Definition of “Prudent” for Use in
“PRUDENT DEVELOPMENT”
3-1-2011
3-1-2011
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Definitions, Predicates, Observations re: Prudent”
• Background: Secretary's letter - with two contexts in which
"prudent development" and "responsibly produced" are used.
– Original letter: “An important part of this transition [to a lower carbon energy
future] will be to recognize and responsibly develop the natural gas resources
supply chain and infrastructure in North America…..Your study should describe the
operating practices and technologies that will be used to minimize environmental
impacts, and also describe the role of technology in expanding accessible
resources. Of particular interest is the Council’s advice on policy options that would
allow prudent development of North American natural gas and oil resources
consistent with government objectives of environmental protection, economic
growth, and national security.”
– Supplemental letter: “With regard to energy supply, the United States sees a
future in which valuable domestic energy resources are responsibly produced to
meet the needs of American energy consumers consistent with national,
environmental, economic, and energy security goals. The United States, the
world’s second largest producer of natural gas and the third largest producer of oil,
has the opportunity to demonstrate global leadership in technological and
environmental innovation. Accordingly, I request the Council’s advice of potential
technology and policy actions capable of achieving this vision as part of the “Prudent
Development of North American Natural Gas and Oil Resources” study.”
•
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Definitions, Predicates, Observations re: Prudent”
• Background: Dictionary definitions:
– Definition of PRUDENT in Webster's dictionary:
http://www.merriam-
webster.com/dictionary/prudent
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1. characterized by, arising from, or showing prudence: as
a : marked by wisdom or judiciousness (prudent advice)
b : shrewd in the management of practical affairs (i.e., prudent investors)
c : marked by circumspection : discreet
d : provident, frugal
– Another source: http://www.thefreedictionary.com/prudent
• 1. Wise in handling practical matters; exercising good judgment or common
sense.
• 2. Careful in regard to one's own interests; provident.
• 3. Careful about one's conduct; circumspect.
– Another: http://www.macmillandictionary.com/dictionary/british/prudent
• 1. careful, and using good judgment
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Definitions, Predicates, Observations re: Prudent”
• Background: Insights from the use of "prudent" in the norms
of utility ratemaking*
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(a) Prudence analysis requires regulator to determine whether actions "were prudent at the
time, under all circumstances, considering that the company had to operate at each step of
the way prospectively rather than in reliance on hindsight .... [and] in light of all conditions
and circumstances which were known or which reasonably should have been known at the
time the decisions were made." Boston Edison Company , 46 PUR 4th 431 (1982), aff'd,
Attorney General v. Department of Public Utilities, 390 Mass. 208, 455 N.E.2d 414 (1983).
(b) Prudence analysis also should consider the risks peculiar to operation and maintenance
of a nuclear power plant, and the special consequences of imprudent management of such a
facility. Consolidated Edison Company of New York, 45 PUR 4th 325, 330-31 (1982). The
question was – "whether the conduct was, reasonable at the time, under all of the
circumstances, considering that the company had to solve its problems prospectively rather
in reliance on hindsight."
• By reference, concepts of "imprudence" from utility regulation:
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(a) Poor Performance Relative to Objective Indices
(b) Obligation to Maintain Effective Oversight
(c) Obligation to Secure Remedies for Inadequate Performance by a Contractor or Supplier
(d) Selecting a Contractor and Training Employees
(e) Failure to Heed Official Criticisms
* This is not to suggest that “utility regulation” norms are directly applicable here, but they can be helpful in thinking about the concept as policy makers in
certain settings have wrestled with its meaning and how to apply it. These examples are drawn from Hempling, Fundamentals of Electricity Law, 2006.
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“Prudent Development” – Strawman Definition for NARD Study
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As used in this document “prudent development and use,” as it applies to North American oil and
gas resources, embodies the following intertwined yet independent concepts of economics,
environmental stewardship, energy security, and care for the needs of future generations of
Americans. Specifically, “prudent development and use” involves:
– (a) economics (e.g., efficiency and cost effectiveness);
– (b) environmental stewardship (e.g., judicious use of natural resources; transition to a lower carbon
future);
– (c) energy security (e.g., reducing vulnerability to supply disruptions and to volatile/disruptive energy
prices; enhancement or protection of U.S. strategic interests internationally);
– (d) enhanced long term good of the nation, which includes enhanced innovation and technology which
can be used not only in North America but elsewhere.
In private contexts, these four concepts involve both qualitative and quantitative aspects, with
different individuals placing different weights on these four concepts. But from a national
perspective and as used in this study, “prudent development and use” means policies and
practices that advance these four concepts collectively. Thus, a policy that supports
environmental stewardship and enhances energy security but is significantly less cost effective
and with only short term benefits than another policy will not necessarily be considered “prudent”
or responsible. Similarly, a set of policies and practices that maximizes economic efficiency for
private interests but introduces unreasonable risks for the larger community of interests (from an
environmental, economics, energy security, global standing point of view) would be neither
prudent nor reasonable. Additionally, “prudent development and use” would also not entail
resource development and use in the near term at the expense of the long-term good of the nation,
even if the near-term actions are environmentally compliant and economical in the
present. Further, “prudent development and use” would include taking [modest? some] steps
today in order to create options for the future.
POLICY SUBGROUP 2-28-2011
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