INSIGHTS: Steve Candito, President, Foresea Consulting

Posted by Joseph Keefe June 2, 2016

Steven Candito is the Founder, President and CEO of Foresea, which provides advisory services including strategic planning, regulatory compliance and crisis management to the maritime and environmental communities.

Previously, Candito was President and CEO of NRC. He has extensive experience with OPA 90 compliance issues with particular focus on vessel owner and insurance matters. Before that, Candito was an attorney with Haight Gardner Poor & Havens, specializing in maritime and environmental law. Candito has also served as a marine engineer aboard Exxon USA’s domestic tanker fleet. He is a graduate of Hofstra University School of Law and the United States Merchant Marine Academy. A past President of the Spill Control Association of American (SCAA), his roots in the oil spill response and environmental communities run deep. Listen in this month as he weighs in on environmental issues, pollution prevention and response:

Macondo: the 6-year anniversary of this landmark offshore spill has come and gone. Talk about the lessons learned by responders and regulators alike during and after that difficult time.

The main lesson that both responders and regulators learned from the Macondo spill is that it is impossible to have sufficient dedicated spill equipment available for a spill of generational magnitude, but it is a challenge even under the current regulatory “worst case discharge” standard. The dedicated resources required by the existing regulations were certainly of significant benefit during the first days of the spill, but when a response covers a large geographic area and lasts for months, additional non-dedicated resources will always be needed. Although NRC provided a significant amount of the dedicated resources used on the Macondo spill, NRC really distinguished itself by sourcing a tremendous amount of non-dedicated resources through its subcontractor network.

You were involved with Macondo in your former role. What worked best in that response and what, with 20/20 hindsight, might you have done differently?

The use of non-dedicated resources worked well and made a difference, but some of the innovations at the time were also very helpful, such as the Big Gulp barge skimming system. The Big Gulp is a very straightforward and simple weir skimming system that was outfitted on non-dedicated barges. These systems provided a larger swath, width and faster advance rates than more traditional skimmers. These two attributes resulted in an increased encounter rate, which actually became the focus of the Bureau of Safety & Environmental Enforcement (BSEE)’s newly proposed skimmer capacity rating system known as Estimated Recovery System Potential (ESRP), which are a direct result of the Macondo spill. The Big Gulp systems probably had the best recovery efficiency under the Macondo spill circumstances where the oil was well offshore and contaminated with debris. On what I would have done differently, given the significant litigation that NRC and many of the other clean-up companies became involved in over the use of dispersants, I would think twice before providing dispersant resources again, unless there is some tightening of OPA 90’s responder immunity provision or there is additional cost effective insurance options, which does not seem likely now that the insurance companies have a better understanding of this significant risk.

The proposed Vessel Incidental Discharge Act (VIDA) looks to unify and simplify both the regulatory and compliance aspects of vessel discharges. Currently, those regulatory duties are split into many camps. What’s your take on the legislation – one which is supported by AWO, WCI and others – and do you think it will get passed in the near term?

I certainly support VIDA, but I have my doubts that the legislation will pass. Legal uniformity is one of the basic tenets of the law generally and specifically admiralty law so the legislation certainly makes good sense from both a legal and operational perspective. Further, there appears to be wide industry support from vessel owners and even labor unions, terminals and port authorities. There is also bipartisan support in Congress. Unfortunately, our current legislative process has become so dysfunctional that this needed legislation still may not pass, particularly with the upcoming presidential election and a truncated Congressional calendar this year.

Bring us up to speed on any emerging developments in the oil spill prevention and response fields. What new products and methods are emerging?

Like many other industries, technological advancement is certainly needed in the oil spill response field. Unlike other industries, however, there is not the same economic incentive to invest capital in response resource R&D because the predictable return on investment is simply not there. No one knows when the next big spill will happen. Thus, advancements in the oil spill response industry are likely to come from technologies that have other uses beyond just oil recovery. A great example is drones. Drones have become readily available and already have a role to play in oil spill response in both detecting and tracking oil. I expect that similar technology advances will also eventually lead to more efficient skimming systems.

BIMCO and the International Spill Control Organization (ISCO) have begun work to develop a standard contract for the hire of spill response services and equipment. Tell us about the proposed contract. Do you support this sort of effort?

BIMCO is certainly on the right track in trying to develop an agreement that fairly apportions risks between the parties on critical issues such as payment terms, liability and insurance. This type of standard agreement could save valuable time at the critical early stages of a response. As we know, this issue was addressed in OPA 90 in that potential responsible parties must have a contract arranged prior to conducting oil operations in the US. Thus, although there is more of a need for this type of standard contract outside the US, BIMCO should still keep in mind lessons we have learned here in the US while drafting the agreement. The SCAA has reached out to BIMCO and offered their assistance. I hope BIMCO takes them up on the offer.

The new OPA 90 NPREP (Drill & Exercise) requirements promise significant changes. SMFF providers now have a greater obligation and there will be more unannounced drills. Tell us about the new rules.

Like many other positive initiatives, over time, complacency can take hold and that is what is occurring in the drill and exercise arena. Today, many drills that were intended to really test the responsible parties, their spill managers and OSROs have become more of a seminar. In that seminar format, few real time decisions are made and people and resources are not truly tested. There clearly was a need to refresh the OPA 90 NPREP requirements and the new SMFF regulations were a good catalyst for doing it now. That’s the good news. The bad news is that these drills will become more expensive and time consuming under the new requirements. Further, the timing is somewhat unfortunate since both the oil & gas industry and non-tanker shipping sector are in no mood for increased costs with low oil prices and charter rates. With these competing interests, the responsible parties need to work very closely with their advisors to ensure that their spill managers, SMFF providers and OSROs work well together to find cost effective ways to conduct compliant drills and exercises.

Responder immunity is always a hot topic. Lately, there has been some progress on that front. Give us a report on what’s next.

There was a recent decision in the Macondo litigation that was favorable to the cleanup companies because it confirmed governmental “derivative” immunity for responders. Unfortunately, the decision did not go far enough because many responses do not have the right circumstances (e.g. Detailed Daily Incident Action Plans Approved by the Government) for derivative immunity to apply. Thus, there is still a need to tighten up OPA 90’s responder immunity protection and unless that occurs, I certainly would think twice before responding with dispersants. There is some activity on the legislative front to accomplish this goal, but I don’t have confidence in the current political climate that something will get done.

Ballast Water Treatment is coming to a head here in the United States. The U.S. Coast Guard position on how the efficacy of BWT equipment is measured may eliminate as many as 30 of the existing 50 systems on the market today. Bring us up to speed.

Just to be clear, the Coast Guard’s position does not disqualify UV systems as opposed to biocides. The Coast Guard’s position that the organisms must be “dead” rather than “non-viable” means that the large flow UV systems will simply be too energy intensive to operate cost effectively. I still think there will be 2,000m3/hr and less UV systems that could be an option, even under the Coast Guard’s current interpretation. I am aware that a number of UV manufacturers believe Congress will change the wording of the US law to allow the non-viable Most Probable Number (MPN) testing method used in the IMO regulations to be used here in the US. I do not see that happening. In fact, it reminds me of the early days of OPA 90 when the P&I Clubs refused to issue Certificates of Financial Responsibility (COFR), thinking the US regulators would back down. Those of us who are old enough to remember know that the regulators did not back down and an entire sub insurance industry of specialty COFR providers formed to fill the regulatory need. Although the regulatory need was satisfied, it occurred at a tremendous, and probably unnecessary, cost to vessel owners. Hopefully, we can avoid a repeat of that situation by being better prepared, which means taking action now.

Should shipping firms install BWT systems in the absence of Coast Guard approved systems?

At the recent MEPC 69 meeting in April, rather than receiving some clarifications, the uncertainty continues and it continues on some very critical issues such as whether to allow existing vessels to continue to use ballast water exchange and how to address “early movers” who have installed systems that met the original IMO G8 Guidelines, but may not meet the new Guidelines or the Coast Guard regulations. Hopefully, we will know more after the MEPC 70 meeting in October, but vessel owners should not wait until then to take action. I don’t recommend installing a system before we know more on the IMO regulations and systems receive Coast Guard approval. Some operators are taking steps to be prepared to move quickly once that occurs including: determining which type of system is best for their vessels, ensuring there is sufficient space to install the system, retaining engineering and installation resources, and requesting an extension from the USCG and a new MARPOL Annex 1 IOPP Certificate. Preparing a structured plan for ballast water compliance by making minimal commitments today will be good insurance against the increased costs and operational restrictions that are likely when the majority of the industry is doing so later. Installing and successfully integrating a ballast water treatment system is complex and there are only so many competent resources available. The compliance window is far smaller than the IMO intended, creating far higher demand for production, engineering and installation resources. Thus, it is critical that owners take these steps now, which may seem premature, but these costs will be minimal, compared to the risks of choosing the wrong system or vessel delays for noncompliance, if the vessel owners wait too long to act.

As the regulatory noose tightens, in terms of vessel discharges of any kind – intentional or otherwise – what is the most pressing issue facing vessel operators today?

I am amazed at how vessel owners keep up with all of the regulatory challenges they face. However, the ballast water issue is the most pressing because of the regulatory uncertainty, technological challenges and huge number of vessels that have to gain compliance in a relatively short time frame make ballast water treatment the most problematic issue. Vessel owners need to address this issue now even though the IMO regulations are not final and there are no Coast Guard approved systems at this time.

Much is made of the EPA’s so-called small VGP and the VGP that applies to larger tonnage. What’s the difference between the two, who is governed by which, and is sVGP in play today for anyone? How about inland workboats?

This issue is another headache for shipowners with 27 different discharge sources identified in the legislation, but at least there has been some reprieve. The EPA initially issued the sVGP back in 2014 for the control of incidental discharges for vessels less than 79’. However, as a result of subsequent legislation, these smaller vessels are not required to obtain coverage under that permit until December 18, 2017, except for any ballast water discharges. That same legislation also exempted commercial fishing vessels of all sizes from having to obtain the sVGP for those incidental discharges, again except for ballast water, until December 18, 2017 as well. There is no exemption for inland workboats so if they are over 79’ they have to comply now and if they are under 79’ will have to comply as of December 18, 2017.

Salvage goes hand in hand with spill response – that said; where do the two business models converge and where do they fall under different rules and parameters?

In the first instance, the business models for salvors and OSROs should be the same in that they are both required to maintain significant resources to respond to unpredictable, meaning without regularity, emergencies under OPA 90’s regulations. Thus, in order to support those standby resources it makes sense that the salvors and OSROs should receive retainer fees to purchase and maintain those resources as well as train and employ personnel and not only be compensated at the time of an event. As the market developed, however, the OSROs are receiving reasonable retainer fees, but the salvors are not. This inconsistency occurred because the OSROs had significant requirements from OPA 90’s start, but the more prescriptive SMFF requirements did not come into force until recently, well after the vessel owners became accustomed to no charge or very low fee SMFF OPA 90 coverage. Of course, the salvors also had the benefit of potentially large LOF awards at one time, which may have somewhat justified the free coverage. With the advent of the vessel response plan (VRP) and contracted salvors, the use of LOFs has decreased and along with it, the likelihood of a large LOF award. Thus, the time has come for OPA 90 salvors named in a VRP to receive reasonable retainer fees to ensure they can maintain the required resources. Vessel owners may find themselves in a very precarious situation, if their contracted SMFF provider does not respond adequately since the obligation remains with the responsible party vessel owner. Further, although the vessel owner may have a claim against the salvor for an insufficient response, from the practical legal perspective, it is hard to argue there was a firm commitment to respond when “adequate consideration” was not exchanged to bind the parties to a contract. As a result, I advise my clients that they must thoroughly vet their SMFF provider to ensure proper resources are available. I also recommend they pay some reasonable retainer fee to ensure the SMFF provider’s commitment to respond is binding. From a risk management perspective these fees will seem trivial compared to the liability risks, if the response does not proceed properly.

Note: This article first appeared in the MarineNews June 2016 print edition.