Why the Minerals Management Service Should Not Be Blamed for the Oil Spill

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Not surprisingly, the Gulf  Oil spill has prompted the media to shine a spotlight on the Mineral Management Service (MMS), the government agency responsible for issuing permits allowing oil companies to drill in federally-owned waters.  Stories such as this one in today’s New York Times suggest that the MMS’s cozy relationship with the oil industry led to a lax permitting process, thus contributing to the disaster.  As evidence, they point to previous instances in which the MMS ran afoul of government regulators and attracted congressional interest in reforming the agency.  However, these media stories are somewhat misleading; while it is true that the MMS was accused of overseeing a lax permitting process and being too cozy with the oil industry,  the stories do not really focus on the reason why this situation exists.  In fact, the government institution that bears primary responsibility for how the MMS operates is the very one whose members are calling for investigations now: Congress.

Some background on the MMS is in order. News accounts suggest it was “created” in 1982 via executive order issued by President Reagan’s Interior Secretary James Watt.  In fact, what Watt did was consolidate into one agency the mineral revenue management functions previously exercised by the US Bureau of Land Management, US Geological Survey, and US Bureau of Indian Affairs.  Any government agency, when first established, must determine its “mission”.   What is it about?  How the agency determines its mission has important implications for its internal structure, especially which employees will wield the most influence, its hiring strategies, and how it relates to its external environment.  Typically, the mission is designed to insure the agency’s autonomy and political survival.   In this case, the MMS essentially inherited its mission from these previous agencies.

As a consequence the MMS from its inception defined its mission as collecting payments for minerals extracted from federally-owned waters.  A look at the backgrounds of the 10 MMS directors serving from its inception until the Obama administration shows that many had backgrounds in litigation and revenue collection.  These backgrounds are well suited for negotiating revenue agreements with private companies – not for understanding the environmental impact of off-shore oil drilling.

Here is the MMS mission statement, taken from its website:

“The Minerals Management Service (MMS), a bureau in the U.S. Department of the Interior, is the Federal agency that manages the nation’s natural gas, oil and other mineral resources on the outer continental shelf (OCS). The agency also collects, accounts for and disburses an average of $13.7 billion per year in revenues from Federal offshore mineral leases and from onshore mineral leases on Federal and American Indian lands. The program is national in scope and is headquartered in Washington, D.C.”

Note what its mission statement does NOT cite: environmental oversight or regulation.  Although it is supposed to consult with other governmental agencies with environmental responsibilities when it issues permits, that is not how the MMS defines its primary task.  Revenue estimation and collection is what it does.  And by most accounts it has been effective, at least as measured in dollar amounts, at fulfilling this mission. Since 1982, it has collected more than $210 billion in royalties and other revenues, most of which is then distributed to states, Indian tribes, counties, and the federal treasury. On an annual basis the $13 billion it raises constitutes about 95% of the total revenues collected by the Interior Department.  This makes it, next to the IRS, the most lucrative agency in the government (if my calculations are correct).

But if it is so effective, what about all those reports the NY Times and other new agencies cite about GAO investigations and congressional hearings?  Although these news accounts seem to imply that investigators primarily worried about the environmental failures linked to the MMS permitting process, that is not the case.  Instead, the more typical concern (although not the only one) was that the MMS did not  charge the oil companies enough money to drill in federal waters. Most of the GAO reports dealing with the MMS focus on the weakness of a “payment-in-kind” or other aspects of the royalty program – not an environmentally-lax permitting process.   Similarly, the IGS investigation cited by the Times also focused on the MMS’ revenue decisions.  The recurring complaint in these investigations is that MMS executive are cutting oil companies a revenue deal, rather than engaging in lax environmental regulation.

When Interior Secretary Ken Salazar came in as the “new sheriff in town”, his ethics changes were designed not to heighten environmental awareness of potential oil spills, but instead to more strongly regulate the cozy relationship between oil companies and the MMS that threatened revenues.  In fact, it was Salazar – following Congress’ decision to open up off shore oil drilling – that initiated the hearing process designed to solicit comments on the Obama administration’s  off-shore drilling expansion plan.

My point is that Congress’ and regulatory agencies’ alarms regarding the failure of the MMS to fulfill its mission almost never focused on the environmental aspect of its permitting process, but instead on the revenue side.  (There are exceptions – the GAO, for example, in a 2007 report did question the environmental basis of some of the MMS’ Alaskan bureau’s review process).  In general, however, the MMS read the political signals – focus on revenues -  and acted accordingly.

But didn’t other government agencies, such as the National Oceanic and Atmospheric Administration (NOAA) warn about the environmental aspects of expanding off shore drilling? Yes, but again the news accounts don’t tell the full story here.  As the Huffington Post and other website reported, the NOAA did express concern, as part of the hearing process into off shore drilling initiated by Salazar, about the environmental impact of drilling in sensitive areas.  But that concern, as one can read in its report here focused almost exclusively on the environmental impact of drilling in Arctic areas.

While it is easy with hindsight to blame Salazar, and by extension Obama, for pushing to expand off-shore drilling, the reality is that companies drilling in U.S. waters have a pretty good environmental safety record. Since 1969, there have been only a handful of major spills from drilling (that is, spills with over 1,000 barrels of oil leaking)  and the most significant occurred decades ago.  There’s a reason Obama touted the safety record of off-shore drilling – the data supported his claim.  Indeed, drilling off shore seemed far safer than relying on oil tankers to import oil from abroad; spills from these vessels (until now) were far more numerous and extensive.

My point here is not to totally absolve the Obama administration from some responsibility for this spill.  But the media focus on his handling of the spill and in overseeing the MMS obscures the fact that it is Congress that is largely responsible for signaling to the MMS that its primary mission, when issuing drilling permits, is not protecting the environment, but instead protecting the government’s revenue stream.

The MMS operates in a political environment that is best described, in the words of political scientist James Q. Wilson, as “clientele” politics.  (Some of you may recognize the more common phrase “iron triangle” which is a version of clientele politics.)  In this policy context, the President and his political appointees, including Salazar, rarely exercise lasting influence. Instead minerals management policies tend to be made in a closely-knit network consisting of agency officials, representatives of the affected industries, and congressional oversight committees.  Given this fact, I have little hope that Salazar’s organizational remedy – splitting the MMS permitting process off from its environmental regulatory side – will have much impact.  Under the reorganization, both the Bureau of Ocean Energy Management (BOEM), which will supervise traditional energy development in federal waters, and the new Bureau of Safety and Environmental Enforcement (BSEE), will still report to the same individual overseeing the Interior Department’s land and minerals management.  (A third organization – the Office of Natural Resources Revenue (ONRR) will take over the MMS’ royalty and revenue functions.)

Government agencies are created for a purpose.  They develop a mission, which is how they define their purpose, and they organize their functions to most effectively achieve that mission.  The MMS’ mission was not defined as weighing environmental concerns during the permitting process.  It was to insure that the government received full compensation for leasing federal property to energy companies. Whenever the MMS found itself embroiled in controversy, it almost always centered on congressional complaints about this function – not the environmental aspects of the permitting process.

The real story, one that the Times and other news agencies are missing,  is not  ethical lapses or mismanagement at MMS – it is that the MMS typically did precisely what Congress wanted it to do, and – news reports about is dysfunctional nature notwithstanding – generally did it well. Given its mission, and the climate in which it operates, the “organizational” reforms Salazar has instituted on Obama’s behalf will likely have little long range effect.  It is Congress that must change the MMS.  To date it has had little incentive to do so.  I am not optimistic that in the long run the Gulf oil spill will change this.

P.S. Don’t forget to visit the MMS website for kids!  There’s cool things to see and do! Learn about “tide pool” math!  Play “Watts It to You!”   Sweet.

9 Responses to Why the Minerals Management Service Should Not Be Blamed for the Oil Spill

  1. Bob Johnson says:

    Matt -

    Great blog! It is refreshing to get some facts on the MMS, and to be reminded of the “iron triangles” involved in the process of government. There doesn’t seem to be any way to avoid these three-way cozy relationships. The President and his White House staff have too many pressing matters facing them; the members of Congress often profit (politically, at least) from their roles in these triangles; and the entities being regulated have every incentive to enhance their influence in decisions. Is there any way out? This problem might be worth a course (or a seminar). It involves the core of the modern state, which governs extensively through regulation — probably cannot deal with the intricacies and frenzied pace of today’s economy without regulation — but hasn’t yet figured out how to monitor, let alone refocus and reassess, what is being done in its name.

    Bob Johnson

  2. Jack Goodman says:

    Matt, I think the focus of this problem should be the fact that there was no fall back solution in the case of of a blow out. No one, especially the Navy, had any experience in what to do if a rupture occurred at these depths. In these complex situations, problems need to be anticipated and fall back solutions need to be worked out.

    The airline industry is a great example of fall back situations; witness the miracle on the Hudson.

    I am continuously amazed by the wisdom of Walt Kelly: “We have met the enemy and it is us.” Whether its the financial crisis or the oil spill we did it to ourselves and both could have been prevented. Even 9/11 was preventible, but for mistakes responsible govt. employees made.

    The silver lining: You wont see Dick Cheney on TV for a long time.

    I also agree with Bob Johnson’s point that the K street mob had a role in all of this. When BP gives hundreds of thousands of dollars to Mary Landrieu, it seems a clear case of conflict of interest for her to accept it. Why shouldn’t this be illegal?

  3. Martin says:

    From the MMS Kids’ Pages:

    “The Washington Monument in Washington, D.C. is 555 feet tall.

    “Last year, the Minerals Management Service collected $9.8 billion in royalties from hundreds of large and small companies developing natural resources in Federal waters and on Federal or Indian owned land.

    “If you stacked the 9.8 billion dollars that the MMS collected and compared the stack to the Washington Monument, the stack would equal 6,397 Washington Monuments.

    “That’s right, a stack of $9.8 billion would be almost 675 miles high into the sky.

    “That’s a lot of money!”

  4. Matthew Dickinson says:

    Jack,

    I agree with the failure to anticipate the worst-case scenario, although in BP’s defense, it is always easier to anticipate these things when they’ve happened before. We do much worse anticipating those things that have never happened. My larger point, however, is that the permitting process, from the MMS’s perspective, didn’t really concern itself with anticipating the worst case scenario. It was mostly about the revenue stream

    As for your question why it isn’t illegal Mary Landrieu to accept cash from BP’s political action arm? (Or why it isn’t illegal for Obama, who benefited even more from BP’s largesse?) For the same reason it isn’t illegal for them to accept money from you! (Up to a point). It’s free speech, baby! Or so the court has ruled….

    No more Dick Cheney? But what of our president, who initially agreed with the former VP on the need to expand offshore drilling! Goose and gander, Jack?

  5. Matthew Dickinson says:

    My question is what kid in his right mind wants to explore the MMS web page? And why are we paying federal employees to create this kids’ page!

  6. Martin says:

    Mr. Goodman, oddly Mary Landrieu isn’t even mentioned in the Center for Responsive Politics’ hall of shame ranking of top recipients of oil & gas money.

    http://www.opensecrets.org/industries/recips.php?cycle=2010&ind=E01

    1 Lincoln, Blanche (D-AR) Senate $286,400
    2 Vitter, David (R-LA) Senate $242,600
    3 Murkowski, Lisa (R-AK) Senate $209,826
    4 White, Bill (D-TX) $184,303
    5 Jones, Elizabeth Ames (R-TX) $168,750
    6 Boren, Dan (D-OK) House $139,700
    7 Bennett, Robert F (R-UT) Senate $138,400
    8 Blunt, Roy (R-MO) House $133,100
    9 Cornyn, John (R-TX) Senate $130,525
    10 Specter, Arlen (D-PA) Senate $130,400
    11 Portman, Rob (R-OH) $125,108
    12 Edwards, Chet (D-TX) House $123,630
    13 Conaway, Mike (R-TX) House $116,950
    14 Pearce, Steve (R-NM) $108,900
    15 Coburn, Tom (R-OK) Senate $105,100
    16 Hoeven, John (R-ND) $101,350
    17 Barton, Joe (R-TX) House $100,470
    18 Dorgan, Byron L (D-ND) Senate $92,950
    19 Thune, John (R-SD) Senate $91,140
    20 Cantor, Eric (R-VA) House $87,000

    Matt, are there any races in which the Gulf catastrophe could tip the balance in the midterms? Or actually sober up the incumbent on the issue?

    Martin

  7. Martin says:

    Mr. Goodman, I initially didn’t find Landrieu in the Top 20 list of oil & gas money recipients on the Center for Responsive Politics website. So I moved back through one full Senate election cycle (and back to 2004 for the Presidential candidates). Here are the totals from 2006 forward:

    PRESIDENTIAL RACES
    Bush, George W (R) $2,690,575
    McCain, John (R) Senate $2,403,937
    Obama, Barack (D) Senate $901,051
    Giuliani, Rudolph W (R) $609,358
    Romney, Mitt (R) $507,544
    Clinton, Hillary (D-NY) Senate $381,742
    Kerry, John (D) Senate $317,110
    Richardson, Bill (D) $220,875
    Thompson, Fred (R) $196,704

    CONGRESSIONAL RACES
    Cornyn, John (R-TX) Senate $984,675
    Pearce, Steve (R-NM) $720,060
    [NB: Pearce lost to Tom Udall, but back in the running for a different House seat]
    Barton, Joe (R-TX) House $515,960
    [Ranking Member of the House Energy & Commerce Committee and past chairman]
    McConnell, Mitch (R-KY) Senate $400,900
    Inhofe, James M (R-OK) Senate $365,200
    [Ranking Member of Senate Environment & Public Works Committee and past chairman]
    Boren, Dan (D-OK) House $325,650
    Hutchison, Kay Bailey (R-TX) Senate $323,186
    [Ranking Member of Senate Commerce, Science & Transportation Committee and past chairwoman]
    Lincoln, Blanche (D-AR) Senate $286,400
    [Chairwoman of Senate Agriculture & Forestry Committee]
    Santorum, Rick (R-PA) Senate $266,200
    Landrieu, Mary L (D-LA) Senate $272,250
    Schaffer, Bob (R-CO) $246,850
    Vitter, David (R-LA) Senate $242,600
    Burns, Conrad (R-MT) Senate $238,225
    Dole, Elizabeth (R-NC) Senate $230,917
    Chambliss, Saxby (R-GA) Senate $222,350
    [Ranking Member of Agriculture & Forestry]
    Allen, George (R-VA) Senate $220,200
    Talent, James M (R-MO) Senate $212,920
    Murkowski, Lisa (R-AK) Senate $209,826
    [Ranking Member of Energy & Natural Resources]
    Roberts, Pat (R-KS) Senate $203,700
    Wicker, Roger (R-MS) Senate $200,200
    Bode, Denise (R-OK) $197,568
    Corker, Bob (R-TN) $195,950
    Pombo, Richard W (R-CA) House $194,298
    White, Bill (D-TX) $184,303
    Coleman, Norm (R-MN) Senate $174,900
    Jones, Elizabeth Ames (R-TX) $168,750
    Wilson, Heather A (R-NM) House $154,450
    Kyl, Jon (R-AZ) Senate $138,900
    Bennett, Robert F (R-UT) Senate $138,400
    Hastert, Dennis (R-IL) House $138,200
    Blunt, Roy (R-MO) House $133,100
    Specter, Arlen (D-PA) Senate $130,400
    O’Donnell, Rick (R-CO) $127,950
    Cubin, Barbara (R-WY) House $125,150
    Portman, Rob (R-OH) $125,108
    Edwards, Chet (D-TX) House $123,630
    DeWine, Mike (R-OH) Senate $123,150
    Bonilla, Henry (R-TX) House $121,926
    DeLay, Tom (R-TX) House $119,890
    Conaway, Mike (R-TX) House $116,950
    Coburn, Tom (R-OK) Senate $105,100
    Hoeven, John (R-ND) $101,350
    Dorgan, Byron L (D-ND) Senate $92,950
    Thune, John (R-SD) Senate $91,140
    Cantor, Eric (R-VA) House $87,000

  8. Keith says:

    BUNK! Mr. Dickinson, You need to read the MMS Offshore Energy and Minerals Management page of the MMS website. http://www.mms.gov/offshore/
    “The MMS’s oversight and regulatory framework ensure production and drilling are done in an ENVIRONMENTALLY responsible manner, and done safely.”
    MMS IS responsible for the environmental, as well as the fiscal regulation of offshore oil wells.

  9. Matthew Dickinson says:

    Keith,

    Thanks for the comment. Please reread my post. I wrote, “Although it is supposed to consult with other governmental agencies with environmental responsibilities when it issues permits, that is not how the MMS defines its primary task. Revenue estimation and collection is what it does.” My point is that the MMS has consistently viewed its primary mission as raising revenue from the leasing of federal lands. Although, as you correctly point out, that leasing is supposed to be done in an environmentally-conscious manner, the MMS has always relied on other government agencies to provide the proper environmental input – right or wrongly (and I think most of us believe it was wrong), it has tended to downplay environmental issues when issuing permits. The reason is because those members of Congress who are most interested in what the MMS does were more interested in the revenue side of the permitting process. Don’t take my word for it – read the various GAO reports I link to. They focus on alleged problems in revenue estimation – rarely do members of Congress express any concern over environmental issues. Like all government bureaucracies, the MMS responded to the political signals it receives. I am not trying to excuse its lax permitting process – I am trying to explain why it happened. We can scream after the fact about the MMS’ failure to adequately ensure the environmental safety of off-shore drilling, but if we are going to place blame, let’s start with Congress – particularly those members who are primarily responsible for overseeing what the MMS does.

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