Will Splitting Offshore-Oil Regulator Prevent Future Accidents?

On Tuesday, Interior Secretary Ken Salazar cut the Minerals Management Service in half, separating its duties of regulating the offshore oil and gas industry and of collecting billions in revenue from it. The move is a tacit acknowledgment that a conflict of interest is inherent to the agency's dual mandate, and is an indictment of the decisions the MMS made that have arguably exacerbated the Deepwater Horizon disaster. With oil still leaking into the Gulf of Mexico (BP engineers are getting desperate), the MMS faces mounting criticism for its role in the mess, first for a 2003 decision not to require remote-control shutoff switches in the gulf as a last-resort safety mechanism in the event of a blowout, and second for granting BP an exemption from providing a detailed environmental report of the Deepwater Horizon site.

A division of the Interior Department, the MMS was created in 1982 and is the rare government agency that doesn't receive tax dollars. It is fully funded through the billions in annual revenue it collects by leasing out tracts of federal waters to oil and gas companies. Last year it raked in $13 billion in revenue, second only to the IRS.

Sources tell NEWSWEEK that MMS employees have been bracing for reform for months, even before the BP explosion on April 20. Apparently, Salazar made cleaning up the MMS a top priority upon taking office in January 2009, and the BP spill provided the impetus for strong action. Early last year the secretary traveled to the MMS office in Denver, home to its revenue-collection arm and one of the more salacious government scandals in recent memory. In 2008, the results of a two-year investigation into the agency found that employees of the Denver office were smoking pot, snorting cocaine, accepting gifts, and having sex with employees of oil and gas companies. Yikes. The scandal gave a new meaning to the notion of a cozy relationship between an industry and its regulator. MMS director Gregory W. Smith resigned in the middle of the scandal.

Upon taking office, Salazar immediately ramped up an ethics-training program, extending it to all MMS employees, not just those who had contact with industry officials. The MMS is now run by Liz Birnbaum, former director of the House Administration Committee. Her predecessor, Randall Luthi, the last MMS director under the Bush administration, and a Wyoming lawyer and longtime friend to the energy sector, now works for a top lobbyist organization for the energy companies, the National Ocean Industries Association, whose stated mandate is to "secure reliable access and a favorable regulatory and economic environment for the companies that develop the nation's valuable offshore energy resources in an environmentally responsible manner." BP, Haliburton, and Transocean are among its 250 member companies.

Luthi would not speak to NEWSWEEK, but NOIA's director of external affairs, Michael Kearns, did. Asked whether there's any validity to the conflict-of-interest claims, Kearns said, "That's a question only the MMS can answer," before adding, "You need to know who the players are in order to effectively regulate an industry. The exchange of information back and forth is facilitated by having a working relationship." Which apparently means actually going to work for the industry you were supposed to be regulating.

Salazar said Tuesday that he would ask Congress for nearly $30 million for rig inspections and enforcement, $20 million of which he wants to use for examination of oil-drilling platforms. His announcement comes against the backdrop of Congress ramping up its usual post-disaster/scandal marathon of hearings and investigations. The Senate Committee on Energy and Natural Resources began its investigation Tuesday into what exactly happened 5,000 feet below the surface of the water on April 20. The Senate Committee on Environment and Public Works held two hearings, one on the impact of the spill on Gulf Coast wildlife, the other on oversight. Over the course of this month, a full 11 hearings are scheduled.