U.S. DOT/PHMSA - Regulatory Assessment: IMP Modifications

Page 1_______________________________________ DRAFT Regulatory Assessment Notice of Proposed Rulemaking Pipeline Integrity Management: Program Modifications and Clarifications [Docket No. RSPA-04-18938] October 2005 Prepared by Economic and Industry Analysis Division Volpe National Transportation Systems Center and Office of Pipeline Safety Department of Transportation 1#

Page 2Regulatory Analysis Introduction The Office of Pipeline Safety (OPS) in the Pipeline and Hazardous Materials Safety Administration (PHMSA) proposes modifications to the current Pipeline Safety Regulations for Pipeline Integrity Management (IMP) in High Consequence Areas. The modifications would affect Title 49 of the Code of Federal Regulations (CFR) part 192 (Gas Transmission Pipelines) and part 195 (Hazardous Liquid Operators). The proposed rule would (1) allow more flexibility in the reassessment interval for hazardous liquid pipelines by adding an eight-month window to the five-year time frame for operators to complete the reassessment; and (2) (a) require both hazardous liquid and natural gas operators to notify OPS whenever they reduce pipeline pressure to make a repair; (b) require hazardous liquid and natural gas operators to provide OPS with the reason for the pressure reduction; and (c) correct the existing provision for calculating a pressure reduction on hazardous liquid pipelines to allow operators the use of another acceptable method for calculating reduced operating pressure (when the specified formula is not applicable, or results in a calculated pressure higher than the operating pressure). Background The Nation’s existing pipeline infrastructure, much of which is over 50 years old, requires regular safety and environmental reviews to ensure its reliability. To address several statutory mandates and National Transportation Safety Board (NTSB) recommendations, OPS issued rules for the regulation of the Integrity Management Program (IMP). Regulations for hazardous liquid pipeline operators are found in 49 CRF 195.452. Rules found in 49 CFR Subpart O address regulations of the IMP for gas transmission pipelines. Both the hazardous liquid and natural gas IMP regulations require operators to continually assess, evaluate, repair, and validate through comprehensive analysis the integrity of pipeline segments in locales where a leak or rupture would do the most damage, such as populated and environmentally sensitive areas, otherwise known as High Consequence Areas (HCAs). 2#

Page 3The liquid pipeline IMP rules require operators to establish intervals not to exceed five years for reassessing the integrity of pipeline infrastructure. Each operator is to have a schedule for the evaluation and remediation of any anomalous conditions that are discovered. For certain conditions, the regulations prescribe the timeframes in which an operator must complete the remediation of the defect. These conditions are categorized as either immediate, 60-day, or 180- day repair conditions. This proposed rule would allow more flexibility (i) in the reassessments for hazardous liquid pipelines by adding an eight-month window to the five-year timeframe for operators to complete the reassessment; and (ii) by allowing the use of another acceptable method for calculating reduced operating pressure (when the specified formula is not applicable, or results in a calculated pressure higher than the operating pressure). In addition, another proposed revision would require both hazardous liquid and natural gas operators to notify OPS whenever they reduce pipeline pressure to mitigate a defect and to provide OPS with the reason for the pressure reduction. With the data collected from such notifications, OPS seeks to evaluate the scope and scale of repair issues to develop an accurate baseline for future program development. OPS would also assess the reasons for delay in scheduling assessments and evaluate the effect of permitting restrictions on delaying assessments. Rational for Regulatory Assessment All proposed and final Federal regulations must undergo 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 3#

Page 4governments. In accordance 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, and the Unfunded Mandates Act also requires economic impact analysis. In accordance with the above directives, OPS 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 available data and information from a range of pertinent sources. OPS estimates that the impact of implementing the rule would be less than $100 million annually, and expects that the rule would 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 has also 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 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. Alternatives Considered The goal of this rulemaking is to facilitate the continuous assessment and remediation of the Nation’s pipeline infrastructure through added flexibility without adversely affecting the safety of the pipeline system. In developing the NPRM, the following two alternatives were considered: 1. Do nothing. 4#

Page 52. Adopt the recommendations in the API petition with some modifications and expand the requirement for notification of pressure reduction to enhance data collection and evaluation of the IMP. For the purpose of the regulatory impact analysis, the cost-benefit analysis of option 2 is evaluated here. Also note that OPS is also seeking the submittal of engineering analyses and technical data to evaluate the scope and scale of the repair issues. Consequently, the cost-benefit analysis does not make any assumption on the frequency and scope of the repair issues but is based on the available data from the Integrity Management Program already in place. Economic Analysis In the proposed rule for Modifications and Clarifications to the Pipeline Integrity Management Program, PHMSA is proposing to amend Parts 192 and 195 in 49 CFR as follows: • Section 195.452(j)(3): Change length of intervals for continually assessing the integrity of hazardous liquid pipelines from five-years (60 months) to five-year intervals that are not to exceed 68 months. • Section 195.452(h)(4): Add flexibility in scheduling repairs to hazardous liquid pipelines. For immediate repairs, OPS proposes to allow hazardous liquid pipeline operators to use another acceptable method for calculating a reduced operating pressure when the formula in 451.7 of ASME/ANSI B31.4 (ibr, see §195.3) is not applicable. • Sections 192.933 and 195.452(h): Change notification of pressure requirements for gas transmission operators (192.933) and hazardous liquid pipeline operators (195.452). Currently, an operator must notify OPS when it cannot meet scheduled repairs or when it cannot provide safety though a 5#

Page 6temporary pressure reduction. Operators would now need to notify each time pressure is reduced and report the reason for the reduction. PHMSA has previously established the IMP, requiring hazardous liquid and gas transmission pipelines to regularly schedule the evaluation of pipeline integrity and to repair discovered defects. The proposed changes would add flexibility to scheduling assessments for hazardous liquid pipelines, but would not impact the number of entities subject to the existing regulatory requirements nor impact the number of assessments to be conducted. The frequency of notification of reduced pressure would increase under the proposed rule changes. Quantity and Characteristics of Entities Affected by the Proposed Rule The proposed changes to Section 195.452 would affect all hazardous liquid pipeline operators. Proposed changes to Section 192.933 would affect all gas transmission operators. Table 1. Numbers of Pipelines by Type1 Estimated Pipeline Type Number of Operators Hazardous liquid transmission pipelines 263 Natural gas transmission pipelines (includes gathering lines) 903 TOTAL 1,166 Note that the proposed rule would also impact intrastate operators that are currently affected by the IMP. 1 Source: PHMSA Hazardous Liquid Annual Reports and Gas Transmission Annual Reports as of 10/2005. 6#

Page 7Natural gas transmission pipelines are those lines that connect gas production sources with gas consumers. Hazardous liquid pipelines are those that deliver hazardous liquids, as defined by federal pipeline safety regulations, from production or processing facilities to terminals and final consumers. A total of 1,166 entities would be affected by the proposed rule2 . Both gas transmission and hazardous liquid pipeline operators are generally large firms. Therefore, no small entities are affected by the proposed regulatory changes. Regulatory Impact All proposed changes to the IMP are cost-effective. The proposed changes to 49 CFR 195.452 would create benefits through added flexibility for liquid pipeline operators without raising the costs of compliance with reassessment and remediation regulation. The operators would conduct the same number of inspections and repairs as under existing regulations. The proposed change to notification requirements would increase the frequency of notification and thus raise the costs of compliance for both liquid and gas transmission operators. However, OPS believes that the benefits of the collected data would offset these costs. The data would be used to better address industry concerns over delays to assessments and repairs caused by permitting restrictions, to identify other reasons for delays and ways to expedite repairs and to understand whether prolonged pressure reductions have potential impact on the Nation’s energy supply. Estimated Costs of Changes to Reassessment Interval The primary impact of changes to the reassessment interval is to provide hazardous liquid operators with extra flexibility in meeting regulatory requirements for continuous evaluation and repairs of pipelines. These changes are expected to have no effect on costs. The estimated 200 2 Additionally, the proposed rule would affect some intrastate operators that operate HCA miles under IMP program.7#

Page 8hazardous liquid pipeline operators would still be required to make the same total number of inspections and repairs. Costs may decline slightly for those operators that extend the evaluation interval beyond the previously required five years, as the costs of excavation would be borne up to the proposed eight months further into the future. Allowing the reassessment to be completed at an interval no longer than 68 months should not compromise pipeline safety. Estimated Costs of Changes to Notification Requirements of Pressure Reduction The costs of compliance with proposed changes to notification requirements would increase for both hazardous liquid pipeline and natural gas transmission operators. Without the proposed change, operators notify OPS only when they cannot meet the schedule for evaluation or remediation and cannot provide safety through a temporary reduction in pressure. They must also submit reasons for pressure reductions lasting longer than 365 days. With the proposed rule, operators would notify OPS every time that pressure is reduced and report the reasons for the reduction. They would still notify OPS of reductions lasting longer than 365 days. The frequency of notification would thus increase. Based on the database on hazardous liquid IMP that includes about 263 operators,3 since May 2002 OPS has received 74 notifications as of May 2005. Among the 74, 36 requests were due to an operator’s inability to meet repair schedules or reduce pressure; 22 were to use “other technology”; 13 were to request longer time schedule; and 3 were for other reasons. The following figure depicts the notification by type of request. 3 The figure is based on inspection conducted over past 3 years. Number of operators include intrastate operators as well. 8#

Page 9Figure 1: Notifications by Type (Based on the Hazardous Liquid IMP database as of May 2005) 40 35 30 25 20 15 10 5 0 Schedule Technology Interval Other OPS assumes that an engineering manager, with a fully loaded cost of $64.75 per hour,4 would take 30 minutes to complete each notification.5 The estimated cost per notification is $32.38. However, based on the currently available information from the hazardous liquid pipeline IMP database, the 74 notification requests were submitted by 26 operators over a period of 3 years. There are 263 Hazardous Liquid operators that filed the 2004 Annual Report,6 and the total number of anomalies within an HCA Segment meeting the definition of immediate repair conditions were 1,230 while 644 anomalies were met the 60-day condition and 3,690 anomalies were met the 180-day condition7. Since this NPRM proposes a notification is required whenever an operator has to reduce pressure to make a repair. This would include immediate repairs (required reduction) or any other repairs where an operator chooses to reduce pressure. 4 Based on the 2004 U.S. Department of Labor’s Bureau of Labor Statistics National Industry-Specific Occupational Employment and Wage Estimates. The median hourly wage of an engineering manager (for NAICS 486000 – pipeline transportation) is estimated to be $47.96. With an estimated fringe benefit of 35%, the fully loaded coast of an engineering manager in the pipeline industry is $64.75 per hour. 5 The estimated time includes time to fill up the form as well as some time to collect data, reviews, and approval. 6 As of 10/2005, 263 operators submitted annual reports to OPS. This is the first hazardous liquid annual report submitted to OPS, therefore the data are preliminary and may change in future. 7 per Part J Item 2 of the Annual Report. 9#

Page 10Therefore, this regulatory impact assessment assumes that 263 hazardous liquid operators would submit about 1,500 notifications per year or about 6 notifications per operator per year and the same will be true for gas transmission operators.8 Assuming each notification costs $32.38 to prepare and submit, the estimated total notification cost to the operator is $194.25 annually and the total cost to the industry (263 hazardous liquid and 903 gas transmission operators times $194.25) is $226,495 per year. Through this NPRM, OPS is seeking information on the frequency of the repairs. Based on the information developed, OPS would develop the total cost of compliance for the industry. Estimated Benefits of Changes to Reassessment Interval and Repair Schedules Based on the information on frequency and scope of the repairs, OPS would quantify or monetize the benefits of the proposed changes to the reassessment interval for hazardous liquid pipeline operators in future. However, the benefits to the industry would be positive. The added flexibility would better allow the operators to meet established regulatory requirements in more cost-effective ways. Operators would be better able to plan around adverse weather and other unforeseen circumstances that may delay assessment and in turn, repairs. The added flexibility would thus help the industry to avoid unscheduled delays. Estimated Benefits of Changes to Notification Requirements for Pressure Reduction Currently, OPS does not have the information needed to quantify or monetize the benefits of the proposed changes to the notification requirements for pressure reductions. The benefits would result from data collected from the notifications. The data would be used to study the causes of delays in pipeline assessment and repairs, especially the effect of permitting restrictions on the delays. Such analyses can lead to further improvements in the pipeline IMP and the addressing of 8 This is a rough estimate – 1,500/263 ≈ 6 based on only 1 year worth of data. 10#

Page 11the causes of delays. The data would also be used to study the effect of prolonged pressure reductions on the Nation’s energy supply. Benefits and Costs Assessment The proposed changes to add flexibility to the scheduling of continuous assessment would create ongoing benefits and have no cost effects. These modifications would thus create positive net benefits. The changes to notification requirement for pressure reduction would create additional ongoing costs as well as benefits. The benefits are expected to offset the costs. Together, these proposed modifications to the IMP for hazardous liquid and gas transmission pipelines are expected to create positive net benefits. 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. Most hazardous liquid pipeline operators and the natural gas transmission operators do not meet the Small Business Administration’s definition of small business, which is either $6.0 in revenue (for natural gas pipelines – NAICS 486210) or 1,500 employee size (for crude oil and refines petroleum product pipelines – NAICS 486110 and 486910)9. The notification cost per operator is about $194.25 annually, i.e., less than 0.003% of the gross revenue of $6 million per operator. Therefore, the requirements in this NPRM do not have a significant impact on pipeline operators, including small entities. 9 http://ecfr.gpoaccess.gov/cgi/t/text/text- idx?c=ecfr&sid=eeb26803b82759a11a87d80990f9b044&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13#13:1 .0.1.1.14.1.231.2 11#