U.S. DOT/PHMSA - Final Regulatory Flexibility Analysis

Page 1Final Regulatory Flexibility Analysis Pipeline Safety: Integrity Management Program for Gas Distribution Pipelines PHMSA-RSPA-2004-19854 Office of Pipeline Safety Pipeline and Hazardous Materials Safety Administration (PHMSA) U.S. Department of Transportation October 29,2009#

Page 2Final Regulatory Flexibility Analysis Pipeline Safety: Integrity Management Program for Gas Distribution Pipelines Introduction The Regulatory Flexibility Act (RFA) was originally passed in 1980 (P. L. 96-354). The Act was amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (P.L. 104-121). The RFA requires Federal agencies to conduct a separate analysis of the economic impact of rules on small entities and to take small entities' particular concerns into account when developing, writing, publicizing, promulgating, and enforcing regulations. This Final Regulatory Flexibility Analysis (FRFA) required by Section 604(a) includes: (1) (2) (3) (4) (5) A succinct statement of the need for, and objectives of, the rule. A summary of the significant issues raised by the public comments in response to the Initial Regulatory Flexibility Analysis (IRFA), a summary of the assessment of the agency of such issues, and a statement of any changes made in the proposed rule as a result of such comments. A description of and an estimate of the number of small entities to which the rule will apply or an explanation of why no such estimate is available. A description of the projected reporting, recordkeeping, and other compliance requirements of the rule, including an estimate of the classes of small entities that will be subject to the requirements and the type of professional skills necessary for preparation of the report or record. A description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selectmg the alternatives adopted in the final rule and why each one of the other significant alternatives to the rule considered by the agency which affect the impact on small entities was rejected. A discussion of these requirements follows. 1. A succinct statement of the need for, and objectives of, the rule. In 2004, the U.S. Department of Transportation (DOT) Inspector General (IG) pointed out that recent accident trends for gas distribution pipelines were unfavorable and suggested that the application of integrity management principles could help improve the safety of distribution pipelines.#

Page 3The IG recommended to Congress that DOT define an approach for requiring operators of distribution pipeline systems to implement some form of integrity management or enhanced safety program with elements similar to those required in hazardous liquid and gas transmission pipeline integrity management programs (IMPs). The Appropriations Committee then asked PHMSA "to report to the House and Senate Committees on Appropriations by May 1, 2005, detailing the extent to which integrity management program elements may be applied to the natural gas distribution pipeline industry in order to enhance distribution system safety."^ PHMSA submitted the report "Assuring the Integrity of Gas Distribution Pipeline Systems" to Congress in June 2005, which describes the program used to identify opportunities for improving the safety of distribution pipeline systems. PHMSA proceeded to develop the IMP for gas distribution pipelines in two phases. Phase 1 identified the nature of requirements that might be imposed and any additional guidance or consensus standards that might be needed to assist operators in implementing any integrity management requirements. Phase 2 included development of appropriate requirements by PHMSA and preparation of guidance/standards by appropriate bodies. PHMSA determined that in order to address safety threats to distribution pipelines and develop a sensible strategy to reduce threats, the Agency needed to involve a number of key stakeholder groups, including State and Federal regulators, representatives from the spectrum of distribution operators, interested members of the public, and representatives of our Nation's fire service. The study group gathered and analyzed data to help focus the effort and ultimately identify options for attaining improved safety. 2. A summary of the significant issues raised by the public comments in response to the Initial Regulatory Flexibility Analysis, a summary of the assessment of the agency of such issues, and a statement of any changes made in the proposed rule as a result of such comments. Although there were comments on the Preliminary Regulatory Impact Analysis (RIA), none of the comments were relevant for the Regulatory Flexibility Analysis conclusions. Comments received regarding the RIA are summarized in the rule. 3. A description of and an estimate of the number of small entities to which the rule would apply or an explanation of why no such estimate is available. The rule will affect operators of (1) local gas distribution utilities and (2) master meter and liquefied petroleum gas (LPG) systems. The impacted operators are all entities in North American Industry Classification System (NAICS) 221210, Natural Gas Distribution. In accordance with size standards published by the Small Business ' "Progress and Challenges in Improving Pipeline Safety," Statement of the Honorable Kenneth M. Mead, Inspector General, U.S. Department of Transportation, before the Committee on Energy and Commerce, Subcommittee on Energy and Air Quality, U.S. House of Representatives, July 20, 2004. ^ U.S. House of Representatives, Report 108-792, November 20, 2004.#

Page 4Administration, a business with 500 or fewer employees is considered a small entity in this NAICS.^ PHMSA expects 1,291 local gas distribution utilities and approximately 8,000 master meter and LPG systems to be impacted by the rule. Based on information from Dun & Bradstreet (August 2006) on firms in NAICS 221210, PHMSA estimates that 78 percent of the local gas distribution utilities have 500 or fewer employees. That is, PHMSA estimates that 1,007 of the local gas distribution utilities impacted by the rule will have 500 or fewer employees. Furthermore, PHMSA assumes that all master meter and LPG systems will have 500 or fewer employees. The rule divides the local gas distribution utilities into two groups; those with greater than 12,000 services were designated large, and those with 12,000 or fewer services were designated as small. Of the 1,291 gas distribution operators, 201 are large and 1,090 are small. In addition to the 1,090 small gas distribution operators, the approximately 8,000 master meter operators and LPG systems are small. Although all of the LPG operators are small, 52 of these operators are subject to the same requirements as the gas distribution operators with 12,000 or fewer services. 4. A description of the projected reporting, recordkeeping, and other compliance requirements of the rule, including an estimate of the classes of small entities that would be subject to the requirements and the type of professional skills necessary for preparing the report or record. Operators are required to develop and implement an IMP, mitigate risks, report on performance measures in the annual reports, keep records, and manage the program. Details of the individual costs are in the Regulatory Impact Analysis on the docket. There are approximately 1,090 small gas distribution operators and 8,000 master meter and LPG operators, 52 of which have 100 or more customers and are subject to the same requirements as the gas distribution operators with 12,000 or fewer services. The costs to the small operators are listed in the table below. http://www.sba.gov/size/sizetable2002.pdf.#

Page 5• SUMMARY OF COSTS ASSOCIATED WITH THE DISTRIBUTION INTEGRITY MANAGEMENT PROGRAM TO SMALL AND MASTER METER OPERATORS Type of Optegor and Cost Total Areal Cost inTo Wear and COnt ($Million) 3 (Millions) Small Operators, including 52 LPG operators Developing program $15.3 Mienienting an IMP $15.4 $5.8 Nominal Nominal Recordkeeping Nominal Nominal Management $7.7 SMALL OPERATOR TOTAL $38.4 Master Meter and LPG Systems Developing program $11.2 $1.6 Implementing an IMP $2.4 $1.2 Mitigation $1.5 Reporting Nominal Recordkeeping Nominal Nominal Management $9.6 $4.8 MASTER METER AND LPG $23.2 $9.1 SYSTEM TOTAL The total cost of an integrity management program for each small operator will be approximately $33,600 ($38.4 million/1,142) in the first year and $15,400 ($17.6 million/1,142) in each subsequent year, and the cost for each master meter and LPG system will be approximately $2,900 ($23.2 million/8,000) in the first year and $1,100 ($9.1 million/8,000) in each subsequent year. The rule also requires that each operator impacted by that rule keep certain records. At a minimum, those records must include: • A written integrity management program. • Documents supporting threat identification. A written procedure of ranking threats. • Documents supporting any decision, analysis, or process developed and used to implement and evaluate each element of the integrity management program. • Records identifying changes made to the integrity management program or its elements, including a description of the changes and the reasons they were made. Operators must keep the records for 10 years. 4#

Page 6PHMSA estimates some of the required records will be kept electronically, while others will be kept on paper. In the case of those kept electronically, the required recordkeeping will necessitate a company clerk entering data and, in some cases, scanning materials. In the case of the paper records, the required recordkeeping will necessitate a company clerk placing materials in file folders, storing them, and retrieving files, when needed. It may also necessitate a system for signing materials in and out. Finally, in some cases, physical recordkeeping may necessitate the acquisition of file cabinets and supplies by some operators. There is no expectation that the recordkeeping would require operators to hire additional personnel. Neither is there an expectation that the recordkeeping would require operators to acquire new computers or peripherals. PHMSA assumes that the rule does not add significantly to the distribution operators' current recordkeeping requirements, particularly since the rule would remove the excess flow valve (EFV) customer notification requirement. PHMSA did not have at the time the NPRM was issued, and does not now have, information on revenues for small operators, LPG operators, or master meter operators. Small entities did not provide PHMSA with information on their level of revenues, so we can not conclude with certainty that there will not be a significant impact on small entities. The rule could result in a significant adverse economic impact for some of the very small entities if the estimated average yearly costs attributed to the rule exceed 1 percent of their annual revenues. 5) A description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternatives adopted in the final rule and why each one of the other significant alternatives to the rule considered by the agency which affect the impact on small entities was rejected. The RFA directs agencies to establish exceptions and differing compliance standards for small businesses, where it is possible to do so and still meet the objectives of applicable regulatory statutes. For this rule, PHMSA will be taking a number of steps to meet safety objectives without unduly burdening small business. • PHMSA does not require master meter and LPG systems to comply with all of the requirements of the rule. PHMSA estimates that it is possible to do this without compromising safety because of the nature of the master meter and LPG systems. The written plan for the master meters and propane operators will be a very simple checklist which PHMSA will prepare and put in the docket for guidance. By completing the checklist, master meter and LPG systems will comply with the plan requirements.#

Page 7• PHMSA will modify its Guidance Manual for Operators of Small Natural Gas Systems to include information that makes it easier for these entities to comply with the distribution integrity management program requirements. A manual has been developed by PHMSA to provide an overview of pipeline compliance responsibilities under the Federal pipeline safety regulations for the non- technically trained person who operates a master meter system, a small municipal system, or small independent system. • The Gas Pipeline Technology Committee (GPTC) will prepare guidance material to assist gas distribution operators, including master meter and LPG system operators, with development of an integrity management program. • The American Public Gas Association (APGA) Security and Integrity Foundation (SIF) will develop a risk-based model Distribution Integrity Management Program to assist small utilities in developing integrity management programs meeting the requirements of the rule. APGA has been working on a program, "SHRIMP," to help small operators that are members, but not master meter or LPG operators, comply with integrity management issues, including risk ranking. ' ^ The Guidance Manual for Operators of Small Natural Gas Systems can be found on the PHMSA website at http://ops.dot.gov/regs/smal] ng/SmallNaturalGas.htm: http://www.phmsa.dot.gov/portal/site/PHMSA/menuitem.ebdc7a8a7e39f2e55cf2031050248a0c/7vgnextoid =a7c6ca 170a57411 OVgnVCM 1000009ed07898RCRD&vgnextchannel=67027e2cd44d311 OVgnVCM 1000 009ed07898RCRD&vgnextfmt=print.#