Despite its strong condemnation of the industry-wide problems that caused last year’s BP Oil Spill, the report today from the President’s commission waivered on a crucial subject: it significantly embraced the essentially self-regulatory British "Safety Case" model of regulation that industry and its consultants have been promoting. So while the commission has done some terrific work, one of its key recommendations is very disturbing. The safety case approach ultimately leaves to the oil companies, rather than regulators, the difficult but crucial work of making sure another rig does not explode. We can do better, if Congress gives the regulators adequate funding, moves them to an agency like the EPA or OSHA whose mission is to crack down on bad actors, and gives them the authority they need to make the oil industry internalize the American people’s expectation that it operate safely.
A number of industry advocates promoted the British model; members of the Deepwater Horizon Study Group (an ad hoc group of academics headquartered at the University of California/Berkeley) suggested the concept in a letter to the Commission; and the Department of the Interior has been reportedly considering it. Given the popularity of self-regulation for the oil industry in a number of countries, it is extremely unfortunate that the Commission missed the opportunity to set a higher standard for America. Instead, it said safety cases should be part of a future regulatory system. It wrote (p. 252-253):
Government agencies that regulate offshore activity should reorient their regulatory approaches to integrate more sophisticated risk assessment and risk management practices into their oversight of energy developers operating offshore. They should shift their focus from prescriptive regulations covering only the operator to a foundation of augmented prescriptive regulations, including those relating to well design and integrity, supplemented by a proactive, risk-based performance approach that is specific to individual facilities, operations, and environments. This would be similar to the “safety case” approach that is used in the North Sea, which requires the operator and drilling rig owners to assess the risks associated with a specific operation, develop a coordinated plan to manage those risks, integrate all involved contractors in a safety management system, and take responsibility for developing and managing the risk management process.
The safety case system is a “performance-based” or “goal-oriented” regulation but in fact boils down to facility-by-facility management discretion. Safety cases are individualized plans, typically several hundred pages long, addressing such topics as: (1) procedures for controlling risks; (2) the selection and training of key personnel; (3) installation of preventive technologies such as emergency cut-off equipment; (4) procedures to control higher-risk events such as change of shifts, design, or production goals; (5) the operating firm’s control over the activities of subcontractors; and (6) how the entire crew of a given facility should respond in an emergency. Overworked government officials examine these confidential documents when a facility first begins operating, and may conduct pre-announced, on-site inspections from time to time, but responsibility for executing the complicated, theoretical plans is left to the discretion of the rig operator. As just one telling indication of the profound problems with this approach, at last check, the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) had 55 inspectors to cover 3,500 offshore facilities, nowhere near the number needed to ensure compliance with safety plans.
Our British friends are at least as enamored of cost-benefit analysis as American regulators are, and the method of regulatory analysis plays a prominent role in the safety case approach used in Britain. Safety cases are expected to reduce safety risks to a level “as low as reasonably practical” (ALARP), which the British government has translated into two numbers: (1) a rig is considered safe if accidents aboard it will kill no more than 1 in 1,000 workers and (2) operators need spend no more than £1 million per life saved (about $1.6 million). Both numbers are far less demanding than standards in the United States, putting an alarmingly low dollar value on human life.
One final, distasteful feature of the British system is that all safety cases are treated as if they were government secrets. No one except the company consultants, top level management, an assigned agency official, and—in limited circumstances—a worker representative is allowed to see the finished document in its entirety.
Because no major catastrophes have occurred in the British section of the North Sea since the 1988 Piper Alpha disaster, proponents of the safety case regime contend that the system is working, at least to the extent of preventing such hazards. But there's reason to believe trouble is ahead.
In 2005, Britain's Health and Safety Executive (HSE), the regulatory agency in charge of reviewing safety cases, reviewed the efficacy of the system by inspecting 100 facilities. More than 50 percent had physical plants in a state described as “poor.” “TR HVAC” systems that close off compartments containing people to prevent leakage of flammable and toxic gases failed 64 percent of HSE’s tests. The report’s anonymous authors dismissed the oil industry’s defense that these problems occurred only in non-safety-critical aspects of the infrastructure: “This claim illustrates a lack of understanding … that degraded non-safety-critical plant and utility systems can impact on safety critical elements in the event of a major accident reducing their performance,” they wrote
As for the notion that safety cases are living documents that instill an ongoing commitment to the prevention of major hazards, the HSE report concluded that managers of offshore facilities rely far too extensively on “operational risk assessments”—that is, theoretical modeling of how workers are supposed to react—to compensate for degraded infrastructure. The report also noted that at many facilities, “performance standards”—the fundamental building block of safety cases and their implementation—were generic in nature, as opposed to tailored to the individual rig, even when operational details and physical plant were different.
Of course, the problem of cut-and-paste generic standards in safety protocols emerged with savage irony in the aftermath of the BP Gulf spill, when the Associated Press discovered that the company’s spill prevention control plan included a discussion of the consequences for walruses of a spill when such animals do not live in the area; the name of a deceased consultant on a list of experts to consult in the event of a spill; and a series of disconnected or wrong phone numbers as contacts during an emergency response.
Oil rigs can be analogized to apartment houses operating on top of unpredictably active volcanoes. Rather than relying on facility-specific and abstract demonstrations that risk levels in certain circumstances will result in the deaths of a certain number of workers, American regulatory reform should focus on mandating the installation of the best available “failsafe” technology and teaching workers how to use it. Secret plans, as the safety cases are, have no place in the American regulatory system; compliance documents should be transparent and available to the public and to overseers who can hold them accountable.
It will take awhile to build up U.S. regulatory capacity. In the meantime, the government could take a big step toward safety by imposing liability – high-profile lawsuits with the full resources of the Justice Department behind them. Attorney General Eric Holder announced just such an action in December. That case seeks civil damages; criminal charges are still pending. A criminal case that includes top managers will pack a far more powerful deterrent wallop than civil penalties that can be absorbed by BP's new leadership, brought in to clean house after the spill. That would bring the best hope for now of averting any more such tragedies.
For a more detailed analysis on this topic, see my article Lessons from the North Sea: Should 'Safety Cases' Come to America?