Exxon Holds Next Move in Tangled Oil Spill Settlement Case

While the oil giant decides whether to withdraw its guilty pleas, Alaska's legislature considers more severe punishment

FROM the third floor of the state Capitol, Gov. Walter Hickel is watching the disintegration of a carefully crafted plan to put the Exxon Valdez oil spill in the past. The $1 billion civil and criminal settlement he, federal officials, and Exxon Corporation announced in March was dealt blows by two federal judges and the doubts of Alaskans, environmentalists, and some members of Congress.

Last week in Anchorage, US District Court Judge Russel Holland threw out the company's criminal plea agreement, calling the $100 million criminal portion of the settlement an "inadequate" punishment for the damage caused by the 1989 oil spill.

Then, on April 29, another federal judge in Washington declared that the civil portion of the settlement may have violated Native Alaskans' rights to get compensation for natural-resource damages.

Together, the two rulings have emboldened a disgruntled Alaska legislature into considering rewriting the settlement package.

Only Exxon knows the fate of the entire criminal and civil settlement package now. The oil giant has until May 24 to either brace for a stiffer criminal fine or withdraw the guilty pleas and prepare for a trial on felony charges of dangerous shipping practices and misdemeanor charges of water pollution and bird kills.

The state and federal governments have until May 3 to back out of the $1 billion civil deal.

"It's too soon to say that it is off," said state Rep. Fran Ulmer, a Juneau Democrat and member of a special committee reviewing the civil settlement. "I think it becomes shakier with every day."

Exxon's deadline for its civil decision is May 4. But Judge Stanley Sporkin asked for new depositions from Exxon chairman Lawrence Rawl, among others, so he can continue deliberation on the deal next week.

Holland reacted in part to the plethora of letters, post cards, telegrams, and legal briefs criticizing the criminal and civil settlement.

Among the settlement terms criticized:

* The $900 million in promised payments to a joint federal-state restoration fund would be spread over 10 years, with no interest charged. That deflates the value in current dollars to $500 million to $600 million, critics point out.

* The payments include reimbursement for out-of-pocket cleanup expenses already incurred by the state and federal governments, totaling some $160 million to 170 million. That chips away at the power of a restoration fund to buy back logging rights or pay for other forms of long-term environmental recovery.

* A "reopener" clause requiring Exxon to pay up to $100 million extra if new damages are discovered in 10 years is couched in language so limiting that it would be nearly impossible to enforce, critics say.

* The total payments fall far short of what some economists say is the total $3 billion to $8 billion natural resource damages. The spill caused far more extensive damage than was originally believed, according to a newly released government scientific report.

With $1.3 billion in tax write-offs and insurance payments, Exxon's spill expenditures - including the proposed settlement - would be $1.7 billion, said Gregg Erickson, an economist hired by state legislators to evaluate the settlement.

Alaska lawmakers are considering ways to prohibit Exxon from using the settlement to reduce state taxes.

State lawmakers are also debating whether they, like Holland, should demand more than $900 million over a decade.

Some state lawmakers, like Sen. Rick Halford, also question the role of Justice Department attorneys who last year tried to push through a settlement that might have been as low as $150 million.

"The damage was obviously farther away from them than it was from us," said Senator Halford, a conservative Republican who had originally supported the deal.

Alaska Attorney General Charles Cole admits the deal gives less than he had wanted, but says the only alternative is spending expensive years in court with nearly no chance of recovering a multibillion-dollar award.

The settlement weighs a matrix of legal risks and arcane legal doctrines that only experienced trial lawyers would understand, Mr. Cole says. Among the thorny issues is who is entitled to compensation for resources damaged by a spill that killed wildlife, disrupted fishing, halted natives' food-gathering, and fouled more than 1,200 coastline miles, including sites at three national parks, four national wildlife refuges and a national forest.

"Those are all very difficult, complex legal issues for which there is virtually no settled law," Cole says.

He defends the $1.2 billion figure that Hickel used to start settlement talks as "a remarkably accurate intuitive judgment."

Despite fears that Alyeska Pipeline Service Company is getting off the hook, Cole says the state is "vigorously" pursuing its lawsuit against the company, which operates the trans-Alaska pipeline and its Valdez marine terminal. "The litigation process isn't over as far as the state's concerned."

Hickel, who criticized Judge Holland's rejection of the $100 million fine, insists that most Alaskans support his settlement. Last week Hickel press secretary Eric Rehmann cited a "silent majority" and distributed a press release claiming 2-to-1 support for the deal.

Enviromentalists, however, accuse the governor of conspiring with Exxon and the oil industry for rushing to resolve the spill litigation in order to pave the way for Arctic National Wildlife Refuge drilling.

"They want to get all of the skeletons from the past in the closet and slam the door and just charge down the golden path to the Arctic Refuge," says Riki Ott, a Prince William Sound fisherman and head of the Oil Reform Alliance, which has been lobbying here against the settlement.

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