Salazar moves revenue duties out of MMS; details restructuring

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, May 20 -- US Interior Secretary Ken Salazar issued an executive order on May 19 dividing the US Minerals Management Service’s three functions and spinning off one of them completely from the US Department of the Interior agency. The move provided more details of the MMS reorganization announced last week that would resolve the agency’s conflicting missions (OGJ Online, May 11, 2010).

The order creates the Bureau of Ocean Energy Management (BOEM), which will oversee traditional and alternative energy development on the US Outer Continental Shelf, and a new Bureau of Safety and Environmental Enforcement (BSEE). Both will be supervised by Wilma A. Lewis, assistant US Interior secretary for land and minerals management.

Salazar also established an Office of Natural Resources Revenue (ONRR) under Rhea S. Suh, assistant US Interior secretary for policy, management, and budget, which will take over royalty and revenue functions that MMS has handled since then-Interior Secretary James G. Watt established the agency in a Jan. 19, 1982, secretarial order. MMS assumed those responsibilities from the US Bureau of Land Management, US Geological Survey, and US Bureau of Indian Affairs.

“[MMS] has three distinct and conflicting missions that—for the benefit of effective enforcement, energy development, and revenue collection—must be divided,” Salazar said. “The reorganization I am ordering today is the next step in our reform agenda and will enable us to carry out these three separate and equally important missions with greater effectiveness and transparency.”

Salazar said he has asked Lewis, Suh, MMS Director S. Elizabeth Birnbaum, and other DOI officials to deliver a restructuring implementation schedule within 30 days. He said of the agency’s 1,700 employees, 700 will work in BOEM, 300 in BSEE, and 700 will move into the new ONRR group.

“We are taking 30 days to get this done because I want to do this right,” he said. “MMS employees are working today as we speak to resolve the horrific consequences of this leaking [Gulf of Mexico] well. I will be visiting most of them in the next 30 days in Virginia, Louisiana, and Colorado.”

He noted that MMS has collected more than $210 billion since 1982 and distributed the money to states, Indian tribes, counties, and the federal treasury. The agency collects $13 billion/year and about 99% of Interior’s total revenue. “It is a good restructuring. When you consider the money MMS brings to the US Treasury each year and its responsibility for federal OCS oil and gas activity, it is important to have the right structure,” Salazar said.

Lawmakers respond
Some federal lawmakers suggested before the secretary’s latest announcement that he should go farther. US Sen. Ronald L. Wyden (D-Ore.) said at a May 18 Energy and Natural Resources Committee hearing on the gulf oil spill and rig accident that MMS essentially was a swamp that should be drained. “Regulations are in place, but they aren’t adequate and they aren’t enforced,” Wyden told Salazar, who was there to testify. “For MMS to take the industry’s position that the prospects of such an accident are remote is wrong. This is your opportunity to drain the environmental and safety swamp. I commend what you’ve done on the financial side, but the behavior there was outrageous.”

US Sen. Robert Menendez (D-NJ), another Energy Committee member, noted that MMS clearly underestimated the risks of offshore oil and gas exploration when it suppressed recommendations from National Oceanic and Atmospheric Administration scientists and allowed developments to proceed. “They were pressured to change their findings if they predicted an accident might occur,” he said. “I think the committee needs to hear from MMS employees and what they were instructed to do, and the NOAA scientists whose findings were overruled.”

When Salazar said he has requested more money to hire additional offshore safety inspectors, Wyden observed: “The problem starts before the ‘cop on the beat’ becomes involved. It starts with getting strong safety standards.” The secretary agreed that safety standards are fundamental, and said he and Deputy Interior Secretary David J. Hayes have been working with the National Academy of Engineering to determine what the standards should be. “I expect some significant enhancements,” Salazar said. “We’re considering having the independent enforcement arm develop the safety standards, independent of the leasing and commercial activity,” added Hayes, who also was at the hearing with Lewis and Birnbaum.

Separate entity?
US Senate Environment and Public Works Committee Chairwoman Barbara Boxer (D-Calif.), at that panel’s May 18 hearing on the accident and spill, said she approved separating MMS’s environmental and safety regulation from its other functions. But if it’s just in MMS and not totally outside it, will we break this culture of good old boys and girls?” she asked Salazar. “Will you consider making it a separate entity outside of MMS?”

Salazar responded that several reforms have taken place at MMS already, starting with ethics reforms he established in the wake of a scandal in its royalty-in-kind program and his subsequent decision to discontinue RIK entirely. He also said Congress will need to do its part by raising MMS’s stature and establishing MMS as a DOI agency with a director confirmed by federal lawmakers. “This is an ongoing nightmare,” Boxer said. “If we’re ever going to reform MMS, it’s going to be now when this [spill] is fresh in everybody’s minds.”

Lisa Murkowski (R-Alas.), the Energy Committee’s ranking minority member, also apparently had the impression that MMS would become two separate agencies. “If MMS is to be cut in two, there will have to be reprogramming of funds through the appropriations process, which we’ll see about in the Appropriations Committee,” she said on May 18. “Here on Energy and Natural Resources, our focus needs to be on organic acts for the two agencies as well as extending our provision in S. 1462 to make the MMS director a Senate-confirmed position. If the current MMS is going to be reshaped into two independent agencies, it’s only logical that we’d apply that confirmation requirement to both of their directors.”

When Environment Committee member George V. Voinovich (R-Ohio) asked what kind of organization Salazar planned to put together to assure that another offshore spill doesn’t occur, the secretary said: “We have 62 inspectors on the Outer Continental Shelf to oversee hundreds of wells. There is a significant and robust inspection mechanism. Can it be done better? The answer is yes. The proposal that is in front of you asks for additional inspectors. Safety improvements have been proposed for a number of years, some of which have been adopted.”

Voinovich and other Environment Committee members suggested that DOI consult with the Nuclear Regulatory Commission and model its policy response to this spill on NRC’s actions following the Three-Mile Island nuclear power plant incident in 1979. Salazar told both committees that the examination that Obama has ordered is modeled on that as well as the study group formed after the Challenger space shuttle blew up in 1986. “We have profited from such independent assessments after other major disasters,” observed Energy Committee Chairman Jeff Bingaman (D-NM). “I am glad to learn that the president intends to charter such a commission and look forward to it beginning its work soon.”

Birnbaum’s role
Asked at the press briefing whether Birnbaum, MMS’s director, would have a role in the restructured agency, Salazar replied: “Part of the reason I hired her to lead MMS is that she has no connection to industry. She has brought in a fresh perspective which has helped us move forward with our reforms. We will need three very strong people to run these agencies. She certainly is one, and we’ll see where she fits in.” Birnbaum did not attend the briefing because she was testifying before a congressional committee, he added.

Salazar also indicated that MMS’s restructuring won’t necessarily lead to more restricted contacts between the agency’s employees and oil and gas industry representatives. “We have strong ethics standards in place. We will have in place a strong and comprehensive regulatory program,” he said. “Some of this might change as we move forward, but we will make sure there are no strong ethical conflicts involving people who regulate the environment and workplace safety. We have had a zero tolerance policy since I became secretary.”

“We have at MMS employees with a wide range of capabilities,” Birnbaum said at the Energy Committee’s May 18 hearing. “With the reorganization, we’ll make certain that inspectors have all the expertise necessary to evaluate facilities they are inspecting.”

Salazar also indicated at both Senate committee hearings and at the press conference that oil and gas industry expertise will continue to be welcomed at a restructured MMS, but that the actual regulations and policies will be determined by the agency. Friction between DOI and the industry periodically flares up, he conceded. “I said several months ago that oil and gas companies were no longer kings of the world and in charge of the candy store. That has been part of restoring this balance,” he said. It was part of what happened when David Hayes went out to Utah to explain why we canceled those 77 leases and got so much industry criticism. The reforms have been very significant.

“That said, I’ll add that this administration knows that oil and gas will be a part of our energy portfolio in this country for many years to come,” the secretary continued. “We need to have an industry to help us fuel our economy and meet our energy needs. We need to make sure it operates in a way that delivers full value to the public, which owns these resources, and operates with the proper environmental safeguards.”

Contact Nick Snow at nicks@pennwell.com.

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