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BP Spill Panel: Obama Administration “Not Fully Competent”

by Bill O'Connell on October 7, 2010

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As they say, when it rains it pours. The Obama administration famously boasted about having its boot on the neck of BP and extorting $20 billion from the company without the benefit of due process, but now a different assessment emerges.

According to a report in the Wall Street Journal, the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, faulted the administration on several fronts. “A White House spokesman didn’t immediately respond to a request for comment.”

It is quite clear that this administration stumbled and bumbled along at the start of the disaster, once again fully displaying its inexperience in executive matters. Here are some of the salient points from the commission.

  • “A sense of over optimism” about the disaster “may have affected the scale and speed with which national resources were brought to bear.”
  • In addition, the government’s underestimate of how much oil was flowing into the Gulf of Mexico gave the impression that the government “was either not fully competent to handle the spill or not fully candid.”
  • The administration took “an overly casual approach” in calculating that between 1,000 and 5,000 barrels per day were flowing when the real number was around 35,000 to 60,000 barrels per day
  • Their initial low estimate remained the official estimate for a full month
  • The administration was initially slow to respond and then misdirected resources when the public grew increasingly frustrated with the lack of progress.

[click to continue…]

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Congress Gets Aggressive on Oil Spill

by Bill O'Connell on July 8, 2010

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I received an e-mail from my Congressman telling me how he was on top of the situation in the Gulf:

“I am a member  of the Committee on Transportation and Infrastructure, which is at the forefront of an aggressive (sic) Congressional response to BP’s oil spill.  Last week, I voted in Committee to approve a comprehensive legislative response to environmental and economic liability issues raised by the spill.”

As I had written about previously (The Regulators are Dead, Long Live the Regulators), this was just one more case of government failing us but then rushing out more legislation and control so it won’t happen again.  If government was doing its job, it shouldn’t have happened in the first place.  So I wrote back to the Congressman.

 Dear Congressman Bishop,

I read with interest your e-mail to me about the Committee on Transportation and Infrastructure, which you say is at the forefront of an aggressive Congressional response to BP’s oil spill.  Excuse my skepticism but this sounds like one more “we’re really gonna fix it this time,” response to the failure of government to do what they are already empowered to do.

You say the Oil Spill Accountability and Environmental Protection Act of 2010 “will ensure that responsible parties will be responsible for 100% of the oil pollution cleanup costs.”  If I am not mistaken it was the Congress that passed a law limiting the damages from an oil spill to $75 million, which created a moral hazard that perhaps encouraged BP to cut corners.  But wasn’t it BP who voluntarily waived the $75 million limit and has promised from the start that they would pay the full costs, thereby helping Congress remove the egg from their collective faces for including the limit in the first place?  Don’t get me wrong, BP has a lot to answer for but at the same time BP applied to the government regulators for several waivers of safety tests and requirements that the government granted.  If government had been doing their job, perhaps this would never have happened in the first place.

Aside from closing the barn door after the horse has escaped, I see no mention in your e-mail about holding Congressional hearings to ask the Obama Administration why they have not yet suspended the Jones Act and accepted the offer of help from twelve countries in the cleanup effort. When asked, Thad Allen and Carol Browner offered the weak excuse that no one asked them for a waiver.  Why did the administration stand in the way of Louisiana building sand berms to stop the oil from reaching the coast because of environmental reasons?  From an environmental disaster standpoint, doesn’t the oil gushing in the Gulf trump other concerns?  We seem to have multiple agencies operating in the Gulf and each one is getting in the way of each other and no one in the administration is taking the lead to clear the red tape.  Why is that Congressman?

Instead of talking about preventing avoidable disasters in the future, why don’t you find out why this avoidable disaster was not prevented by the regulations we have on the books and by the agencies in charge of doing so?  For once, perhaps you can wait until those facts are known before you rush out to craft more legislation to fix a problem like you did with the financial services industries when it will be months before the Angelides Financial Crisis Inquiry Commission has finished its investigation. 

Government that works is more important than signing ceremonies for ill considered legislation that is rushed and voted upon but unread by our representatives.

Sincerely yours,

William R. O’Connell

 I am sure there will be a signing ceremony and tough talk about how we’re really putting an end to this wild unfettered market, but if you trace it back this disaster had government leading the way.  It forced the oil companies to drill in deeper water; it created a moral hazard by capping their liability for any spills to $75 million (which BP waived and accepted responsibility for the full costs); the regulatory agency in charge both collects royalty payments from the oil companies and assesses penalties for failure to comply with regulations; and that same agency granted BP several waivers to take shortcuts before the well failed.  But don’t worry Congress is really going to get tough now.

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Government Fails Again

by Bill O'Connell on June 21, 2010

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An in depth article in the New York Times titled, “Lapses Found in Oversight of Failsafe Device on Oil Rig,” covers at length the problems surrounding the technology and methods employed to prevent the disaster that we see every day on our television screens, newspapers, and the Internet.  It also points to the nearly complete lack of oversight and enforcement by the federal government to protect us.  Politicians like to write legislation and put flowery titles on the same and gather for the cameras for signing ceremonies, but when it comes to the heavy lifting of enforcing the laws put in place they often fall down on the job.

When disaster strikes the typical Washington reaction is to add more regulations that eventually become so complex and contradictory that compliance becomes nearly impossible (e.g., Internal Revenue Code).  In the case of the oil spill in the Gulf the article points out that studies were conducted in 2003, seven years ago, on failure points to prevent the situation we are living with today, but no requirements to put them in place or test them were instituted.

The article focuses on a device called a blind shear, whose purpose is, in the event of an accident like what happened on the Deepwater Horizon, to activate a pair of shear blades to cut the pipe that rises from the well and seal the well shut.  The reliability of single blind shears has only proved to be about 46%.  With this empirical data, new wells are installing two such devices for redundancy and backup.  Such a recommendation was made to the Materials Management Service (the government agency regulating drilling) in 2001, nine years ago, but the MMS took no actions on the recommendation.  In 2003, the MMS received a recommendation that would require the necessary underwater robots and testing of emergency backup systems, but again the MMS, demurred.  The practice has been that the MMS simply took the drilling industries word that they were taking steps to prevent problems.

In 2003, the Deepwater Horizon rig has a problem in a storm that caused the rig to break away from the well it was drilling, the blind shear worked perfectly in that case giving the company a false sense of confidence in the technology.  What happened next is revealing:

The following year, BP opted to remove a layer of redundancy from the blowout preventer. It asked Transocean to replace one of the blowout preventer’s secondary rams with a “test ram” — a device that would save BP money by reducing the time it took to conduct certain well tests. In a joint letter, BP and Transocean executives confirmed that BP was aware that the change “will reduce the built-in redundancy” and raise Transocean’s “risk profile.” – New York Times, 20 June 2010, pA1

Since the MMS did not require two blowout preventers, BP was in the clear to remove one.  Also, consider the term “risk profile,” and think of this in terms of a free market where insurance companies played a role.  If you increased the risk profile and didn’t want to have your policy canceled in its entirety for hiding that fact, the insurance company would no doubt increase BP premiums for the increased “risk profile.”  Since this effort was a cost saving measure, having to pay more in insurance might have changed the equation such that BP would leave things as they were with two blowout preventers.  But the government encouraged deep water drilling, the government put a cap on the amount of damages that a drilling company would have to pay that created a moral hazard, the government ignored recommendations to required greater safety measures and the government was lax in enforcing those regulations it had in place, instead relying on taking the industry’s word that all was well.

On a separate issue regarding the cleanup, in an article in the Wall Street Journal titled, “The President Does a Jones Act,” it states that in the two weeks following the disaster, thirteen countries contacted our government offering assistance with the clean up.  Our government turned the offers down.  As the State Department put it:

“While there is no need right now that the U.S. cannot meet, the U.S. Coast Guard is assessing these offers of assistance to see if there will be something which we will need in the near future.” One month later, many of these offers are still outstanding. – Wall Street Journal, 19 June 2010

The Belgians reportedly have the ships and technology that could clean up the mess in the Gulf in one-third the time than is currently estimated.  All it requires is suspending the Jones Act of 1920.  Bush did it almost immediately in the wake of Hurricane Katrina so that foreign ships could come in and provide temporary housing for the hurricane victims.  Officials in the Obama Administration weakly respond that “no one has asked them yet,” to suspend the Jones Act.  What are they waiting for?  Doesn’t Obama and everyone in his administration to hit the Sunday talk shows tell us that they has been on top of this since day one?  One plausible reason for the hesitation is that it might offend the maritime unions. 

We are continually told by this administration that we need more government expertise telling us how to run our lives.  Surrender your liberties, we’ll take care of you.  I don’t think so.  What do you think?

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The Anti-Business Obama

by Bill O'Connell on June 18, 2010

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President Obama has demonstrated, as much as he would like to deny it, a strong anti-business sentiment.  He has acted in ways that remind one of a Castro or Chavez in that he is doing it in the name of the people against the greedy profiteers.

General Motors and Chrysler were bled dry by union contracts.  Management is culpable for agreeing to those contracts so they don’t get a pass in my view.  But government also piled on with CAFÉ mileage requirements that forced the auto companies to build cars at a loss (because of the union contracts) to meet this standard.  In the midst of the financial crisis the auto companies were running out of cash.  The Obama administration, rather than let them go into bankruptcy, muscles in and turns over major ownership stakes in GM and Chrysler to the unions who are loyal supporters of the Democrat Party, rather than pay bondholders who were entitled to be paid first.

The housing bubble was driven by government policies going back years.  The stated goals of the Clinton administration was to increase home ownership to as many people as possible.  When the bubble burst, the Obama administration forced TARP money on healthy banks who neither needed it nor wanted it.  The reason was to avoid showing who the real basket case banks were.  But these banks were forced by their government to take the money and then the Obama administration created a pay czar to make sure any company that took TARP money, voluntarily or not, could not pay their executives more than Team Obama said they could.

Lax regulation on the Deepwater Horizon platform in the Gulf of Mexico permitted BP to take short cuts that led to disaster.  President Obama is put in an embarrassing position, so he cranks up the Public Relations machine to throw maximum ire upon BP.  He then tries to be a hero by shaking down BP for $20 billion.  BP has never said they would not pay.  BP waived the limit on damages that was set by, you guessed it, the government and has steadfastly said they would make things right.  But President Obama wanted to look like he was actually doing something and by taking $20 billion and putting it under his control it might look like he was.  I agree with many that President Obama did not cause the leak in the Gulf any more than Bush created Hurricane Katrina, but if, as Obama likes to say, the buck stops here, then he is responsible for the lax enforcement by his administration that could have prevented it.

To create jobs this administration created a $787 billion bailout package that did next to nothing to create real jobs.  It was pork to be paid to union members such as teachers, contractors, and not to grow the economy and create sustainable jobs.

If a business that is solidly behind the Obama agenda, like General Electric who owns the NBC and MSNBC cheerleaders, and wants to be a key player in the cap and trade exchanges, this President will treat them kindly.  But if you are an independent business trying to grow, you will be taxed to your eye sockets.

We pride ourselves on being a nation of laws not a nation of men, but since this President has taken office he has a view that he is above the law and can do whatever he feels he needs to do.  It was somewhat surreal to have Congressman Joe Barton, apologize to BP for the shakedown.  No one owes BP an apology but I understand Congressman Barton’s distaste for the administrations boorish behavior.  No one has the right to demand another’s property without due process of law, and that’s what happened.  Perhaps Tony Heywood should be fired for going along with it.

Let’s keep this in mind.  We need BP to continue to be a viable profitable company, so that every last claim can be paid.  If this administration succeeds in driving BP into the ground, guess who will be next in line to pick up the tab?  That’s right, gentle readers, you and me;  the American taxpayers.

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Government Failure in the Gulf

by Bill O'Connell on June 7, 2010

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Not surprisingly, we hear the administration telling us how they have been in charge since day one regarding the BP oil gusher.  But as I have often said before, if there is a major problem in America look for government to be right in the thick of it and this is no exception.

Statists like to blame the free market for such problems and that more government is the answer.  You will also hear them mistakenly say that conservatives don’t want any government involvement in the marketplace.  Conservatives believe in government, albeit limited government, but we also expect that the government that is in place do its job.  There was plenty of regulation in the BP case, perhaps too much government in that there was no one clear responsible agency but an overlapping mess.  When it comes to regulation I like to use the sports analogy of a baseball umpire.  Congress writes the rulebook and the executive branch is the umpire that makes sure the rules are followed.  If the umpire is looking at an attractive girl in the stands instead of the play on the field, he is apt to blow the call.  Blown calls seemed to be a way of life in the BP case. 

Deepwater exploration progressed faster than the regulations could keep up with the technology, and government was providing incentives to accelerate that exploration.  So there we have our first example of the government acting in a push-me, pull-you fashion, that is, incentives to explore but lacking regulations to make sure it is done safely and orderly.  Rather than looking at deep water drilling where the physics are different as a different animal needing a comprehensive review of the regulations, the regulations were piecemeal approvals of shallow water regulations. 

When BP first looked at drilling in this area they requested from the federal regulators an exemption from a rigorous environmental review.  That exemption was granted.  They also used riskier equipment that deviated from their own company safety policies.  Regulators also approved testing the blowout preventer at a pressure that was lower than federally required.  When BP wanted to delay mandatory testing of the blowout preventer when they lost “well control” in the weeks before the rig exploded, again the regulators granted the delay.

One federal agency, the Minerals Management Service, is in the dual role of both promoting drilling and regulating it.  They both collect royalty payments and issue fines for violations.  Do you think there may be a conflict here?  Is this the most effective form of government?  Here is a core beef of mine and of other conservatives.  The free market should provide the incentives for off shore drilling.  Either it is worth doing from a business standpoint or it is not.  The government’s role should be in the regulation.  When government wades into the middle trying to work both sides, it is doomed to fail.

There are multiple agencies that all have responsibility for regulation in this area in addition to the Minerals Management Service including, the Environmental Protection Agency, the Coast Guard, and the National Oceanographic and Atmospheric Administration.  Where there are gaps in regulation, whose responsibility is it to plug the gap?  When there is overlap, whose regulations controls? 

The Minerals Management Service approved BP’s drilling plan that projected a “worst case” blowout as producing 250,000 barrels per day of escaping oil.  However, the agency did not require BP to develop a contingency plan on how they would deal with such an occurrence.  The agency also did not require companies to have a backup systems to trigger in the event a blowout preventer failed.

There were early indications of problems with the well but federal regulators approved proceeding with the drilling rather than order it be halted until the issues were addressed.

So once this disaster spun out of control how did our government respond?  Based on laws written after the Exxon Valdez spill the government and BP were supposed to cooperate.  How did the administration show their cooperation?  They said they were going to keep their “boot on the neck of BP.”  Do you feel inspired to cooperate with someone who tells the world they will keep their boot on your neck, or do you start looking for ways to protect yourself?  Instead of concentrating on giving BP whatever assistance it needs to cap the well and focusing on containing the spread of oil, the administration sends in lawyers to start a criminal investigation.  Can’t that wait until the well is capped?  Why divert attention from the problem and have BP start losing focus on the well and more on assembling a legal team?

When governor Bobby Jindal of Louisiana wanted to build a sand barrier to stop the oil from reaching the wetlands in his state, he was told to wait while our federal government dithered for three weeks haggling among the White House, Coast Guard, Army Corps of Engineers, Fish and Wildlife Service, National Oceanic and Atmospheric Administration, and Environmental Protection Agency over the best approach.  If this administration, as they have claimed, has been in charge since day one and all of these agencies fall under the administration, why couldn’t this be hashed out in a day or two?  They finally approved one barrier rather than the 23 that were requested but eventually allowed more.  For an in depth story see New York Times

For the last year and a half we have been told we don’t have enough government running our lives and telling us what to do.  Yet here is a classic case of government regulator piled on top of regulator, and regulators trying to promote and control businesses at the same time.  We have regulators granting waiver after waiver of regulations that ultimately led to disaster and our administration instead of stepping up and taking responsibility is trying to look like they are in charge while at the same time blaming everyone else, yes even Bush, for what happened.  The head of the Materials Management Service resigned and President Obama says he learned about it afterwards.  Interior Secretary Salazar said she resigned on her own volition and that she wasn’t fired.  Why not?  For all the exemptions and waivers that were granted by the government that could have prevented the worst environmental disaster in history, this administration doesn’t think anyone other than BP should be responsible.

So we are supposed to let this administration grow government and control more of our lives when they can’t take responsibility for what is already under their control.  But don’t look for a serious investigation of government’s responsibility unless a large number of incumbents are flushed out of Congress and replaced by new members who actually represent the people.

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