The Co-Intelligence Institute // CII home // Y2K home

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.

----------

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.

----------

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.

----------

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.

----------

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