The Oil Spill Commission–Lessons Learned

I attended a dinner last night that included a presentation by William Reilly, co-chair of the Oil Spill Commission, who discussed their report, which is available with the following URL

Reilly almost began with a comment that the Three Mile Island Commission report had effectively killed nuclear power in the US, in that the US has not built a nuclear power plant in over 30 years.  He didn’t want the Oil Spill Commission report to have a similar effect on drilling in the Gulf of Mexico.  We will see if it does.  I guess that the appropriate metric for that would be the number of new drilling rigs that are added in the Gulf, which would be the metric comparable to the metric of the number of new nuclear power plants added (or not added) over the last 30 years.

Reilly discussed a Report Card mechanism that the nuclear industry now has in place, with the power plant operators evaluating each other, a peer review program.  The executives of the plants that have the worst performance evaluation are effectively the subject of ridicule by the rest of the operators while the executives of the plants with the best performance evaluation are effectively given bumper stickers that say “My child is an Honor Roll student at . . .”  So they have created a system of bragging rights.

From what I have heard about the nuclear power industry, their performance metrics have dramatically improved over the last thirty years.  Plants are operating at much higher capacity factors.  That improvement could be attributed to the Report Card process.  I have also heard people say that the industry restructuring has given better (more) financial incentives to operators.  I am sure that the answer lies at neither extreme of this spectrum and probably includes other dimensions as well.  Whatever is the source of the improvement, the economy is better off with the improvement, even though we have not yet built a new nuclear power plant.

I commented during Q&A that the electric control area operators used to have such an Honor Roll system (they even identified utilities as being on the Honor Roll, using that term) for Area Control Error (ACE).  ACE is a metric brought about by the socialization associated with interconnecting competing power systems, about which I have written on my blog.  I then commented that the Energy Policy Act of 2005 instituted mandatory performance standards which are administered by NERC.  Reilly was unaware of the control area Honor Roll concept.  I haven’t participated in the process run by NERC, but have heard intimations of a peer review process for electric operations, which could be another Honor Roll.

I found interesting parallels between Reilly’s comments on the Mineral Management Service (now Bureau of Ocean Energy Management, Regulations, and Enforcement) and the three companies involved with the process.  MMS (now BOEMRE) did not have the budget to develop the expertise and manpower to do in depth inspections, seeming to accept the reports produced by drill rig operators.  Indeed, MMS (now BOEMRE) has many fewer inspectors per hundred wells in the Gulf than does California for wells on land in that state.  Similarly, BP seemed to accept the expertise of Halliburton and the drill rig owner. Both MMS (now BOEMRE) and BP relied heavily on the expertise of the group doing the work.  Afterwards an attendee commented to me that he was disappointed that Reilly did not identify a black hat or evil doer.  Maybe that reflected Reilly’s bent to avoid destroying the industry or major players in the industry.  I am reminded that the indictment of Arthur Anderson killed that company in the Enron fiasco of 2001.

During Q&A, Reilly compared prescriptive regulation with the peer review process.  After two or three years rules and regulation will be out of date and could actually be detrimental instead of just ineffectual.  In contrast, the continuing peer review process is always using best practices as those practices change continually.