U.S. DOT/PHMSA - Regulatory Assessment

Page 1R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t _______________________________________ Regulatory Assessment Regulatory Flexibility Analysis Paperwork Reduction Act Analysis Draft Regulatory Evaluation Notice of Proposed Rulemaking Pipeline Safety: Applicability of Public Awareness Regulations to Certain Gas Distribution Operators [Docket No. PHMSA-2003-15852] September 2006#

Page 2R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t Regulatory Analysis 1. INTRODUCTION Current rules require pipeline operators to develop and implement public awareness programs based on the provisions of the American Petroleum Institute’s (API’s) Recommended Practice RP-1162, Public Awareness Programs for Pipeline Operators. Under the proposed rulemaking, the Pipeline and Hazardous Materials Safety Administration (PHMSA) is proposing regulatory change with respect to public awareness programs. PHMSA is proposing that operators of master meter and petroleum gas systems whose primary business is not the distribution of gas be relieved of all requirements for public awareness programs except communication with their customers. These proposed changes reduce the regulatory burden on the impacted operators without reducing pipeline safety. 2. BACKGROUND PHMSA has long recognized the intersection of public awareness, pipeline communications, and pipeline safety. Effective public awareness programs can increase awareness of the risks caused by unintentional pipeline releases and their impact on the public and the environment. Public awareness programs help outline the steps that can be taken to prevent or mitigate those risks. These programs can also improve excavation damage prevention, reduce encroachment on pipeline rights-of-way, improve pipeline safety, and enhance emergency response. To facilitate public awareness and thereby enhance public safety, PHMSA published a final rule on public awareness programs on May 19, 2005 (70 FR 28833). That rule, which requires operators to have public awareness programs based on API RP-1162, covers the gas and hazardous liquid pipelines under the regulatory jurisdiction of PHMSA. This rule proposes regulatory relief from most public awareness requirements for master meter systems and certain petroleum gas systems. 3. APPLICABILITY OF PUBLIC AWARENESS REQUIREMENTS TO MASTER METER OPERATORS AND CERTAIN PETROLEUM GAS SYSTEMS Master meter systems purchase metered gas from local natural gas distribution systems or other outside sources for distribution to consumers through a gas distribution pipeline system. They are generally small operations. The distribution of gas is an incidental part of the operator’s primary business, which is often property rental or management.1 1 For a more complete discussion of master meter systems, see “Assessment of the Need for an Improved Inspection Program for Master Meter Systems,” A Report of the Secretary of Transportation to Congress, prepared pursuant to Section 108 of Public Law 100-561, January 2002 at 2#

Page 3R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t The American Public Gas Association (APGA) filed a petition for reconsideration of the public awareness program regulations, seeking modification of the requirements of master meter systems. The APGA argued, essentially, that requiring master meter systems to have public awareness programs was unnecessary, because of the public awareness programs of the local gas distribution companies that supply the master meter systems. The APGA was concerned that the duplication of effort would confuse some master meter customers, as well as local emergency responders. It was feared that neither would know whom exactly they should contact or be dealing with in the case of an emergency. PHMSA agrees with the APGA’s concern, but not with its suggested alternatives. While the local gas distribution company will provide information to the customers of the master meter systems to which it sells gas, the master meter operator needs to provide information to its gas customers concerning itself and how to notify it in case of an emergency. With respect to other aspects of public awareness programs, master meter operators have a longstanding exception from some communication requirements in damage prevention regulations (see 49 CFR 192.614(e)). Furthermore, master meter operators have an obligation under 49 CFR 192.615 to maintain liaison with local emergency responders. PHMSA notes, however, that master meter operators lack the expertise of the local gas distribution company in pipeline safety issues needed to effectively conduct the more extensive public awareness program requirements with emergency responders, local officials, excavators, and the general public. For this reason, PHMSA is proposing to relieve master meter system operators of these additional requirements. PHMSA is proposing to relieve certain operators of petroleum gas systems of the additional public awareness program requirements, as well. Those receiving this relief would be those, like master meter systems, whose operation is incidental to their primary business. It should be noted that some petroleum gas systems would not be given relief from the additional requirements. Many petroleum gas system operators are functionally equivalent to local natural gas distribution systems. The primary business of these operators is gas distribution, they are staffed by qualified pipeline professionals, and they possess the pipeline safety expertise necessary to successfully carry out a public awareness program. 4. RATIONALE FOR REGULATORY ASSESSMENT All proposed and final Federal regulations must undergo an economic analysis. Executive Order 12866 directs all Federal agencies to develop both preliminary and final regulatory analyses if their proposed regulations are likely to be “significant regulatory actions” that may have an annual impact on the economy of $100 million. The Order also requires a determination as to whether a proposed rule could adversely affect the economy or a section of the economy in terms of productivity and employment, the environment, public health, safety, or State, local or tribal governments. In accordance http://ops.dot.gov/pubs/Mastermeter.pdf. 3#

Page 4R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t with the regulatory philosophy and principles provided in Sections 1(a) and (b) and Section 6(a) (3) (C) of Executive Order 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. In accordance with the above directives, PHMSA 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 practicable, this is based on the available data and information from a range of pertinent sources. PHMSA estimates that the impact of implementing the rule will be less than $100 million annually, and that the rule will not adversely affect the economy or a section of the economy in terms of productivity and employment, the environment, public health, safety, or State, local or tribal governments. PHMSA also determined, as required by the Regulatory Flexibility Act, that the proposed rule will not have a significant adverse economic impact on a substantial number of small entities in the United States. 5. ALTERNATIVES CONSIDERED PHMSA had two basic options: (1) continue to require master meter operators and other pipeline systems with similar characteristics to conform to the full set of requirements for public awareness programs or (2) identify a reduced set of requirements for master meter operators and other pipeline systems with similar characteristics. After due consideration, PHMSA concluded that it could reduce the public awareness program requirements for master meter operators without compromising safety. In fact, PHMSA concluded that continuing to require master meter operators to conform to the full set of requirements might be confusing for the customers of the master meter systems, and thus deleterious to safety, since those would be receiving public awareness program information from two distinctly different sources: (1) the master meter operator and (2) the local gas distribution system operator. Furthermore, PHMSA concluded that reducing the public awareness program requirements for master meter operators would provide those operators with regulatory relief in the form of lower costs. Since the second option would allow PHMSA to relieve the some of the cost burden on master meter operators without compromising safety, it was selected and the first option was given no further consideration. 6. ECONOMIC ANALYSIS In its proposed rule on the Applicability of Public Awareness Regulations to Certain Gas Distribution Operators, PHMSA is amending 49 CFR 192.616. The amendment to 49 CFR 192.616 states that the operators of master meter systems and petroleum gas systems, except those that transport gas as a major part of its business, are not required to develop a public awareness program, but instead must develop and implement a written procedure to provide its customers public awareness messages twice annually. 4#

Page 5R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t 6.1 In the remainder of this section, the impacted industry is identified, and then the economic impact of the regulatory changes is considered. Impacted Industries, Including Identification and Characteristics of the Potentially Affected Industries The proposed amendments will apply to master meter systems and certain petroleum gas systems. PHMSA estimates that 20,000 master meter and petroleum gas systems would be impacted by the proposed amendments.2 Master meter systems purchase metered gas from local natural gas distribution systems, the local public utilities providing gas to final consumers, or other outside sources for resale through a gas distribution pipeline system. For the purposes of this analysis, all master meter and similar petroleum gas systems are assumed to be small entities. 6.2 Impact The proposed regulatory change will impact pipeline operators’ public awareness activities. The expected costs and benefits of the proposed regulatory change are discussed below. 6.2.1 Costs The proposed regulatory changes impose no additional costs on the impacted operators. Rather, the proposed regulatory changes reduce the impacted operators’ costs of compliance with an existing regulation. 6.2.2 Benefits The benefits attributable to the proposed rule would be those associated with the exemption of master meter and certain petroleum gas systems from most of the public awareness program requirements in API RP-1162. For a pipeline operator to develop the required public awareness program, the first step would be to compare its current activities with respect to public awareness with the guidelines presented in RP-1162. That is, the operator would essentially need to perform a “gap analysis.” Following the gap analysis, the operator would need to develop procedures to fill in where gaps are determined to exist. After that is completed, the operator would need to assemble a document laying out its public awareness program. That document would then be submitted to PHMSA as required by current regulations. These actions would only need to be undertaken once. 2 The exact number of master meter and petroleum gas systems is unknown. Data received by PHMSA from 45 state pipeline safety agencies in 2004 shows over 6,972 master meter systems, while data received from 35 state pipeline safety agencies in 2004 shows over 926 petroleum gas systems. Because master meter systems and smaller petroleum gas systems are not required to file annual reports with PHMSA, these figures must be viewed as lower bounds, not upper bounds, on the total number of master meter and petroleum gas systems. 5#

Page 6R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t On November 25, 2003, PHMSA issued an Advisory Bulletin notifying pipeline operators that they must complete and submit self-assessments of their public awareness programs to PHMSA or the appropriate State agency by December 17, 2003. Those self- assessments included questions aimed at comparing the operators’ programs with RP- 1162.3 The operators who performed the self-assessments have effectively completed their gap analyses. PHMSA believes that approximately 50 percent of the master meter and petroleum gas system operators have performed these self-assessments. Assuming that the review of RP-1162, a 70-page document, will take approximately 40 labor hours by senior engineering staff and that a senior engineer working for a pipeline operator has a fully loaded cost of $65.07 per hour,4 the cost of reviewing RP-1162 is estimated to be: 40 hours x $65.07 = $2,602.80 per pipeline operator. As mentioned before, it is assumed that 50 percent of the small operators, or about 10,000 master meter system operators, would need to review RP-1162 and conduct a gap analysis as a direct consequence of the proposed rule. The estimated cost of this gap analysis is: $2,602.80 x 10,000 = $26,028,000. This is a one-time cost that is incurred at the start of the process of developing a public awareness program. For master meter and petroleum gas systems, it is assumed that developing and implementing the necessary changes to system operations would be trivial once a gap analysis had been performed. Consequently, the cost of the gap analysis represents the total cost (development and implementation) for master meter and petroleum gas systems. The other costs associated with the program are assumed to be minimal. Under the current regulations, master meter and petroleum gas system operators will be expected to expend over $26 million to bring their systems into compliance with the current public awareness program regulations. Under the proposed regulatory change, system operators would realize a cost saving, since this expenditure would no longer be required. Thus, the proposed regulatory change would be expected to provide over $26 million in regulatory relief to master meter systems. 6.2.3 Benefits and Costs Comparison 3 See http://primis.rspa.dot.gov/edu/rp1162.htm. 4 Based on the industry-specific occupational and wage estimates provided by the U.S. Department of Labor’s Bureau of Labor Statistics, median hourly wage of an engineering manager (for NAICS 486000 - pipeline transportation) is estimated as $48.20. Using an estimated fringe benefit of about 35 percent, the fully loaded cost of an engineering manager is estimated to be $65.07 per hour. 6#

Page 7R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t As stated above, the proposed rule is expected to result in no additional cost. The proposed rule is expected to result in benefits totaling over $26 million. To be cost- beneficial, the proposed regulatory change must result in benefits greater than costs. That is the case here, and the proposed regulatory change is indeed expected to be cost- beneficial. This analysis has assumed that there are 20,000 master meter and petroleum gas operators, and that 50 percent of them have not performed a gap analysis. Information received from the states in 2004 indicates that there are at least 7,898 master meter and petroleum gas operators. Assuming that (1) there are exactly 7,898 master meter and petroleum gas operators and (2) only 25 percent of them have not performed a gap analysis, costs would still be $0, but quantifiable benefits would be reduced from over $26 million to over $5 million (= 1975 x $2602.80). The rule would still be cost- beneficial and the total cost savings to master meter and petroleum gas systems would still be substantial. 7. CONCLUSION The adoption of the proposed regulatory changes represents the most cost-effective alternative for implementing the public awareness provisions of PSIA 2002. Furthermore, PHMSA expects that the adoption will have a positive net benefit for pipeline operators, public safety, and the public environment. 7#

Page 8R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t Regulatory Flexibility Analysis The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires an agency to review regulations to assess their impact on small entities unless the agency determines that a rule is not expected to have a significant impact on a substantial number of small entities. The proposed revisions to the public awareness program rule will not have a significant impact on a substantial number of small entities. It will, however, impact a substantial number of small entities (20,874).5 Need for the Proposed Rule: PHMSA presently has regulations requiring public awareness for gas distribution pipeline operators. Those regulations are found in 49 CFR 192.616. PHMSA believes that an amendment to the rules is needed in order to ensure public safety and the environment, while providing cost savings to industry. . Development of this proposed rule modifying the requirements for pipeline operator public awareness programs is part of a PHMSA's broader effort to promote pipeline safety by fostering enhanced communication by the pipeline industry with the public and by fostering increased awareness by the public of pipeline operations and safety. Description of Actions: The proposed rule amends the Federal pipeline safety regulations by exempting master meter and certain petroleum gas operations from most of the requirements to develop and implement public awareness programs based on the provisions of the American Petroleum Institute’s Recommended Practice 1162, Public Awareness Programs for Pipeline Operators (API RP-1162). Identification of potentially affected small entities: For the purposes of the current analysis, it is assumed that the proposed changes in the regulations will impact a total of 20,000 operators. Those operators will consist of operators of master meter systems and operators of petroleum gas systems whose primary business is not gas distribution. PHMSA believes all are small entities. Compliance, reporting, and recordkeeping requirements: This proposed retains some existing compliance requirements, but imposes no new ones. Master meter and certain petroleum gas system operators will be exempted from most of the requirements relating to public awareness programs based on the provisions of RP-1162. Those operators are currently not exempted from any requirements relating to public awareness programs. There are no costs associated with the proposed regulatory changes, it should be noted. That is, the proposed regulatory changes are expected to have a cost of $0. Related Federal rules and regulations: There are no related rules or regulations issued by other department or agencies of the Federal Government. 5 As defined by the Small Business Administration, small entities in the pipeline industry have either fewer than 500 employees or less than $6 million in revenue, depending on the particular NAICS (North American Industry Classification System) industry into which the entity falls. For more information, see www.sba.gov/size/index.html. 8#

Page 9R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t 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. This proposed rule, by exempting master meter and certain petroleum gas systems from most of the public awareness program requirements, does just that. All of the impacted master meter and petroleum gas systems are expected to be small businesses. Conclusion: Based on available information, it can be concluded that, while this Final Rule does apply to a substantial number of small entities (20,000), there will not be a significant economic impact to the majority of those small entities to which it does apply. 9#

Page 10R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t Paperwork Reduction Act 1. Circumstances that make collection of information necessary: No additional information will need to be collected. The proposed rule provides regulatory relief to master meter and certain petroleum gas systems by amending the Federal pipeline safety regulations to exempt master meter and certain petroleum gas operations from most of the requirements to develop and implement public awareness programs based on the provisions of the American Petroleum Institute’s Recommended Practice 1162, Public Awareness Programs for Pipeline Operators (API RP-1162). PHMSA believes that the proposed changes can be made without compromising pipeline safety. 2. How, by whom, and for what purpose is the information used: Not applicable. No additional information will need to be collected. 3. Extent of automated information collection: Not applicable. No additional information will need to be collected. 4. Efforts to identify duplication: Not applicable. No additional information will need to be collected. 5. Efforts to minimize the burden on small businesses: The master meter and petroleum gas system operators receiving regulatory relief through the proposed regulations are all small operators. Their paperwork burden will be reduced as a consequence of the proposed regulatory changes. 6. Impact of less frequent collection of information: Not applicable. No additional information will need to be collected. 7. Special circumstances: Not applicable. No additional information will need to be collected. 8. Compliance with 5 CFR 1320.8: Notice of Proposed Rulemaking (NPRM) was published on September 29, 2006. 9. Payments or gifts to respondents: Not applicable. No additional information will need to be collected. 10#

Page 11R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t 10. Assurance of confidentiality: Not applicable. No additional information will need to be collected. 11. Justification for collection of sensitive information: Not applicable. No additional information will need to be collected. 12. Estimate of burden hours for information requested: Not applicable. No additional information will need to be collected. 13. Estimate of total annual costs to respondents: There are no costs beyond those cited above. 14. Estimate of cost to the Federal government: The proposed rule imposes no additional costs on the Federal government. The proposed rule will actually reduce the effort needed by the Federal government to review public awareness program plans, since current regulations require master meter and petroleum gas systems to prepare such plans, and the proposed rule does away with that requirement for master meter and certain petroleum gas systems. How much the burden to the Federal government will be reduced is unknown, except that it will certainly be less than $480 thousand, the estimated cost to the Federal government to review all public awareness plans (i.e., those of master meter and petroleum gas systems, as well as those of other pipeline operators currently subject to PHMSA’s public awareness program requirements). 15. Explanation of program changes or adjustments: DOT currently has regulations requiring gas and hazardous liquid pipeline operators to develop and implement public awareness programs. The proposed regulatory change would exempt master meter and certain petroleum gas systems from most of those requirements. Instead of developing plans, the master meter and petroleum gas systems would just be required to develop and implement a procedure to contact their customers twice annually to provide them with public awareness messages. The proposed regulatory changes will provide regulatory relief to master meter and certain petroleum pipeline systems by reducing the paperwork that will need to be performed by the operators of those systems. Current rules require the development and implementation of a public awareness program. For master meter and petroleum gas systems, PHMSA has estimated that this effort will take approximately 40 hours by a senior engineering staff. Assuming that a senior engineer working for a pipeline operator 11#

Page 12R R Re e eg g gu u ul l la a at t to o or r ry y y I I Im m mp p pa a ac c ct t t A A As s ss s se e es s ss s sm m me e en n nt t t has a fully loaded cost of $65.07 per hour,6 the cost of developing and implementing the programs for master meter and petroleum gas systems is estimated to be: 40 hours x $65.07 = $2602.80 per pipeline operator. PHMSA estimates that there are 20,000 master meter and petroleum gas systems. Of those, PHMSA estimates that 50 percent, or 10,000, have not yet developed and implemented public awareness programs. The total cost to the 10,000 master meter and petroleum gas system operators would be $2,602.80 x 10,000 = $26,028,000. The labor hour burden for the 10,000 master meter and petroleum gas system operators is 40 x 10,000 = 400,000 labor hours The proposed regulatory change would relieve master meter and petroleum gas system operators of 400 thousand labor hours of work that would cost them an estimated $26 million. 16. Publication of results of data collection: Not applicable. No additional information will need to be collected. 17. Approval for not explaining the expiration date for OMB approval: The Pipeline and Hazardous Materials Safety Administration does not seek approval to not display expiration date. 18. Exceptions to certification statement: There are no exceptions to the certification statement. 6 Based on the industry-specific occupational and wage estimates provided by the U.S. Department of Labor’s Bureau of Labor Statistics, median hourly wage of an engineering manager (for NAICS 486000 - pipeline transportation) is estimated as $48.20. Using an estimated fringe benefit of about 35 percent, the fully loaded cost of an engineering manager is estimated to be $65.07 per hour. 12#