A bill to prevent the retroactive application of changes to Trans-Alaska Pipeline Quality Bank valuation methodologies.

Mr. President, this week, American taxpayers face another Federal income tax deadline. The date of April 15 stabs fear, anxiety, and unease into the hearts of millions of Americans. Every year during ``tax season,'' millions of Americans spend their evenings poring over page after page of IRS instructions, going through their records looking for information and struggling to find and fill out all the appropriate forms on the Federal tax returns. Americans are intimidated by the sheer number of different tax forms and their instructions, many of which they may be unsure whether they need to file. Given the approximately 325 possible forms, not to mention the instructions that accompany them, simply trying to determine which form to file can in itself be a daunting and overwhelming task. According to a 2002 study conducted by the Tax Foundation, American taxpayers, including businesses, spend more than 5.8 billion hours and $194 billion each year in complying with tax laws. That works out to more than $2,400 per U.S. household. Much of this time is spent burrowing through IRS laws and regulations which fill 17,000 pages and have grown from 744,000 words in 1955 to over 6.9 million words in 2000. By contrast, the Pledge of Allegiance has only 31 words, the Gettysburg Address has 267 words, the Declaration of Independence has about 1,300 words, and the Bible has only about 1,773,000 words.

The majority of taxpayers still face filing tax forms that are far too complicated and take far too long to complete. According to the estimated preparation time listed on the forms by the IRS, the 2004 Form 1040 is estimated to take 13 hours and 35 minutes to complete. Moreover this does not include the estimated time to complete the accompanying schedules, such as Schedule A, for itemized deductions, which carries an estimated preparation time of 5 hours, 37 minutes, or Schedule D, for reporting capital gains and losses, shows an estimated preparation time of 6 hours, 10 minutes. Moreover, this complexity is getting worse each year. Just from 2000 to 2004 the estimated time to prepare Form 1040 jumped 34 minutes.

It is no wonder that well over half of all taxpayers, 56 percent according to a recent survey, now hire an outside professional to prepare their tax returns for them. However, the fact that only about 30 percent of individuals itemize their deductions shows that a significant percentage of our taxpaying population believes that the tax system is too complex for them to deal with. We all understand that paying taxes will never be something we enjoy, but neither should it be cruel and unusual punishment. Further, the pace of change to the Internal Revenue Code is brisk--Congress made about 9,500 tax code changes in the past thirteen years. And we are far from being finished. Year after year, we continue to ask the same question--isn't there a better way?

My flat tax legislation would make filing a tax return a manageable chore, not a seemingly endless nightmare, for most taxpayers. My flat tax legislation will fundamentally revise the present tax code, with its myriad rates, deductions, and instructions. This legislation would institute a simple, flat 20 percent tax rate for all individuals and businesses. This proposal is not cast in stone, but is intended to move the debate forward by focusing attention on three key principles which are critical to an effective and equitable taxation system: simplicity, fairness and economic growth.

My flat tax plan would eliminate the kinds of frustrations I have outlined above for millions of taxpayers. This flat tax would enable us to scrap the great majority of the IRS rules, regulations and instructions and delete most of the 6.9 million words in the Internal Revenue Code. Instead of billions of hours of non-productive time spent in compliance with, or avoidance of, the tax code, taxpayers would spend only the small amount of time necessary to fill out a postcard- sized form. Both business and individual taxpayers would thus find valuable hours freed up to engage in productive business activity, or for more time with their families, instead of poring over tax tables, schedules and regulations.

My flat tax proposal is dramatic, but so are its advantages: a taxation system that is simple, fair and designed to maximize prosperity for all Americans. A summary of the key advantages are:

Simplicity: A 10-line postcard filing would replace the myriad forms and attachments currently required, thus saving Americans up to 5.8 billion hours they currently spend every year in tax compliance.

Cuts Government: The flat tax would eliminate the lion's share of IRS rules, regulations and requirements, which have grown from 744,000 words in 1955 to 6.9 million words and 17,000 pages currently. It would also allow us to slash the mammoth IRS bureaucracy of approximately 117,000 employees, creating opportunities to put their expertise to use elsewhere in the government or in private industry.

Promotes Economic Growth: Economists estimate a growth due to a flat tax of over $2 trillion in national wealth over seven years, representing an increase of approximately $7,500 in personal wealth for every man, woman and child in America. This growth would also lead to the creation of 6 million new jobs.

Increases Efficiency: Investment decisions would be made on the basis of productivity rather than simply for tax

avoidance, thus leading to even greater economic expansion.

Reduces Interest Rates: Economic forecasts indicate that interest rates would fall substantially, by as much as two points, as the flat tax removes many of the current disincentives to savings.

Lowers compliance costs: Americans would be able to save or invert up to $194 billion they currently spend every year in tax compliance.

Decreases fraud: As tax loopholes are eliminated and the tax code is simplified, there will be far less opportunity for tax avoidance and fraud, which now amounts to over $120 billion in uncollected revenue annually.

Reduces IRS costs: Simplification of the tax code will allow us to save significantly on the $10 billion annual budget currently allocated to the Internal Revenue Service.

The most dramatic way to illustrate the flat tax is to consider that the income tax form for the flat tax is printed on a postcard--it will allow all taxpayers to file their April 15 tax returns on a simple 10- line postcard. This postcard will take 15 minutes to fill out.

At my town hall meetings across Pennsylvania, there is considerable public support for fundamental tax reform.

This is a win-win situation for America because it lowers the tax burden on the taxpayers in the lower brackets. For example in the 2004 tax year, the standard deduction is $4,850 for a single taxpayer, $7,150 for a head of household and $9,700 for a married couple filing jointly, while the personal exemption for individuals and dependents is $3,100. Thus, under the current tax code, a family of four which does not itemize deductions would pay taxes on all income over $22,100--that is personal exemptions of$12,400 and a standard deduction of $9,700. By contrast, under my flat tax bill, that same family would receive a personal exemption of $30,000, and would pay tax on only income over that amount.

The tax loopholes enable write-offs of some $393 billion a year. What is eliminated under the flat tax are the loopholes, the deductions in this complicated code which can be deciphered, interpreted, and found really only by the $500-an-hour lawyers. That money is lost to the taxpayers. $120 billion would be saved by the elimination of fraud because of the simplicity of the Tax Code, the taxpayer being able to find out exactly what they owe.

This bill is modeled after a proposal organized and written by two very distinguished professors of law from Stanford University, Professor Hall and Professor Rabushka. Their model was first introduced in the Congress in the fall of 1994 by Majority Leader Richard Armey. I introduced the flat tax bill--the first one in the Senate--on March 2, 1995, Senate bill 488. On October 27, 1995, I introduced a Sense of the Senate Resolution calling on my colleagues to expedite Congressional adoption of a flat tax. The Resolution, which was introduced as an amendment to pending legislation, was not adopted. I reintroduced my legislation in the 105th Congress with slight modifications to reflect inflation-adjusted increases in the personal allowances and dependent allowances. I re-reintroduced the bill on April 15, 1999--income tax day--in a bill denominated as S. 822. I then introduced my flat tax legislation as an amendment to S. 1429, the Tax Reconciliation bill; the amendment was not adopted. During the 108th Congress, I introduced my flat tax legislation once again on April 11, 2003. On May 14, 2003, I offered an amendment to the Tax Reconciliation legislation urging the Senate to hold hearings and consider legislation providing for a flat tax; this amendment passed by a vote of 70 to 30 on May 15, 2003. I then testified on this issue at a subsequent hearing held by the Joint Economic Committee on November 5, 2003.

Over the years and prior to my legislative efforts on behalf of flat tax reform, I have devoted considerable time and attention to analyzing our nation's tax code and the policies which underlie it. I began the study of the complexities of the tax code over 40 years ago as a law student at Yale University. I included some tax law as part of my practice in my early years as an attorney in Philadelphia. In the spring of 1962, I published a law review article in the Villanova Law Review, ``Pension and Profit Sharing Plans: Coverage and Operation for Closely Held Corporations and Professional Associations,'' 7 Villanova L. Rev. 335, which in part focused on the inequity in making tax-exempt retirement benefits available to some kinds of businesses but not others. It was apparent then, as it is now, that the very complexities of the Internal Revenue Code could be used to give unfair advantage to some. Einstein himself is quoted as saying ``the hardest thing in the world to understand is the income tax.''

The Hall-Rabushka model envisioned a flat tax with no deductions whatever. After considerable reflection, I decided to include in the legislation limited deductions for home mortgage interest for up to $100,000 in borrowing and charitable contributions up to $2,500. While these modifications undercut the pure principle of the flat tax by continuing the use of tax policy to promote home buying and charitable contributions, I believe that those two deductions are so deeply ingrained in the financial planning of American families that they should be retained as a matter of fairness and public policy--and also political practicality. With those two deductions maintained, passage of a modified flat tax will be difficult, but without them, probably impossible.

In my judgment, an indispensable prerequisite to enactment of a modified flat tax is revenue neutrality. Professor Hall advised that the revenue neutrality ofthe Hall-Rabushka proposal, which uses a 19 percent rate, is based on a well-documented model founded on reliable governmental statistics. My legislation raises that rate from 19 percent to 20 percent to accommodate retaining limited home mortgage interest and charitable deductions.

This proposal taxes business revenues fully at their source, so that there is no personal taxation on interest, dividends, capital gains, gifts or estates. Restructured in this way, the tax code can become a powerful incentive for savings and investment--which translates into economic growth and expansion, more and better jobs, and raising the standard of living for all Americans.

The key advantages of this flat tax plan are threefold: First, it will dramatically simplify the payment of taxes. Second, it will remove much of the IRS regulatory morass now imposed on individual and corporate taxpayers, and allow those taxpayers to devote more of their energies to productive pursuits. Third, since it is a plan which rewards savings and investment, the flat tax will spur economic growth in all sectors of the economy as more money flows into investments and savings accounts.

Professors Hall and Rabushka have projected that within seven years of enactment, this type of a flat tax would produce a 6 percent increase in output from increased total work in the U.S. economy and increased capital formation. The economic growth would mean a $7,500 increase in the personal income of all Americans. No one likes to pay taxes. But Americans will be much more willing to pay their taxes under a system that they believe is fair, a system that they can understand, and a system that they recognize promotes rather than prevents growth and prosperity. My flat tax legislation will afford Americans such a tax system.

I ask unanimous consent that a copy of my flat tax postcard, a variety of specific cases that illustrate the fairness and simplicity of this flat tax, and an example flat tax table be printed in the Record following my statement.

I ask unanimous consent that the text of this bill be printed in the Record.

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Mr. President, I have sought recognition today to introduce the Prescription Drug and Health Improvement Act of 2005 to reduce the high prices of prescription drugs for Medicare beneficiaries. I introduced a similar version of this bill in the 108th Congress, S. 2766. To increase the likelihood that this bill may become law this bill does not include a costly provision which would have closed the gap in prescription drug costs for Medicare beneficiaries.

Americans, specifically senior citizens, pay the highest prices in the world for brand-name prescription drugs. With 45 million uninsured Americans and many more senior citizens without an adequate prescription drug benefit, filling a doctor's prescription is unaffordable for many people in this country. The United States has the greatest health care system in the world; however, too many seniors are forced to make difficult choices between life-sustaining prescription drugs and daily necessities.

The Centers for Medicare and Medicaid Services estimate that in 2004 per capita spending on prescription drugs rose approximately 12 percent, with a similar rate of growth expected for this year. Much of the increase in drug spending is due to higher utilization and the shift from older, lower cost drugs to newer, higher cost drugs. However, rapidly increasing drug prices are a critical component.

High drug prices, combined with the surging older population, are also taking a toll on State budgets and private sector health insurance benefits. Medicaid spending on prescription drugs increased at an average annual rate of nearly 19 percent between 1998 and 2002. Until lower priced drugs are available, pressures will continue to squeeze public programs at both the State and Federal level.

To address these problems, my legislation would reduce the high prices of prescription drugs to seniors by repealing the prohibition against interference by the Secretary of HHS with negotiations between drug manufacturers, pharmacies, and prescription drug plan sponsors and instead authorize the Secretary to negotiate contracts with manufacturers of covered prescription drugs. It will allow the Secretary of HHS to use Medicare's large beneficiary population to leverage bargaining power to obtain lower prescription drug prices for Medicare beneficiaries.

Price negotiations between the Secretary of HHS and prescription drug manufacturers would be analogous to the ability of the Secretary of Veterans Affairs to negotiate prescription drug prices with manufacturers. This bargaining power enables veterans to receive prescription drugs at a significant cost savings. According to the National Association of Chain Drug Stores, the average ``cash cost'' of a prescription in 2001 was $40.22. The average cost in the Veterans Affairs (VA) health care system in fiscal year 2001 was $22.87.

In the 108th Congress, in my capacity as chairman of the Veterans' Affairs Committee, I introduced the Veterans Prescription Drugs Assistance Act, S. 1153, which was reported out of committee, but was not considered before the full Senate. In the 109th Congress, I have again introduced the Veterans Prescription Drugs Assistance Act, S. 614.

This legislation will broaden the ability of veterans to access the Veterans Affairs' Prescription Drug Program. Under my bill, all Medicare-eligible veterans will be able to purchase medications at a tremendous price reduction through the Veterans Affairs' Prescription Drug Program. In many cases, this will save veterans who are Medicare beneficiaries up to 50 percent on the cost of prescribed medications, a significant savings for veterans. Similar savings may be available to America's seniors from the savings achieved using the HHS bargaining power, like the Veterans Affairs bargaining power for the benefit of veterans. These savings may provide America's seniors with fiscal relief from the increasing costs of prescription drugs.

I believe this bill can provide desperately needed access to inexpensive, effective prescription drugs for America's seniors. The time has come for concerted action in this arena. I urge my colleagues to move this legislation forward promptly.

I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, today I am pleased to introduce the Platform Equality and Remedies for Rights-holders in Music Act, or the PERFORM Act, along with Senators Graham and Frist.

The need to protect creative works has been an important principle recognized in our country since its inception.

The founding fathers accurately understood the importance of intellectual property by including protective language in our Constitution, and in doing so they established a principle that would stand the test of time.

However, they could not have predicted that the path of innovation would eventually produce the amazing new technologies that we now take for granted.

While many of us still enjoy traditional analog radio, this, too, is rapidly changing. We now have music radio programs provided over the Internet, cable, and satellites. Even traditional radio is changing with the advent of new digital radio.

With the entry into the marketplace of these new music providers consumers are receiving the songs and artists they enjoy in new and innovative ways.

Yet, as these new business models and technologies are developed we must ensure that the artists and musicians who create and perform the music continue to be fairly compensated for their works.

Unfortunately, some of the new innovations have been used to supplant music sales and avoid fair compensation to the songwriters and performers.

From 1999 to 2004, total music sales have declined by 30 percent. Over the same period, CD sales declined 18 percent. The decline continued in 2005 as total album sales fell 7.2 percent year-over-year.

Some of this decline is due to outdated business models and competition from other entertainment products, some due to illegal actions and piracy, and some is due to outdated music licensing laws.

I believe our laws must strike the proper balance between fostering new business models and technology and protecting the property rights of the artists whose music is being broadcast.

I strongly support advancements in technology and I encourage ingenuity. The birth of the digital music place has been a boon for businesses and consumers. It is important that these new forums succeed and grow.

However, these new technologies and business models have become so advanced that the clear lines between a listening service and a reproduction and copying service has been blurred.

Historically, a radio service simply allowed music to be performed and listened to by an audience. However, many new services using the new digital transmissions and new technological devices have allowed consumers to also record, manipulate, and collect individual music play-lists off their radio-like services.

Thus, what was once a passive listening experience has turned into a forum where consumers can record, manipulate, reprogram and save songs to create their own personalized playlists.

As the modes of distribution change and the technologies change, so must our laws change. The government granted a compulsory license for radio-like services by Internet, cable, and satellite providers in order to encourage competition and new products.

However, as new innovations alter their services from a performance to a distribution the law must respond.

In addition, as the changing technology evolves, the distinctions between the services become less and less, and the differences in how they are treated under the statutory license make less sense.

Therefore I am introducing a bill that will begin to fix the inequities currently in the statute and open the door to further debate about additional issues that need to be addressed.

The bill I am introducing today with Senators Graham and Frist would: create rate parity--all companies covered by the government license created in Section 114 would be required to pay a fair market value for use of music libraries rather than having different rate standards apply based on what medium is being used to transmit the music; and establish content protection--all companies would be required to use reasonably available, technologically feasible, and economically reasonable means to prevent music theft. In addition, a company may not provide a recording device to a customer that would allow him or her to create their own personalized music library that can be manipulated and maintained without paying a reproduction royalty.

This does not mean such devices cannot be made or distributed. It simply means that the business must negotiate the payment for the music through the market rather than under the statutory license.

The bill also contains language to make sure that consumers' current recording habits are not inhibited. Therefore, any recording the consumer chooses to do manually will still be allowed. In addition, if the device allows the consumer to manipulate music by program, channel, or time period that would still be allowable under the statutory license.

For example, if a listener chooses to automatically record a news station every morning at 9:00; a jazz station every afternoon at 2:00; a blues station every Friday at 3:00; and a talk radio show every Saturday at 4:00; that would be allowable. In addition, that listener could then use their recording device to move these programs so that all programs of the same genre are back to back.

What a listener cannot do is set a recording device to find all the Frank Sinatra songs being played on the radio-service and only record those songs. By making these distinctions this bill supports new business models and technologies without harming the songwriters and performers in the process.

Unfortunately, anytime legislation is introduced there is a lot of misinformation about what it does. Often criticisms are lobbed without reviewing the actual text of the bill. So, let me be clear about some of the concerns I have heard.

The bill would not apply to over-the-air broadcasting. Terrestrial radio, i.e. traditional radio distributed by the broadcasters is not covered under this bill. This legislation only covers businesses that are under the 114 license--Internet, cable, and satellite.

The only application to broadcasters would be if they were to act as webcasters and simulcast their programs over the Internet, in which case they would be treated the same as all other Internet radio providers.

The bill would not inhibit technological advances. It would place limits on the types of recording devices cable, Internet and satellite providers may offer, IF they want to enjoy the benefit of a government license.

If, however, a company wants to offer new technologies that allow for manipulation of music so that a consumer may create their own music libraries, similar to a downloading service, they may. There is nothing in this bill prohibiting the use or creation of new technologies the company would simply lose the benefit of a government license.

The bill simply states that if a company wants to change its service from a performance to a distribution then they no longer are covered by the government license and must go to the record companies directly to negotiate a licensing agreement through the market.

The bill would not be discriminatory. Some argue that changing the rates or establishing content protection is discriminatory. However, under current law some businesses are required to pay higher licensing rates than others even though they provide essentially the same services.

In addition, if a new satellite company were to be formed today they would be required to pay a higher rate than the current two companies in the market--that is not fair. Instead this bill would establish the same rates and protections for all companies.

The argument that this bill is discriminatory ignores the inequities of current law as it applies to Internet, cable, old and new satellite providers and instead focuses on the differences between these new radio providers versus terrestrial or traditional over-the-air radio.

The argument is that there are already devices available and new technologies that allow consumers to capture and manipulate music being played by over-the-air broadcasters. Yet this bill does not apply to broadcasters and instead only applies to Internet, cable and satellite.

The conclusion being that by not covering broadcasters we are giving them a free pass and being unfair to the new businesses.

While the obvious argument is that the Judiciary Committee does not have jurisdiction to regulate over-the-air broadcasters, I think it is important to acknowledge that the Commerce Committee is actively looking into this issue right now. In addition, I am aware that there are active negotiations occurring between broadcasters and the record labels to develop similar protections for their services.

Thus, while some may be frustrated that jurisdiction may lie in different committees, efforts are on-going in each to address these issues. I do not believe we, in the Judiciary Committee, should wait and do nothing to protect artists and songwriters simply because the Commerce Committee has not yet moved legislation to deal with the same concern for terrestrial radio.

Having said that, let me be clear, this is the beginning of a process to address a very specific problem. I believe that as the process unfolds there will be additional improvements or other issues that may need to be added.

Already, some have raised questions about language in the bill and additional modifications to Section 114 that I believe should be looked at more closely.

I understand there is some concern about what fair market value means, especially under a government licensing scheme where there is not an actual competitive market. I think it makes sense to look into this issue and see if there is a definition that can be developed.

In doing this, I believe we should look at all the different models that have been used. We should look at what the courts have held, what the copyright office has used, what a real competitive market would entail, as well as other factors that may not have been considered.

The bill as introduced does not address the other conditions applied to Internet, cable, and satellite services in order for them to get the benefit of the statutory license. The one that I am most concerned with is interactivity.

I think there is real confusion about what is and what is not allowed under the current statute. How much personalization and customization may these new services offer?

Currently licensing rates are higher for interactive services. However, there are clear disagreements as to what constitutes an interactive service.

I tried to have the parties meet to negotiate a solution to this issue so that we could include new language this in the bill.

However, after two weeks and hours and hours of negotiations the parties were so far apart that a solution could not be reached. Despite this, I still believe this is an important issue that must be addressed.

Therefore, I put a placeholder in the bill that calls for the copyright office to make recommendations to Congress, but I am hopeful that through the process of moving this bill through the Senate we can develop a solution sooner rather than later.

I am hopeful that the parties will again meet and try to develop a compromise, however, if that does not occur I may try to work with my colleagues to develop a legislative solution independently.

Finally, some have raised concerns that applying content protection to all providers is unfair. They argue that if there is no connection between the distributor of the music and the technology provider that allows for copying and manipulating of performances then they should not be required to protect the music that they broadcast.

In general, I do not agree. We know that there are websites out there now that provide so-called stream-ripping services that allow an individual to steal music off an Internet webcast. It is not enough to turn a blind eye to this type of piracy and do nothing simply because there is no formal connection between the businesses.

At the same time, I am sympathetic to the concerns that if the type of technology a company uses is inadequate or ineffective, through no fault of their own, they can be saddled with huge mandatory penalties. I am willing to look at this issue more closely and see if there is some way to address this concern and find a compromise solution.

As I have said, this is the beginning of the process. I think this legislation is a good step forward in addressing a real problem that is occurring in the music industry.

Changes or additions may be necessary as the bill moves forward, but I believe to wait and do nothing does a disservice to all involved.

Music is an invaluable part of all of our lives. The new technologies and changing delivery systems provide exciting new options for all consumers. As we continue to move forward into new frontiers we must ensure that our laws can stand the test of time.

I look forward to working with my colleagues to pass this legislation.

I ask unanimous consent that the text of the bill be printed in the Record along with letters of support for the legislation.

Mr. Speaker, I rise today to introduce legislation to eliminate endless litigation--and the associated economic hazard to Alaska--over the valuation of oil that is shipped through the Trans-Alaska Oil Pipeline System, TAPS.

The current litigation over this issue concerns valuations used in connection with the ``TAPS Quality Bank,'' which shippers make payments into or receive payments from depending on the quality of the crude oil they inject into the pipeline. This litigation has been ongoing since 1989, and there is no end in sight. Unfortunately, the incentive of parties to litigate is compounded because the Federal Energy Regulatory Commission, FERC, apparently has authority in these cases to impose changes in oil valuations on a retroactive basis.

My bill provides that, after December 31, 2005, the FERC will no longer have authority to apply changes to Quality Bank valuations on a retroactive basis. In other words, if FERC makes changes in the method by which oil shipped through the pipeline is valued, they must do so only on a prospective basis. This will impose a strong incentive for parties to the existing litigation to settle before the end of this year, and ensure, with respect to any future changes to valuations, that no TAPS shipper is exposed to the kind of retroactive liability that could accrue in the existing dispute.

Since its opening in June 1977, the Trans-Alaska Pipeline System, TAPS, has carried crude oil from Alaska's North Slope to Valdez where the oil is shipped to market. The pipeline carries crude oil from various sources and of varying quality. The oil is injected into the line before the pipeline's Pump Station One near Deadhorse, Alaska and commingled as the blended stream of oil travels south to Valdez. The TAPS Quality Bank was established to compensate producers of higher quality crude oil for the difference in the value of the crude injected at the North Slope and that of the lower-quality commingled stream received in Valdez, since each shipper receives a quantity of the blended stream in Valdez equivalent to the amount it injected into the line.

Companies injecting low-quality crude oil pay into the Quality Bank, while companies injecting high quality crude receive a payment from the Quality Bank. In addition, between the North Slope and Valdez, two refineries, Flint Hills and Petro Star, withdraw a portion of the common stream from TAPS, partially refine the crude oil into products such as gasoline, diesel and jet fuel, and reinject into TAPS the other components of crude left over after their refinery processes. Each fuel extracted from the crude is called a ``cut.'' To compensate other shippers for the lower relative value of the oil the refineries return to TAPS, refiners also pay into the Quality Bank. The objective of the Quality Bank is to make monetary adjustments so that each shipper is in the same economic position it would enjoy if it received the same oil in Valdez that it delivered to TAPS on the state's North Slope.

The methodology used to determine Quality Bank payments has been a subject of controversy since the Quality Bank's creation. The problem arises because there is no independent market for the crude injected on the North Slope and thus no way to objectively determine its value. The methodology is set by the Federal Energy Regulatory Commission. Since the early 1980s, FERC-approved methodologies have been challenged in court and revised multiple times. In 1993, the majority of North Slope shippers proposed and FERC approved a settlement calling for the use of a ``distillation'' methodology, which would value crude oil based on the market price of various cuts created when the components are separated based on different boiling points--the distillation process. This methodology replaced the former ``gravity'' methodology where oil was valued based on its relative gravity.

Since 1993, disputes have focused largely on the valuation of cuts at the highest boiling points--the ``Heavy Distillate'' cut that evaporates at temperatures between 450 and 650 degrees F. And the ``Resid'' (residual) cut, which includes the portion remaining after distillation of all other cuts at boiling points up to 1050 degrees F. Two additional cuts are also at issue, the VGO and Naphtha cuts.

In 1997, responding to a DC Circuit Court of Appeals ruling, FERC approved a settlement with a revised valuation methodology for Distillate and Resid. Under the FERC order, the new valuation methodologies were to be applied on a prospective basis only. Later, the DC Circuit in 1999 told FERC to revise some particular details of the Resid valuation and also held that FERC had ``failed to provide an adequate explanation'' as to why the new methodology should not be made retroactive to 1993.

Responding to the ruling, the Administrative Law Judge, who in 1997 had decided that all changes should only apply prospectively, reversed his position and released a decision in August 2004 calling for changes in the Resid and Heavy Distillate cuts to be applied retroactively, in the case of Resid to as far back as 1993. In addition, the administrative law judge decided to apply new valuations for VGO and Naphtha, prospectively. Currently, the judge's decision is awaiting a final decision by the FERC on whether to impose the Initial Decision or alter it.

There are clearly major public policy implications resulting from this Quality Bank issue. While the bank is a ``zero sum'' game as far as money paid in and out of the bank is concerned, the impacts on the parties and thus on the citizens of Alaska are anything but equal.

For decades Alaskans suffered from the effects of having to import all refined fuel products into the state from West Coast refineries. Besides higher prices caused by transportation, that left the state wholly dependent on fuel supplies that needed to travel at least 2,000 miles on average to reach Alaska consumers--sometimes through bad weather and difficult sea conditions. With the construction of in-state refineries, Alaskans finally saw greater security of supply, less dependence upon weather for shipment arrivals, and the possibility of lower fuel prices because of potentially reduced transportation costs. The greater dependability of fuel supplies improved aviation freight shipments at the Anchorage and Fairbanks international airports, helping create jobs in air freight and related industries.

The recent decision of the FERC Administrative Law Judge to apply new Quality Bank methodology assessments retroactively, however, places the economics of in-state refineries at risk. That in turn not only impacts the job security for the roughly 400 Alaskans who work at the refineries, but also threatens the state's energy and economic security.

The problem is that both of the refineries must make long- and short- term business decisions based on crude costs when they process crude oil into product. Refineries optimize their production slates based on current market realities. It is difficult for them to operate, given low profit margins, if oil values can change years later as a result of Quality Bank decisions. They simply have no way to make rational business decisions when the cost of their products can be determined retroactively long after they can protect themselves for perceived mistakes in FERC-approved valuation methodologies. This certainly threatens the ability of the refineries to attract capital, money needed for them to modernize and meet new ultra-low sulfur diesel ``clean fuel'' requirements soon to go into effect.

My Delegation last fall in report language added to the federal budget expressed its concern with the equity of long retroactive Quality Bank valuation adjustments. Last autumn we urged FERC to look carefully at the justice of the Initial Decision of the Administrative Law Judge in this case and we encouraged all of the eight parties-- including the State of Alaska--to reach an out-of-court settlement of the 1993 case to bring finality to this complex case before it harms in-state refinery capabilities. We wanted to avoid a legislative solution to this purely Alaskan case. We renewed our pleas for action in a letter sent to FERC on April 5th.

In the intervening six months, while two mediation sessions have occurred, the parties report little or no progress toward reaching a mutually agreeable settlement. While opinions may differ on whether Congress should intervene to settle the on-going case, there is little doubt that Congress should step forward to prevent such an arcane dispute from ever again threatening Alaska's energy industry.

For this reason, I am introducing today legislation identical to S. 822, already introduced by Senators Stevens and Murkowski, to limit the ability of FERC in the future to make retroactive the impacts of future Quality Bank valuation methodology changes. I plan to push for inclusion of this provision in the energy legislation being considered by Congress this year.

By this legislation, after Dec. 31, 2005, FERC still will be able to change the methodology for determining the value of oil flowing through the pipeline but will not be permitted to apply changes to Quality Bank valuation methodologies on anything other than a prospective basis

I have proposed this provision to prevent this legal nightmare from happening again. This provision will first eliminate the perverse current incentive for all sides to promote further litigation regarding Quality Bank valuations based on the expectation of a retroactive application of changes that would result in a large economic windfall. The retroactive application of valuation methodology changes encourages the sides in a dispute to sue in hopes of gaining a larger benefit in the future. This is a ``lottery,'' however, that Alaskans are guaranteed to lose.

By setting Dec. 31, 2005 as the date that FERC can no longer apply Quality Bank valuation methodologies on a retroactive basis, the legislation will put the FERC and the litigants on notice that the current dispute must be resolved by the end of this year.

Requiring FERC to apply valuation methodology changes in connection with any future disputes on a prospective basis only will eliminate the risk and uncertainty associated with the prospect of nearly unlimited retroactive application of Quality Bank payment methodology changes. That will allow all Quality Bank participants to be able to conduct business with the certainty of knowing that prices received and paid for oil today cannot be altered years down the road. In addition, this will eliminate the strong incentive that currently exists for some parties to engage in endless litigation, in hopes of gaining windfall benefits from retroactive application changes.

While I, along with Senators Stevens and Murkowski, continue to call on all sides in the current dispute to compromise and settle this case now, this bill will discourage if not eliminate this type of dispute in the future--a benefit for all Alaskans.

Mr. President, I rise today for myself and fellow Alaska Senator Ted Stevens to introduce legislation concerning a complex issue, the Quality Bank that is used to facilitate payments between shippers using the Trans-Alaska Oil Pipeline System to reflect variations in the value of different crude oil streams that are injected into the pipeline.

Since its opening in June 1977, the Trans-Alaska Pipeline System, TAPS, has carried crude oil from Alaska's North Slope to Valdez where the oil is shipped to market. The pipeline carries crude oil from various sources and of varying quality--the oil injected into the line before the pipeline's Pump Station One near Deadhorse, AK, and commingled as the blended stream of oil travels south to Valdez. The TAPS Quality Bank was established to compensate producers of higher quality crude oil for the difference in the value of the crude injected at the North Slope and that of the lower-quality commingled stream received in Valdez, since each shipper receives a quantity of the blended stream equivalent to the amount it injected into the line.

Companies injecting low-quality crude oil pay into the Quality Bank, while companies injecting high quality crude receive a payment from the Quality Bank. In addition, between the North Slope and Valdez, two refineries, Flint Hills and Petro Star, withdraw a portion of the common stream from TAPS, partially refine the crude oil into products such as gasoline, diesel and jet fuel, and reinject into TAPS the other components of crude left over after their refinery processes. Each fuel extracted from the crude is called a ``cut.'' To compensate producers for the loss in value of the crude oil because of what is removed by these refineries, refiners also pay into the Quality Bank. The objective of the Quality Bank is to make monetary adjustments so that each shipper is in the same economic position it would enjoy if it received the same oil in Valdez that it delivered to TAPS on the state's North Slope.

The methodology used to determine Quality Bank payments has been a subject of controversy since the Quality Bank's creation. The problem arises because there is no independent market for the crude injected on the North Slope and thus no way to objectively determine its value. The methodology is set by the Federal Energy Regulatory Commission. Since the early 1980s, FERC-approved methodologies have been challenged in court and revised multiple times. In 1993, the majority of North Slope shippers proposed and FERC approved a settlement calling for the use of a ``distillation'' methodology, which would value crude oil based on the market price of various cuts created when the components are separated based on different boiling points--the distillation process. This methodology replaced the former ``gravity'' methodology where oil was valued based on its relative gravity.

Since 1993, disputes have focused largely on the valuation of cuts at the highest boiling points--the ``Heavy Distillate'' cut that evaporates at temperatures between 350 and 650 degrees F. and the Resid, residual, cut, which includes the portion remaining after distillation of all other cuts at boiling points up to 1050 degrees F. Two additional cuts are also at issue, the VGO and Naptha cuts.

In 1997, responding to a D.C. Circuit Court of Appeals ruling, FERC approved a settlement with a revised valuation methodology for Distillate and Resid. Under the FERC order, the new valuation methodologies were to be applied on a prospective basis only. Later, the D.C. Circuit in 1999 told FERC to revise some particular details of the Resid valuation and also held that FERC had ``failed to provide an adequate explanation'' as to why the new methodology should not be made retroactive to 1993.

Responding to the ruling, the Administrative Law Judge, who in 1997 had decided that all changes should only apply prospectively, reversed his position and released a decision in August 2004 calling for changes in the Resid and Heavy Distillate cuts to be applied retroactively, in the case of Resid to as far back as 1993. In addition, the administrative law judge decided to apply new valuations for VGO and Naptha, prospectively. Currently, the judge's decision is awaiting a final decision by the FERC on whether to impose the Initial Decision or alter it.

There are clearly major public policy implications resulting from this Quality Bank issue. While the bank is a ``zero sum'' game as far as money paid in and out of the bank is concerned, the impacts on the parties and thus on the citizens of Alaska are anything but equal.

For decades Alaskans suffered under the impacts of having to import all refined fuel products into the State from West Coast refineries. Besides higher prices caused by transportation, that left the State wholly dependent on fuel supplies that needed to travel at least 2,000 miles on average to reach Alaska consumers--sometimes through bad weather and difficult sea conditions. With the construction of in-State refineries, Alaskans finally saw greater security of supply, less dependence upon weather for shipment arrivals, and the possibility of lower fuel prices because of potentially reduced transportation costs. The greater dependability of fuel supplies improved aviation freight shipments at the Anchorage and Fairbanks international airports, helping create jobs in air freight and related industries.

But the decision of the Administrative Law Judge to apply new Quality Bank methodology assessments retroactively, places the economics of in- State refineries at risk. That in turn not only impacts the job security for the roughly 400 Alaskans who work at the refineries, but also threatens the State's energy and economic security.

The problem is that both of the refineries must make long- and short- term business decisions based on crude costs when they process crude oil into product. Refineries optimize their production slates based on current market realities. It is difficult for them to operate, given low profit margins, if oil values can change years later as a result of Quality Bank decisions. They simply have no way to make rational business decisions when the value of their products can be determined retroactively long after they can protect themselves for perceived mistakes in FERC-approved valuation methodologies. This certainly threatens the ability of the refineries to attract capital, money needed for them to modernize and meet new ultra-low sulfur diesel ``clean fuel'' requirements soon to go into effect.

The State's Congressional Delegation last fall in report language added to the Federal budget expressed its concern with the equity of long retroactive Quality Bank valuation adjustments. Last autumn we urged FERC to look carefully at the justice of the Initial Decision of the Administrative Law Judge in this case and we encouraged all of the eight parties that includes the State of Alaska, to reach an out-of- court settlement of the 1993 case to bring finality to this complex case before it harms instate refinery capabilities. At the time we avoided a legislative solution to this purely Alaskan case. We are renewing our pleas for action in a letter sent to FERC on Thursday.

In the intervening six months, while one mediation session has occurred, the parties report little or no progress toward reaching a mutually agreeable settlement. While opinions may differ on whether Congress should intervene to settle the on-going case, there is little doubt that Congress should step forward to prevent such an arcane dispute from ever again threatening Alaska's energy industry.

For that reason prior to the next mediation session, today we introduce legislation to limit the ability of FERC in the future to make retroactive the impacts of future Quality Bank valuation methodology changes. By this legislation, after December 31, 2005, FERC still will be able to change the methodology for determining the value of oil flowing through the pipeline but will not be permitted to apply changes to Quality Bank valuation methodologies on anything other than a prospective basis.

We have proposed this provision to prevent this legal nightmare from happening again. This provision will first eliminate the perverse current incentive for all sides to promote further litigation regarding Quality Bank valuations based on the expectation of a retroactive application of changes that would result in a large economic windfall. The retroactive application of valuation methodology changes encourages the sides in a dispute to sue in hopes of gaining a larger benefit in the future. This is a ``lottery,'' however, that Alaskans are guaranteed to lose.

By setting December 31, 2005, as the date that FERC can no longer apply Quality Bank valuation methodologies on a retroactive basis, the legislation will put the FERC and the litigants on record that the current dispute must be resolved by the end of this year.

Requiring FERC to apply valuation methodology changes in connection with any future disputes on a prospective basis only will eliminate the risk and uncertainty associated with the prospect of nearly unlimited retroactive application of Quality Bank payment methodology changes. That will allow all Quality Bank participants to be able to conduct business with the certainty of knowing that prices received and paid for oil today cannot be altered years down the road. In addition, this will eliminate the strong incentive that currently exists for some parties to engage in endless litigation, in hopes of gaining windfall benefits from retroactive application changes.

While we continue to call on all sides in the current dispute to compromise and settle this case now, this bill will discourage if not eliminate this type of dispute in the future--a benefit for all Alaskans.

Mr. President, I rise today for myself and fellow Alaska Senator Ted Stevens to introduce legislation concerning a complex issue, the Quality Bank that is used to facilitate payments between shippers using the Trans-Alaska Oil Pipeline System to reflect variations in the value of different crude oil streams that are injected into the pipeline.

Since its opening in June 1977, the Trans-Alaska Pipeline System, TAPS, has carried crude oil from Alaska's North Slope to Valdez where the oil is shipped to market. The pipeline carries crude oil from various sources and of varying quality--the oil injected into the line before the pipeline's Pump Station One near Deadhorse, AK, and commingled as the blended stream of oil travels south to Valdez. The TAPS Quality Bank was established to compensate producers of higher quality crude oil for the difference in the value of the crude injected at the North Slope and that of the lower-quality commingled stream received in Valdez, since each shipper receives a quantity of the blended stream equivalent to the amount it injected into the line.

Companies injecting low-quality crude oil pay into the Quality Bank, while companies injecting high quality crude receive a payment from the Quality Bank. In addition, between the North Slope and Valdez, two refineries, Flint Hills and Petro Star, withdraw a portion of the common stream from TAPS, partially refine the crude oil into products such as gasoline, diesel and jet fuel, and reinject into TAPS the other components of crude left over after their refinery processes. Each fuel extracted from the crude is called a ``cut.'' To compensate producers for the loss in value of the crude oil because of what is removed by these refineries, refiners also pay into the Quality Bank. The objective of the Quality Bank is to make monetary adjustments so that each shipper is in the same economic position it would enjoy if it received the same oil in Valdez that it delivered to TAPS on the state's North Slope.

The methodology used to determine Quality Bank payments has been a subject of controversy since the Quality Bank's creation. The problem arises because there is no independent market for the crude injected on the North Slope and thus no way to objectively determine its value. The methodology is set by the Federal Energy Regulatory Commission. Since the early 1980s, FERC-approved methodologies have been challenged in court and revised multiple times. In 1993, the majority of North Slope shippers proposed and FERC approved a settlement calling for the use of a ``distillation'' methodology, which would value crude oil based on the market price of various cuts created when the components are separated based on different boiling points--the distillation process. This methodology replaced the former ``gravity'' methodology where oil was valued based on its relative gravity.

Since 1993, disputes have focused largely on the valuation of cuts at the highest boiling points--the ``Heavy Distillate'' cut that evaporates at temperatures between 350 and 650 degrees F. and the Resid, residual, cut, which includes the portion remaining after distillation of all other cuts at boiling points up to 1050 degrees F. Two additional cuts are also at issue, the VGO and Naptha cuts.

In 1997, responding to a D.C. Circuit Court of Appeals ruling, FERC approved a settlement with a revised valuation methodology for Distillate and Resid. Under the FERC order, the new valuation methodologies were to be applied on a prospective basis only. Later, the D.C. Circuit in 1999 told FERC to revise some particular details of the Resid valuation and also held that FERC had ``failed to provide an adequate explanation'' as to why the new methodology should not be made retroactive to 1993.

Responding to the ruling, the Administrative Law Judge, who in 1997 had decided that all changes should only apply prospectively, reversed his position and released a decision in August 2004 calling for changes in the Resid and Heavy Distillate cuts to be applied retroactively, in the case of Resid to as far back as 1993. In addition, the administrative law judge decided to apply new valuations for VGO and Naptha, prospectively. Currently, the judge's decision is awaiting a final decision by the FERC on whether to impose the Initial Decision or alter it.

There are clearly major public policy implications resulting from this Quality Bank issue. While the bank is a ``zero sum'' game as far as money paid in and out of the bank is concerned, the impacts on the parties and thus on the citizens of Alaska are anything but equal.

For decades Alaskans suffered under the impacts of having to import all refined fuel products into the State from West Coast refineries. Besides higher prices caused by transportation, that left the State wholly dependent on fuel supplies that needed to travel at least 2,000 miles on average to reach Alaska consumers--sometimes through bad weather and difficult sea conditions. With the construction of in-State refineries, Alaskans finally saw greater security of supply, less dependence upon weather for shipment arrivals, and the possibility of lower fuel prices because of potentially reduced transportation costs. The greater dependability of fuel supplies improved aviation freight shipments at the Anchorage and Fairbanks international airports, helping create jobs in air freight and related industries.

But the decision of the Administrative Law Judge to apply new Quality Bank methodology assessments retroactively, places the economics of in- State refineries at risk. That in turn not only impacts the job security for the roughly 400 Alaskans who work at the refineries, but also threatens the State's energy and economic security.

The problem is that both of the refineries must make long- and short- term business decisions based on crude costs when they process crude oil into product. Refineries optimize their production slates based on current market realities. It is difficult for them to operate, given low profit margins, if oil values can change years later as a result of Quality Bank decisions. They simply have no way to make rational business decisions when the value of their products can be determined retroactively long after they can protect themselves for perceived mistakes in FERC-approved valuation methodologies. This certainly threatens the ability of the refineries to attract capital, money needed for them to modernize and meet new ultra-low sulfur diesel ``clean fuel'' requirements soon to go into effect.

The State's Congressional Delegation last fall in report language added to the Federal budget expressed its concern with the equity of long retroactive Quality Bank valuation adjustments. Last autumn we urged FERC to look carefully at the justice of the Initial Decision of the Administrative Law Judge in this case and we encouraged all of the eight parties that includes the State of Alaska, to reach an out-of- court settlement of the 1993 case to bring finality to this complex case before it harms instate refinery capabilities. At the time we avoided a legislative solution to this purely Alaskan case. We are renewing our pleas for action in a letter sent to FERC on Thursday.

In the intervening six months, while one mediation session has occurred, the parties report little or no progress toward reaching a mutually agreeable settlement. While opinions may differ on whether Congress should intervene to settle the on-going case, there is little doubt that Congress should step forward to prevent such an arcane dispute from ever again threatening Alaska's energy industry.

For that reason prior to the next mediation session, today we introduce legislation to limit the ability of FERC in the future to make retroactive the impacts of future Quality Bank valuation methodology changes. By this legislation, after December 31, 2005, FERC still will be able to change the methodology for determining the value of oil flowing through the pipeline but will not be permitted to apply changes to Quality Bank valuation methodologies on anything other than a prospective basis.

We have proposed this provision to prevent this legal nightmare from happening again. This provision will first eliminate the perverse current incentive for all sides to promote further litigation regarding Quality Bank valuations based on the expectation of a retroactive application of changes that would result in a large economic windfall. The retroactive application of valuation methodology changes encourages the sides in a dispute to sue in hopes of gaining a larger benefit in the future. This is a ``lottery,'' however, that Alaskans are guaranteed to lose.

By setting December 31, 2005, as the date that FERC can no longer apply Quality Bank valuation methodologies on a retroactive basis, the legislation will put the FERC and the litigants on record that the current dispute must be resolved by the end of this year.

Requiring FERC to apply valuation methodology changes in connection with any future disputes on a prospective basis only will eliminate the risk and uncertainty associated with the prospect of nearly unlimited retroactive application of Quality Bank payment methodology changes. That will allow all Quality Bank participants to be able to conduct business with the certainty of knowing that prices received and paid for oil today cannot be altered years down the road. In addition, this will eliminate the strong incentive that currently exists for some parties to engage in endless litigation, in hopes of gaining windfall benefits from retroactive application changes.

While we continue to call on all sides in the current dispute to compromise and settle this case now, this bill will discourage if not eliminate this type of dispute in the future--a benefit for all Alaskans.