The Need for a New, Independent Agency

As described in detail in Chapter 3, primary responsibility for regulating the offshore oil and gas industry prior to the Deepwater Horizon accident was consolidated in a single agency, MMS. MMS was not only responsible for offshore leasing and resource management; it also collected and disbursed revenues from offshore leasing, conducted environmental reviews, reviewed plans and issued permits, conducted audits and inspections, and enforced safety and environmental regulations. And though the revenue management and resource management functions of MMS were separated into two distinct divisions, the mingling of distinct statutory responsibilities—each of which

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¶required different skill sets and fostered different institutional cultures—led inevitably to internal tensions and a confusion of goals that weakened the agency's effectiveness and made it more susceptible to outside pressures.

¶At the core of this tension was a trade-off between, on the one hand, promoting the "expeditious and orderly development" of offshore resources, as mandated by the Outer Continental Lands Act of 1978, while also ensuring, on the other hand, that offshore development proceeded in a manner that protected human health, safety, and the environment. Over the course of many years, political pressure generated by a demand for lease revenues and industry pressure to expand access and expedite permit approvals and other regulatory processes often combined to push MMS toward elevating the former goal over the latter. At the same time, the fact that MMS lacked either a clearly articulated mission or adequate guidance for balancing its different missions led to inefficient management and a tendency to defer to industry, which successfully sought congressional and political intervention to shorten time frames for plan and permit reviews, blocked royalty valuation rulemakings, and advocated to delay and weaken rules aimed at improving the safety management of operations.

¶All of these problems were compounded by an outdated organizational structure, a chronic shortage of resources, a lack of sufficient technological expertise, and the inherent difficulty of coordinating effectively with all the other government agencies that had statutory responsibility for some aspect of offshore oil and gas activities. Besides MMS, other offices of the Department of the Interior as well as the Departments of Transportation, Commerce, Defense, and Homeland Security, and the Environmental Protection Agency (EPA) were involved in some aspect of the industry and its many-faceted facilities and operations, from workers on production platforms to pipelines, helicopters, drilling rigs, and supply vessels.

¶Not surprisingly, the Macondo well failure in April 2010 turned a harsh spotlight on all these bureaucratic inadequacies and shortcomings. And shortly after the accident, Interior Secretary Ken Salazar renamed MMS the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) and announced a plan to split its responsibilities into three separate offices.*

¶Although the proposed reorganization of Interior's offshore leasing, safety, and revenue management program represents a significant improvement, it does not adequately address the deeper problem of fully insulating the Department's safety and environmental protection functions from the pressures to increase production and maximize lease revenues.

The use of "BOEMRE" will be limited here to actions since MMS was renamed.

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Recommendations A4: Congress and the Department of the Interior should create an independent agency within the Department of the Interior with enforcement authority to oversee all aspects of offshore drilling safety (operational and occupational), as well as the structural and operational integrity of all offshore energy production facilities, including both oil and gas production and renewable energy production.

A5: Congress and the Department of the Interior should provide a mechanism, including the use of lease provisions for the payment of regulatory fees, for adequate, stable, and secure funding to the key regulatory agencies—Interior, Coast Guard, and NOAA—to ensure that they can perform their duties, expedite permits and reviews as needed, and hire experienced engineers, inspectors, scientists, and first responders. (See Recommendation G2.)

The roles and responsibilities of the former MMS should be separated into three entities with clearly defined statutory authorities. One entity would be responsible for offshore safety and environmental enforcement; another would perform functions related to leasing and environmental science; and the third would manage natural resource revenues. The safety and environment enforcement authority or entity, in particular, should have primary statutory responsibility for overseeing the structural and operational integrity of all offshore energy-related facilities and activities, including both oil and gas offshore drilling and renewable energy facilities.

A new office of safety should consolidate responsibility for safety—including infrastructure and operational integrity, as well as spill prevention and response—for all offshore fossil fuel and renewable resource development activities, structures, and workers. It should be an independent agency housed at the Department of the Interior to facilitate coordination with a new office for leasing and environmental science. Congress should enact an organic act to establish its authorities and responsibilities, consolidating the various responsibilities now under the Outer Continental Shelf Lands Act, the Pipeline Safety Act, and Coast Guard authorizations. The new office should have primary authority over facilities, structures, and units for offshore oil and gas drilling, production, and renewable energy that are engaged in energy-related activities, including authority to establish and enforce specific safety and environmental protection requirements for these units as well as requirements for operators who may be leasing the facilities.

Congress should review and consider amending where necessary the governing statutes for all agencies involved in offshore activities to be consistent with the responsibilities functionally assigned to those agencies. The safety-related responsibilities of the new offshore safety agency should be included in a separate statute. (Further specifics regarding the Commission's recommended organizational structure for new offices to regulate safety and leasing are discussed below).

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To ensure that Interior has the ability to provide adequate leasing capabilities and regulatory oversight for the increasingly complex energy-related activities being undertaken on the OCS, budgets for these new offices as well as existing agencies should come directly from fees paid by the offshore industry, akin to how fees charged to the telecommunications industry pay for the expenses of the Federal Communications Commission, which is essentially fully funded by such regulated industry payments. Through this mechanism, Congress, through legislation, and Interior, through lease provisions,2 could expressly oblige lessees to fund the regulation necessary to allow for private industry access to the energy resources on the OCS, including renewables. Under existing law, the oil and gas industry already pays inspection fees that currently amount to about $10 million per year or about 3 percent of BOEMRE's annual budget, but this amount can and should be increased significantly. (See Recommendation G2.)

¶Implementing the Commission's recommendation to reorganize the former MMS into three offices and to enhance these offices' technical capacities will require a sustained effort over a period of years. The President or Interior Secretary should effect this reorganization to the extent possible administratively and request congressional enactment to confirm its permanence and provide for the statutory recognition of a term of office for the director of safety and environmental regulation.

¶PROPOSED Reorganization of the Former MInerals Management Service

¶Offshore Safety Authority: This office would exercise independent statutory authority over technical and operational safety in all phases of OCS energy resource development projects, including the planning, designing, constructing, operating, and decommissioning of facilities and projects, and will have overall responsibility for fostering safe and environmentally sound offshore energy operations. The new agency would oversee all non-economic aspects of the operations and structures involved in drilling and production of oil and gas, pipelines, and wind towers, wave, tidal, and other renewable technologies located on the federal offshore zone. The new safety and environment authority would also have the lead coordination role in relation to other regulators with independent authority over offshore oil and gas activities, including EPA, NOAA and the Coast Guard.

¶Key responsibilities include:

Reviewing and approving (or denying) all permits under exploration, development, and production plans.
Inspecting all offshore operations by expert teams through scheduled and unannounced inspections.
Auditing or otherwise requiring certification of operator health, safety, and environmental management systems.

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Evaluating eligibility for lessees based on safety and environmental qualifications.

Reviewing and approving the safety and feasibility of any environmental mitigation activities prescribed by National Environmental Policy Act (NEPA) documents and other environmental consultations, authorization, or permits in addition to enforcing such requirements over the duration of an operation.

Collecting and analyzing leading and lagging indicators from all active parties for full risk evaluation.

Promulgating all structural integrity, process, and workplace safety rules and regulations in order to create a foundation of prescriptive regulations to supplement performance-based ("safety case") regulations.

Providing technical review and comment on the five-year leasing program and individual lease sales.

Providing technical review of spill response and containment plans.

Reviewing and approving all spill response and containment plans and advising the new safety authority on environmental considerations.

Investigating all accidents and other significant events that could have potentially turned catastrophic.

The organization and staffing composition should be decided during a transition period, when the areas and activities are analyzed and categorized by risk. The director of the new organization should be a qualified executive with a relevant engineering or technical background, and should be appointed by the President for a five- to six-year term and confirmed by the Senate. In addition, the new agency should have classifications and salary scales for engineering and technical staff and inspectors similar to those of the Nuclear Regulatory Commission.

Leasing and Environmental Science Office: This office would act as the leasing and resource manager for conventional and renewable energy and other mineral resources on the OCS. Charged with fostering environmentally responsible and efficient development of the OCS, the office would ensure that the American people both receive fair market value for the rights conveyed and that the nation's rich marine environment remains protected. The United States cannot afford a repetition of the kind of contractual drafting mistake that, as described in Chapter 3, is literally costing the nation tens of billions of dollars in lost revenues.

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¶Key responsibilities include:

Conducting OCS resource planning processes, including the five-year leasing program and individual lease sales.
Conducting individual lease sales for oil, gas, and renewable energy facilities offshore.
Promulgating rules and regulations with respect to lease terms, resource access, and use.
Approving non-engineering or operations aspects of exploration, development, and production plans, subject to review by the new safety authority to ensure no conflicts with permitting requirements for infrastructure and operations.
Reviewing and approving all spill response and containment plans and advising the new safety authority on environmental considerations.
Making resource management decisions, such as those related to timing of reservoir abandonment and shared reservoir issues, unitization, commingling, and optimizing oil and gas recovery.
Reviewing and approving permits for seismic activities.
Conducting NEPA reviews at all relevant phases and coordinating other environmental reviews when appropriate
Administering the Environmental Studies Program.

¶The leasing and environmental science office would include two distinct divisions: a leasing and resource evaluation division and an environmental science division. To provide an important and equitable voice for environmental concerns during the five-year planning process and lease awards, the environmental science division would be structured with a separate line of reporting to the Assistant Secretary overseeing offshore drilling and the environmental science division would be led by a Chief Scientist. The Chief Scientist's responsibilities would include, but not be limited to, conducting all NEPA reviews and coordinating other environmental reviews when appropriate and administering the Environmental Studies Program. The Chief Scientist's expert judgment on environmental protection concerns would be accorded significant weight in the leasing decision-making process, including on questions concerning whether and where leasing should occur and what environmental protection and mitigation conditions should be placed on leases that are issued. The new organization and process would also include enhanced review of environmental decisions and enforcement by the safety authority. It should track all mitigation efforts from NEPA documents and other environmental reviews to assist the new safety authority in its environmental enforcement duties.

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Office of Natural Resources Revenue (ONRR): Revenue collection and auditing functions would remain with the Assistant Secretary for Policy, Management, and Budget as per the recent re-organization implemented by Secretary Salazar.