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Darker Than You Think: Comments on The Senate Report on Y2K
FOR IMMEDIATE RELEASE:
March 03 1999
DARKER THAN YOU THINK: COMMENTS ON THE SENATE REPORT ON Y2K
by Bruce F. Webster, Author, The Y2K Survival Guide: Getting
To, Getting Through, and Getting Past the Year 2000 Problem
(Prentice Hall, 1999, ISBN 0-13-021496-5, http://www.phptr.com/year2000/survial.html
[sic])
The following is an on-the-record, first-pass commentary on
"Investigating the Impact of the Year 2000 Problem",
a report issued on March 2, 1999 (but dated February 24, 1999)
by the US Senate Special Committee on the Year 2000 Technology
Problem. I may try to do something more in-depth later. Feel free
to cite any of my comments below with attribution.
The report in its entirety is copyright (c) 1999 by Bruce F.
Webster; it may be freely distributed as long as this notice is
included.
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OVERALL EVALUATION:
- The Senate report is the first reasonably independent, bipartisan,
and objective reference work on Y2K. As such, it will become
the canonical Y2K reference and will undoubtedly be (and should
be) heavily cited in weeks and months to come. It represents
excellent work and still cautiously points out its own limitations.
It will likely be far more trusted than anything to come out
of the President's Council on Year 2000 Conversion.
- It is also the first official government document to establish
(in considerable detail) the existence and likelihood of Y2K
consequences between the two oft-cited extremes of 'a bump in
the road' and 'the end of the world as we know it'. This false
dichotomy has been a key issue of mine and is the reason why
The Y2K Survival Guide (which I'll refer to hereafter as TY2KSG)
gives a set of 11 scenarios of escalating impact (see TY2KSG,
Chapter 14, "Forecasting the Storm").
- The report details Y2K problems within the US more serious
than I had expected and belies the upbeat tone reflected in some
of the sound bites I saw at the press conference held this morning
by Senators Bennett and Dodd. I'll comment specifically on some
of those below.
- I only take serious issue with one comment in the executive
summary: "In general, large companies have dealt well with
the Y2K problem, due to greater resources." While large
companies have certainly spent a lot of money on Y2K, most have
started late and have watched budgets and schedules constantly
escalate (as the report notes). More on this later.
- The report, while doing an outstanding job of summarizing
the committee's research and findings in the sectors covered,
makes little attempt to integrate those findings into an overall
picture, nor does it address the individual or collective impact
of the Y2K problems for those sectors on the national economy.
This is probably the single greatest weakness, though it may
be a deliberate choice; when you go through all 160+ pages and
sum up all the many areas of "grave concern", the result
is darker than you might think from the executive summary alone.
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ADJUSTMENTS TO MY Y2K ESTIMATES
- The problems and issues documented in the report readily
match those predictors given in TY2KSG, Chapter 14, for Scenario
Level 5, and one could argue that many point to Level 6.
- On the basis of this report, I am now shifting my estimates
for the eleven scenario levels:
- OLD NEW SCENARIO NAME Level 0 <1% 0% Just Kidding Level
1 5% <1% A Bump in the Road Ahead Level 2 15% 5% Well, Maybe
a Large Pothole Level 3 20% 10% The Dow Drops Some More Level
4 25% 15% It's The Economy Stupid Level 5 15% 35% The 1982 Recession,
Revisited Level 6 10% 20% Make That The 1972 Recession Level
7 5% 10% Things Get Worse Level 8 3% 3% Brother, Can You Spare
a Dime? Level 9 1% 1% Welcome To The Third World Level 10 <1%
<1% It Can't Happen Here
- Even these adjusted probabilities may be optimistic, since
they still indicate a 30% chance of escaping a recession next
year (Level 4 or lower). However, our national economy continues
to confound people wiser and more knowledgeable than I, so I
leave the door open for that possibility.
- My own prediction for the last several months has been Level
5. This report, on top of my own research and analysis since
the start of the year, leads me to move that estimate up to Level
6. ----------
UTILITIES
ELECTRIC UTILITIES
- The report sounds an upbeat tone at the start with regards
to power, but the details given sound less convincing, especially
with regards to where power companies stand in the Y2K remediation
process (inventory, assessment, repair, testing, implementation,
contingency planning; see p. 25) and the number of firms not
responding to surveys, either by the committee or by industry
organizations.
- As a result of reading this report, I now consider the power
outage impact to be somewhere between Level 5 (10% suffer some
form of outage, however brief) and Level 6 (most urban/suburban
dwellings suffer some period of utility disruption). Specifically,
I would guess that at least 25% of households will have to deal
with requests for power rationing (equivalent to what often happens
during a heat wave) or transient brownouts and blackouts.
OIL AND GAS UTILITIES
- The report recognizes and documents our dependency upon petroleum,
some 50% of which comes form foreign countries, most of whom
are quite far behind on Y2K (cf. Figure 8 on p. 32).
- It also documents the poor response rate on its industry
survey (only 10% of firms polled, though they represent a near
or clear majority of capacity), the late start such firms have,
and the unrealistic estimates for a quick end to their Y2K projects.
- The report does not adequately address the likely consequences
to the US economy of significant Y2K issues in the oil industry.
Note that the Arab Oil Embargo of 1973 send the US (and the whole
world) into a significant recession and caused US unemployment
to double. Also note that OPEC and all the other oil-producing
countries would love some excuse to limit oil production and
raise oil prices.
WATER UTILITIES
- I have long stated that more people would be impacted by
problems with water utilities than those with power utilities.
I have upped my estimate of the latter above, but this section
suggests that the former may stay ahead. Again, the report notes
the mismatch between where the water agencies are in their Y2K
remediation process and their assurances of being done on time.
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HEALTHCARE
- I typically cite healthcare and transportation (esp. air)
as being the two most significant Y2K problems areas for the
US public outside of the general economy. This report underscores
that and paints an even bleaker picture than I had thought.
- This report, in my opinion, paints at least a Level 5 &
6 impacts in healthcare (Level 5: "HCFA [Medicare] problems
cause cutbacks, closures, bankruptcies in healthcare industry;
media keeps track of 'HCFA death count'." Level 6: "Significant
increase in hospital deaths due to shortages of supplies and
medications, interruptions in utilities, unrepaired equipment.")
and possibly even a Level 7 ("Healthcare centers implement
informal triage in admittance policy. Medical research centers
close or are set back years in research due to power, equipment
malfunctions.").
----------
TELECOMMUNICATIONS
- I have not been terribly concerned about public telecommunications
within the United States, though there have been persistent rumors
about one of the major long-distance carriers being significantly
behind its Y2K effort.
- The report does point out serious Y2K problems with private
branch exchanges (PBXs) used in many businesses as the internal
phone system (p. 55). This jibes with comments made by Art Gross,
while he was still CIO of the Internal Revenue Services, at a
Y2K breakfast in Northern Virginia in the fall of 1997, where
he stated that the IRS had some 7,000 PBX systems and that they
apparently were not Y2K compliant.
- The big issue is and remains international telecommunications,
and the report highlights that.
----------
TRANSPORTATION
- As noted, this has been one of my two major concerns for
functional Y2K problems within the US. The report supports my
concerns, noting that 62% of the transportation firms surveyed
by the committee in mid-1998 were still in the assessment phase,
yet almost all felt they would be done in time. For those of
us (and there aren't many) who have seen a large organization
go through the complete Y2K process, this is very hard to believe.
AVIATION
- I cite in TY2KSG as one of the top ten Y2K myths that 'planes
will fall out of the sky' (see TY2KSG, Chapter 4); the report
likewise notes that this is an extreme improbability. I'd love
to see this phrase eliminated from all future Y2K reporting;
I know of no credible Y2K analyst who has ever used it except
in the negative, yet even now news articles and reports still
use it to open a Y2K story.
- The report focuses on the FAA as a major concern. I concur.
Note that Jane Garvey, Commissioner of the FAA, stated last fall
that the FAA was "99% done" with its Y2K effort as
of September 30, 1998. Just a few weeks ago, John Koskinen, Chair
of the President's Council on Year 2000 Conversion, stated that
the FAA was "95% done" and would be finished by June
30, 1999. One has to ask why it's taken 9 months to finish that
last 1%, with some apparent lost progress in the meantime. The
GAO has expressed serious doubts about the FAA's ability to finish
in time, as the report cites; likewise, I have had personnel
working within the FAA's Y2K project state flatly that there
is no way the FAA will get its new air traffic control mainframes
installed, on line, and functioning in time.
- The report only touches lightly upon what I think will be
a major issue: legal and liability issues. Here's a simple thought
experiment: what do you think Swissair would have gone through
if the Swissair crash off Nova Scotia had happened on January
1, 2000? If there are any questions at all about the National
Airspace Systems (NAS) (see p. 66) come Y2K, I believe that the
airlines' lawyers and insurance companies will advise serious
restrictions on flights.
- Of course, the US State Department has already issues a Y2K
foreign travel advisory, and the report notes significant unanswered
issues about foreign air traffic.
- I have stated since the fall of 1997 my prediction that air
traffic in the US will be at 20% of normal for the first three
weeks of January, 2000. I'm inclined to relax that a bit and
say 20% for the first two weeks, 50% for the third week, 75%
for the fourth week, and back to 90% for February. Even so, it
is important to note the economic and operation impact of such
limitations, particularly with regards to mail and cargo delivery,
tourism, and general business operations.
OTHER TRANSPORTATION ISSUES
- The report does a great service in examining and dispelling
the persistent reports that most or all railroad switches have
no manual overrides.
- The report states that there are few safety or environmental
concerns regarding maritime transportation, but does, however,
go on to state that "disruptions to global trade are highly
likely."
- The report states the technology dependency in the trucking
industry, but gives no information about either Y2K exposure
or progress.
- The economic--and even social--impact of all these transportation
issues is not significantly addressed.
----------
FINANCIAL SERVICES
- The report notes the financial services industry has had
more Y2K oversight and is farther along in its Y2K efforts than
any other industry. Having first-hand experience myself, I agree.
I will keep most of my money in my bank accounts; I seriously
doubt there will be any significant problems with ATMs or credit
cards, and if there are, I'll write a check (which I presume
most merchants would be thrilled to take in the face of being
unable to conduct business otherwise).
- That said, let me add a note of caution that I have not seen
elsewhere. It applies generally to businesses, but can be focused
on financial services, precisely because they are ahead of everything
else. The caution is this: a lot of Y2K-remediated software has
been put back into production without sufficient testing and
may cause an increase in operational errors right now, not after
January 1st. I have had at least three problems crop up within
an 8-week period (December 98/January 99) that smack of buggy
software. These are:
* A dunning letter from a collection agency for a bill from
a long-distance provider that I was and had been current with
for an amount that I never owed. After repeated calls to both
the provider and the agency, the agency finally came back and
said, "Never mind."
* A free-standing ATM (belonging to an actual bank) that put
itself out of service while I was in the middle of withdrawing
$300 from a checking account at a different bank on the morning
of December 31, 1998. The ATM gave me neither cash nor receipt,
but it did go ahead and withdraw $301.50 from the checking account.
My initial complaint yielded only a letter that claimed there
were no discrepancies in the whole transaction chain and therefore
I would not be reimbursed. A second complaint directly to my branch
manager (who, thank heavens, actually knows me) got a "provisional"
reimbursement of the amount withdrawn, as well as all bank fees
and lost interest, but it still remains provisional, and I have
had no acknowledgment of any discrepancy.
* A form letter from a major credit card company (with whom
I have an account) stating that between November 1998 and February
1999, my account was either overcharged or undercharged on its
finance charges, that any overcharges would be reimbursed and
any undercharges would be forgiven.
Now, problems such as these show up once or maybe twice a year;
to have three of them within a matter of weeks makes me a bit
suspicious. I would advise people to start tracking their bills
and financial statements carefully now and not wait until year's
end.
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GENERAL GOVERNMENT
- The report has the best--and in some areas, the first--analysis
I've seen of Y2K's impact on various emergency and law enforcement
operations across the nation.
- The report also firmly debunks the notion in some Y2K circles
that the Clinton Administration will use Y2K as a pretext to
impose martial law and even suspend the 2000 elections. In doing
so, it substantiates what I have said when asked whether I thought
such a course were likely or even possible, namely that neither
party in Congress would tolerate such an act for even an hour.
- The report details the Federal government's approach to its
own Y2K remediation efforts, noting current classification of
agencies and departments into Ties One, Two, and Three (worst
to best, respectively).
- The report points out HCFA [Medicare], the FAA, the Department
of Energy, and the Department of Defense as being those facing
the greatest concerns and/or work ahead of them. However, the
report is very silent on the IRS, even though the Department
of the Treasury is also a Tier One ("not making adequate
progress") agency.
- The report notes that "the Committee has serious concern
about the Y2K readiness of state and local governments."
I do, too.
----------
GENERAL BUSINESS
- The report does an excellent job of summarizing all the various
ways in which Y2K impacts businesses, both large and small.
- However, as noted at the start, I take exception to the report's
statement in the summary that large businesses are generally
doing well with regards to Y2K. They can only be considered as
doing so when contrasting the percentage that are actually working
on Y2K vs. the percentages of small to medium enterprises (SMEs)
that are working (or even plan to work) on Y2K.
- Most business reports I've examined--even those carefully
scrubbed by lawyers and released in 10Q and 10K statements--show
strong indications that the vast majority of the Fortune 1000
were late in starting, are behind where they should be, and don't
fully understand all the work that lies ahead of them.
- As an example, Barron's Online on January 18, 1999, posted
the Y2K status as of 30 Sep 1998 (using 10-Q filings) for the
30 companies that make up the Dow Jones Industrial Average (Chevron,
GM, Coca-Cola, etc.). Of those 30, 27 of them--90%--said they
wouldn't be done any sooner than 30 June 1999, and 12 of them--40%--gave
completion dates of 31 December, 1999 some 15 months in advance
of that date. These figures probably reflect the Fortune 1000
as a whole and suggest that 30-40% of that group have a planned
or de facto completion date of 31 December. Experience suggests
that most won't make it.
- What is most significant through the report--and is cited
time and again--is the number of firms that refused to respond
with information on their Y2K efforts even when requested by
a Senate committee under promise of confidentiality.
- The report cites the Gartner Group's contention that 30%
to 50% of all companies worldwide will experience at least one
mission critical Y2K failure, and that time to repair it will
last 3 days (see p. 126). This and related statements have been
cited as evidence that critical unrepaired Y2K problems will
probably be mostly fixed within 72 hours, and almost all will
be fixed within the first week of January, 2000. I am uncomfortable
with this chain of assertions and the conclusions drawn from
them, even though I have in other forums been the one arguing
that most businesses get along just fine with buggy software
right now. Even granting the assertions, I'm not sure the conclusions
follow; I have seen Y2K integrated testing in a controlled environment
with remediated software drag on for weeks in an effort to chase
down subtle interacting problems that shouldn't even have still
been there. Y2K remediation post-Y2K will be, I believe, a far
more drawn-out and troublesome task than this section might indicate.
CONCERNS
- The section on various concerns (pp. 128-129) is excellent
and again paints a more serious picture of possible Y2K impact
than the executive summary or the coverage might lead you to
believe, particularly with regards to international trade.
PHARMACEUTICALS
- This section doesn't mention, but Senators Bennett and Dodd
did on "The News Hours with Jim Lehrer" (2 March, 1999),
that 80% of the raw materials used for pharmaceutical manufacturing
here in the US comes from overseas. Given the concerns raised
in the preceding section on international trade, this issue needs
careful consideration.
FOOD INDUSTRY
- This is an issue that I take seriously, but which I have
felt is less a concern within the US than on a global basis.
The report again sobers me; it describes the committee's attempt
to gather information on the US food industry and have witnesses
appear and notes that these efforts "met significant resistance...from
both industry trade organizations/associations as well as major
corporations within the retail and manufacturing sides of the
food industry." (p. 130) Not a good sign, and it makes me
reassess my estimate of the Y2K impact on the US domestic food
chain.
- It is hard to reconcile this portion of the report with the
attitude expressed publicly by Senator Dodd against "stockpiling"
and what exactly he defines that to be (vs. the recommendations
from FEMA and the Red Cross). You might cast it in the old verb-conjugation
joke pattern: "I prepare, you stockpile, he or she hoards."
CHEMICAL MANUFACTURING
- "The Committee is concerned that at this moment the
impact of Y2K on chemical process safety may be a neglected issue."
(p. 133). Enough said.
LITIGATION
- This section only touches on the issue lightly, since the
committee is still planning its hearings on this subject. However,
it is interesting to note that at the February 1999 meeting of
the Washington D.C. Year 2000 Group, which focused on legal and
liability issues, two of the lawyers presenting (Dan Hassett
and Greg Cirillo of Williams, Mullen, Christian & Dobbins)
stated their opinion that business-vs.-business Y2K litigation
would be relatively small compared to class action and shareholder
litigation vs. corporations, particularly with a focus on officer
and director liability.
INTERNATIONAL PREPAREDNESS
- This again is an excellent collection of information on how
the rest of the world is dealing with Y2K that has only been
available in bits and pieces elsewhere.
- The report raises the very real danger that transfer of wealth
out of other countries into the United States--in search of a
'safe haven'--could further exacerbate those countries' efforts
to fix and cope with Y2K issues and could even cause serious
economic collapse and government destabilization.
- I have a very hard time accepting the Gartner Group's assertion
that only 10% of (mission critical?) Y2K failures overseas will
last more than 3 days (p. 145). Such an assertion appears to
presume that all such failures can be repaired simultaneously,
independently, and with no regards to resource loading, expertise,
replacement components, or other considerations. The report may
reflect an unfair or inexact summation of what Gartner actually
asserts, but it could stand clarification.
###
Bruce F. Webster
Chief Technical Officer, OSG
Co-Chair, WDCY2K Group
bwebster@bfwa.com
http://www.osgcorp.com
http://www.wdcy2k.org
http://www.bfwa.com