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Thoughts about the relationships between transport and the urban area it serves

Regulatory Capture

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I went out to UBC to-day to hear Andrew Nikiforuk. His lecture at the School of Journalism was sponsored by and advertised in The Tyee (he is now their writer in residence) as ‘Who Regulates Canada’s Oil Patch, and for Whom?’

I am afraid I was a few minutes late and missed the start of his talk. This was because my research before I left home showed there is a pub opposite the Sing Tao building, where I could get lunch first. That was true but UBC does not follow any of the conventions of other places and the pub is neatly hidden. There were signs – which ultimately were truthful, if not exactly helpful, in gaining access. Someone needs to explain the principles of “street presence” to UBC planners.

In fact he did not just speak about the Canada’s Oil Patch: he spoke about the role of regulators in the US gulf, the BC Peace River and the Alberta tar sands. The theory of regulatory capture is associated with Nobel laureate economist George Stigler, one of its main developers. (wiki) Nikiforuk said that what happens in reality is corruption “an abuse of entrusted power for private benefit” – and in the three areas he spoke of it is clear that is exactly what has happened.

In the Gulf of Mexico, where the recent Deepwater Horizon oil spill, the Minerals Management Service, which had regulatory responsibility for offshore oil drilling, has been widely cited as an example of regulatory capture.[8][9][10] (also from the same wiki page as cited above)

In fact the Minerals Management Service was cited three times by the Office of the Inspector General (OIG – there are actually many of these but his citation of Earl Devaney meant I could track it to the Department of the Interior). MMS was supposed to be concerned about safety but also the collection of royalties – and was funded 50% by direct levies on the industry. DOIOIG found in 1990 that the industry had offered MMS staff drugs, sex and gifts. In 2008 he noted that there was a “culture of substance abuse – and an unstructured system for dealing with royalties”

“The reports portray a dysfunctional organization that has been riddled with conflicts of interest, unprofessional behavior and a free-for-all atmosphere for much of the Bush administration’s watch.”[8][9][10][11][12][13][14][15][16][17] (again lifted from wiki)

The drilling rig in question had been exempted from an environmental review immediately before the explosion. There were in fact only 60 inspectors trying to cover 4,000 rigs. In 2010 the OIG noted the ease of movement of personnel between the industry and government – what Nikiforuk referred to as the “revolving door” – and an atmosphere where it was “permissible to fraternize and provide gifts”. Evidence of “capture” meant the MMS was replaced by three separate organizations with the Bureau of Ocean Energy Management and Enforcement taking over the regulatory aspects of drilling. It took a crisis to reform a regulatory body which had been taken over by the industry.

In Canada there is a similar case to be made against the National Energy Board and Enbridge – the promoters of a proposed new pipeline from the tar sands to Kitimat, BC. This will, if built, move 500,000 barrels of bitumen a day for export to China – [with condensate being imported in the opposite direction in a parallel pipe to be used to get the bitumen to flow]. This creates “extra-ordinary liabilities” – such as stream crossings – and Enbridge’s record of pipeline safety is cautionary. NEB is funded 90% by the companies it regulates $56m a year from 166 companies of which Enbridge is probably the largest contributor. There is a similar history of exchange of personnel between NEB and the companies it regulates. Moreover NEB does not say no to pipelines [any more than the BC Environmental Assessment process turns down projects].

The Canadian Association of Energy and Pipeline Landowner Associations (CAEPLA) is Canada’s “foremost and leading association of landowners who have a direct and ongoing interest in the way government and energy regulators define, and then influence, the relationships that exist between landowners and various aspects of the energy sector.” [Their web page has a link to regulatory capture at the NEB] CAEPLA made a Freedom of Information request to NEB – to which they responded with 300 blank pages. And nothing else. They note too that the NEB refers to the oil industry as “partners”.

The Oil and Gas Commission of BC is a similar case. This body is responsible for the regulation of shale gas in northern BC. It was established ten years ago by Brad McGuinness who had just left CAPP – an industry lobby group.  OGC is 100% funded by industry – $35m based on levies on production.  “How can the regulators work in the public interest if they are paid for by the oil companies?” The biggest contributor is EnCana who have 2m acres of land leased in BC. The Commission has a Board of just two people – the Deputy Minister MEMPR and someone from the oil and gas industry. “Ben Mitchell-Banks – who was then the commission’s compliance and enforcement director – was seconded to Encana on May 10, 2004.” (Public Eye on line) The Medical Health Officer of Northern Health recently reported that the rapid growth of gas drilling “has outpaced our understanding of the health impacts” of this activity. One farmer has been quoted as saying that th OGC “acts more like a facilitator than a regulator”.  He had slides from a presentation – which i have not yet been able to locate – which describes oil and gas as “great goose habitat” – in other words the oil and gas industry is the goose that lays the golden eggs. Royalties – at $2 to 3 billion a year – are now the number one revenue earner for BC.

He recommended the use of Pro Publica specifically for their investigation of gas drilling and its environmental impact in the US. (“ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.”) Getting gas out of dense shale requires huge amounts of water and a “secret sauce” of chemicals to fracture the risk to release the gas. There are now thousands of cases of contamination of drinking water due to migration of these chemicals. In Canada there has been a history of regulatory neglect of shale cracking. In 2002 the Canadian Council of Ministers of the Environment called for the creation of a baseline of hydrological data on aquifers in areas proposed for gas drilling, in order to be able to measure the subsequent impacts. This was, of course, ignored. 56% of the water usages in BC for gas drilling were found to be in noncompliance – although the regulator gave them all a passing grade as they cleaned up the problems once they were identified. This system whereby everybody passes and no-ne fails has been identified by the Auditor General of BC as a process that “needs improving”(2008 report on Oil and Gas Site Contamination Risks link is to a pdf of the report)

The Energy Resources Conservation Board of Alberta was the third case examined – and this is the one that looks at the tar sands extraction process directly. Once again, 63% of their funding comes from industry. One of the ten spin doctors employed by ERCB likens the source of funding as parallel to the way that citizens pay for the police through their taxes. However, this neglects to note that while everyone (millions of us) pays the taxes that pay police, only 100 companies produce 90% of Alberta’s oil and gas. Once again there is a revolving door for people to move between the ERCB and industry.

“Cupid’s arrow pierces energy regulator” was the headline of a story by Valerie Fortney in the Calgary Herald on February 21, 2009. Unfortunately the Herald’s own web page does not serve up this story but a blog does

…the provincial energy regulator’s announcement Thursday that it was suspending an ongoing and contentious energy application due to a “personal” relationship between a Petro-Canada employee and a board employee–the latter who made the bombshell admission 72 hours after Valentine’s Day.

The Energy Resources Conservation Board has been holding public hearings since Nov. 12 on Petro-Canada’s controversial proposal to drill 11 sour gas wells and build a pipeline in the Eastern Slopes west of Longview.

The regulator has approved a sour gas pipeline through a First Nations reserve, but on the condition that every house has a “safe room” where the residents can go in the event of a leak.

He spoke of the rapidity of the growth of the tar sands project, which has not been matched by a comparable growth in staff at ERCB on the ground at Fort McMurray. The size of the problems are enormous: for example there are now 170 sq kms of toxic waste in tailings ponds – where the water left over from oil extraction from the sands is left – originally in the hope that it would “settle out for further use” – a hope which is unfulfilled. These ponds now hold 6 billion barrels – an estimated $10 to $20 billion liability. They are held back from rivers by a system of dykes – for example along the bank of the Athabasca River – but as CEAA noted in 2009 – “there is no data on seepage” .  While these projects have been underway for twenty years it was not until 2008 that  ERCB produced performance standards for tailings and even then they gave exemptions to Syncrude.

One method used to separate oil from the sands is Steam Assisted Gravity Drainage.  One such project produced a catastrophic event on May 18 2006 – the report on which did not appear until four years later.

Nikiforuk did have some prescriptions for reform. He said that “we should start by doing what is necessary” – that is separating industry from the regulators and introducing transparency. one problem he acknowledged was that many journalists who had covered the oil patch are now employed as PR people by the industry. “People who know about the game are not talking about the game”. he suggested a series of anti-capture strategies including rotation of staff within offices, disqualification for employment within the regulator of people recently in the industry – and from the regulator to industry. He also thought that there should be formal whistle-blower protection to encourage information flow. It is clear, he said that the OGC is not working in the interests of the people of BC, and that the first thing to do is “take the money off the table”. Oil and gas royalties should not go into current expenditures (thus allowing for tax cuts or increased spending) but into an investment fund. There has to be a provincial strategy for investing resource wealth for the future. It was essential that we slow down the process of extraction and “behave like an owner not a tenant”. (Peter Lougheed)

If you look for truth, you may find comfort in the end; if you look for comfort you will not get either comfort or truth only soft soap and wishful thinking to begin, and in the end, despair.
C. S. Lewis

“People do not want to be sold soap and wishful thinking. That is why they do not read newspapers any more.”

==============

The lecture was videoed – and I am told may even be available on YouTube shortly.

A couple of points from my own story. Firstly, I decides to cover this event because we rely so heavily on oil for transportation – and the movement of  Alberta crude through our province and our ports has to be of direct concern to us.

I worked for the Ministry of Energy Mines and Petroleum Resources in Victoria for two and a half years. The first course that I was sent on  by that ministry was run by CPPI. As indeed were all new entrants to that ministry at that time. Most of the information that we have about oil and gas comes from the industry itself.

I applied for a job at NEB after I left Translink. Indeed, it was only because I did not get that job that I was able to use the federal Privacy Act to determine that officials at Translink were breaking a formal agreement (negotiated by their re-employment consultant) by giving me a poor (indeed false) reference. It seems to me now that I dodged a bullet!

Written by Stephen Rees

September 13, 2010 at 6:06 pm

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