Senate Majority Leader Harry Reid (D-Nev.) yesterday indicated he is open to considering moderate Democrats' proposals to craft compromise oil spill liability language.

Sens. Mark Begich (D-Alaska) and Mary Landrieu (D-La.) have opposed Reid's measure to eliminate the current $75 million liability cap, saying it would put all but the largest oil companies out of business because of exorbitant insurance costs. They have promised to introduce compromise language that would ensure small- and mid-sized oil companies continued to be able to operate offshore.

But until yesterday, Reid had not given credence to their proposal, insisting that the language in his energy and oil-spill response bill (S.3663) was the best way to go.

"Senator Reid continues to think that there should be no liability cap for the damages that oil companies' pollution causes, but he is open to senators' ideas on ways to make sure they have enough insurance to cover their liabilities," Reid spokesman Jim Manley said yesterday.

Reid pulled the spill legislation -- and a Republican alternative (S. 3643) -- from floor consideration this week after failing to find enough support. But Begich and Landrieu have continued to forge ahead with their compromise language, and a spokeswoman for Begich said they would likely introduce the measure today.

The crux of their proposal rests on a shared liability insurance fund that would be fed by industry to ensure smaller companies were not forced out of the offshore industry by insurance costs.

Sen. Robert Menendez (D-N.J.), the original author of the unlimited liability language included in Reid's bill, has indicated he, too, is willing to work with the moderate Democrats on their proposal.

"Look, the bottom line is we agree on the same principals: unlimited liability, taxpayers don't get on the hook for anything and those who are harmed have access to damages within the context of unlimited liability," Menendez said yesterday. "So how the industry, you know, spreads its risk among itself is something that I'm not opposed to."

Begich said he had been in conversations with Democratic leaders about the proposal, and Landrieu said Republicans have also been a part of conversations.

"Let me just say that all the players are well-aware of what we're working on," Begich said. "I can only go with indications, and I think at the end of the day, we'll find that most of the sides will agree to what we've proposed."

Insurance double take?

Looming in the wings of negotiations over the liability language is the fate of the Oil Spill Liability Trust Fund, an existing insurance-like fund created by the government after the Exxon Valdez disaster.

The shared liability proposal offered by Begich and Landrieu could result in two separate insurance funds that companies need to pay into for oil-spill cleanup -- a situation Republicans and the oil industry are not likely to support.

"You need to make sure this is all meshed up together," said an oil industry source. "I think people have lost track of the fact that originally [the trust fund] was an insurance pool. It hasn't been characterized that way, but originally that is the way it was."

Under current law, oil companies pay an 8-cents-per-barrel fee into the oil spill liability trust fund, which holds about $1.5 billion. The fund pays for economic damages after a company's $75 million liability cap, with a ceiling of $1 billion per incident.

Reid proposed in his energy and spill bill to increase the fee to 49 cents per barrel. The additional tax would raise more than $18 billion over 10 years, which Reid would use to offset the $5 billion energy efficiency "Home Star" program, oil spill mitigation research and alternative vehicle incentives in the bill.

Democrats attempted to use the oil spill liability trust fund to help offset billions of dollars in tax credit extensions earlier this year. It ultimately failed to pass the Senate, partially because of Republicans objecting to the use of the oil spill trust fund as an offset (E&E Daily, June 25).

A spokesman for Sen. Lisa Murkowski (R-Alaska), ranking member of the Energy and Natural Resource Committee, said while issues with the offset provision of Reid's legislation got lost among the debate on the liability cap, they are still on the list of problems Republicans had with the bill.

"If you want to argue about the oil spill liability fund, that might be worth a discussion, but that money should be lock-boxed to deal with oil spills," spokesman Robert Dillon said.

The fund should not be used to pay for other programs that have nothing to do with oil spills and that should be dealt with in an energy bill, Dillon added.

But if the oil spill liability trust fund is eliminated or its funds are taken off the table in negotiations for the spill bill likely to be taken up in September, Democrats have no obvious pool of money to pay for any other energy measures they would like to approve.

Reporter Josh Voorhees contributed.