Tag Archives: Minerals Management Service

Why Agencies Fail: Revisiting the Oil Spill and the MMS

This past Saturday the New York Times printed a fascinating interview with  Chris Oynes, the former director of the gulf office of the Mineral Management Service (MMS), the agency responsible for issuing permits for off-shore drilling, including the BP/Deep Horizon drilling in the Gulf of Mexico.  In it Oynes confirms many of the points I made in my earlier post in which I argued that, contrary to the prevailing media narrative, the MMS was in fact not primarily to blame for the Gulf oil spill.  Instead, in expediting the permit process that allowed BP to drill at the Deep Horizon site, it was doing precisely what congressional representatives from the Gulf region were expecting it to do.

The article makes four essential points that bear repeating. First, the MMS was part of a classic iron triangle involving the oil industry that dominated the Gulf Coast economy, the elected representatives from that region who understand how many jobs the oil industry provide to local residents, and the MMS which, as with most public bureaucracies, proved acutely responsive to political incentives.  In particular, MMS officials in the Gulf office felt pressure from local officials to expedite the off-shore drilling permit process and from members of Congress who sought to maximize the revenues the government received from leasing offshore drilling rights. The key point is that MMS defined the public interest in terms of sustaining the oil-based economy of the Gulf region. As the Times article puts it, “In some states, drilling has been seen as a threat to native cultures. In Cajun country, it opened a door to the middle class — even as a typical offshore schedule (two weeks on, two weeks off) let workers still fish, hunt and farm. ‘The industry didn’t destroy the old culture — it saved it,’ said Diane Austin, an anthropologist at the University of Arizona.”

That definition of the public welfare shaped the MMS’ well-defined sense of mission: to promote off-shore drilling in order to maximize government revenues.  By mission, I mean a widely-shared belief among MMS members regarding what its critical task should be. In this case, MMS’s bureaucrats agreed that their primary task was to expedite off-shore drilling.  They did so because Congress – which controlled MMS funding – signaled that this was what the MMS was supposed to do. “’We have 20,000 oil wells off the coast of Louisiana, and we have been drilling out there for a quarter of a century,’ Senator J. Bennett Johnston, a Democrat, said on the Senate floor. ‘The so-called danger from oil spills has simply not been proved. Not only has it not been proved, it has been disproved, and we need to get on with that drilling.’”  Contrary to what some media outlets have suggested, the MMS was not a rogue agency corrupted by oil money.  In fact, it was an agency that was very effective at doing what Congress wanted it to do, a point that Oynes makes repeatedly. MMS bureaucrats understood that, as the Times puts it, “[T]the agency’s Washington bosses cared more about leasing — where to do it and how much money it would bring? — than they did about the challenges of getting the oil from the sea. That was true, Mr. Oynes said, under Republican and Democratic administrations. ‘It’s almost a given with a director that they don’t know anything about drilling,’ Mr. Oynes said. “We would turn to each other and say, ‘Headquarters isn’t paying attention.’ ”

In theory, of course, the MMS was supposed to balance the economic concerns with environmental ones in considering whether to issue a permit. But most government agencies find it difficult to embrace two, somewhat contradictory missions. The MMS was no exception. The Times reports: “Both sides knew which division held the power. The law gave the head of field operations — the lead engineer — the authority to approve exploration and drilling plans. To win changes, the environmental scientists had to work through him.”   Why did engineers dominate the permitting process? Because Congress’ enabling legislation essentially insured that would be the case. The authorizing legislation that defined the MMS’s mission stipulated goals that were somewhat in tension:  As the Times’ article notes, “One passage calls for the ‘expeditious and orderly development’ of offshore gas and oil. The next adds a codicil: ‘subject to environmental safeguards.’” Oynes said he gave the mandates equal weight.  But the reality is that the MMS was rewarded by Congress for focusing on the development of off-shore drilling – and penalized when it failed to do so.  Protecting the environment was simply not very high on Congress’ priorities, at least as signaled to the MMS.  According to the Times, Oynes recalled, “We would issue standard notices to environmental groups, and they would never even come to a meeting… Arguing against oil and gas isn’t going to get them anywhere.”

The reality is that MMS employees were rewarded for bringing in revenue – not for protecting the environment.  In 1998 Oynes won a presidential award for leasing a record number of drilling tracts that brought in $824 million in revenue. In another case,  Oynes alerted federal prosecutors when he discovered that Shell was burning natural gas rather than bringing it to shore, thus cheating the government of royalties.  Shell was prosecuted and the government won $49 million in additional revenue.  Given these political signals, it is not surprising that MMS bureaucrats tended to define their mission in term of permits processed, not environmental regulations enforced.

The third point is that government agencies today operate under increasing contextual constraints that are imposed by Congress with little regard for their impact on how well an agency carries out its primary mission.  The MMS was no exception.  It was charged with processing up to 1,000 drilling permits annually, each requiring an environmental impact statement (EIS) that could take months, or even years, to conduct.  Whenever an agency is forced to address contextual constraints that impede its ability to carry out its primary mission, agency bureaucrats will devise ways to minimize the impact of fulfilling the contextual constraints.  In this case, according to the NY Times, the MMS processed the EIS “in wholesale fashion, before conducting the annual lease sales.”  On the other hand, the pace of technology, including the increasing depth at which drills were sunk, outran Congress’ ability to issue new environmental and safety regulations, even had it been inclined to do so.  According to the Times, “One internal problem [the MMS] faced was a feeling among many staff members that swift action was impossible. One regulation had famously taken nine years to get through Washington.”  In lieu of updated regulations, the MMS worked informally to police the drilling industry with the realization that without formal backing they were vulnerable to a legal challenge from the oil companies.

The fourth point is that public bureaucracies are incredibly sensitive to congressional inquiries that hint at scandal.  In my earlier post I noted that there had been multiple investigations into the MMS’ operating culture – but almost none of them focused on lax environmental standards.  Instead, they were driven by congressional concern that the MMS wasn’t charging enough to allow oil companies to drill in federal waters. The New York Times’ story picks up on this point.  It recounts how Oynes was forced to testify before Congress regarding why his office had issued two years of contracts that essentially allowed the oil companies to avoid paying the required royalties on deep-water tracts.  “The incident has trailed Mr. Oynes ever since, but most accounts omit the coda. Congress drafted the law so poorly that the federal courts invalidated the thresholds for the entire five-year program, at a cost of up to $60 billion. Congress had derided Mr. Oynes while committing the greater mistake.”

What is missing from this story?  Any mention of Obama, or of any of his presidential predecessors.   The reality is that presidents were only peripheral players in this policy area.  Despite their constitutional charge to “take care that the laws are faithfully executed,” presidents often lack the tools to fulfill this mandate.  This is particularly the case in issue areas dominated by an industry with close ties to Congress.

When government agencies fail, it is customary for the media to search for signs of corruption or malfeasance. The MMS story was no exception.  Early coverage was dominated by charges of an ethically-challenged agency, its members in the hip-pocket of the oil industry.  But outright corruption or ethical lapses are rarely the cause of bureaucratic failure. Instead, its roots usually run much deeper, into the mix of political and institutional incentives that determine how an agency defines its mission, and how it carries it out.  To its credit the New York Times finally got this story right. When an agency is faced with contextual goals that run contrary to its primary mission, and when it becomes politically vulnerable for failing to fulfill its primary mission, it will tend to minimize or avoid fulfilling those contextual goals.  In the aftermath of the Deep Horizon explosion, the MMS was abolished, and its permitting process separated from its environmental and leasing duties.  The primary fault underlying the Gulf spill, however, lies not with the MMS.  It lies with Congress.

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

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.