past set the record for deep water operations for semi s submsible and holds the deepest record in the industry. >> so we have a piece of engineering that has been fairly successful. as we hear testimony and questions about what red flags went up, as the gentleman referred to, in oxygen saturation, over a period of

years, the safety mechanisms and the correction mechanisms on this piece of equipment or this well have been significantly tried and been found to be successful in most cases. i guess my question or my statement would be there's probably going to be a series of facts and time that led to this tragedy. we, of course, are well aware of how things can happen after the fact and we can point fingers and goodness gracious, america's lived through 9/11 to go back over all the things we could have done to keep that from happening. things seemed to have happened at an opportune time and the stars lined up and so we're really interested in your future, as far as drilling is concerned, and wt is being done with on other wells around the nation and internationally

to double-check and see if all our proper safeguards are in place? mr. mckay? >> i can say i our international rig fleet, we have notified and increased the scrutiny under the -- on the blowout preventers. we've incrementally added testing to make sure they are on board and ships wl actuate the blowout preventers and recommended and given ideas to mms on maybe what could be considered to enhance, at least, reparation and testing around the things. >> in the reservoir that you were tapping into, the dynamic, the hydrolic and fluid dynamics of that reservoir, do those change significantly over time, as pressures change or is that

pretty well-known and constant fact or variable on a day-to-day basis? >>on this particular -- >> yes. >> this particular reservoir is --we don't have much data on it. generally, reservoirs are different at different depths and different pressures so you can encounter them in different ways. the characteristics of this reservoir is different because we don't have any measure in terms of pressure. it looked t be -- so everyone understand, it was not a particularly difficult well in the sense of its pressure. it wasn't a very much overpressured well. >> thank you, mr. chairman. i yield back my time. >> thank you, mr. griffiths. >> i was a little curious listening to your opening statement you felt compelled to respond to my opening statement when i talked aut the mm srs

study that said nearly half of all the wells that default are do to faulty cementing and i have a couple questions. first of all, how many wells drilled in the gulf at this period were at depths over 400 feet? >> i think, if i can provide some clarity to that. >> no. i'like a short answer. how many wells were over 400 feet? >> i don't have that data. it is from the mms. >> was it more of them or less of them? >> i'm sorry? >> was it more of them or few of them? >> i don't know. >> you don't know. so are you ying, since theres wa only one blowout incident at depths over 400 feet, you think there's no risk for cementing for deep water drilling? >> no. i think what i was trying to point out because the subject of the study here is clearly deep water gulf of mexico, i was trying to provide reference point for the committee with

respect to the data which the mms has provided to us- >> so what you're saying is you're not saying -- you are saying that there still could be a risk, that it's not just because it's over 400 over 400 . right? >>'m sorry. >> you're saying there could be faulty cementing over 400 feet. >> i'm just -- >> yes or no? >> i'm sy pli reploying to -- >> yes or no. >> no. >> thank you. are you arguing that cementing is actually safer at offshore wells with depths over 400 feet? >> i'm sorry. i didn' understand your question. >> are you arguing that cementing is actually safer at offshore wells with depths over 400 feet? >> i would say the information would suggest that, yes. >> it is safer? >> according to the statistics, yes, from the mms. >> because there have been few leaks? >> no. it's a function of the depthf the water and what causes and

how the well construction process is undertaken between deep water and shallow water. >> okay. so, so you don't think we should then worry about the cement at the deeper ones? >> that is not what i said. >> okay. and you know, i do agree with you on one point and the point i agree with you on is there are very few accidents and that's the good news. but the bad news is that if there is an accident in this case if there's faulty cement, if there's other problems, then the results of that are catastrophic. would you not agree with that? yes or no? >> to the extent that cementing was an issue, if you're referring to this particular incident -- >> would you agree a leak that the catastrophic results are such that we should -- that that's -- that even though there's very few accidents we should try to avoid

>> i am sorry that you are not getting -- you will have to restate your question. >> pressure tests were conducted in your testimony. several experts have stated that a cement bond test might have additional additional witnesses, such as that the cement has not hardened properly. so i barracked e.u., was that tests conducted at this well? yes or no -- so i ask you, was that test conducted? no. is it true that a cement bond would provide assurance? >> it is certainly the only realistic way of assessing the bond. >> so that answer would be yes, correct? >> correct.

-- >> so that answer would be yes. correct? >> correct. >> mr. mckay, is it bp's standard practice to only use basic pressure tests to evaluate a cement job? >> i can't speak directly to this particular well but what i can say -- >> i didn't ask you. i asked you your standard practice. is it bp's standard practice to only use basic pressure tests to evaluate a cement job? >> i believe every well is engineered individually so i can't answer a standard practice for this type of -- >> so your answer is you don't know? >> can i check -- >> i would absolutely -- mr. chairman, if he could supplement his answer, i would appreciate that. >> so cement bond logs are not required on every well. they're utilid when there's an indication of a problem.

>> why did bp not pay f a bond log test on this well? >> the -- because the better way to test positive and negative tests. cement bond log is an inference of bond. not an actual assurance of bond. >> thank you. for questions please, ms. sutton. >> thank you, mr. chairman. i have a lot of questions so if -- please stick to the question and if not, if you don't know the answer, just say i don't know and we'll move on. what was bp's operating budget in 2009? >> operating budget? where? worldwide? >> sure. worldwide. >> we had -- we spent about $20 billion investment capital. >> okay. and what percentage of that 2009 budget was devoted to safety and preventive measures related to deep water spills? do you know? >> i don't know. >> okay. how much does bp invest in research and development in the

management of deep water spills? do you know that? >> i don't have a number. >> okay. how many deep water wells does bp operate in the gulf? >> i don't know the number of wells but quite a few. >> well, quite a few is a very vague term. can you give us any indication? >> can i give you an indication? there's been several thousand drilled in the world and we are in about 30% of them. >> okay. how many on the outer continental shelf? do you have a better idea there? >> well, we are only in the deep water on the outer continental shelf. >> very good. how many of those are operated by platforms leased from transocean? >> we have -- currently we have three transocean rigs working. >> okay. what actions have been taken currently to ensure that this is not a systematic failure in regard to the operations out platformin a similar situation? >> we have -- what we have done is as i said earlier we have instituted some tests, incremental tests on perimeters and asked for modifications that

may have been made in the history of the blowout preventer. >> so testing and asked about modificatio modifications. that's the sum total. okay. what is your spill response capability right now on the continental shelf? we heard discussion about this. >> we have 300 vessels skimmers and other professional vessels for operating. we have a million feet of boom deployed. 2.4 million being staged or accessed around the coast and we have a supply chain being ramped up to supply 200,000 to 300,000 feet a week. >> okay. what devices do you have on the oil rigs in the north sea? >> i've not worked in north sea in long time but similar blowout preventers for the water depth condition and the reservoir conditions that are utilized in the nort sea. >> when you say similar, that's different thanhe way i understand it so i'd like a little clarification because my question would be why don't we use the same thing in the gulf?

okay. so when you clari that, for me. and what is your contingency plan for the wells and depth of water, if the depth of the water causes a question of how to stop a leak? what is the contingency plan? we have heard a lot about things we are trying now but what is the -- >> we have a spill response plan that's filed with the government and sits underneath the national contingency plan and one girl plan that indicates the equipment around the gulf coast to be utilized and priorities and structure to utilize. that's formed the foundation of this and it was approved last june 2009. >> okay. approved. okay. will bp now keep coffer dams on the coast of all the platforms to incrse the response time in the face of such a disaster? >> i think as we learned the les on thes from this i think there will be capability to be looked at for the industry as well as for ourselves, ye >> mr. mckay, bp stated and i think you did here today that

you will pay for all legitimate claims resulting from the spill. what does bp define as a legitimate claim? >> we have been very clear. legimate claims are folk who is are impacted or business that is are impacted and a substantiati o impact and that is legitimate claim. >> okay. so does that include the loss of profits forishing and tourism? >> yes. >> okay. and will bp commit to exempting itself from any cap on the financial responsibility for damages resulting from this spill? >> yes, we have talked no cap. >> okay. bp has stated that they're very positive that the relief wells will work. you concur? that's what they have -- >> we're confident they'll work. >> how many attempts for relief wells in the montera well to work? >> i am notamiliar with the details of that. i have heard multiple -- >> four. four i believe. does bp expect to have the same

difficulties for far deeper well? you can understand why i ask the question. >> we have the capacity to side track the wells and we have the -- set up to be able to have multiple attemp >> monday, 2:30 p.m. on c-span, the senate homeland security. >> a ucla professor joints us to describe why capitalism is not just an economic system. that is on "q&a to speak tonight on c-span. executives from power companies joined john kerry and joe lieberman to one valence climate

change and energy bill. republican senator lindsey graham, who has been involved in crafting the legislation, did not attend. the bill seeks to work with power plants and the industry and transportation. this is just over one hour. [captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> well, thank you very, very much for coming today. the bill that we are introducing today and revealing today, the american power act, will restore the american economy and reassert our position as a global leader in clean energy technology. it will create millions of jobs, move us towards energy independence, and strengthen america's security, and it will give us cleaner air.

many have come together to give americans a chance to break out of a trap. we are caught today in an economic downturn that has left people searching for the new engine of growth and jobs. we are with a broken energy policy built on a dangerous addiction to foreign oil. we are threatened by the impacts of climate, and now is one of the worst cases of oil spills and history washing onto our shores. no one can doubt how urgently we need a new energy policy in this country. now is the time to take action. the path to progress has been a long, but despite the conventional wisdom in washington, we are closer than we have ever been to a breakthrough. two congresses ago, we had 38

votes in the senate for energy and climate legislation. last senate, we have 54 senators prepared to vote yes. we want to make this the senate where we cast the decisive vote for the future. present here is an never before seen coalition for clean energy and jobs, a coalition put together a cross american life, all of them, including key stakeholders that are increasing energy and climate legislation for the very first time. these groups and companies are not giving up on the new energy economy. on the contrary. today, they are doubling down. they understand that this is not a choice. this is a necessity, and we need to get it done as soon as possible. what we are living with today is a web of contradiction.

year after year, we perpetuate policies that we know are wrong for america's future while putting off what we know is right. we are spending $1 billion overseas every day for foreign oil, when we could invest as millions in safe, clean energy, right here at home, with jobs that cannot be exported abroad and that pay more money than jobs today. washington is standing by while others warned that climate change will multiplied the threats we face and make the world more dangerous, when we know we can prevent that catastrophe and protect our air and water, and washington is watching as other countries take jobs from us, literally, steal jobs from us, while we know that those jobs could belong to american workers, and we could push the boundaries of innovation and create millions of jobs in this country. the american power act is a decision to seize this moment to

transform our nation's energy policy from a national weakness into a national strength. it is a message to the world that america is ready to take back our role as the world's clean energy leader. and as we do it, we want to underscore the technology market that made many people will see and lifted american indian 1990's had about 1 billion users. the clean energy market that we are reaching for today is a $6 trillion market with a 6 billion users. if we want to claim our share, america needs to lead. as president obama said in his state of the union address, america should not settle for being number two. the chinese are not waiting around. they have just surpassed us in renewable energy investment for the first time ever. the germans are not waiting around. there renewable energy sector is

now a second-largest purchaser of german steel, and if that is not reason enough to move, france, every day that washington fails to act, america spends another $100 million to iran. the american power act marks a clean break from the failed policies of the past and a fresh start. it creates major incentives for renewable energy. it positions america to lead the world in electric cars, invest in our highways and modernize our electricity travels to and from every section of our country. it helps coal in order to guarantee its future and lays the groundwork for a new generation of emission-free nuclear plants. more importantly, this bill finally creates a fair playing field that drives the right kind

of competition, recognizes the true value of clean energy, and protect american consumers every step of the way. to meet these goals, the american power act uses a new approach. we reduce our level of carbon pollution. we reduced our dependency on foreign oil. we reduce the energy gap and reduce the clean jobs gap with china. that is what we reduce, and we refund the revenues from our efforts back to the american taxpayer and their families. after we help companies hold down their costs and adjust with new standards. only those directly for the american taxpayer. we help consumers to reduce their energy bills, and then we give taxpayers a refund, and what is more, after 20 years of seeing the cost of pollution passed on to american communities, this approach

finally returns us to common sense. it is the polluters, not the people, who should pay. that is reinforced, as we see today. for years, i have heard the washington conventional wisdom that tough answers would be dead on arrival. joe lieberman and i came together because we knew there had to be a better path forward. we welcome all good ideas and all stakeholders, including many of those whose thoughts are reflected in this bill. we put everything on the table and sought practical solutions, made concessions, and forest and found common ground. companies, some of them standing here, who never opposed every past piece of legislation today, are now standing with

environmentalists that support this bill. consumer advocates, small businesses, members of the coal industry, transportation industry, nuclear industry, farmers, and utilities. they are all united around a common vision for a better future. the president and harry reid are with us, and i have even heard several tell us that they are encouraged by what is in this bill, and they're anxious to review it and to work on it. there are those who will say this is the wrong political season, but we are here today because we believe that good policy is also good politics. this is a vote for clean energy, after a devastating oil spill. this is to hold polluters accountable. this is a vote for the next generation of jobs in clean coal and safe nuclear power. this is a vote to end america's

addiction to foreign oil and to safeguard the air that our children breathe and the water that they drink. this should be an easy vote, and yet, history teaches us again and again that fundamental change never comes without a fight. the doubters declared that health care was dead. it was not. we passed it. then there was a banking reform, and that bill, too, is alive and kicking, ready to become a lot in a day. with the help of president obama and harry reid, we believe we can do it again of course, there are tough choices. some will want to settle for an easy road and go home and declare an easy victory, but that is the single surest way to guarantee that we will be having this conversation in five years, 10 years, or even 20 years, but other countries have cornered the market, and it is a lot tougher for americans to catch up. every year we wage costs us

billions of dollars in lost market share, lost opportunities, lost the leadership, lost jobs. we need to send the market a price signal to unleash transformative investments in clean energy right here in america. in 2010, that is the measure of a serious bill. i understand congress wanted to avoid tough choices, but we want to remind people that we passed the clean air act in an election year, and we updated it in another election year in order to fight acid rain. in 2010, we need to show america that we can still do what americans sent us here to do. those c-span years -- those who spent years, killing a bill is not a measure of success or victory, because of congress cannot legislate the solution,

the epa will regulate one, and it will come without the help to american businesses and consumers. that is in this bill. there are always excuses to wait. we know that. martin luther king said that what he encountered -- joe and i have been working on this for more than 20 years, and we are not willing to wait anymore. dr. king also said that time is always right to do what is right, and this is our moment to do what is right for the american people, what is good for our country, what will strengthen our nation. with this bill, we are going to fight to get 60 votes to make america more competitive, safer, and stronger. my colleague in this and a great friend over all of these years, going all of the way back to college, i am delighted to be working with him on this bill.

it is joe lieberman. [applause] >> thank you, f.a.q, thank you. it is at the ticker a good feeling that i have working with him, as closely as we have, over the last several months to get us to this day. i want to thank john for all of his work, for his principled, passionate, and practical leadership that has enabled us, all of us here, to come together to launch the american power act. we have called this legislation the american power act because it will protect and increase

america's national power in this century, and it will do so by changing the way we power america. it will stop the flow of dollars out of america to buy oil, just as it will stop the flow of jobs out of america to build a new energy system that is replacing oil. our legislation creates a market driven partnership between america's private and public sectors to meet three of america's greatest challenges. our dependence on oil from abroad, our loss of jobs here at home, and the threat of harmful carbon pollution in our era. and it does all of that without adding a dime to our national deficit.

it will add it to america's economy, create millions of new jobs sweep for the american people, and refund hundreds of billions of dollars to american consumers. our legislation will price carbon to reflect its real cost to our economy and society, and in doing so, i think it will light the spark that will ignite america's entrepreneurial and innovation engines to solve some of our most serious problems. this proposal does not cater to the politics of the moment. but it will protect the future of our country and our families, and, ultimately, that is our

best politics, because that is what our constituents sent us here to do, not to play with the lowest common political denominator at the moment, but to make their lives and the lives of our country better and more secure. the challenges that we face today are clear. we can lead, or we can be led. we can grow, or we can shrink. we can keep sending our money for oil to enemies of america, like ahmadinejad in iran and hugo chavez in venezuela, or we can develop our own sources of energy, made by americans right here in america. we can watch millions of jobs being created in china for solar, wind, nuclear, clean coal power, or we can create those jobs right here in america.

this bill faces the challenges. it makes the tough choices, and i believe in all not only preserve america's greatness, but it will help us in our generation achieve our national destiny. i would say one final word. i am very proud of this bill. it is strong. it is balance. it will work. and i am pleased to begin with this group of people in introducing it, but i will tell you this. we would not be here today if we did not feel that with the help of the people here we can and will adopt the american power act in this session of congress. there is a lot more i could say about the american power act. fortunately, as john said, we

have gathered today and are fortunate to have with us, the largest most diverse group of supporters that have never come together on behalf of an energy independence, climate, pollution-reduction bill, and let me tell you. john kerry and i know because we have been part of every built up until this time. i am going to gratefully yield for more of the details and to discuss why the american power act is so critical to preserving america's national security in the decades ahead. i am proud to introduce william fallon, with two commands, including the one for the middle east. admiral fallo9n.

[applause] >> senator, thank you very much. this is an unusual turn of events for me, because in most of my previous appearances up here, i was facing the dais and the committee, looking at the backed. i want to thank senator john kerry and to lieberman -- joe lieberman. i want to thank you for your dedicated work in a most inclusive manner to try to address the issues that not only affect our country but people throughout the world.

the energy consumption in this area continues to increase and relies on fossil fuels, but cheekily for transportation with motor vehicles. there is accelerating climate change, and there is the carbon pollution that is resulting in greenhouse gases and particulates matter. it is causing global warming. this defect is resulting in changes in the atmosphere, not only to the atmosphere but particularly to what to supplies and related aspects of water throughout the world, and this portends a significant challenge, i believe, to national security. climate change is affecting the available water supplies, and the indicators are that this is going to continue. i was recently down in the and arctic, and there is a lot of

ice down there, but the data is becoming pretty impressive that the temperature changes are accelerating, and certainly the arctic is much more accessible to people. but this change in water on this planet i believe is going to be destabilizing to our future. tension between peoples, i think, is going to be a very significant effort we are going to have to deal with. we need comprehensive, easily understood policies, which are going to make our people stronger and politically more secure.

and certainly more reliant on outside resources. the u.s. would be more secure if we reduced our carbon emissions and persuaded others to do the same. these challenges need active leadership. we have got it. we have many years of effort, trying to come up with enough momentum to make the changes that are necessary. we are going to need active leadership, not only of those in the room, but certainly also the support of the american people. we are to a long overdue for the opportunity. i look forward to supporting you in this effort. thank you very much. [applause]

>> jim rogers. >> i am jim rogers, a chairman and ceo. i am delighted to be here today and want to start by thanking the senators john kerry and joe lieberman for working tirelessly to put together the american power act. i also want to thank senator lindsey graham for putting in so many hours into this issue, as well. this bill is all of the better because of the time he put in and shaping it going forward. this gives our industry the road map we need to go forward. we can provide solutions and raise billions of dollars in investment. this can move us towards energy

independence and at the same time make our air even clearer than it is today. these investments that we will make and are prepared to make -- and i want to underscore this point, it will not only create jobs today but tomorrow and in the future, and that is going to really lead to the recovery of our economy, when you see the trajectory of the jobs that will be created over time. the legislation can also -- and i am stealing this from tom freedmen. it can help us get our economic mojo back. we can get that back, and it will give us a chance as a country to lead on energy and technology. we should not cede that

leadership to anyone in the world. let me talk about the impact on the consumers in america. i started my career as a consumer advocate in my home state, fighting the utility companies. i have, a long way. -- i have, long way. -- come a long way. it touches the lives of an 11 million people in five states in the midwest and the carolinas to depend on coal for the majority of their electricity. -- who depend on coal for their electricity. more than 50% of the electricity comes from coal. in my judgment, senators kerry and lieberman, this bill helps

to get the transition right. it helps get a clean and efficient modern power system in a manner that protects the budgets of families and protect american factories than depend on affordable power. the bill also creates incentives for clean coal and for technologies that must be accelerated in their dew point going forward to achieve their national goals. this bill, and i want to underscore the point, it will chart the course for our future. it is time to go to work. it is time to work out the remaining details and differences we may have them come together for the american

people and make this bill a reality for all. and most importantly, if you take any message away from what i am saying today, take this message away. we can protect consumers while we pursue our clean-energy goals. thank you for this opportunity to be here. [applause] >> i am fred, president of the environmental defense fund, representing millions of families and individuals. we are in the middle of a rapid and fundamental shift in american public opinion about energy right now in this country. every day when we turn on cnn, we see pictures that our energy

supply is -- and that our energy is threatened. every day, they are taking the jobs. for decades, congress has been debating stupid things while ignoring these problems. meanwhile, china has been investing in its future. i think we should turn the focus on energy, to the concern about our environment and the fundamental need to deal with the referendum about building a better future. a better america that provides not only a protected environment but good, well-paying jobs for

americans. the american power act is the opportunity for the president and the congress to do just that. the draft being released today is a product of a six-month effort to get the best approaches from everyone, but it is really about years of how to do energy policy correctly. it has strong goals to address climate change, for our economy and our environment. it will remove the shackles of uncertainty that have constrained us in new ways of generating american-made power,

and because of that, it has the support of the most important stakeholders, like those here today, who will look towards pushing across the finish line. i have been at this for a very long time, but this is the first time that an act like this has had such broad gauge support. it is the best opportunity we have never had to achieve real meaningful change. it will require some bipartisanship, and it will require leadership from the president and from the majority leader. with their help, it can be done, so i salute you, senators, for getting this bill out in public so we can get it enacted this year.

>> tom. >> good afternoon. i am president of a group that represents electric utility companies. fred, you and i always have to disagree about something. basically, i am glad to be here with leaders of the business community and the environmental community and many other non- governmental organizations. this is a historic achievement, and i want to commend senators kerry and lieberman for the introduction of the bill today. i also want to congratulate them for the climate of progress to essentially include every aspect of the economy as well as all that is necessary to

continue our economic progress, and that is exactly what they did. they have worked over many, many months. i also want to commend lindsey graham. he spent a lot of time, and i agreed that it is a much better product as a result of all of their efforts. today, there was a critical milestone in the consideration of energy and climate legislation. i want to particularly thank the senators for their realization that customer protections are incredibly important to this legislation. trying to figure rat have to deal with the climate legislation, we tried almost three years ago. we got all of the member companies together and worked hard, and as you can imagine, it is difficult to get everyone to agree on things, but we managed to achieve that, and we managed to look at using all the

technologies we could use to achieve this goal, energy efficiency, nuclear, coal, renewable, gas. all of those technologies. but we also wanted to make sure that the consumer was going to be protected and that there was not going to be economic harm to the economy, so, again, i commend them. they provide allowances for electricity customers. this was making sure there was not a great price shocks and volatility. they made sure that we can do this task. we can achieve a major reduction in greenhouse gases at the same time we are protecting customers, so, again, i commend the centers for their efforts. we will be working vigorously with them as the process continues and to make sure that

the impact regionally and nationally are considered. we very much look forward to working with you to continue this process and to eventually enact good climate and energy legislation. thank you. [applause] >> david, d.c. no of honeywell. -- the ceo of honeywell. >> honeywell maybe the biggest company you have never heard of. 120,000 employees, more than half of which are outside of the u.s. with all the discussion about climate change, one of the most important points as a business leader is that this is about economic and energy security, and the premise is that low-

cost, clean power yields sustainable gdp growth, and that is what yields jobs. if you start with that premise, it takes you down two paths. on the generation side, i would argue that there is more, and we need to make sure that we state technology neutral and set standards for what constitutes clean energy, and then let the flowers bloom. we need to engage to make that happen. interestingly, on the efficiency side, this is more about behavior. if the u.s. just aggressively used existing honeywell technology, something that already exists today, it would be a 20% to 25% savings. because i come from a nation of lawyers, and because i come from

the area where people say that if the ceo says something, it needs to be questioned, it is 20% to 25%. the question is, then why do we not do it. you have to change the way people think about reducing standards. we have the opportunity to make that happen. 1 megawatt saved is about one- third of what it costs to generate that segment of what. we need to rethink that. in both of these areas, both generation and technology, i think it is important to recognize that the rest of it is moving. i can tell you, traveling the world a lot, those countries are moving, and we should not be

confusing political discussions about copenhagen with what is actually going on it economically. there are focused on efficiency. they know that low cost clean power is what creates sustainable gdp growth, and that is what creates jobs. we need an energy policy for our country. we do not have one. and i am really hopeful that what our senators have proposed will lead us to have been one and put us on a sustainable gdp path. thanks. [applause] >> mr. hunter. >> i am a pastor from florida. i am also on the board of directors of the national association of evangelicals.

there are 420 million members. but i can speak of a broader aspect than just being a part of the christian faith. these obvious benefits, these practical benefits, that you have heard of so far are also part of a broader aspect of this bill. it is never too early or too late to do the right thing. religious people and nonbelievers alike have a sense that being a good steward of our earth and our atmosphere is the right thing to do. .

>> green is a moral aspect. time for action is now. it is the business of those with political perspectives to calculate the chances of success. legislative success is never the standard for moral action. i personally -- speaking for myself -- to not want to stand before god on judgment day and say, juno, i really wanted to protect the earth and the port, but i was not sure -- and say you know, i really wanted to protect the earth and the

poor, but i was not sure the votes were there. it is never too early or too late to do the right thing. [applause] >> louis hay. -- lewis hay. >> we own florida power and light, one of the largest utilities in the nation with 4.5 million customers, representing about 16 million people. we are the largest renewable energy producer in the united states, the largest won energy producer and the largest solar energy producer. senator kerry and senator lieberman deserve incredible in tremendous credit for crafting a proposal that will help our country move in the right direction on energy and climate, while creating jobs and protecting u.s. economy. i really think they have done a

fabulous job at a threading a needle and balancing all of the interests of the people behind us and many other constituents. it is incredible what they have done and who they have listened to. as a small example, both of us are here on the same stage supporting this bill. [laughter] jim and i have both been studying this climate issue and we both think it is very important, and a serious threat. we have been on the same page, but he represents a large number of customers who are primarily served by coal power. i represent a number of customers who are served by natural gas, nuclear, and grenoble's. the good news -- and renewables. the good news is that we have been arguing and debating this and it works. it is important that we move this forward. after many years of debate, the

united states still lacks a national energy strategy. this is our chance to fix that. one of the most important aspects of it is that we start putting a price on carbon that gradually increases over time. no. 1 ceo of the nation's renewable energy company, i can promise you this -- with a price on carbon and the other aspects of this bill, we will invest billions of dollars an more every year in grenoble's and -- in renewables and we will create thousands more jobs, then what we have done -- far more than what we have done in the current legislation. i want to thank you for crafting legislation that we can all support. i now want to introduce larry schweiger. [applause] >> thank you.

i am the president and ceo of the national wildlife federation. i represent more than 4 million members across america. i am here to thank senator kerry en senator lieberman for their many years of unwavering leadership on this important and difficult issue. i spent much of my time these last couple of weeks tracking the unrelenting damage being done by this oil spill, the devastating impact of fishermen, coastal communities -- it has only just begun. the vast damage to marine life has not yet been measured and is beyond the media cameras. the price of congressional paralysis and america's addiction to oil can no longer be hidden. when it flows into the gulf waters as fast as our money is flowing into the persian gulf, it is time for new energy policy. for every day they fail to pass comprehensive clean energy and crime legislation, we put our economy and national security, as well as our environment, at

great risk. this act has one ingredient that is absolutely essential for any energy bill were doing -- it holds companies accountable for doing their fair share to reduce carbon pollution. means investingn in clean energy alternatives and breaking this addiction that we have to foreign oil. it means cleaner air for my grandchildren to breathe and a safer and healthier environment for them to inherit. i appreciate senator kerry and senator lieberman for going forward and making this moment possible. i trust they will continue to work on the bill as we go forward in the days ahead. there is still much to be learned about the tragedy in the gulf. we must incorporate what we learn into this legislation as we move forward. we must protect our coasts, marine life, and our wildlife

resources. the work on this important bill is not finished, but it is a vital step. the senate must finish this work this year and a liver a comprehensive climate and clean energy bill -- and deliver a, the climate and clean energy andl that america's -- deliver a comprehensive climate and clean energy bill that america can support. thank you very much. [applause] >> good afternoon, i am marvin fertel. we have a number of members, including a global membership of suppliers. i want to add to these comments, without repeating them. i would like to thank senator kerry and senator lieberman for what was a very collaborative, a very open, very involved process, which made a very much better product.

i want to they senator gramm for his participation and i know his support and recommendation of the benefits were very important as the legislation has moved forward. we support a diversified portfolio of technology. there is no single bullet that will solve our problem from an energy or environmental standpoint, nor an economic standpoint. one thing that is recognized in this bill -- you heard others talk about this from a customer standpoint -- is a very big recognition of the impact of the economy and a big recognition of looking at energy security is one of the outcomes that we want on this. the bill does a lot to enhance and expand our ability to move nuclear energy for. we have plans going forward now, but nothing like what china and india are doing. they're moving much more aggressively than we are. we think this bill will be able to move more aggressively to create jobs and meeting our energy supply needs.

i will close by offering our support to work with the senators and their colleagues on both sides of the aisle and the senate and house as we try to move this to the president's desk. thank you very much. [applause] >> robert hansen. >> thank you, senator. in the past five years, our company and our joint ventures have announced approximately $5 billion in domestic investments in solar energy technology. these investments have created over 2000 direct jobs, and countless indirect jobs. we're encouraged, standing here today, by the legislation unveiled by senator kerry and senator lieberman. we look forward to participating in the process that ultimately

result in a comprehensive bill. as the leading u.s. manufacturer of alternate energy materials and components, dow corning welcomes the elements of the proposal would encourage further development of domestic renewable energy manufacturing, insulation, and implementation. we want to be part of the solution and we appreciate the opportunity. thank you, senators. [applause] >> we are just about to open it up to questions. i would like -- is there any company here that has not -- identify yourself so that people know who you represent. >> i would renewable energy market association -- i am with the of renewable energy market association. >> i represent dow chemicals.

>> did you hear that? [laughter] anybody else? [inaudible] >> is david from a123 here? he was here. i would like to draw your attention to an article in the newspaper a couple of days ago. the battery maker's story about how they were forced to go to china because we did not have the incentives. bill two plans there -- the bill to two plans there. they are now in michigan because they have done so well in china. it is what we're talking about today. joe and i, or any of the folks here -- >> expansion of offshore drilling, a study on voluntary

participation of renewable energy. how can this be framed as expanding renewable energy, if there are all of these -- >> this bill incorporates, by reference, the energy bill that has been passed out of the energy committee. there are huge, very significant energy efficiency alternative and renewable incentives in there. we have put additional alternative and renewable energy incentives into this bill. there's a certain increase in revenue here for alternative energy, for transportation, getting people out of their cars, for electric cars, a very significant piece for that. there is a significant an automatic 50% deduction -- reduction in emissions if you

convert diesel trucks, particularly garbage trucks, in a local community -- if you convert those natural-gas. deboned pickens -- t. boone pickens will be joining as next week for an event. he is in support of this. we want to reduce the dependency on foreign oil. there is a major retrofitting component for homes, buildings, which represent about 37% of greenhouse gas emissions. there are huge benefits to that. there are new standards of building that will be placed, in order to excite a whole new marketplace of energy efficiency. we're convinced that when you combine 17% reduction targets by 2020 with the 80% reduction target by 5050 -- 52050, coupled with all of these alternatives,

new grant -- by 2050, coupled with all of these alternatives and this exhaustive lists, this will change the face of american energy. i think lewis hay spoke to that. >> in addition to all that we have specifically and directly done to encourage, incentivized clean and alternative energy, the most important and unique thing this bill does is to put a price on carbon that reflects its real cost to our society and our economy. when you do not -- he is going to invest billions of dollars in renewable energy, because it becomes financially attractive ones present -- once pricing really reflects what it costs. >> you guys have done a pretty good job of telling the story.

the main thing is what senator lieberman said. it is putting renewable on a level playing field with other sources that it carbon, which nobody is paying for. -- than emit carbon, which nobody is paying for. we would expect -- we have produced about 1,000 megawatts each year of wind. we would more than likely double that which represents anywhere from $1.50 to $2 billion -- $1.50 billion to $2 billion. we would put roughly another $1.5 billion into solar, not to mention going forward on some nuclear plants that without a bill like this does not make as much economic sense with gas at $4.

>> i want you to tell a quick story about how this is going to work for you. we loved his solar power heater story. >> it is interesting. this was a couple of months ago when we met on the same subject. when it came to something as simple as solar water heaters -- the formal solar water heaters -- while we have sold thousands of them in india, we have sold none of them in the u.s. there is no demand for them here. we cannot talk about or see them when we drive around the u.s. you drive around india or china and you will see them everywhere. there are all lot of possibilities that just do not a contemplated today. boss there are a lot -- there are a lot of possibilities that just cannot get complicated -- get contemplated today. >> it provides a revitalization for american manufacturing and

provides a market for our consumers. one at a time. why are there no oil companies here today? they are very busy dealing with what is going on in the gulf. the others -- we have a number of executives who are not here today. the donna leff executives wanted to be here. they are putting out a statement -- the general electric executives wanted to be here. they are putting out a statement today. the ceo of dow corning could not be here today. we have someone else speaking for the company. there are a number of executives who could not be here today. today is boone pickens day in oklahoma. [laughter] he agreed to come here next week to do any event. we have not -- we have a lot of people who are not here but it will issue their statements of

support. -- but they will issue their statements of support. it includes british petroleum, conoco phillips, and others who are not yet supportive, but who are looking at it. we hope they will still join us. this is the first time we have had that kind of support. we think it is very important. >> you ask why the oil companies are not supporting this. there are a couple of reasons. without this kind of legislation, the environmental protection agency, under the massachusetts decision from the supreme court, the supreme court decision on that case will start to order, by executive order and regulation, policies of these companies. they much prefer to commend and negotiate with us. we open our door to that. we will legislate and enact a system that will be predictable. frankly, these companies have

become investors and developers of renewable energy as well. we're glad to have them aboard. >> two more. >> the have said their offshore drilling is a non-starter for them to support this. senator reed said he wanted all of the committee chairs to review this bill and discuss passage before memorial day. that is not a lot of time. what are the real chance of this will seafloor action? -- see floor action? >> what harry reid will do is -- he has recognized that he needs to pull this together, much as he has other pieces of legislation. the art he don't -- and there are two pieces here. we have met with senator bingaman many times and have made it clear that is incorporated by reference into

this effort. there may be a couple pieces here and there were there is some competition that they need to be reconciled. kerry-as also bethe boxer bill which has been reported to the floor of the senate. there are four and other committees that have some jurisdiction. i am chairman of one of them. -- there are four of the committees that have some jurisdiction. i am chairman of one of them. we have been working with those committees. perry will pull those together. the president wants to move forward. he thinks is important to try to do so. i think that senator reid is expecting to have a meeting of the chairs somewhere in the next couple of weeks, after people have had a chance to take stock of this. i will say something with joe in our caucus next week so people

will have an explanation of it. we will work for word from here. the white house is committed as is harry reid. >> one of the main concerns of u.s. agriculture is that the house bill would not have provided adequate offsets for pollution, so much so that it analysis was 59 and a half million acres of cropland would come out of production. how does your bill differ in addressing that problem so that agriculture can recover? >> first of all, let me say this -- we have been very thoughtful about how the agriculture process ought to work. we have worked closely with tom harkin while he was chair and debbie stabenow and now blanche lincoln. they have put together a

provision which we incorporated into the bill, which we think greatly assist agriculture. there are additional offsets in this bill. agriculture, as a whole, is exempt from this bill. it is very important to understand that this bill only covers about 2% of america's businesses. only 7500 entities in america, under this bill. -- come under this bill. small businesses and agriculture are exempt. that 2% that comes under the bill are total -- are equal to about 75% of the greenhouse gas emissions. that is why it is important and that is why we make progress. some of those entities are standing right here. many of them are right here. they fall under -- dow corning,

florida power and light, general electric -- they know this is good policy. it is the uncertainty about where it'll go over the next couple of decades. -- it gives them certainty about where it will go over the next couple of decades. energy efficiency is the lowest- hanging fruit available in america. one company has put out a report that shows that, for the first 20 or 30 years, this pays for itself. it is free. the efficiencies to get actually reduce your costs and you make more money. there are countless companies, some of them standing right here, that have already produced their emissions by 20%, 30%, and 40%, and they are making money doing it. i do not think i ever will draw -- i do not think agriculture will be heard by this, they will be helped.

many of us believe this is going to create great 12 for agriculture -- wealth for agriculture, and provide new opportunities like wind. i saw many farmers making money off the wind farms, more so than the crops they were growing. there is a future here. we need people to see that. >> this still has a lot of nuclear tax provisions, more than any prior versions of the bill. what is included now? how do you see this moving the bill along in the senate? >> the waxman-markey bill -- and this is very different from that bill, for a lot of different reasons. according to the epa, it contemplated the construction of some 260 nuclear plants. we think what we're doing is actually more sensible. together with the nuclear

industry, we have joined together in a way that gives them the opportunity to get up on their feet on the way that proves they can make it or not in the marketplace. we want to streamline the government decision making. it should not take 10 years. that is an insult to any taxpayer in this country. we want to streamlined position -- decision making -- we want to streamline the decision making. you want to encourage the standardizing of plants and modular plants, will be less expensive, safer, and competitive on a global basis. we give the nuclear industry the opportunity it asked for. they want to show on their own that they have the ability to retool, to gear up in human personnel and technology, in order to produce a better product and compete in the marketplace. we think, since it is absolutely

emission-free, it's certainly made sense to embrace it in the context of this bill. thank you very much. we appreciate it. [applause] [laughter] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] but in the relentless revolution, he -- >> in this book, she describes what capitalism is a cultural system, not just a historical one. that is on q&a tonight. the new president of the minneapolis federal reserve, narayana kocherlakota, was appointed last october after 10 years of being a consultant. he is discussing the bill before the senate and his ideas for limiting bailouts.

this is just over half an hour. >> thank you for that very generous introduction. it is a pleasure to be here. i was here when the sea all of u.s. bank gave a talk -- the ceo of u.s. bank gave a talk. the theme of his address was to hug your banker. [laughter] i thought about building on that to kiss me, i'm a central banker. but i decided to go in a slightly different direction. we as mid-2000's, investors, home buyers, and lenders, collectively bet that home prices would not fall by 30% in most major metropolitan areas in three years. we were wrong.

these mistakes have taken place for centuries and they will happen again. once these crises happen, there are strong economic forces that lead policy-makers to bail out financial firms. in other words, no legislation can completely eliminate bailouts. any new financial regulatory structure must keep this reality in mind. my theme today is that, although bailouts are inevitable, there magnitude can be limited by taxes on financial institutions.

i arrived at this conclusion about the usefulness of taxes by thinking through an analogy that i will expose at some length. knowing it is inevitable means that financial institutions fail to internalize all of the rest that they pose. -- the risk they pose. they thereby create or risk -- a risk externality. i would suggest that the logic that argues for taxation to do with externality is applicable in this case as well. as always, perhaps more unusual, any views that i share today are my own and not necessarily those at the federal reserve. my case for taxing banks is distinct from one often heard in popular discourse. taxpayers put x dollars into the

banking sector and the banking sector should repay all of that money. this argument is fundamentally grounded in a desire for revenge. some big banks, perhaps now gone forever, took our money, so all big banks must pay. taxes are seen as punishment for retribution -- as punishment or retribution. wall street is greedy, arrogant, and worst of all, we too good at math.- way too good at my story is different. some of the big banks did make socially undesirable decisions. in large part, they were led to make these choices by consensus within the tax and regulatory system. it was shaped by the ultimately correct expectation that some bailout would take place in the

event of a financial crisis. the government guarantees, no matter how explicit, created an incentive for financial institutions to make socially undesirable choices. taxation is a useful way to correct that. i earlier claimed that pile up -- i earlier claimed that bailouts are certain to occur in financial crises. why do i say this? there are many forces at play. i believe the strongest as to do with the very nature of financial markets. investors always want the ability to pull out their funds quickly. for this reason, liability often takes the form of short-term debt and deposits. such short-term financing instruments are intent -- are intrinsic to prone to self- fulfilling crises of confidence. -- are intrinsically prone to

self-fulfilling crises of confidence. for any given lender who wants to make a $1 billion loan to bank x, they have to believe that the bank will get another $99 million somewhere. the bank may fail because every possible lender believes that no other lender is willing to lend. this crisis of confidence can occur, regardless of the true state and condition of the bank. is is hardly a new story. it is why we have -- this story is hardly new. it is why we have insured deposits. it has huge consequences for how the government operate. in a financial crisis, there is tremendous uncertainty. are truly insolvent financial firms out there. no one knows for sure which ones

they are. during a crisis, the panic means that an institution, even one that is solid, may be subjected to boba run. in such an atmosphere, a contingent -- contagion's can become extremely -- a contagion can become extremely powerful. such flight can endanger a key financial institution, even if they are fundamentally sound. governments cannot risk such a collapse. during times of crisis, the provide debt guarantees for all financial institutions -- they provide that guarantees for all financial institutions. they may want to let firms fail. many observers of the events of september, 2008, emphasized the need for better regulation

mechanisms. different people mean different things by this. most want to oppose losses of debt holders. i'm not opposed to a fast resolution of bankruptcy. i do not believe that better regulation will end bailouts. i am led to make a prediction. no matter what mechanisms we legislate now to impose losses on creditors, congress or some agency acting on their behalf will block them in the next financial crisis. they will do so for a very good reason to forestall a run on the key players in the financial system. that is my first point -- bailout are inevitable. -- bailouts are inevitable. bailouts great inefficiency in the reallocation of -- create inefficiency in the reallocations. they finance deposits in part by

using debt and deposits. imagine for a minute that we lived in a world without bailouts. the government does not provide debt guarantees and there is no deposit insurance. decider increase the risk level of the investor portfolio -- they decide to increase the risk level of their investor portfolios. they demand a higher yield. in the absence of government guarantees, financial institutions would find it more costly to obtain debt financing for highly risky investments and for less risky ones. this effect would curb affirms appetite for risk -- a firm's appetite for risk. it would have an especially parlay -- powerful effect on highly leveraged institutions. that was the artificial world, without bailouts.

now returned to the real world with deposit insurance, that guarantees, and the inevitability of government bailouts. these guarantees change the natural relationship between risk and cost. the depositors and debt holders are now partially insulated from increased risk and so they do not demand a sufficiently high yield for riskier firms. they take on too much risk, because they are not deterred from doing so by the high cost of debt financing. the missing deterrent is especially relevant. for those institutions that are highly leveraged would be paying especially high yields on their debt by taking on riskier investments. in this way, the expectation of bailouts leaves too much capital to be allocated toward overly risky ventures. they did not reach the

collective mistakes that generate financial crises. they do mean that society loses. we have bailouts are inevitable and bailouts create inefficiencies. what kind of policy should we use to correct this? fromoing to use an analogy a completely different arena that i think will help us. suppose you have a factory that creates air pollution as a byproduct of operation. the firm that owns the factory chooses to produce more output and incurs various costs -- raw labor -- raw materials, labor, and so on. it also generates more pollution that will be absorbed by the surrounding community. the pollution is the social cost of production that is not paid for or internalized by the firm

that generates it. those are externalities. this exact same distinction between private and social cost applies to financial thattutions that face guarantees, which imply that some portion of the risk is absorbed by the taxpayer. making decisions about what to invest in -- they can ignore that portion of the risk. it is the social cost of a project that the private firm does not internalize. just like, the pollution, the risks and borne by taxpayers is an externality -- the risks borne by taxpayers is an externality. we can exploit years of research to address the problem of financial regulation when bailout are inevitable. -- bailouts are inevitable.

the long history shows that you need to provide the right incentives. think about the firm that is polluting -- the factory. its choices affect the amount of pollution it produces. the firm runs the factory. the kind of energy you use to run the factory, oil, natural gas, wind power. the government could control each of these choices. to do so, the government has to choose how to trade off these three factors and other ones. the trade-off decisions will be influenced by pollution considerations and cost factors. its anti-pollution technologies -- they may require the firm to invest in that.

it is expensive, the government may require the firm to switch to using natural gas instead of coal. making these trade-offs on a firm by a firm basis requires a tremendous amount of firm- specific information and firm- tibet know how -- firm-specific know-how. the government is not good at this. that is why we have private firms. the solution is to regulate the amount of pollution being produced. the central problem is that pollution has a social cost that the firm does not internalize when choosing its levels of production. from societies -- from society's point of view, the firm will overproduce pollution. however, it is required to pay for or internalize that cost, it will not do that.

suppose the firm is told, before choosing its level of production, that the government will measure the amount of pollution that it produces and charged them a tax that is equal to the social cost of that pollution -- and charge them a tax that is equal to the social cost of that pollution. it will be equal to the amount paid for the firm. the firm can now make its cost of production include these costs. what was external is now internal. the firm must choose a socially efficient level of production. this as importantly, it will automatically choose to produce that -- reduce that pollution in a cost-minimizing fashion. you do not need the government to solve the problem for them.

these lessons about pollution regulation translate directly into lessons about financial regulation. about -- as in the pollution case, a financial institution should be taxed for the amount of risk that it produces that is borne by the taxpayers. they can then choose the socially optimal level of risk. here is my preferred policy -- the firm is told that the government will estimate the expected discounted value of bailouts that they might proceed in the future. i said it expected, because the amount of a bailout is uncertain and is likely to be 0 much of the time. a bailout may be received next year or in 30 years. we have to discount accordingly. this estimate will depend on many choices and attributes, including leverage ratios, a security structure, liabilities,

risk characteristics of the portfolio, and composition. -- and compensation will be higher for those with higher -- and compensation. there will be higher for those with more risk. -- they will be higher for those with more risk. the government will then charge tax that is exactly equal to that amount. just as in the pollution example, this measurement of taxation policy confronts the firm with a tax schedule that translates its choices into a cost paid by the firm. the tax amount equals the extra costs bonre -- borne by taxpayers by i'd probably adjusting -- by appropriately adjusting for risk. they have no incentive to undertake risky investments. their investment was will be

socially efficient. it is not useful to tax a financial institution for producing our risk externality -- a risk externality. the purpose of tax is to ensure the full cost is paid by the firm. i emphasized that the pollution tax corrects the pollution externality without reading any new cost efficiencies and to the firm -- creating any new cost efficiencies -- cost inefficiencies to the firm. there are higher capital requirements, leverage caps, and restricted on incentives and compensation -- restrictions on incentives and compensation. these are all good, but they create new kinds of inefficiencies -- they might

also create new kinds of inefficiencies for the targeted firms. imposing new restrictions on the incentive compensation may hamper a firm's ability to motivate its employees. my proposed risk tax, like the pollution tax, correct the risk externality without creating new inefficiencies. those of you listening -- there is one part i slid through that is very difficult. it requires bank supervisors to calculate the expected present value of future bailout payments. these tabulations are likely to be complex in a number of ways. however, they could well be controversial. financial institutions that have highly risky strategies get especially high profits when those work. there would be required to levy high risk taxes on exactly those

institutions that appeared to be extremely successful. you would be developing an objective way to require tax using market information. here's what i have in mind. suppose that for every relevant financial institution the government issues a rescue bond. it pays a variable coupon, equal to 1 over 1000. i pick at no. out of thin air -- that number out of thin air. any fixed fraction will do. much of the time the number will be zero, because bailouts are not necessary. however, just like the institutions stakeholders, the owners of that bond will occasionally receive a large payment.

in a well functioning market, the price of the bond is exactly equal to whatever the expected discounted body of the transfers to the firm and its stakeholders. -- discounted value of the transfers to the firm and its stakeholders. in principle, the government does not need to be that precise about which firms are systemically important and which ones are not. they could issue a rescue bond for every institution. the market could reveal how each institution is relevant to the price of its rescue bond. markets are not always perfect. it would be inappropriate to rely only on market measures to compute the a corporate tax. -- the appropriate tax.

it would be an important element to this advisory process. i have talked about bailouts being inevitable and how they lead to inefficiencies, and how we can use tax is to correct that distortion. we talked about how to use market information to compute the appropriate tax rates. congress is in the process of considering changes to the financial regulatory system. in december, the house passed wall street reform. the senate is currently deliberating the restaurant america's financial stability act of 2010 -- the restoring america's financial stability act of 2010. neither piece of legislation it incorporates the kind of risk task that i have prescribed. the senate bill and the dodd- shelby amendment proposes no new

taxes, unless some failed. taxes could be levied on financial institutions, regardless of whether or not they had actively engaged in excessive risk-taking. a risk adjustment tax could have desirable results. it will end once it raises $150 billion. this cap is problematic. it only has a deterrent effect on taking risks when it is operational. once you stop collecting vat, firms are going to have the same incentives to take on risk. why did they fail to include the new levies like i have proposed? both bills significantly underestimate the extreme economic forces that lead to bailouts during financial crises. the opening language of the

senate bill actually declares that it will end taxpayer bailouts. it is an objective that is laudable, but not achievable. thinking that it is can lead to poor choices about the structure of financial regulation. let me wrap up -- bailouts need to happen to prevent friends and financial collapse. -- prevent runs and financial collapse. how should we best design such regulation? the social distortion -- financial institutions do not bear the full cost of their choices. financial regulation should be designed so as to best control the externalities'. as is true with any externality, the risk externality can be eliminated with a well-designed tax. figuring it out may be complicated, but the path can be

made easier using inappropriate information from the financial markets. thank you very much. [applause] i would be happy to take any questions that you might have. >> i have a question about reform for fannie mae and freddie mac. they write 90% of all home mortgages. i do not believe they are addressed in the legislation that is being contemplated. what they be subjected to this tax? -- would they be subjected to this tax to are contemplating? -- you are contemplating? >> we would rather have a

private security asian markets -- securitization market providing that. we have depression -- we have to plan for the appropriate situations. i may have a plan for that in the future. i do not at this point. it is true that fannie mae and freddie mac had the kind of implicit that guarantees i am talking about. it led to a certain kind of risk-taking that was socially undesirable. we have to correct that. there are many other things that we want to correct. >> i have a question. i am trying to think through your theory. if we provide a tax that is

supposed to normalize the risk, is there a difference in the returns to shareholders between one firm and another? what differentiates them? we have normalized all of the risks. >> the only risk i want to normalize is the risk taken on by taxpayers. a firm that was all equity finance -- there would be no tax associated with that because there would be no guarantees for such a firm. only a portion of the risk that is taken on by taxpayers. if you were all equity finance, it would not apply. if you were not viewed as systemically important, some small firms or small banks will not be receiving bailouts if they fail and they will not have to be taxed in this form.

it is about correcting the risk that is taken on by taxpayers. obviously, there will be returned differentials because of that -- return differentials because of that. >> my question has to do with where you're policy would lead, given three issues. most of this-is for thisbu -- most of this is for multi- business firms. third, taxes, like all expenses, are able to move between businesses. does not a policy like this, where you tax the most risky effects, put pressure on firms to shift those costs to others? would that not impact some of the lending activities the government might actually favor? with the only way to escape that

be to have price controls -- would the only way to a state that be to have price controls? -- to escape that be to have price controls? that is our real concern to me. >> i did not catch all of the questions. all of the large firms are multi business operations. if you try to tax one portion, they will shift the risk portions -- >> not the risk, the costs. it may affect products that are not directly related and might be bringing social benefits. >> under my proposal, what is going to be happening is you are correcting for the risks that are being taken on by taxpayers. if that is going to raise prices, it will be worthwhile

for that firm to spin off those products or operations away from the tax i describe. although the policy i am describing -- the policy i am describing is intended to only taken on bythe risk the taxpayers. it could lead to inefficiencies -- my policy will create -- correct those inefficiencies that are priced into the market. does that make sense? if you are able to offer a lower price because you are getting a subsidy from the taxpayers, that means you are using an inefficient allocation of

resources. that must be corrected. >> the house and senate bills would give the federal reserve more power and authority in the financial system. they would require it to cooperate with regulators to determine systemic risk. would your -- what would be the appropriate role of the federal reserve systemic risk regulators in the tax structure you are proposing and oversight console? getting into more details than i offered. let me try to answer that question. the way i propose the tax to operate -- the tax would have to

be authorized by congress. the level of the tax would be set by a supervisory personnel. the fed's role in this would be to operate the bank holding company level and cooperate -- and work with a bunch of different regulators. the authorization process would have to come from congress. [inaudible] >> one more question. >> the fdic has seen an increase in fees that bank holding companies would have to pay to get the benefits. that is the factor in this tax -- an additional expense.

how does that factor into your proposed tax? how does that -- what does that have to do with the current proposition? >> i want to include the fdic premiums that are being charged as well. once we felt we had raised enough money, we stopped collecting fees and premiums from a large range of banks. you want to be able to always provide the right kind of incentives. any incentives better being offered should be folded in with what i am saying. i'm not trying to propose something in on top of that, it should be complementary to what they are doing. thank you for all of your questions. [applause] >> in "the relentless revolution," she describes what capitalism is a cultural