U.S. DOT/PHMSA - Regulatory Assessment

Page 1F F Fi i in n na a al l l R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t _______________________________________ Regulatory Assessment including Regulatory Flexibility Analysis Final Regulatory Evaluation Final Rule--Pipeline Safety: Standards for Direct Assessment of Gas and Hazardous Liquid Pipelines [Docket No. RSPA-04-16855; Amdt. 192- and 195- ] RIN 2137– AD97 June 2005 Prepared by Economic and Industry Analysis Division Volpe National Transportation Systems Center Research and Innovative Technology Administration (RITA) and Office of Pipeline Safety Pipeline and Hazardous Materials Safety Administration (PHMSA) U.S. Department of Transportation 1#

Page 2F F Fi i in n na a al l l R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t Regulatory Evaluation Introduction Current regulations governing integrity management of gas transmission lines require that operators using direct assessment to evaluate corrosion risks must carry out that direct assessment according to particular standards. In response to a statutory directive, the Pipeline and Hazardous Materials Safety Administration (PHMSA) is prescribing similar standards that operators must meet if they use direct assessment on certain other onshore gas, hazardous liquid, or carbon dioxide pipelines. Broader application of direct assessment standards should enhance public confidence in the use of direct assessment to assure pipeline safety. Background Congress has recognized the advantages of using direct assessment on DOT regulated gas, hazardous liquid, and carbon dioxide pipeline facilities. Section 14 of the Pipeline Safety Improvement Act of 2002 (Pub. L. 107-355; Dec. 17, 2002) directs DOT to issue regulations on using internal inspection, pressure testing, and direct assessment to manage the risks to gas pipeline facilities in high-consequence areas. In addition, Section 23 of that statute directs DOT to issue regulations prescribing standards for inspecting pipeline facilities by direct assessment. In response to the first statutory directive, DOT implemented regulations in 49 CFR Part 192, Subpart O that require operators to follow detailed programs to manage the integrity of transmission line segments in high-consequence areas. These regulations also require operators using direct assessment in their integrity management programs to carry out that direct assessment according to the standards in §§ 192.925, 192.927, and 192.929, as appropriate. These three sections detail the prescribed standards covering direct assessments for external corrosion, internal corrosion, and stress-corrosion cracking, respectively. 1 Each of these standards cross-references the American Society of Mechanical Engineers’ document, ASME B31.8S-2001, “Managing System Integrity of Gas Pipelines.” This document describes a comprehensive process to assess and mitigate the likelihood and consequences of pipeline risks. In addition, § 192.925 cross-references the NACE International document, NACE Standard RP0502–2002, “Pipeline External Corrosion Direct Assessment Methodology.” This NACE document describes a step-by-step 1The standard on external corrosion direct assessment (§ 192.925) requires operators to integrate data on physical characteristics and operating history, conduct indirect aboveground inspections, directly examine pipe surfaces, and evaluate the effectiveness of the assessment process. Under the standard for direct assessment of internal corrosion (§ 192.927), operators must predict locations where electrolytes may accumulate in normally dry-gas pipelines, examine those locations, and validate the assessment process. The standard for direct assessment of stress-corrosion cracking (§ 192.929) involves collecting data relevant to stress-corrosion cracking, assessing the risk of pipeline segments, and examining and evaluating segments at risk. 2#

Page 3F F Fi i in n na a al l l R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t process for identifying and addressing external corrosion activity, repairing defects, and taking remedial action. Other provisions of the Part 192 standards ensure that operators use appropriate criteria in making direct assessment decisions. In response to the second statutory directive, DOT published a notice of proposed rulemaking (NPRM) concerning standards that would apply to the use of direct assessment on any regulated onshore ferrous pipeline (69 FR 61771; Oct. 21, 2004). Subsequently, the Technical Pipeline Safety Standards Committee (TPSSC) and the Technical Hazardous Liquid Pipeline Safety Standards Committee (THLPSSC) considered the NPRM at meetings on December 14 and 15, 2004, in Washington, D.C. 2 The TPSSC is a statutorily mandated advisory committee that advises PHMSA on proposed safety standards and other policies concerning gas pipelines, while the THLPSSC is a similar committee that provides advice about hazardous liquid and carbon dioxide pipelines. These two committees recommended a number of actions relating to the proposed rule. In addition, 19 comments were received from the public in response to the NPRM. Those comments came from a state pipeline safety agency, gas pipeline operators, gas pipeline trade associations, a gas pipeline industry committee, hazardous liquid pipeline trade associations, non-profit organizations concerned with pipeline safety, and a consultant. Most of the commenters were concerned about particular issues relating to the proposed rule detailed in the NPRM. Based on the responses to the NPRM received from the two advisory committees and the commenters, in developing the Final Rule PHMSA made modifications to the rule proposed in the NPRM. Direct Assessment PHMSA’s Final Rule concerns direct assessment, a process of managing the effects of external corrosion, internal corrosion, and stress-corrosion cracking on ferrous pipelines. Direct assessment is a process used by operators to evaluate the risks to their pipeline that are associated with corrosion. The process involves data collection, indirect inspection, direct examination, and evaluation. Operators use direct assessment not only to find existing corrosion defects but also to prevent future corrosion problems. In § 192.903, PHMSA defines direct assessment as …an integrity assessment method that utilizes a process to evaluate certain threats (i.e., external corrosion, internal corrosion and stress corrosion cracking) to a covered pipeline segment’s integrity. The process includes the gathering and integration of risk factor data, indirect examination or analysis to identify areas of suspected corrosion, direct examination of the pipeline in these areas, and post assessment evaluation. Direct assessment is a new process. Currently, it is used mainly by gas transmission lines subject to Subpart O of Part 192. Tests of direct assessment indicate that it is reasonably reliable. It is reported that those tests have found that direct assessment produces “…reliable results with a 70 to 80 percent positive predictive capability.”3 In addition to 2 Transcripts of the committees’ meetings are available in Docket No. PHMSA-98-4470. 3 Neil G. Thompson, “Appendix E, Gas and Liquid Transmission Pipelines,” Cost of Corrosion, FHWA 3#

Page 4F F Fi i in n na a al l l R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t corrosion, it might be noted, operators can also use direct assessment to evaluate mechanical damage to pipelines.4 The Final Rule The Final Rule covers gas transmission pipelines (including those gas gathering lines subject to Federal safety regulation) and hazardous liquid and carbon dioxide pipelines, including regulated liquid gathering lines. The Final Rule does not cover gas distribution pipelines. The principal changes of the Final Rule include (1) incorporating by reference NACE Standard RP0502-2002 “Pipeline External Corrosion Direct Assessment Methodology” (2002), (2) adding a new § 192.490, which covers direct assessment for gas pipelines, (3) adding a new § 192.588, which covers direct assessment for hazardous liquid and carbon dioxide pipelines, and (4) amending § 195.452 to eliminate the requirement to notify PHMSA each time external corrosion direct assessment is to be used as an alternative method of integrity assessment. Under § 192.490, if an operator chooses to use direct assessment to evaluate the threat of external corrosion, internal corrosion, or stress-corrosion cracking on a regulated onshore ferrous gas transmission line, the direct assessment would have to be done according to the standards in §§ 192.925, 192.927, or 192.929, as appropriate. These standards do not apply to methods associated with direct assessment, such as close interval surveys, voltage gradient surveys, or examination of exposed pipelines, when used separately from the direct assessment process. Onshore hazardous liquid and carbon dioxide pipelines are covered by § 195.588. That section focuses exclusively on direct assessment for external corrosion. Operators undertaking direct assessment for external corrosion must follow the requirements of NACE Standard RP0502-2002. Under § 195.588, operators must develop and implement an external corrosion direct assessment (ECDA) plan that covers pre-assessment, indirect examination, direct examination, and post assessment. The requirement specified in § 195.588 does not apply to methods associated with direct assessment, such as close interval surveys, voltage gradient surveys, or examination of exposed pipelines, when used separately from the direct assessment process. The Final Rule also amends the hazardous liquid integrity management regulations in § 195.452 to allow use of external corrosion direct assessment without prior notice. The present rule requires operators to give PHMSA at least 90 days’ notice before using any integrity assessment technology other than pressure testing or smart pigging. Rationale for Regulatory Assessment Report FHWA-01-156, April 2005, p. E-36, www.corrosioncost.com/home.html. 4 Neil G. Thompson, “Appendix E, Gas and Liquid Transmission Pipelines,” Cost of Corrosion, FHWA Report FHWA-01-156, April 2005, p. E-35, www.corrosioncost.com/home.html. 4#

Page 5F F Fi i in n na a al l l R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t All proposed and final Federal regulations must undergo an economic analysis. Executive Order 12866 directs all Federal agencies to develop both preliminary and final regulatory analyses if their proposed regulations are likely to be “significant regulatory actions” that may have an annual impact on the economy of $100 million. The Order also requires a determination as to whether a rule could adversely affect the economy or a section of the economy in terms of productivity and employment, the environment, public health, safety, or State, local or tribal governments. Furthermore, the Regulatory Flexibility Act of 1980, as amended, requires Federal agencies to conduct a separate analysis of the economic impact of proposed rules on small entities. In accordance with the above directives, PHMSA has evaluated the potential compliance costs of the rule and feasible regulatory options and identified those benefits that can be expressed in monetary terms. To the extent practicable, this is based on the available data and information from a range of pertinent sources. PHMSA estimates that the impact of implementing the rule will be less than $100 million annually, and that the rule will not adversely affect the economy or a section of the economy in terms of productivity and employment, the environment, public health, safety, or State, local or tribal governments. This rule is not considered significant under the Regulatory Policies and Procedures of the Department of Transportation (44 FR 11034, February 26, 1979). PHMSA has also determined, as required by the Regulatory Flexibility Act, that the rule will not have a significant economic impact on a substantial number of small entities in the United States. Alternatives Considered PHMSA considered two alternatives to respond to Section 23 of the Pipeline Safety Improvement Act of 2002 (Pub. L. 107-355; Dec. 17, 2002), Congress’ second directive in that Act relating to direct assessment: • Status quo (i.e., do nothing) • Apply existing direct assessment standards to certain other regulated pipelines besides gas transmission pipelines in high consequence areas. Under the status quo alternative, no additional regulations are needed given that PHMSA has already issued regulations that prescribe standards for the use of direct assessment. This alternative was rejected, however, because the existing regulations are limited to gas transmission lines in high consequence areas. They do not cover all pipelines that fall under Congress’ second directive. The second alternative was the one selected by PHMSA. This alternative was chosen because (1) the selected standards for gas transmission pipelines are not inherently appropriate only for gas transmission lines in high consequence areas and (2) the selected standard for hazardous liquid and carbon dioxide pipelines is needed to provide guidance to operators of these types of pipelines, since direct assessment is a new process and its use is so far limited primarily to gas transmission lines subject to Subpart O of Part 192. 5#

Page 6F F Fi i in n na a al l l R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t A further reason for choosing the second alternative is that the proposed standards that will apply to gas transmission pipelines have already undergone public notice and comment in the gas transmission integrity management proceeding, and they were generally well received by the gas transmission industry. Finally, the proposed standards rely heavily on consensus standards published by NACE International and the American Society of Mechanical Engineers (ASME), two organizations whose standards are widely used and highly regarded in the pipeline industry. Economic Analysis In its Final Rule, Standards for Direct Assessment of Gas and Hazardous Liquid Pipelines, PHMSA is amending 49 CFR Part 192 by adding § 192.440 mandating direct assessment standards for external, internal, and stress-crack corrosion for operators of gas transmission pipelines who choose to use direct assessment, and amending 49 CFR Part 195 by adding § 195.588 mandating a direct assessment standard for external corrosion for operators of hazardous liquid and carbon dioxide pipelines who choose to use direct assessment. In the remainder of this section, the impacted industry will be identified, and then the economic impact of the rule will be considered. Impacted Industries, Including Identification and Characteristics of the Potentially Affected Industries The rule would apply to direct assessments for external, internal, or stress corrosion performed on gas transmission and gathering pipelines subject to Federal pipeline safety regulation. It would also apply to direct assessments for external corrosion performed on hazardous liquid and carbon dioxide pipelines. The operators of natural gas transmission and gathering pipelines are generally large firms, as are the operators of hazardous liquid and carbon dioxide pipelines. Table 1 (see next page) shows the salient characteristics of the pipelines that would be impacted by the proposed rule. Table 1: Salient Characteristics of Impacted Pipelines Characteristic Value Natural Gas Pipelines* NAICS 2002 industry sector 486210 Number of operators 760 Onshore mileage 312 thousand*** Hazardous Liquid Pipelines** NAICS 2002 industry sector 486910 Number of operators 200 Onshore mileage 161 thousand*** 6#

Page 7F F Fi i in n na a al l l R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t *Includes gas gathering lines subject to Federal pipeline safety regulation **Including carbon dioxide pipelines ***Mileage data for 2003. Source of pipeline data: PHMSA Impact of the Regulations PHMSA’s rule will impact natural gas transmission and gathering pipeline operators choosing direct assessment as their approach for evaluating corrosion and hazardous liquid and carbon dioxide pipeline operators choosing direct assessment as their approach for evaluating external corrosion. The expected impact of direct assessment would be improved effectiveness of evaluating corrosion risks. It would make pipeline operations safer by helping to reduce the number of incidents due to corrosion. The use of direct assessment by pipeline operators is voluntary. Other approaches for evaluating corrosion exist. Direct assessment is, in fact, a new approach, and its use at present is limited. Since the use of direct assessment is voluntary, the rule is not expected to have any measurable costs or benefits. Costs Industry’s costs of compliance with the rule would be nominal, since operators would not be required to use direct assessment. Operators would incur costs of compliance only if they chose to voluntarily use direct assessment on regulated onshore ferrous pipelines. The costs of direct assessment are reported to be between $2,720 and $9,600 per mile for natural gas pipelines and between $2,000 and $6,000 per mile for liquid pipelines. These estimates include the cost of pipeline preparation and inspection, if any, as well as any lost revenue attributable to less than normal throughput resulting from lowered operating pressure.5 Comments on the NPRM from gas pipeline operators, on the other hand, suggest that the cost of direct assessment might be approximately $12 thousand per mile.6 Of course, it is the incremental (i.e., marginal) cost, not the total cost, that is relevant, and it is not clear what the incremental cost would be. The incremental cost represents the difference between what direct assessment would typically cost in the absence of the rules and the cost of direct assessment under the rules. If operators would have followed 5 Neil G. Thompson, “Appendix E, Gas and Liquid Transmission Pipelines,” Cost of Corrosion, FHWA Report FHWA-01-156, April 2005, p. E-36, www.corrosioncost.com/home.html. 6 Southwest Gas and its subsidiary, Paiute Pipeline, reported that direct assessments completed in accordance to NACE RP0502-202 requirements cost in excess of $12 thousand per mile for straight line transmission pipelines, while Nicor reported costs of $10 thousand per mile for direct assessment (excluding GIS development and digs). The Gas Piping Technology Committee, on the other hand, reported costs for its members ranging from $10 thousand to $55 thousand per mile for external corrosion direct assessment activities. 7#

Page 8F F Fi i in n na a al l l R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t the standards even in the absence of the rules, which is fairly likely given the fact that the standards in the rule are based on industry consensus standards developed by ASME and NACE, then the incremental cost is $0. Given that (1) the regulations largely involve two consensus standards developed by respected U.S. standards-setting organizations (ASME and NACE), (2) pipeline operators widely follow these organizations’ standards, and (3) many pipeline operators helped develop the direct assessment consensus standards, the incremental costs should be minimal. Benefits The primary benefit of the proposed rule is to promote acceptable, reliable, and uniform practices for using direct assessment to evaluate the threat of corrosion on onshore gas and hazardous liquid pipelines. Such practices have the potential to reduce incidents due to corrosion and to increase the public’s confidence in operators’ safety programs. A further benefit involves the Federal policy that encourages agencies to adopt consensus standards that meet regulatory needs rather than develop new prescriptive Federal regulations. Two consensus standards form the basis for activities required by the rule. Thus the rule would benefit the public by furthering the Federal policy on use of consensus standards. The amendment to § 195.452 would also benefit hazardous liquid and carbon dioxide operators by eliminating the paperwork burden associated with sending PHMSA notifications of the use of external corrosion direct assessment as an alternative integrity assessment method. Conclusion PHMSA believes the regulations will have only a minimal impact on pipeline operators and the public. The Final Rule - that operators perform direct assessments for corrosion risk evaluation in accordance with existing standards - should not have more than a minimal impact, because the regulations do not require that any operators use direct assessment. If operators do choose to use direct assessment, the standards they would have to meet consist largely of consensus standards developed by two U.S. standards- setting organizations. The standards of these organizations are widely followed in the pipeline industry, and industry representatives were major contributors to development of the direct assessment consensus standards. So even without the regulations, it is reasonable to assume the industry would incur some costs associated with meeting the consensus standards when they used direct assessment. 8#

Page 9F F Fi i in n na a al l l R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t Regulatory Flexibility Analysis The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires an agency to review regulations to assess their impact on small entities unless the agency determines that a rule is not expected to have a significant impact on a substantial number of small entities. The direct assessment standards rule will not have a significant impact on a substantial number of small entities. It is expected, in fact, to impact no small entities. Need for the Final Rule: PHMSA presently has regulations governing integrity management of gas transmission lines requiring that operators using direct assessment to evaluate corrosion risks must carry out that direct assessment according to particular standards. Those regulations are found in 49 CFR Part 192. In response to a statutory directive, the PHMSA has developed Final Rule prescribing similar standards that operators must meet if they use direct assessment on certain other onshore gas, hazardous liquid, or carbon dioxide pipelines. Broader application of direct assessment standards should enhance public confidence in the use of direct assessment to assure pipeline safety. Description of Actions: In the Final Rule, PHMSA is amending the Federal pipeline safety regulations by requiring operators using direct assessment for evaluating corrosion risks to perform that direct assessment according to particular standards. For gas transmission pipelines, standards are specified for internal corrosion, external corrosion, and stress-corrosion cracking. For hazardous liquid pipelines, standards are specified for external corrosion only. In addition, the Final Rule allows hazardous liquid and carbon dioxide operators to use external corrosion direct assessment as an alternative integrity assessment method without giving prior notice to PHMSA. Identification of potentially affected small entities: For the purposes of the current analysis, it is assumed that the changes in the regulations will impact an estimated 960 operators. They operate gas transmission systems (including gas gathering systems), which are covered by NAICS 486210, and hazardous liquid pipeline systems (including carbon dioxide pipelines), which are covered by NAICS 486910. The following table shows the SBA small business size standards for the two relevant NAICS. Table 2: SBA Small Business Standards for NAICS 486210 and 486910 NAICS Employees Annual Receipts 486210 --- Less than or equal to $6 million 486910 Less than or equal to 1500 --- 9#

Page 10F F Fi i in n na a al l l R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t Source: www.sba.gov/size/sizetable2002.html. Based on the standards presented in Table 2, PMHSA believes that none of the impacted pipeline operators are small entities.7 Compliance, reporting, and recordkeeping requirements: This Final Rule includes new compliance requirements. Impacted pipeline operators using direct assessment to evaluate corrosion risks will be required to perform that direct assessment according to certain standards. Hazardous liquid pipeline operators undertaking external corrosion direct assessment (ECDA) must develop and implement an ECDA plan. Since the use of direct assessment is voluntary, the costs of compliance with the new requirements are expected to be minimal. Related Federal rules and regulations: Existing rules addressing integrity management of gas transmission lines require that operators using direct assessment to evaluate corrosion risks in high consequence areas must carry out that direct assessment according to particular standards. Those regulations are found in 49 CFR Part 192. Alternate proposals for small businesses: The Regulatory Flexibility Act 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. In the case of direct assessments, it is not necessary, since no impacted entities are small businesses. Conclusion: Based on available information, it can be concluded that, this Final Rule does not apply to any small entities, and therefore it will not result in a significant economic impact on any small entities. 7 PHMSA believes there may be some operators, especially operators of gathering lines who may be considered small by SBA definition and may be impacted by the Final regulation. But PHMSA currently does not have any information on the identity or number of these operators. PHMSA did not receive any comments on its analysis of small business impacts published with the NPRM. 10#