U.S. DOT/PHMSA - Regulatory Evaluation (August 2006)

Page 1U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration Regulatory Evaluation August 2006 Pipeline Safety: Protecting Unusually Sensitive Areas from Rural Onshore Hazardous Liquid Gathering Lines and Low Stress Lines Docket No. RSPA-2003-15864 Regulatory Analysis 1. INTRODUCTION Rural onshore hazardous liquid gathering lines and low stress lines are exempt from most of the Pipeline and Hazardous Materials Safety Administration’s (PHMSA’s) safety rules for the transportation of hazardous liquids by pipeline. Although these pipelines may pose little risk overall, some lines are inherently riskier than others because a spill from one of them could potentially cause substantial harm to environmentally sensitive areas. PHMSA is proposing to extend the safety rules for the transportation of hazardous liquids by pipeline to rural onshore gathering lines and low stress lines that are within 440 yards of an unusually sensitive area (USA).1 With respect to rural onshore gathering lines, PHMSA is proposing the following changes to 49 CFR Part 195: • Include the higher-risk rural onshore gathering lines in a new definition of “regulated rural onshore gathering lines;” 2 • Require operators of “regulated rural onshore gathering lines” to follow safety rules for design, construction, testing, and maximum operating pressure; • Require operators of “regulated rural onshore gathering lines” to protect those pipelines from corrosion and excavation damage; • Require operators of “regulated rural onshore gathering lines” to install and maintain line markers; 1 A USA is defined in 49 CFR § 195.6 as “drinking water or ecological resource area that is unusually sensitive to environmental damage from a hazardous liquid pipeline release.” 2 Certain gathering lines are currently regulated. Those gathering lines are sometimes collectively referred to as “regulated gathering lines” (see, for example, PHMSA’s file on the Internet containing the 2004 annual reports for hazardous liquid pipelines at http://ops.dot.gov/stats/DT98.htm). This, however, is a term of art and is not currently defined in the Federal pipeline safety regulations pertaining to hazardous liquid pipelines. 1#

Page 2• Require operators of “regulated rural onshore gathering lines” to undertake public education programs; • Require operators of “regulated rural onshore gathering lines” to demonstrate Operator Qualification(OQ) compliance; and • Require operators of “regulated rural onshore gathering lines” to report accidents and safety-related conditions and to make annual reports. Similarly, with respect to rural onshore low stress lines, PHMSA is proposing the following changes to 49 CFR Part 195. • Include the higher-risk rural onshore low stress lines in a new definition of “regulated rural onshore low stress lines;” • Require operators of “regulated rural onshore low stress lines” to follow safety rules for design, construction, testing, and maximum operating pressure; • Require operators of “regulated rural onshore low stress lines” to protect those pipelines from corrosion and excavation damage; • Require operators of “regulated rural onshore low stress lines” to install and maintain line markers; • Require operators of “regulated rural onshore low stress lines” to undertake public education programs; • Require operators of “regulated rural onshore low stress lines” to demonstrate OQ compliance; • Require operators of “regulated rural onshore low stress lines” to report accidents and safety-related conditions and to make annual reports; • Require operators of “regulated rural onshore low stress lines” to establish an integrity assessment program; and • Require operators of “regulated rural onshore low stress lines” to establish a leak detection program based on American Petroleum Institute’s standard 1130 (API 1130). The proposed changes summarized above are intended to improve public confidence in the safety of rural onshore hazardous liquid gathering and low stress lines. In this report, the benefits and costs of the proposed regulatory changes are examined. The report also includes other mandatory analyses, including the analysis required by the Regulatory Flexibility Act. 2. BACKGROUND 2.1 Hazardous Liquid Gathering Lines Hazardous liquid gathering lines are primarily pipelines transporting crude oil from wells to downstream locations, such as refineries. These pipelines can be found in rural and non-rural areas as well as onshore and offshore. It is estimated by the Association of Oil 2#

Page 3Pipelines (AOPL) that between 30,000 and 40,000 miles of crude oil gathering lines are currently in operation in oil producing states.3 The Federal safety regulation found in 49 CFR Part 195 defines a “gathering line” as a pipeline with a nominal outside diameter of 8 5/8 inches or less that transports petroleum from a production facility. “Petroleum,” as defined in Part 195, means crude oil, condensate, natural gasoline, natural gas liquids, and liquefied natural gas. A “rural area” is defined as a location outside the limits of any incorporated or unincorporated city, town, village, or any other designated residential or commercial area, such as a subdivision, a business or shopping center, or community development. Federal safety regulations covering the transportation of hazardous liquids by pipeline found at 49 CFR Part 195 apply to both offshore and onshore hazardous liquid gathering lines. Onshore gathering lines in rural areas, however, are currently exempt from all Part 195 regulations, except those relating to inspection and burial in Gulf of Mexico inlets (i.e., 49 § CFR 195.1(b)(4)). It should be noted that, because of their operating pressures, PHMSA expects that major pipeline firms operate the rural onshore gathering lines that might be impacted by the proposed rule. 2.2 Low Stress Lines Low stress lines are hazardous liquid pipelines operating at 20% or less of the specified minimum yield strength (SMYS) of the line pipe. These pipelines are currently exempted from compliance with 49 CFR Part 195 by 49 CFR § 195.1(b)(3). Most pipelines moving large volumes of petroleum or petroleum product do so at high pressures (i.e., in excess of 20% of SMYS). The economics of pipeline operation, and the physical characteristics and condition of a pipeline may result, however, in a pipeline operating at 20% or less of SMYS. Short-distance pipelines, such as those associated with petrochemical complexes, refineries, and terminals, may not require high pressures to move relatively small quantities of liquids. The lifetime of pipelines that are old or are in poor condition may be extended by operation at lowered pressures. Finally, low- pressure operation may result from market conditions or reduced volumes of pipeline throughput. On October 31, 1990, an Advance Notice of Proposed Rulemaking (ANPRM) entitled “Transportation of a Hazardous Liquid in Pipelines Operating at 20 Percent or Less of Specified Minimum Yield Strength” was published in the Federal Register. The ANPRM included a questionnaire designed to elicit information about the existence of pipelines operating at 20% of SMYS or less including their age, condition, length, and use, as well as their failure records from 1986 through 1990. The questionnaire also 3 See “How Many Pipelines are There?” at http://www.pipeline101.com/Overview/energy-pl.html. This estimate is for oil producing states. Consequently, it might not include mileage in Outer Continental Shelf (OCS) waters outside of state control. 3#

Page 4requested information about whether the pipelines were currently being operated in compliance with Part 195, and, if not, what the one-time and continuing costs of bringing them into compliance would be. The responses by industry to the ANPRM questionnaire can be found in Docket PS-117. It should be noted that, because these pipelines often transport jet fuel and other refined products, PHMSA expects that major pipeline firms operate the rural onshore low stress lines that might be impacted by the proposed rule. 3. STATEMENT OF THE PROBLEM 3.1 Gathering Lines With the Pipeline Safety Act of 1992 (Pub. L. 102-508), Congress granted the U.S. Department of Transportation (DOT) the authority to regulate a class of rural gathering lines called “regulated gathering lines.” Congress left the definitions of “gathering lines” and “regulated gathering lines” to DOT to develop (see 49 U.S.C. 60101(b)(1)(A) and 49 U.S.C. 60101(b)(2)(A)). In the Accountable Pipeline Safety and Partnership Act (Pub. L. 104-304), Congress amended the requirement to define “regulated gathering lines” by adding the words “if appropriate.” Congress also gave DOT the authority to collect information from gathering line operators related to deciding whether and to what extent to regulate rural gathering lines. Congress recognized that some rural gathering lines might pose risks warranting Federal safety regulation. As a consequence, it gave DOT authority to regulate a class of rural gathering lines called “regulated gathering lines” based on risk-related physical characteristics, such as diameter, pressure, location, and length of line. In its report on H.R. 1489, a bill that led to the Pipeline Safety Act of 1992, the House Committee on Energy and Commerce stated that: DOT should find out whether any gathering lines present a risk to people or the environment, and if so how large a risk and what measures should be taken to mitigate the risk.4 PHMSA believes that this instruction shows that Congress wanted DOT to limit “regulated gathering lines” to lines posing a significant risk and to limit regulation of those lines to suitable risk-reduction measures. Seeking more information specifically about rural gathering lines, DOT asked the public about whether these pipelines pose a risk warranting Federal safety regulation and, if so, what those regulations should be. Most commenters recognized the need for Federal safety regulation, and most felt that the regulations should address known risks of a significant scale. 4 H.R. Report No. 102-247, Part 1, 102nd Congress, 1st Session, 23 (1991). 4#

Page 5In association with its comments, the AOPL provided incident data showing that corrosion and excavation damage are the leading causes of spills on gathering lines overall (i.e., for both rural and non-rural gathering lines). It should also be noted that there is no reason to expect that rural gathering lines are any less vulnerable to corrosion, excavation damage, or other integrity threats than non-rural gathering lines. Consequently, PHMSA believes that it is reasonable to assume that AOPL’s incident data is representative of the safety situation with respect to rural gathering lines. This belief is strengthened by the findings of a 1997 report by California’s Office of the State Fire Marshal entitled, “An Assessment of Low-Pressure Crude Oil Pipelines and Gathering Lines,” which found that the leading causes of pipeline incidents from 1993 to 1995 on rural gathering lines and other pipelines exempt from Part 195 were corrosion and excavation damage.5 As a consequence of Congress’ safety concerns, comments received from stakeholders, and accident data, PHMSA believes that the potential for future harm to people and the environment from rural gathering lines is clear. Furthermore, based on the foregoing, PHMSA believes that the present exemption of rural gathering lines from nearly all safety regulations in 49 CFR Part 195 is no longer appropriate. The proposed rulemaking aims to fulfill Congress’ statutory mandate as it relates to rural onshore gathering lines by amending 49 CFR Part 195. 3.2 Low Stress Lines Beginning in 1991, Congress paid greater attention to the risks that hazardous liquid and natural gas pipelines pose to the environment. In the Pipeline Safety Act of 1992 (Pub. L.102-508), Congress gave DOT greater authority to protect the environment from the risks that pipelines pose. Congress continued to emphasize the need to better protect the environment from pipeline risks in the Accountable Pipeline Safety and Partnership Act of 1996 (Pub. L.104-304). Recent accidents have demonstrated the need to regulate low stress pipelines near USAs. For instance, on March 2, 2006, a spill from BP’s 34-inch unregulated low stress pipeline in North Slope Borough, Alaska, released 5,000 barrels of crude oil, impacting the artic tundra and covering approximately 2 acres of permafrost. On March 23, 2006, a spill from BP’s 36-inch low stress pipeline in Toledo, Ohio, released 200 barrels of unleaded gasoline, some of which found its way into Shantee Creek, which flows to Lake Erie. On August 6, 2006, BP found corrosion and leaks in its unregulated low stress pipeline in North Slope Borough, Alaska. The discovery of severe corrosion and the leaks caused BP to shut the pipeline down. As a consequence of these discoveries, part of the massive Prudhoe Bay oilfield had to be shutdown. These and previous accidents on low stress lines caused PHMSA to decide to take regulatory action to address rural onshore low stress lines. Low stress lines, it should be noted, are lines operating in their entirety at a stress level of 20% or less of specified 5 This report is available on the Internet at http://osfm.fire.ca.gov/lowpressrpt.html. 5#

Page 6minimum yield strength (SMYS). As mentioned previously, in association with its response to comments on the need to regulate rural gathering lines, AOPL submitted incident data from a limited number of gathering line operators showing corrosion damage and excavation damage to be the leading causes of pipeline spills. These findings are consistent with PHMSA’s accident data covering regulated hazardous liquid pipelines. They are also consistent with the findings of a 1997 report by California’s Office of the State Fire Marshal, “An Assessment of Low-Pressure Crude Oil Pipelines and Gathering Lines,” which examined the accident record of rural gathering lines and other pipelines in California exempt from Part 195.6 Furthermore, PHMSA sees no reason to expect unregulated low stress lines to be less vulnerable to corrosion, excavation damage, and other integrity threats than higher pressure regulated lines. Low stress lines may be even more vulnerable because they have not been subject to Federal safety regulation to ensure their continued integrity. Based on Congress’ and PHMSA’s safety concerns, public comments, and available accident data, PHMSA believes the potential for future harm to people and the environment from low stress lines is clear. Low stress lines have the same leading causes of accidents as the hazardous liquid pipelines that PHMSA regulates. Therefore, PHMSA believes the current exemption of some low stress lines from nearly all safety regulations in Part 195 is no longer appropriate. 4. RATIONALE FOR REGULATORY ASSESSMENT Executive Order (EO) 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. EO 12866 also requires a determination as to whether a proposed rule could adversely affect the economy or a section of the economy in terms of productivity, employment, the environment, public health, safety, or State, local or tribal governments. In accordance with the regulatory philosophy and principles provided in sections 1(a) and (b) and section 6(a)(3)(C) of EO 12866, an economic analysis of the proposed regulatory changes must be conducted. 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, and the Unfunded Mandates Act also requires economic impact analysis. In accordance with the above directives, PHMSA has performed a preliminary evaluation of the potential compliance costs of the proposed rule and feasible regulatory options and identified those benefits that can be expressed in monetary terms. To the extent possible, this is based on the available data and information from a range of sources including PHMSA’s Incident Reporting Database and comments received from stakeholders. PHMSA estimates that the impact of implementing the proposed rule would not be greater than $100 million annually, nor would the proposed rule adversely affect the economy or a section of the economy in terms of productivity, employment, the environment, public health, safety, or State, local or tribal governments. PHMSA has 6 This report is available online at http://osfm.fire.ca.gov/lowpressrpt.html. 6#

Page 7also determined, as required by the Regulatory Flexibility Act, that the proposed rule would not have a significant economic impact on a substantial number of small entities in the United States. Additionally, it was determined that the proposed rule would not impose annual expenditures of $120.7 million or more on State, local, or tribal governments or the private sector (and thus would not require an Unfunded Mandates Act analysis). 5. ALTERNATIVES CONSIDERED PHMSA considered several alternatives to assure the necessary protection from potential incidents on rural onshore gathering lines and low stress lines. These alternatives were: • Collect more information about the potential hazards of the rural onshore gathering lines before proposing any specific safety regulations; • Apply all Part 195 regulations to the rural onshore gathering lines; • Implement limited operation and maintenance regulations, along with implementing reporting regulations for accidents and safety-related conditions, to the rural onshore gathering lines; • Develop a completely new set of safety regulations for rural onshore gathering lines; and • Implement limited operation and maintenance regulations, along with implementing reporting regulations for accidents and safety-related conditions and requiring the use of line markers. In this alternative, include regulations for design, construction, and testing of new, relocated, replaced, or otherwise changed lines. It should be noted that a “no action” alternative would not have been responsive to the Congressional mandate concerning gathering lines. For that reason, a “no action” alternative was not considered by PHMSA. The evaluations for the alternatives considered by PHMSA are presented below. 5.1 Collect more information about the potential hazards of the rural onshore lines before proposing any specific safety regulations. This alternative received some support from industry, and Congress did grant DOT specific authority to collect more information about hazards before proposing any safety regulations. This alternative was rejected, however, because PHMSA feels that there is currently a demonstrated need for safety regulation. Also, based on PHMSA experience with hazardous liquid pipelines, collecting more information about the rural onshore gathering lines would unlikely to change the current understanding concerning the potential risks these lines pose. For these reasons, collecting more information about the potential hazards of the rural onshore lines was evaluated no further. 5.2 Apply all Part 195 regulations to the rural onshore lines. 7#

Page 8This alternative would impose significant costs on the industry for little safety benefit. Also, the costs could have a significant effect on U.S. oil supplies by causing production to cease at marginal wells connected to the lines. For these reasons, applying the regulations from Part 195 to rural onshore lines was not evaluated further. 5.3 Implement limited operation and maintenance rules, along with implementing reporting rules for accidents and safety-related conditions. AOPL recommended the approach covered by this alternative for gathering lines, while API and AOPL jointly submitted a similar approach for low stress lines. With respect to gathering lines, the operation and maintenance rules to be implemented would be the public education rules in 49 CFR § 195.440, the excavation damage prevention rules in 49 CFR § 195.442, and the corrosion control rules in subpart H of Part 195. The reporting rules would be provisions of subpart B of Part 195 relating to accidents and safety-related conditions. The benefit of this alternative would be that it would avoid excessive safety regulation by focusing on the leading threats to rural gathering lines – corrosion and excavation damage. Also, the information collected through application of the reporting rules would enable PHMSA to recognize safety problems and evaluate the effectiveness of adopting only limited safety rules. One disadvantage of the alternative proposed for gathering lines is that it does not include the installation and maintenance of line markers, OQ program requirements, or drug and alcohol requirements. The use of line markers to warn excavators of the presence of hazardous liquid pipelines is a well-established safety practice within the hazardous liquid pipeline industry. Regarding OQ, Congress mandated that PHMSA establish regulations for OQ on pipelines. Congress also directed pipeline operators to develop and adopt a qualification program should DOT fail to prescribe standards and criteria. Finally, requirements on testing for the presence of prohibited drugs and alcohol apply to operators of a pipeline facility subject to Part 195. With respect to low stress lines, the approach would subject such lines that have a diameter greater than 8 5/8 inches, operate at 20 %of SMYS, and are located within a quarter mile of an unusually sensitive area to certain regulatory requirements. Those requirements include the reporting requirements of Part 195, subpart B, the corrosion control rules in Part 195, subpart H, the damage prevention rules in § 195.442, and the installation of line markers as required in §195.410. The API/AOPL approach also includes leak detection, assessment, and limited OQ requirements. The benefit of this alternative would be that it would focus on the leading threats to rural onshore low stress lines – corrosion and excavation damage. Disadvantages of the API/AOPL approach include its failure to address other significant safety issues related to pipeline design, construction, and testing. It does not include the drug and alcohol requirements of Part 199 or the public awareness requirements of § 195.440. Furthermore, the approach does not fully address the OQ requirements. Congress mandated PHMSA to establish regulations for OQ programs on pipelines. 8#

Page 9Congress also directed pipeline operators to develop and implement qualification programs should DOT fail to prescribe standards and criteria. PHMSA believes that the API/AOPL approach is too limited because it only addresses one of the multiple facets of OQ requirements. Because of the gaps noted by PHMSA, this alternative was not considered any further. 5.4 Develop a completely new set of safety rules for the rural onshore gathering lines. PHMSA rejected this alternative because there is no reason to believe that the Part 195 safety regulations now in effect for non-rural gathering and low stress lines would not be as effective if applied to rural gathering lines. PHMSA’s experience indicates that Part 195 regulations can be expected to work well for rural gathering and low stress lines because the integrity threats involved are similar for all the lines. Consequently, the alternative of developing a new set of safety regulations applicable to the rural onshore gathering lines was not evaluated further. 5.5 Implement limited operation and maintenance rules, along with implementing reporting rules for accidents and safety-related conditions and requiring the use of line markers. Finally, PHMSA considered a modified version of the alternative discussed above in Section 5.3. For gathering lines, this modified version of that alternative would add the line marker rules in 49 CFR § 195.410, the qualification requirements in subpart G for operator personnel, and drug testing and alcohol misuse prevention requirements in Part 199 to the other regulations. Line markers are a traditional way of altering excavators to the presence of a hazardous liquid pipeline. Under 49 U.S.C. 60131, DOT must require pipeline operators to develop and adopt qualification programs complying with the standards DOT develops. Furthermore, any operator subject to 49 CFR Part 195 is required under 49 CFR Part 199 to test covered employees for the presence of prohibited drugs and alcohol. In addition, this modified alternative would require operators to establish a maximum operating pressure for each steel line according to 49 CFR §195.406, and to design and construct new lines according to applicable Part 195 regulations. A maximum operating pressure with accompanying pressure control would guard against the danger of accidental overpressure. The design and construction regulations in 49 CFR Part 195 would ensure a minimum standard of integrity for all new, replaced, and relocated rural onshore gathering lines designated as “regulated rural onshore gathering lines” PHMSA proposed similar rules on markers, operating pressure, and design and construction for rural gas gathering lines in a final rule published March 15, 2006 (see 71 FR 13289). These additions to the approach suggested by AOPL for should not be too burdensome, because similar safety requirements are included in (American Society of Mechanical Engineers) ASME B31.4, a consensus standard followed widely throughout the hazardous liquid pipeline industry. 9#

Page 10PHMSA’s modified approach to the API/AOPL suggestion for rural onshore low stress lines would add the drug testing and alcohol misuse prevention requirements of 49 CFR Part 199, the public awareness requirements of 49 CFR §195.440, and a modified version of the OQ requirements. Because these operators would be regulated under 49 CFR Part 195, they would be required under 49 CFR Part 199 to test a percentage of covered employees for the presence of prohibited drugs and alcohol. These operators are also required under 49 U.S.C. 60102(a) to have a public awareness program. Under 49 U.S.C. 60131(e)(5) and (f), Congress allowed DOT and State pipeline safety agencies to waive or modify and OQ requirement if not inconsistent with the pipeline safety laws. PHSMA believes an approach similar to the modified approach used for gas gathering would be appropriate for low stress lines. This modification would allow operators to describe the processes they have in place to ensure personnel performing operations and maintenance activities are qualified. Additionally, the modified version would require operators to establish a maximum operating pressure for each steel line according to 49 CFR § 195.406, and to design, construct, and test lines according to applicable 49 CFR Part 195 regulations. A maximum operating pressure would guard against the danger of accidental overpressure. The 49 CFR Part 195 design, construction, and testing regulations would ensure a minimum standard of integrity for all new, replaced, and relocated “regulated rural onshore low stress lines.” Lastly, the modified version would require an operator to establish a leak detection program based on API’s recommended practice API 1130, “Computational Pipeline Monitoring,” which is currently being used by industry and is incorporated by reference into our existing regulations. Because API 1130 only addresses pipelines transporting a stable single phase product, operators transporting other products will need to develop another appropriate leak detection method. For the reasons outlined above, this alternative was selected. 6. ECONOMIC ANALYSIS PHMSA is proposing changes to 49 CFR Part 195 for (1) rural onshore hazardous liquid gathering lines and (2) rural onshore hazardous liquid low stress lines. With respect to rural onshore gathering lines, PHMSA is proposing the following changes: • Include the higher-risk rural onshore gathering lines in a new definition of “regulated rural onshore gathering lines;” • Require operators of “regulated rural onshore gathering lines” to follow safety rules for design, construction, testing, and maximum operating pressure; • Require operators of “regulated rural onshore gathering lines” to protect those pipelines from corrosion and excavation damage; • Require operators of “regulated rural onshore gathering lines” to install and maintain line markers; • Require operators of “regulated rural onshore gathering lines” to undertake public education programs; 10#

Page 11• Require operators of “regulated rural onshore gathering lines” to demonstrate OQ compliance; and • Require operators of “regulated rural onshore gathering lines” to report accidents and safety-related conditions and to make annual reports. With respect to rural onshore low stress lines, PHMSA is proposing the following changes: • Include the higher-risk rural onshore low stress lines in a new definition of “regulated rural onshore low stress lines;” • Require operators of “regulated rural onshore low stress lines” to follow safety rules for design, construction, testing, and maximum operating pressure; • Require operators of “regulated rural onshore low stress lines” to protect those pipelines from corrosion and excavation damage; • Require operators of “regulated rural onshore low stress lines” to install and maintain line markers; • Require operators of “regulated rural onshore low stress lines” to undertake public education programs; • Require operators of “regulated rural onshore low stress lines” to demonstrate OQ compliance; • Require operators of “regulated rural onshore low stress lines” to report accidents and safety-related conditions and to make annual reports; • Require operators of “regulated rural onshore low stress lines” to establish an integrity assessment program; and • Require operators of “regulated rural onshore low stress lines” to establish a leak detection program based on API 1130. The benefits and costs of the proposed regulatory changes are addressed in this section of this report. The analysis of benefits and costs takes the following approach: (1) the mileage impacted by the proposed regulatory changes is identified and estimated; (2) the potential benefits of the proposed rule are examined; (3) the potential costs of the rule are examined; and (4) a discussion of the expected benefits versus the expected costs are presented. It should be noted that, unless otherwise specified, all dollar amounts in section 6 of this report are given in constant 2005 dollars.7 It should also be noted that the gathering and low stress lines impacted by the proposed regulatory changes are not currently regulated by PHMSA. As a consequence, PHMSA has only limited information about the pipelines, their location, operating characteristics, and safety performance. Because of this, a number of assumptions have been made in this economic analysis. Therefore the public is invited to comment on those assumptions. 7 Where necessary, dollars are converted from nominal values to real 2005 values using the Implicit Price Deflators for Gross Domestic Product. The source of these deflators is the annual data version of Table 1.1.9 Implicit Price Deflators for Gross Domestic Product, which is located on the Bureau of Economic Analysis website at http://www.bea.gov/bea/dn/nipaweb/SelectTable.asp?Selected=N. 11#

Page 126.1 Impacted Mileage Both rural onshore gathering lines and rural onshore low stress lines will be impacted by the proposed regulatory changes. The impacted mileages for each of these two types of pipeline are estimated below. 6.1.1 Gathering Lines The rural onshore gathering line mileage that will be impacted by the proposed regulatory change is unknown and must be estimated. The impacted mileage would be operated as regulated rural onshore gathering lines, as defined in the proposed regulatory change. Such regulated rural onshore gathering lines • Have a nominal diameter of 6 5/8 inches or more; • Operate at a stress level of more than 20 %of SMYS (specified minimum yield strength) during normal operation or, if the stress level is unknown or the pipeline is not constructed using a steel pipe, at a pressure of more than 125 psig; and • Are within 440 yards (i.e., 1/4 mile) of an unusually sensitive area (USA) as defined in 49 CFR § 195.6. Information about the mileage of gathering lines in the U.S. is somewhat sketchy. AOPL estimates that there are between 30,000 and 40,000 miles of crude oil gathering lines in this country. 8 This estimated mileage includes both onshore and offshore gathering lines as well as both rural and non-rural gathering lines. A mileage breakdown between onshore and offshore lines and rural and non-rural gathering lines are not available. PHMSA does have information indicating that pipeline operators have 2,573 miles of crude oil gathering lines that are currently regulated under Part 195. Some of this mileage may be non-rural. Other mileage, however, may be rural mileage located in the inlets of the Gulf of Mexico and subject to 49 CFR § 195.413. It is also known that interstate common-carrier pipelines that are required to file Form 6 with the U.S. Federal Energy Regulatory Commission (FERC) operate approximately 15,000 miles of crude gathering lines.9 Common carrier pipelines are those that charge a fee for their service. There is a filing threshold for Form 6 that is based on pipeline operating revenues, and some common carrier pipelines may have revenues below that threshold and consequently may not be reporting their gathering system mileage to FERC.10 8 The Association of Oil Pipelines estimates that there are between 30,000 and 40,000 miles of gathering lines in the U.S. This includes the mileage of onshore and offshore crude gathering lines (see “How Many Pipelines are There?” at http://www.pipeline101.com/Overview/energy-pl.html). 9 In Warren R. True and Jeannie Stell, “Special Report: Pipeline Economics,” Oil & Gas Journal Data Book, 2005 Edition, PennWell Corp., Tulsa, OK, 2005, p. 80, it is reported that these pipelines operated 14,187 miles of gathering lines in 2003, while the pipelines operated 16,214 miles of gathering lines in 2002. 10 True and Stell, p. 66. 12#

Page 13For the purposes of this analysis, the gathering line mileage that would be impacted by the proposed regulatory changes was estimated as follows. As mentioned before, AOPL, an industry group representing pipeline operators, estimates that there are between 30,000 and 40,000 miles of gathering lines in the U.S. 11 The midpoint of AOPL’s range, 35,000 miles, is used as the point estimate for the total number of miles of gathering lines in the U.S. Also as mentioned before, DOT currently regulates the safety of approximately 2,600 miles of gathering lines.12 Those lines, which include all non-rural gathering lines, offshore gathering lines, and some rural onshore gathering lines, will continue to be regulated, and furthermore, it is assumed that the proposed regulatory changes will not impact them. Consequently, an estimated 32,400 (= 35,000 – 2,600) miles of rural gathering lines are currently unregulated. The 32,400 mile estimate includes both onshore and offshore mileage. PHMSA assumes that 50 %of all rural gathering line mileage is onshore. Thus, an estimated 16,200 (= 0.5 x 32,400) miles of rural onshore gathering lines are currently unregulated. Furthermore, based on comments by AOPL,13 PHMSA assumes that no more than 20% of all onshore gathering line mileage that is currently unregulated meets the following conditions: (1) has a nominal diameter of 6 5/8 inches or greater and (2) operates at greater than 20% of SMYS (or alternatively at a pressure of 125 psig or greater). Thus, PHMSA expects that no more than 3,240 (= 0.2 x 16,200) miles of rural onshore gathering lines (1) have a nominal diameter of 6 5/8 inches or greater and (2) operate at greater than 20% of SMYS (or at a pressure of 125 psig or greater). Some the mileage will not be impacted because it already operates in compliance with Part 195, even though that is not currently required. No information is readily available for gathering lines, but information is available from the 1990 ANPRM questionnaire mentioned earlier on the percentage of low stress lines operating in compliance with Part 195. Responses indicated that approximately 16% of the low-stress mileage of the respondents was operated in compliance with Part 195, while approximately 84% were not.14 Given the situation in 1990 with low stress pipelines, PHMSA assumes that 16% of the rural onshore gathering lines currently operates in compliance with Part 195, while 84% do not. That means an estimated 2,722 (= 0.84 x 3,240) miles of rural onshore gathering lines do not operate in compliance with Part 195. 11 AOPL’s estimate is for oil producing states. It might not include mileage in waters of the OCS outside of state control. Consequently, the actual rural gathering line mileage might be higher than estimated here. 12 This includes all crude oil gathering lines subject to Part 195, including those on the OCS. 13 According to AOPL, “gathering lines generally operate…at low pressure….” Lines operating at greater than 20% of SMYS, as the NPRM notes, are not operating at low pressure. 14 For more detail on this, see p. 8 of “Economic Evaluation of Regulating Certain Hazardous Liquid Pipelines Operating at 20% or Less of Specified Minimum Yield Strength,” July 21, 1992, which can be found in Docket PS-117. 13#

Page 14To complete the estimation of the gathering line mileage impacted by the proposed rule, information is needed on the proximity of gathering lines to USAs. According to information contained in the National Pipeline Mapping System, approximately 22% of all regulated hazardous liquid pipeline mileage is within 440 yards of a USA.15 PHMSA assumes for the purposes of this analysis that 22% of the 2,722 miles of onshore gathering lines are within 440 yards of a USA. That is, PHMSA assumes that 599 (= 2,722 x 0.22) miles of onshore gathering lines are within 440 yards of a USA. Since these lines operate at greater than 20% of SMYS, PHMSA assumes that major pipeline firms operate all of these lines. PHMSA acknowledges that this mileage figure is an estimate. Determining the actual number of miles of gathering lines that would become regulated as a consequence of the proposed regulatory changes requires the application of the criteria in the proposed rule to each unregulated rural onshore gathering line and its local environment. Since PHMSA does not have information about the location and environment of unregulated rural onshore gathering lines that would allow explicit determination of whether any portion of any particular gathering line would be regulated pipeline operators must make these determinations. PHMSA invites public comment on the reasonableness of its estimate. 6.1.2 Low Stress Lines The rural onshore low stress line mileage that will be impacted by the proposed regulatory change is unknown and must be estimated. The impacted mileage will be that operated as “regulated rural onshore low stress lines,” as defined in the proposed regulatory change. Such low stress lines • Have a nominal diameter of 8 5/8 inches or more; • Operate at a stress level of less than 20% of SMYS during normal operation or, if the stress level is unknown or the pipeline is not constructed using steel pipe, at a pressure of less than 125 psig; and • Are within 440 yards of an unusually sensitive area as defined in 49 CFR § 195.6 and could affect that area. PHMSA assumes that approximately 200,000 miles of hazardous liquid pipeline are currently being used in the transport of petroleum and petroleum products in the U.S. 16 Approximately 160,000 miles of that pipeline is currently regulated by PHMSA.17 The difference between these two numbers, 40,000 miles (= 200,000 miles – 160,000 miles), represents the total unregulated hazardous liquid pipeline mileage currently in operation. This unregulated mileage is made up primarily of low-stress pipelines and rural gathering 15 Communication from Richard Hinton, PHMSA, June 19, 2006. 16 Richard A. Rabinow, “The Liquid Pipeline Industry in the United States: Where It’s Been, Where It’s Going,” A report prepared for the Association of Oil Pipelines, April 2004, p. 4. 17 PHMSA, “Liquid Pipeline Operator Total National Mileage,” located at http://ops.dot.gov/stats/lpo.htm. 14#

Page 15lines (most of which are also low-stress). PHMSA estimates that approximately 35,000 miles of pipeline are rural gathering lines (see Section 6.1.1). Excluding these from the 40,000 mile estimate of unregulated pipelines leaves 5,000 miles of pipeline (= 40,000 miles – 35,000 miles) as the estimate for unregulated low-stress lines.18 Only part of the 5,000 miles of pipeline will be impacted by the proposed changes in the regulations. Some of the low stress pipelines will not be impacted because they are less than one mile in length and consequently not covered by the proposed changes. Respondents to the 1990 ANPRM questionnaire that was mentioned earlier in this report were asked about their low stress lines that were classified as interfacility pipelines (i.e., were less than one mile in length). According to the responses, approximately 26% of the low-stress mileage of the respondents was interfacility pipeline mileage, while approximately 74% was not.19 Assuming that those percentages have not changed since 1990, an estimated 3,700 miles (= 0.74 x 5000 miles) of low stress pipeline are not interfacility pipelines with lengths of less than one mile. Additionally, some of the mileage will not be impacted because it already operates in compliance with Part 195, even though that is not currently required. Respondents to the 1990 ANPRM questionnaire were asked if their pipelines operated in compliance with Part 195. According to the responses, approximately 16% of the low-stress mileage of the respondents was operated in compliance with Part 195, while approximately 84% was not.20 Assuming that those percentages have not changed since 1990, an estimated 3,108 miles (= 0.84 x 3,700 miles) is not operated in compliance with Part 195. To complete the estimate of the low stress mileage impacted by the proposed rule, information is needed on the proximity of low stress lines to USAs. As with impacted gathering lines, PHMSA assumes for the purposes of this analysis that 22% of the 3,108 miles of low-stress pipeline not currently operating in compliance with Part 195 is within 440 yards of a USA. PHMSA assumes that 684 (= 3,108 x 0.22) miles of low-stress pipeline not currently operating in compliance with Part 195 is within 440 yards of a USA. The proposed regulation will only impact those low-stress pipelines with a nominal diameter of 8 5/8 inches or more. In the foregoing analysis, however, PHMSA has not attempted to estimate the proportion of low-stress pipeline mileage with a nominal diameter of 8 5/8 inches or more. Information that could be used for this is not readily available. The estimate of the impacted mileage derived here may, therefore, overstate the mileage that would be impacted by the proposed regulation. PHMSA acknowledges that this mileage figure, like the one for impacted rural onshore gathering lines, is an estimate. Because these lines are not currently regulated, PHMSA 18 No attempt is made here to estimate the low stress lines that are also gathering lines. 19 PHMSA. 20 For more detail on this, see page 8 of “Economic Evaluation of Regulating Certain Hazardous Liquid Pipelines Operating at 20% or Less of Specified Minimum Yield Strength,” July 21, 1992, which can be found in Docket PS-117. 15#

Page 16does not have ready access to detailed information on them. PHMSA invites public comment on the reasonableness of its estimate of the low stress mileage impacted by the proposed regulatory changes. 6.1.3 Impacted Mileage Summary Based on the forgoing, the proposed regulatory changes are expected to impact 599 miles of rural onshore gathering lines and 684 miles of rural onshore low stress lines. In total, then, the proposed rule is expected to impact 1,283 (= 599 + 684) miles of rural onshore gathering and low stress lines. 6.2 Benefits The benefits expected from the proposed regulatory changes are improved safety performance for the pipeline mileage brought under Part 195. That is, the proposed regulatory changes are expected to reduce the number of incidents and the incident consequences (including deaths, injuries, property damage, product loss, environmental damage, and environmental spill cleanup activities). This improved safety performance will result in greater public safety and confidence. 6.2.1 Gathering Lines Because rural gathering lines are currently unregulated, PHMSA does not have any recent data showing the total number of incidents that have occurred on the lines. Until 1981, incident data was collected for rural gathering lines, but general improvements in pipeline safety that may have occurred over the years would make using that data in the estimation of the benefits of the proposed regulatory changes questionable. AOPL provided PHMSA with data on 583 gathering line spills collected from five of its member companies for the years 2001 through 2003. The origin of the data was the industry’s Pipeline Performance Tracking System (PPTS), a voluntary data collection effort that began in 1999. Participants in PPTS report oil pipeline spills of 5 gallons or more on land and all spills in water, whether regulated by Part 195 or not. AOPL’s data show 33% of the spills were 5 barrels or more. The data also shows corrosion and excavation damage caused over 90% of the gathering line spills, pipe material and weld failures caused 2%, and other identified causes caused less than 1%. While of considerable interest, because it helps characterize the accident record of currently unregulated crude oil gathering lines, the AOPL data cannot be used for estimating the benefits of the proposed regulatory change because, among other reasons, the gathering line mileage of the 5 operators is unknown. A total of 583 gathering line spills during a three-year period might represent a significant problem if each of the operators had only 1 mile of pipeline. On the other hand, it might be viewed as inconsequential if each of the operators had, say, 5,830 miles of gathering lines. 16#

Page 17In April 1997, the California Office of the State Fire Marshal submitted a report to the California State Legislature entitled “An Assessment of Low Pressure Crude Oil Pipelines and Crude Oil Gathering Lines in California.”21 This report examined the incident data for all California crude oil pipelines not previously regulated by the state for the years 1993 through 1995. These had 494 miles of pipeline in 1993, and 496 miles of pipeline in 1994 and 1995. The California Fire Marshal’s Office found that the pipelines had an incident rate over the period of 6.72 incidents per 1,000 miles per year. This covered all leaks of greater than 1 barrel (42 gallons). The pipelines had a total of 10 incidents (leaks) during the three-year study period. There were no injuries or fatalities attributable to the pipeline incidents. The pipelines, it should be noted, had a mean nominal diameter of 7.5 inches. The California Fire Marshal’s Office noted in the same report that the incident rate for 1981 through 1990 for pipelines regulated by the California Fire Marshal’s Office was 7.080 incidents per thousand miles per year. This figure included all leaks from the included pipelines. This figure is similar than the estimated incident rate for gathering lines in California. AOPL and the California Fire Marshal’s report identified the primary causes of incidents on gathering lines as: (1) corrosion and (2) excavation/third party damage. Protecting against these threats would provide the greatest benefit for crude oil gathering lines. The proposed regulatory changes do just that. The benefits resulting from the proposed regulatory changes are expected to include reduced incident consequences. In particular, there is expected to be a reduction in property damage, lost product, environmental damage, and the costs of cleaning up after a spill (few deaths or injuries appear to occur as a result of crude oil incidents). The Federal safety rules are expected to reduce the number of incidents, as well as their severity. As indicated above, however, the incident data needed to estimate the reduction is not readily available. 6.2.2 Low Stress Hazardous Liquid Lines While the incident data needed to estimate the reduction in the incident consequences attributable to the proposed regulatory changes is not available for crude oil gathering lines, it is available for low stress hazardous liquid lines. That data was obtained from the responses to the 1990 ANPRM questionnaire. The respondents to the 1990 ANPRM questionnaire provided information for the years 1986 through 199022 on incident costs for 1,564.6 miles of low-stress pipeline not currently in compliance with Part 195, as well as incident costs for 265.9 miles of low- stress pipeline reported by the respondents to be in compliance with Part 195. It presents 21 This report is available on the Internet at http://osfm.fire.ca.gov/lowpressrpt.html. 22 For more detail on the incident data provided by respondents to the ANPRM questionnaire, see pp. 11-14 of “Economic Evaluation of Regulating Certain Hazardous Liquid Pipelines Operating at 20% or Less of Specified Minimum Yield Strength,” July 21, 1992, which can be found in Docket PS-117. 17#

Page 18a comparison of the incident costs on low stress hazardous liquid pipelines operating in accordance with Part 195 with the incident costs of those pipelines not operating in accordance with Part 195. Based on the information provided in the responses to the ANPRM questionnaires, PHMSA estimates that the expected incident cost per mile per year for low-stress pipeline not currently in compliance with Part 195 is $4,969.23 Also based on information provided in the responses to the ANPRM questionnaires, PHMSA estimates that the expected incident cost per mile, per year for low-stress pipelines currently in compliance with Part 195 to be $141.24 From the foregoing, the benefits per mile, per year that are expected to result from the proposed regulatory change are the difference between the incident cost per mile per year for low-stress pipelines not operated in compliance with Part 195 and the incident cost per mile per year for low-stress pipelines operated in compliance with Part 195, or $4,828 (= $4,969 - $141) per mile per year. Assuming 684 miles of low stress lines would be impacted by the proposed regulatory changes, the proposed regulatory changes would be expected to result in benefits of approximately $3,302,000 (= $4,828 x 684) per year. 6.2.3 Benefits Summary It is expected that the proposed regulatory changes would reduce incident levels on the impacted pipelines and the severity of the consequences of the incidents that do occur. Because of a lack of data, quantitative monetary benefits relating to this expected reduction could not be estimated for the crude oil gathering lines impacted by the proposed regulatory changes. What information PHMSA does have indicates that incidents on crude oil gathering lines result primarily from (1) corrosion and (2) excavation/third party damage. As a consequence, protecting against those threats would be expected to provide considerable benefit, and the proposed rule does just that. Data was available for the expected reduction in incidents and consequences on low stress hazardous liquid lines that would result from bringing them under Federal safety regulation. It is expected that the proposed rule would result in approximately $3.3 million per year in benefits for those lines, as shown in Table 1. 23 In calculating the expected incident cost for low-stress pipelines not in compliance with Part 195, PHMSA assumed that an incident of the size of the Arthur Kill pipeline incident, which occurred in January 1990 and was included in the incident for low-stress pipelines not in compliance, would only occur, on average, only once every ten years. Consequently, the reported incident cost for the Arthur Kill incident was divided by 10 prior to being used to estimate the expected accident cost per mile per year. 24 The respondents to the ANPRM questionnaire used $1.5 million as the economic value of a human life and $450 thousand as the cost to society of an injury requiring hospitalization. No attempt was made to update these two numbers to the values currently used in PHMSA benefit-cost analyses. 18#

Page 19Table 1. Estimated Monetary Benefits of the Notice of Proposed Rulemaking (NPRM) Over Time (All values given in thousands of dollars) Improved Improved Present value over 20 Present value over 20 Safety of Safety of Low years at years at Gathering Stress Lines 3% discount rate 7% discount rate Lines (Per Year) (Per Year) UNK $3,302 $49,131 $34,985 Note: UNK = Unknown. Information needed to estimate the value is unavailable. As indicated in Table 1, the present value of the monetized benefits over 20 years is estimated to be $49 million at a discount rate of 3% and $35 million at a discount rate of 7%. These estimates are based on benefits of approximately $3.3 million per year. Additional benefits resulting from the proposed rule are difficult to quantify, but PHMSA believes that they could be significant. Foremost among these is improved public confidence. Public confidence in pipeline safety has been shaken by major incidents in recent years. Those incidents have generated concerns among public interest groups, the National Transportation Safety Board, and Congress, as well as the public at large, and have prompted PHMSA to issue several new regulations. Under current regulations, portions of gathering lines and low stress lines located in areas where product spills resulting from incidents could potentially cause environmental damage or other harm are not subject to pipeline safety regulations. This situation is not conducive to assuring the American public that safety regulations are being focused in a manner that provides them the maximum benefit. PHMSA believes it is very important that this situation be changed, so that the public can live, work, and congregate near pipelines and have increased confidence that their safety is assured. The proposed rules also may produce benefits by preventing disruptions in fuel supply caused by pipeline failures. Any interruption in fuel supply impacts the U.S. economy by putting upward pressure on the prices paid by businesses and consumers. Supply disruptions also have national security implications, because they increase dependence on foreign sources of oil. In most cases, we would not expect failures of onshore rural gathering lines to have significant impacts on fuel supply. However, low-stress pipelines in Alaska feeding major liquid pipelines are important links in the fuel supply chain, as recent incidents have illustrated. Other benefits expected to result from the proposed rule include avoided environmental and other damage from pipeline spills. These benefits can be significant. For example, on January 1, 1990, a low stress pipeline operated by Exxon ruptured and eventually spilled 567 thousand gallons of No. 2 fuel oil into the Arthur Kill, which separates Staten 19#

Page 20Island from New Jersey.25 The incident has a known cost of nearly $84 million (in 2005 dollars).26 While this figure includes costs attributable to the spill response by the responsible parties, the natural resources damage assessment, penalties, and “Other”, it does not include any public response costs or 3rd party claims against the responsible parties.27 If the proposed rule prevented only one incident similar to the Arthur Kill spill during the first 20 years, the overall benefits of the proposed rule could potentially increase by between 95% and 166%.28 6.3 Compliance Cost Estimates The operators of the lines impacted by the proposed regulatory changes are expected to incur costs attributable to the proposed rule. The following activities, which would be required under the proposed rule, are those most likely to give rise to new costs for impacted operators of rural onshore gathering and low stress lines: • Determine whether the lines are within 1 mile of a USA; • Implement corrosion control for steel pipes, as well as continuously monitor that pipe to identify any changes that could necessitate cleaning the lines and accelerating the corrosion control program; • Install and maintain pipeline line markers; • Implement a damage prevention program; • Implement a public education program; • Establish a maximum operating pressure (MOP) for steel pipes; • Report accidents and safety-related and make annual reports; • Meet design, construction, and testing requirements for steel gathering lines constructed, replaced, relocated, or otherwise changed; • Meet drug and alcohol testing requirements; • Demonstrate OQ compliance; • Establish an assessment integrity program (low stress pipelines only); and • Establish a leak detection program (low stress pipelines only). The costs associated with each of these are discussed below. 6.3.1 Determining Proximity to a USA 25 William H. Desvousges, Richard W. Dunford, and Kristy E. Mathews, “Natural Resource Damages Valuation: Arthur Kill Oil Spill,” Benefits Transfer: Procedures Problems, and Research Needs, 1992 Association of Environmental and Resource Economists Workshop, Snowbird, Utah (http://yosemite.epa.gov/EE/epa/eerm.nsf/vwSER/DC8A10F97FEDEF9D852565F000074420?OpenDocu ment). 26 This is figure was converted from $71,427,585 measured in 1997 dollars. 27 Douglas Helton and Tony Penn, “Putting Response and Natural Resource Damage Costs in Perspective,” Paper ID # 114, 1999 International Spill Conference (http://www.darrp.noaa.gov/library/pdf/costsofs.pdf). 28 The present value of an $83 million savings occurring once during 20 years using a 3% discount rate is $81 million if the avoided incident occurs during the first year and $46 million if the avoided incident occurs during the 20th year. 20#

Page 21The operators of rural onshore gathering lines would need to determine what parts, if any, of their systems meet the definition of “regulated rural onshore gathering lines.” Likewise, the operators of rural onshore low stress lines would need to determine what parts of their systems meet the definition of “regulated rural onshore low stress lines.” To determine the parts of their lines that meet the new definitions of regulated rural onshore gathering lines and regulated rural onshore low stress lines, pipeline operators will be need to determine (1) the nominal diameter of their lines; (2) the SMYS (or, alternatively, the operating pressure) of their lines; and (3) whether the distance from their lines to the nearest unusually sensitive areas is 440 yards or less. Determining the nominal diameter and the SMYS (or, alternatively, the operating pressure) should in most cases be a straightforward and a relatively simple exercise, and the associated costs should be minimal. However, in determining whether the distance from the pipeline to the nearest USA is 1 mile or less, pipeline operators will incur more substantial costs. No information is available on the cost of making that determination, and consequently it must be estimated. To determine if segments of their lines are within 440 yards of a USA, pipeline operators would be able to consult the National Pipeline Mapping System (NPMS),29 which is identified in Section IA of Appendix C of Part 195 as a source for locating USAs. PHMSA expects that the impacted rural onshore lines (gathering and low stress) are operated by major pipeline firms, and those firms will be familiar with this source. The Independent Petroleum Association of America (IPAA), a national trade association representing independent oil and gas producers, has estimated that it would cost its members approximately $500 per mile (2003 dollars) to perform the initial population surveys needed to comply with Federal pipeline safety regulations relating to defining regulated onshore gas gathering lines. This includes surveillance and photographing the line from aircrafts, and field verification of the purpose and occupancy of some buildings. IPAA further estimates that it would cost approximately $100 per mile (2003 dollars) for periodically recurring surveys to determine if changes in land use have resulted in new portions of the pipeline becoming regulated gas gathering lines. This work, it should be noted, was for determining the proximity of the pipelines to high consequence areas. USAs are only one type of high consequence area. PHMSA assumes that determining whether a pipeline is within 440 yards of a USA would cost $105 per pipeline mile (= $100 per pipeline mile converted from 2003 dollars to 2005 dollars) to perform initially. The required determinations are expected to be easier than those required for gas gathering lines. Furthermore, PHMSA assumes that it would cost $105 per pipeline mile to perform any subsequent recurring periodic re- determinations. For the purposes of this analysis, PHMSA assumes that 599 miles of rural onshore gathering lines and 924 miles of rural onshore low stress lines would need to be checked 29 The NPMS can be found at http://www.npms.rspa.dot.gov. 21#

Page 22initially to determine its proximity to USAs. Furthermore, PHMSA assumes that, after the initial check, few, if any, periodic checks would need to be made. (PHMSA acknowledges that new or expanded USAs are occasionally identified, but feels that it is unlikely that such will impact the 599 + 684 = 1,283 miles of pipeline.) Consequently, PHMSA expects the efforts of pipeline operators to determine the proximity of their impacted pipeline mileage to USAs to have a one-time cost of $135,000 (= 1,283 x $105). 6.3.2 Implementing Corrosion Control Measures Under the proposed regulatory change, impacted rural onshore gathering and low stress lines with steel pipes that will be required to meet the corrosion control regulations in subpart H. In addition, these operators will also be required to continuously monitor that pipe to identify any changes in operating conditions that could necessitate cleaning the lines and accelerating the corrosion control program. The operators of existing pipelines will have two years after the publication date of the final rule to bring their pipelines into compliance with those regulations. PHMSA expects that corrosion control is already being undertaken for a large portion of the mileage that would become regulated rural onshore gathering lines. Those pipelines are, by definition, the higher-pressure gathering lines. They are, thus, lines in which the operator has a significant economic investment, and a corresponding interest in asset protection. Protecting these lines from corrosion, a leading cause of pipeline failure, is an important economic consideration for operators. Implementing corrosion control processes and procedures when a pipeline is originally installed involves a relatively small incremental cost. This analysis assumes that the operators of 80% of all impacted gathering lines would already have implemented corrosion control for asset protection purposes and would not incur costs to install such protection as a result of this proposed rule. PHMSA expects that corrosion control is already being undertaken for a large portion of the mileage that would become regulated rural onshore low stress lines under the proposed regulatory changes. As with gas gathering lines, PHMSA believes that major pipeline companies generally operate the low stress lines that would be impacted by the proposed rule. Corrosion protection helps ensure that the pipelines are available to move product. For the purposes of this analysis, PHMSA assumes that operators of 90% of all impacted low stress lines would already have implemented corrosion control measures and would not incur costs to install such protection as a result of this proposed rule. Based on the foregoing, the total mileage on which new corrosion control measures must be implemented would be 188 miles (= 0.2 x 599 + 0.1 x 684). This estimate assumes, of course, that all of the pipeline mileage impacted by the proposed rule is composed of steel pipe. Industry is encouraged to comment on this assumption. Based on information from IPAA, the initial cost of corrosion control for gas gathering lines was estimated by PHMSA to be $14,615 per mile (2003 dollars), and the annual cost of corrosion control for gas gathering lines was estimated by PHMSA to be $382 per 22#

Page 23mile (2003 dollars). For the purposes of this analysis, the initial cost of corrosion control for impacted gathering and low stress lines is estimated to be $15,022 per mile (= $14,615 per mile converted from 2003 dollars to 2005 dollars), and the annual cost of corrosion control for impacted lines is also estimated to be $393 per mile (= $382 per mile converted from 2003 dollars to 2005 dollars). Industry is encouraged to comment on these cost estimates. The proposed regulatory changes would result in the implementation of new corrosion control measures on 188 miles of pipeline. The initial cost of the corrosion control measures would be approximately $2,824,000 (= 188 x $15,022). The recurring annual cost would be approximately $74,000 (= 188 x $393). All other pipeline that becomes regulated as a consequence of the proposed regulatory changes is already covered by corrosion control measures and, consequently, the proposed regulatory changes would result in no added costs to the operators of that pipeline. 6.3.3 Installing and Maintaining Line Markers Line markers involve initial installation costs and annual maintenance costs. PHMSA estimates that the costs of installation and maintenance is approximately $50 per marker (2003 dollars). For regulated hazardous liquid pipelines, according to 49 CFR § 195.410, markers must be installed at each crossing of a public road and railroad and elsewhere along the buried line so that its location is accurately known. For gas gathering lines, IPAA has estimated that approximately 10 markers are needed per mile of pipeline. PHMSA believes that this number of line markers would also be appropriate for rural onshore gathering and low stress lines. Consequently, PHMSA estimates that the installation of line markers would cost the operators of gathering and low stress line $500 per mile (2003 dollars). Pipelines must be surveyed on an ongoing basis to verify the condition of the markers. A portion of the markers is likely to be damaged or faded and, consequently, to require replacement. For gas gathering lines, IPAA estimated that it costs $80 per mile (2003 dollars) each year to survey the condition of the line markers and that 10% of the markers (i.e., 1 per mile) must be replaced annually. PHMSA believes that this would also hold true for rural onshore gathering and low stress lines. Consequently, the maintenance of line markers would have an estimated annual cost of $134 per mile (= $80 + 0.1 x $500 converted from 2003 dollars to 2005 dollars). Installation of line makers would have an estimated cost of $514 per mile (= $500 converted from 2003 dollars to 2005 dollars). Damage by excavation is one of the two leading causes of pipeline accidents. Operators of gathering and low stress lines have an economic interest in marking their pipelines to protect them from excavation damage, and PHMSA presumes that many unregulated pipelines are marked. In fact, “Pipeline Transportation Systems for Liquid Hydrocarbons and Other Liquids” (ASME B31.4), an industry consensus standard followed widely throughout the hazardous liquid pipeline industry, calls for the installation and maintenance of line markers on pipelines. PHMSA believes that most pipeline markers 23#

Page 24used for this purpose would comply with the proposed rule, since the marking requirements in the regulations have become a common standard. PHMSA estimates that new line markers would be required for only 10% of the mileage that will become regulated under the proposed rule, or 128 miles (= 0.1 x 1283). The initial costs to install these markers are estimated to be $66,000 (= 128 x $514). The recurring costs to monitor and replace markers for this mileage would be $17,000 (= 128 x $134). 6.3.4 Implementing Damage Prevention Programs Implementing a damage prevention program involves membership in a one-call program. Most states require all pipeline operators, including operators of lines not subject to Part 195, to belong to one-call programs. Operators participating in one-call programs must respond to calls reporting the intent of others to excavate near their pipelines by either screening the calls (i.e., determining that the proposed excavation is not sufficiently close to the pipeline to be of concern) or marking their lines. The costs of such a program depend on the number of calls or tickets that an operator experiences annually. For gas gathering lines, IPAA estimated that its members could expect 20 tickets per mile each year, at a cost of $1 per ticket (2003 dollars). IPAA estimated the cost to screen and locate pipeline at $10 per ticket (2003 dollars). (This cost is relatively low because screening can often be performed from available records without the need for a more costly site visit). IPAA therefore estimated that the total annual cost per mile for implementing a damage prevention program was $220 (2003 dollars). PHMSA assumes that the total annual cost per mile for rural onshore gathering and low stress line damage prevention programs would be $226 (= $220 converted from 2003 dollars to 2005 dollars). PHMSA notes that this estimate may be high, since the IPAA estimate appears more appropriate for a populated area, rather than the rural areas in which the impacted gathering and low stress lines will be located. Only Colorado and Kansas have no requirement for participation in one-call programs. Furthermore, Oklahoma’s requirements do not apply to all pipeline operators. The number of miles of pipelines in these three states that would be impacted by the proposed regulatory change is unknown and must be estimated. AOPL notes that the majority of crude oil gathering lines are located in the states of Texas, Oklahoma, Louisiana, and Wyoming, “with small systems in a number of oil producing states.”30 For the purposes of this analysis, PHMSA assumes that 25% of the 1,283 miles of pipeline that would be impacted under the proposed regulatory changes are located in Oklahoma, Colorado, and Kansas. That is, PHMSA assumes that 321 miles of rural onshore gathering and low stress lines would need to be brought into a one-call system. This would appear to be a fairly conservative assumption, since it is unlikely that such a high percentage of the impacted lines are located in the three states. PHMSA invites comments on this assumption. In total, PHMSA expects that the damage prevention program requirement would cost the operators of the crude oil gathering lines that would become regulated pipelines under the proposed regulatory changes approximately $73,000 (= 321 x $226) annually. 30 See “How Many Pipelines are There?” at http://www.pipeline101.com/Overview/energy-pl.html. 24#

Page 256.3.5 Implementing Public Education Programs In informal conversations regarding gas gathering lines, IPAA estimated that a public education program would cost each of its members $5,000 annually (2003 dollars). This would imply that the costs are the same regardless of how much mileage a company operates. PHMSA agrees that there are some fixed costs associated with such a program, but also considers that costs will vary with the number of miles involved. More mileage will lead to additional needs to identify and meet with local government officials, excavators, etc. PHMSA has no specific data concerning what the per-mile costs would be. As mentioned previously, PHMSA expects that major pipeline firms to operate the gathering and low stress lines impacted by the proposed regulatory changes. Those firms have or are in the process of establishing public education programs covering their currently regulated lines. Furthermore, an existing pipeline industry consensus standard, the American Petroleum Institute’s standard 1162, “Public Awareness Programs for Pipeline Operators,” provides guidance for the development, implementation, and evaluation of public awareness programs (i.e., of public education programs).31 Based on the foregoing, it is reasonable to assume that the operators of all lines (gathering and low stress) impacted by the proposed regulatory changes are currently incurring the costs associated with public education programs. Additionally, currently existing public education programs may already cover at least some of the lines. Some additional costs may be incurred by the operators of the lines impacted by the proposed regulatory changes, and those costs will be associated with (1) the identification of entities in close proximity to the newly regulated segments and (2) the delivery of public information messages to those entities at appropriate time intervals. Based on information provided by IPAA and informal discussions with gas gathering line operators, PHMSA has previously estimated that public education programs would cost Type B gas gathering lines $168 per mile per year (2003 dollars). For the purposes of this analysis, PHMSA estimates the cost of public education for rural onshore gathering and low stress lines to be $173 per mile per year (= $168 converted from 2003 dollars to 2005 dollars). The total cost of public education for the 1,283 miles of impacted lines that would become regulated under the proposed regulatory changes is therefore expected to be $222,000 (= $173 x 1,283) per year. PHMSA notes that this estimate may be high, since the IPAA bases its estimate upon what appears to be more appropriate for a populated area, rather than the rural areas in which the impacted gathering and low stress lines will be located. 6.3.6 Establishing a Maximum Operating Pressure (MOP) Establishing MOP does not generally require any physical work along the pipeline. Instead, it involves a review of pipeline records to identify the pressures for which the pipeline was designed. For some pipelines, especially those that may have changed 31 A copy can be found at http://committees.api.org/pipeline/standards/docs/1162nonprintable.pdf. 25#

Page 26hands, this may require locating the appropriate records. For other pipelines, no new costs would be required, since information on the MOP would be readily available. For the purposes of this analysis, PHMSA assumes that the total costs of establishing the MOP would be minimal. 6.3.7 Reporting Under the proposed regulatory changes, operators of rural onshore gathering and low stress lines would need to report any accidents that occurred on their impacted lines, as well as any safety-related conditions. Operators would also be required to file annual reports covering pipe inventory and leaks repaired. PHMSA expects the costs of the required reporting to be nominal. Furthermore, the majority of those costs would likely be incurred only when a reportable accident has occurred or a safety-related condition has been discovered. It should be noted that operators will often prepare reports when they have an accident or safety-related condition for their own purposes. Additionally, some reports on accidents may be required for other agencies of the Federal government, such as the U.S. Occupational Safety and Health Administration or the U.S. Environmental Protection Agency and by state and/or local agencies. Finally, reports on accidents may be required from pipeline operators for insurance purposes. As a consequence, PHMSA is confident that costs related to reporting accidents and safety-related conditions would be insignificant. With respect to annual reports, PHMSA believes that the required information should be readily available to the operators. Good business practice would require that operators keep track of their pipe inventory and leaks repaired. Furthermore, major pipeline firms are expected to be the operators of the impacted crude oil gathering and low stress lines, and they will already be submitting annual reports. Adding information to those reports for the impacted lines should be a trivial matter. 6.3.8 Meeting Design, Construction, and Testing Requirements Steel lines constructed, replaced, relocated, or otherwise changed would need to be designed, installed, constructed, initially inspected and tested in accordance with the requirements of Part 195. Since the rural lines that would be impacted by the proposed rule are not currently regulated under Part 195, the costs associated with this requirement are unknown. Furthermore, the frequency with which they would be incurred is also unknown. That frequency would depend on the rates at which (1) new steel lines are constructed and (2) existing steel lines are replaced, relocated, or otherwise changed. These are also unknown. PHMSA notes that safety requirements addressing design, construction, and testing that similar to those in the proposed regulatory change are included in ASME B31.4, a 26#

Page 27consensus standard followed widely throughout the hazardous liquid pipeline industry. Consequently, PHMSA expects the added costs resulting from the proposed regulatory changes to be minimal. For the purposes of this analysis, they are assumed to be $0. PHMSA invites comments on this assumption. 6.3.9 Meeting Drug and Alcohol Testing Requirements Rural onshore gathering and low stress lines impacted by the proposed rule would be subject not only to Part 195, but also to the drug and alcohol testing requirements found in 49 CFR Part 199. Part 199 requires that operators of pipelines subject to Part 195 test personnel for use of prohibited drugs and misuse of alcohol. Personnel subject to testing are those who perform a regulated operation, maintenance, or emergency-response function on a regulated pipeline. The costs of this would include: (1) the costs of developing a testing plan, (2) the costs of testing; (3) the costs of recordkeeping associated with the testing; and (4) the costs of reporting. Since PHSMA expects that major pipeline firms operate the pipelines that would become regulated as a consequence of the proposed rule, these costs would be minimal. A testing plan would already exist for the pipeline firm. So would any additional costs attributable to recordkeeping or reporting requirements. The amount of additional testing needed as a consequence of the proposed regulatory changes is unknown. It is likely, however, that employees performing regulated functions are already being tested, either because the companies view such as good business practice or because the employees working on the currently unregulated gathering and low stress lines also perform the same functions on regulated pipelines. For the purposes of this analysis, PHMSA assumes that there are no initial costs attributable to meeting the drug and alcohol testing requirements, and that any recurring costs will be negligible. PHMSA invites comments on this assumption. 6.3.10 Demonstrating OQ Compliance The operators of the impacted gathering and low stress lines would need to demonstrate that they are in compliance with the OQ program requirements found in subpart G of 49 CFR Part 195. To do this, the operators of the line would need to detail the processes they use to determine the qualification of persons performing certain operations and maintenance tasks. OQ is basically an industry standard. The operators of the impacted gathering and low stress lines, all of which PHMSA expects to be major pipeline firms, will be thoroughly familiar with the OQ requirements. Furthermore, because major pipeline firms operate the lines, it is likely that OQ is already being used for personnel involved in the operations and maintenance of those lines. It also might be noted that Congress has recognized that compliance with OQ rules might not be suitable in all situations. As a consequence, it specifically allows DOT and State pipeline safety agencies to waive OQ requirements if not inconsistent with pipeline safety 27#

Page 28(49 U.S.C. 60131(e)(5) and (f)). Operators who can show compliance with OQ rules is excessive or otherwise inappropriate in particular situations may petition PHMSA or a State pipeline safety agency for a waiver of any of the rules (49 U.S.C. 60118(c) and (d)). The rural gathering lines of operators that successfully applied for a waiver would not be required to comply with the OQ rules. For the purposes of this analysis, PHMSA assumes that the cost of OQ compliance attributable to the proposed rule will be nominal. PHMSA invites comments on this assumption. 6.3.11 Establishing an Integrity Assessment Program Operators of regulated rural onshore low stress lines would need to establish an integrity assessment program using in-line inspection tools, direct assessment, pressure testing, or other appropriate technology to assess the integrity of the regulated pipeline segments Periodic assessment would be required Table 2 presents estimates of the costs for hazardous liquid pipelines of the three primary methods used to assess pipeline integrity. Those methods are; (1) in-line inspection; (2) hydrostatic testing; and (3) direct assessment. The three are all mentioned in the proposed rule. Table 2. Pipeline Inspection Costs Per Mile (1998 Dollars) Cost Category High Estimate Low Estimate In-Line Inspection Cost of preparing line $27,300 $6,800 Cost of in-line inspection $3,500 $2,000 Hydrostatic Testing Cost of preparing line $5,000 $1,250 Cost of hydrostatic testing $92,160 $27,650 Direct Assessment Cost of preparing line $0 $0 Cost of direct assessment $6,000 $2,000 Source: Appendix E, "Gas and Liquid Transmission Pipelines" by Neil Thompson, part of the Cost of Corrosion Study for FHWA (see http://www.corrosioncost.com/infrastructure/gasliquid/index.htm). For the purposes of this analysis, PHMSA assumes that 50% of the mileage (i.e., 342 = 684 / 2 miles) will be periodically evaluated using the lowest cost procedure, direct assessment, while 50% of the mileage (= 342 miles) will be periodically evaluated using in-line inspection. Furthermore, with respect to direct assessment, PHMSA assumes that the cost per mile to perform direct assessment will be $4,649 (= $4,000 - the mid-point of the $2,000 to $6,000 range - converted from 1998 dollars to 2005 dollars). With 28#

Page 29respect to in-line inspection, PHMSA assumes that the cost per mile to prepare a line for in-line inspection will be $19,535 (= $17,050 - the mid-point of the $6,800 to $27,300 range - converted from 1998 to 2005 dollars), while the cost per mile to perform in-line inspection will be $3,084 (= $2,750 - the mid-point of the $2,000 to $3,500 range - converted trom 1998 to 2005 dollars). The cost to prepare a line for in-line inspection is incurred only once. Based on the foregoing, the periodic cost of direct assessment on 342 miles of lines will assessment. The periodic cost of in-line inspection on 342 miles of lines will be se approximately $1,590,000 (= 342 x $4,649). There will be no initial cost for direct approximately $1,055,000 (= 342 x $3,084). The initial cost of in-line inspection on 342 miles of lines will be approximately $6,681,000 (= 342 x $19,535). PHMSA assumes that all impacted low stress pipeline mileage would be assessed, on average, once every 6 years (or, put another way, 1/6" of the mileage would be assessed every year). Consequently, the annual cost for pipeline inspection would be approximately $441,000 (= $1,590,000 / 6 + $1,055,000 / 6). The initial cost of in-line inspection would be incurred over the first 6 years, so the operators choosing that method would experience a cost of approximately $1,113,000 (= $6,681,000 / 6) during each of those years. 6.3.12 Establishing a Leak Detection Program Operators of "regulated rural onshore low stress lines" would need to establish a leak detection program for the regulated portions of their lines based on API 1130, "Computational Pipeline Monitoring," published by the American Petroleum Institute. API 1130 represents good industry practice with respect to leak detection. Furthermore, on July 6, 1998, a final rule was published requiring operators of hazardous liquid pipelines to use API 1130 in conjunction other information in designing, evaluating, operating, maintaining, and testing software-based leak detection systems. Based on the foregoing, PHMSA expects that leak detection systems based on API 1130 have been established for the major pipelines. Furthermore, PHMSA notes that the operators of regulated low stress lines are expected to be the major pipelines. Consequently, PHMSA expects the added costs resulting from the proposed requirement to be minimal. For the purposes of this analysis, they are assumed to be SO. PHMSA invites comments on this assumption. 6.3.13 Cost Summary Table 3 presents a summary of the costs expected to be attributable to the proposed regulatory changes. As indicated in the table, there would be a cost of nearly $5 million in the first year, the majority of which is due to the need to implement corrosion control. During the second through sixth years, there would be an annual cost of approximately $2 million, the majority of which is due to the integrity assessment program requirement. Finally, beginning in the seventh year, there would be an annual cost of nearly $1 million. 29#

Page 30The largest portion of that cost would be attributable to the integrity assessment program requirement. Table 3. Estimated Additional Costs Due to the Proposed Regulatory Changes Cost Component Unit Cost per Mile Additional Costs (In thousands of dollars) Initial Recurring Year 1 Years 2 Years 7 and Costs Costs through 6 on Proximity to a USA $105 $0 $135 $0 $0 Line Markers Corrosion Control $15,022 $393 $2,824 $74 $74 $514 Damage Prevention $226* $134 $226 $66 $17 $17 $73* $73 $73 Public Education $173* $173 $222* $222 $222 MOP NA Negligible $0 $0 $0 Reporting NA Negligible $0 $0 $0 Pipeline Design, $0 $0 $0 $0 $0 Construction, and Testing Drug and Alcohol $0 Negligible $0 $0 $0 Testing Qualification Operator Negligible Negligible $0 $0 $0 Integrity Various*+ Varioustt $1,554* $1,554** $441 Assessment Program Leak Detection $0 $0 $0 $0 $0 Program Total $4,874 $1,940 $827 Notes: NA = Not applicable * = Recurring costs will be incurred in the initial year, as well as in all subsequent years. *= So for operatori boing dide ascen, 5953 for operators to sing in line inspection. ti = $4,649 for operators choosing direct assessment, $3,084 for operators choosing in-line inspection. As indicated in Table 4, the present value of the costs over 20 years is estimated to be $21 million at a discount rate of 3% and $17 million at a discount rate of 7%. These estimates assume the outlays shown at the bottom of Table 3. 30#

Page 31Table 4. Total Compliance Costs of the NPRM Over Time (All costs given in thousands of dollars) Present value over 20 Present value over 20 years at years at 3% discount rate 7% discount rate $21,182 $16,808 For ease of computation, all costs used to estimate the values in Table 4 are assumed to begin at the same time. In reality, however, operators would not be required to begin all of the proposed requirements at the same time. 6.4 Comparison of Benefits and Costs The estimated benefits for the proposed rule are expected to be approximately $49 million over 20 years assuming a 3% discount rate and approximately $35 million over 20 years assuming a 7% discount rate. These benefits do not represent all of the benefits, but only those that could be monetized. The costs are expected to be approximately $21 million over 20 years assuming a 3% discount rate and to exceed $17 million over 20 years assuming a 7% discount rate. As a consequence, the proposed rule is expected to be cost beneficial, with a benefit-cost ratio of between 2.3 (with the 3% discount rate) and 2.1 (with the 7% discount rate). In considering this result, it should be kept in mind that some benefits of the proposed rule could not be monetized. 7. SUMMARY AND CONCLUSIONS PMHSA is proposing to define rural onshore hazardous liquid gathering lines meeting certain conditions as regulated rural onshore gathering lines, and rural onshore hazardous liquid low stress lines as regulated rural onshore low stress lines. These lines would become subject to safety regulations in Part 195 covering, among other things, (1) design, construction, and testing, (2) maximum operating pressure, (3) corrosion control, (4) damage prevention, (5) public education, and (6) the reporting of accidents and safety- related conditions. This is expected to improve the safety performance, as well as the public confidence in the safety of rural onshore lines. Overall, the benefits of the proposed regulatory changes are expected to be $3.3 million annually. This includes only some of the benefits, since many benefits cannot be quantified. The present value of those benefits that could be quantified for a 20-year period using a 3% discount rate would be approximately $49 million, while its present value for a 20-year period using a 7% discount rate would be approximately $35 million. Overall, the costs of the proposed regulatory changes are expected to be approximately $5 million in the first year, $2 million in the second through the sixth years, and $1 million in all subsequent years. The present value of this cost over 20 years using a 3% 31#

Page 32discount rate would be approximately $21 million, while its present value over 20 years using a 7% discount rate would be $17 million. Comparing the benefits and costs, it is obvious that the proposed rule is cost-beneficial. The benefit-cost ratio for the proposed rule is between 2.3 (with the 3% discount rate) and 2.1 (with the 7% discount rate), indicating that the expected benefits of the proposed rule exceed its costs. 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. Need for the Notice of Proposed Rulemaking: With respect to gathering lines, Congress granted DOT the authority to regulate a class of rural gathering lines called “regulated gathering lines” with the Pipeline Safety Act of 1992 (Pub. L. 102-508). Congress left the definitions of “gathering lines” and “regulated gathering lines” to DOT to develop (see 49 U.S.C. 60101(b)(1)(A) and 49 U.S.C. 60101(b)(2)(A)). In the Accountable Pipeline Safety and Partnership Act (Pub. L. 104-304), Congress amended the requirement to define “regulated gathering lines” by adding the words “if appropriate.” Congress also gave DOT authority to collect information from gathering line operators related to deciding whether and to what extent to regulate rural gathering lines. With respect to low stress lines, beginning in 1991, Congress paid greater attention to the risks that hazardous liquid and natural gas pipelines pose to the environment. In the Pipeline Safety Act of 1992 (Pub. L. 102-508), Congress gave DOT greater authority to protect the environment from risk that pipelines pose. Congress continued to emphasize the need to better protect the environment from the risks pipelines pose in the Accountable Pipeline Safety and Partnership Act of 1996 (Pub. L.104-304). As a consequence of the Congress’ safety concern, as indicated by the foregoing, by comments received from various stakeholders, and by accident data suggesting that corrosion and excavation damage are the two greatest threats to rural onshore gathering and low stress lines, PHMSA believes that the potential for future harm to the environment from rural onshore gathering and low stress lines is clear. Furthermore, PHMSA believes that the present exemption of rural onshore gathering and low stress lines from nearly all safety regulations in 49 CFR Part 195 is no longer appropriate. The proposed rulemaking aims amend 49 CFR Part 195 in order to (1) fulfill Congress’ statutory mandate as it relates to gathering lines and (2) respond to Congress’s concerns with respect to the risks to the environment posed by pipelines. Description of Actions: 195. For rural onshore gathering lines – PMMSA is proposing the following changes to 49 CFR Part 32#

Page 33• Include the higher-risk rural onshore gathering lines in a new definition of “regulated rural onshore gathering lines;” • Require operators of “regulated rural onshore gathering lines” to follow safety rules for design, construction, testing, and maximum operating pressure; • Require operators of “regulated rural onshore gathering lines” to protect those pipelines from corrosion and excavation damage; • Require operators of “regulated rural onshore gathering lines” to install and maintain line markers; • Require operators of “regulated rural onshore gathering lines” to undertake public education programs; • Require operators of “regulated rural onshore gathering lines” to demonstrate OQ compliance; and • Require operators of “regulated rural onshore gathering lines” to report accidents and safety-related conditions and to make annual reports. For rural onshore low stress lines: • Include the higher-risk rural onshore low stress lines in a new definition of “regulated rural onshore low stress lines;” • Require operators of “regulated rural onshore low stress lines” to follow safety rules for design, construction, testing, and maximum operating pressure; • Require operators of “regulated rural onshore low stress lines” to protect those pipelines from corrosion and excavation damage; • Require operators of “regulated rural onshore low stress lines” to install and maintain line markers; • Require operators of “regulated rural onshore low stress lines” to undertake public education programs; • Require operators of “regulated rural onshore low stress lines” demonstrate OQ compliance; • Require operators of “regulated rural onshore low stress lines” to report accidents and safety-related conditions and to make annual reports; • Require operators of “regulated rural onshore low stress lines” to establish an integrity assessment program; and • Require operators of “regulated rural onshore low stress lines” to establish a leak detection program based on API 1130. Identification of potentially affected small entities: This proposed rule would affect operators of (1) rural onshore gathering lines and (2) rural onshore low stress lines. The number of operators impacted by the proposed rule is unknown and must be estimated. Furthermore, the size of the operators impacted by the proposed rule is also unknown and, consequently, must also be estimated. Gathering line operators belong primarily to the North American Industry Classification System (NAICS) 486110, Pipeline Transportation of Crude Oil. In accordance with size 33#

Page 34standards published by the Small Business Administration, a business with 1,500 or fewer employees is considered a small entity in this NAICS. 32 Depending on the products being transported, low stress line operators belong to the NAICS 486110, Pipeline Transportation of Crude Oil, or NAICS 486910, Pipeline Transportation of Refined Petroleum Products. For both NAICS codes, a business with 1,500 or fewer employees is considered a small entity. The proposed rule applies to rural onshore gathering lines that • Have a nominal diameter of 6 5/8 inches or more; • Operate at a stress level of more than 20% of SMYS during normal operation or, if the stress level is unknown or the pipeline is not constructed using steel pipe, at a pressure of more than 125 psig; and • Are within 440 yards of an unusually sensitive area as defined in 49 CFR § 195.6. It also applies to rural onshore low stress lines that • Have a nominal diameter of 8 5/8 inches or more; • Operate at a stress level of less than 20% of SMYS during normal operation or, if the stress level is unknown or the pipeline is not constructed using steel pipe, at a pressure of less than 125 psig; and • Are within 440 yards of an unusually sensitive area as defined in 49 CFR § 195.6. PHMSA expects that major petroleum pipeline companies operate the gathering lines operating at more than 20% of SMYS (or alternatively at 125 psig). According to information in the Oil & Gas Journal Data Book, 2005 Edition, 35 major petroleum pipeline operators have crude oil gathering lines. In total, 33 of the operators were reported to have 14,187 miles of crude oil gathering lines (no information was available on the gathering line mileage of the 2 other operators). 33 On average, the 33 operators each had 430 miles of crude oil gathering lines. For the purposes of this analysis, it is assumed that the 35 firms identified as major petroleum pipeline operators with crude oil gathering lines all have more than 1,500 employees. PHMSA expects that major petroleum pipeline companies also operate the low stress lines with a nominal diameter of 8 5/8 inches or greater, since those lines transport aviation fuel and other refined products, as well as some crude oil. PHMSA expects that the number of major petroleum pipeline operators with low stress lines will be comparable to the number with crude oil gathering lines. The exact number of operators with low stress lines, however, is unknown. For the purposes of this analysis, it is assumed that between 30 and 40 firms operate low stress hazardous liquid lines, and all have more than 1,500 employees. There will be some overlap between the operators with 32 http://www.sba.gov/size/sizetable.pdf 33 Warren R. True and Jeannie Stell, “Special Report: Pipeline Economics,” Oil & Gas Journal Data Book, 2005 Edition, PennWell Corp., Tulsa, OK, 2005, pp. 78-80. 34#

Page 35low stress lines and the operators with gathering lines, it might be noted, but the extent of that overlap is unknown. As a consequence of the foregoing, the proposed rule is expected by PHMSA to impact no small operators. This NPRM would not result in a significant adverse economic impact on any small entities. Related Federal rules and regulations: With respect to the safety of the transportation of hazardous liquids, there are no related rules or regulations issued by other department or agencies of the Federal Government. 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 Congressionally mandated definition for crude oil gathering lines, it is not possible to establish exceptions or differing standards and still accomplish the objectives of Congress. Conclusion: It can be concluded that this NPRM does not apply to a substantial number of small entities. Furthermore, no small entities are expected to experience a significant adverse economic impact as a result of the NPRM. 35#