{"operation":"document","citation":"0900006480e9390e","title":"U.S. DOT/PHMSA - Regulatory Impact Assessment","source_type":"rulemaking","agency":"Pipeline and Hazardous Materials Safety Administration","status":"current","official":true,"published_on":null,"effective_on":null,"summary":":.l nci -2 P 3: 53 Regulatory Impact Assessment Final Rule—Pipeline Safety: Safety Standards for Increasing the Maximum Allowable Operating Pressure for Natural Gas Transmission Pipelines [Docket No. PHMSA-05-23447] August 1,2008 Office of Pipeline Safety Pipeline and Hazardous Materials Safety Administration (PHMSA) U.S. Department of Transportation (DOT) PRESENT VALUE OF THE COSTS OF THE RULE CALCULATED OVER 20 YEARS ($Miliion) Cost Item Present Value at 3% Discount Present Value at 7% Discount Baseline Internal Inspections Additional Internal Inspections Anomaly Repairs Remotely Controlled Valves Threat Identification and Evaluations Patrolling Total Costs 28.3 27.2...","machine_formats":{"json":"https://regulus.evalyn.ai/document/regulations-gov-attachment-0900006480e9390e.json","markdown":"https://regulus.evalyn.ai/document/regulations-gov-attachment-0900006480e9390e.md"},"app_url":"https://regulus.evalyn.ai/document/regulations-gov-attachment-0900006480e9390e","source_url":"https://downloads.regulations.gov/PHMSA-2005-23447-0084/attachment_1.pdf","body":"<<<PAGE 1>>>\n\n:.l nci -2 P 3: 53\nRegulatory Impact Assessment\nFinal Rule—Pipeline Safety: Safety Standards for Increasing the Maximum\nAllowable Operating Pressure for Natural Gas Transmission Pipelines\n[Docket No. PHMSA-05-23447]\nAugust 1,2008\nOffice of Pipeline Safety\nPipeline and Hazardous Materials Safety Administration (PHMSA)\nU.S. Department of Transportation (DOT)\n\n<<<PAGE 2>>>\n\nTable of Contents\nEXECUTIVE SUMMARY 2\n1. INTRODUCTION 5\n2. BACKGROUND 5\n3. STATEMENT OF THE PROBLEM 7\n4. RATIONALE FOR REGULATORY ASSESSMENT 7\n5. ALTERNATIVES CONSIDERED 8\n7. SUMMARY AND CONCLUSIONS 46\n\n<<<PAGE 3>>>\n\nEXECUTIVE SUMMARY\nThe Pipeline and Hazardous Materials Safety Administration (PHMSA) is making\nchanges to the Federal pipeline safety regulations in 49 CFR Part 192, which cover the\ntransportation of natural gas by pipeline. Specifically, PHMSA is allowing natural gas\ntransmission pipeline operators to raise the maximum allowable operating pressure\n(MAOP) for certain pipelines (1) constructed of steel pipe manufactured using modem\nsteel chemistry and rolling practices and standards, and (2) inspected and tested to more\nrigorous standards.\nThe regulation supports the Secretary of Transportation's priorities by improving\nperformance and harnessing 21*'- Century technologies. Not only does increasing\noperating pressure ease supply constraints by boosting pipeline capacity, but it also\nenhances pipeline efficiency. This enhanced performance is made possible by\ntechnological advances in metallurgy and pipe manufacture, as well as by improved\npipeline lifecycle management practices. Pipelines built with improved steel pipe and\noperated in compliance with improved lifecycle management practices can operate safely\nat higher internal pressures. Since incipient pipeline flaws can occur during pipe\nmanufacture or installation, the technological advances decrease the risk of these flaws\nresulting in pipe failure over time due to the operating pressure. Furthermore, improved\nlifecycle management practices, which include rigorous testing, allow operators to detect\nflaws well before failure. Because revised regulations allowing increased capacity\nencourage the use of newer pipeline materials and associated safety standards, the result\nshould have a net positive effect on overall pipeline safety.\nAn analysis of the costs and benefits discounted at both 3 percent and 7 percent over a 20\nyear period demonstrates that there are significant net benefits. The exhibits below\nillustrate the calculations.\nPRESENT VALUE OF THE BENEFITS OF THE RULE CALCULATED OVER\n20 YEARS\n($Milllon)\nBenefit Items\nAnnual\nBenefits\nPresent Value at 3%\nDiscount\nPresent Value at 7%\nDiscount\nReduced Fuel\nCosts Savings\nReduced Capital\nExpenditures\nTotal Benefits\n49.0\n729\n519\n54.6\n103.6\n812\n1,541\n578\n1,097\n\n<<<PAGE 4>>>\n\nPRESENT VALUE OF THE COSTS OF THE RULE CALCULATED OVER 20\nYEARS\n($Miliion)\nCost Item\nPresent Value at 3%\nDiscount\nPresent Value at 7%\nDiscount\nBaseline Internal\nInspections\nAdditional Internal\nInspections\nAnomaly Repairs\nRemotely Controlled\nValves\nThreat Identification and\nEvaluations\nPatrolling\nTotal Costs\n28.3\n27.2\n29.0\n17.3\n3.0\n11.6\n2.2\n9.0\n.6\n.5\n166.4\n238.8\n108.6\n164.7\nNET BENEFITS OF THE RULE\n($ Million)\nDiscount rate\n3%\n7%\nPresent Value of\nthe Benefits\nCalculated Over\n20 Years\n1,541\n1,098\nPresent Value\nof the Costs\nCalculated over\n20 Years\n239\n165\nNet benefits\n1,302\n933\nThese analyses find that the rule is not expected to adversely affect the economy nor the\nenvironment. The analyses also find that, for those costs and benefits that can be\nquantified, the present value of net benefits is expected to be between $933 million and\n$1.3 billion. The undiscounted monetary costs of the rule are expected to average about\n$16.6 million per year over a 20-year period. The benefits resulting from the rule are\nestimated to be $103.6 million per year. The rule is expected to be an economically\nsignificant regulatory action within the meaning of Section 3(f)(1) of Executive Order\n12866, due to the expected benefits of the rule which exceed the annual $100 million\nthreshold for economic significance.\nPHMSA has also determined, as required by the Regulatory Flexibility Act, that the rule\nwould not have a significant economic impact on a substantial number of small entities in\nthe United States. The rule mandates no action by gas transmission pipeline operators.\nRather, it provides those operators with the option of using an alternative MAOP in\ncertain circumstances, when certain conditions can be met. Additionally, PHMSA\ndetermined that the rule would not impose annual expenditures on State, local, or tribal\n\n<<<PAGE 5>>>\n\ngovernments or the private sector in excess of $132 million, and thus does not require an\nUnfunded Mandates Act analysis.\n\n<<<PAGE 6>>>\n\n1. INTRODUCTION\nThe Pipeline and Hazardous Materials Safety Administration (PHMSA) of the U.S.\nDepartment of Transportation (DOT) is requiring changes to the Federal pipeline safety\nregulations in 49 CFR Part 192, which cover the transportation of natural gas by pipeline.\nSpecifically, the regulation allows natural gas transmission pipeline operators to raise the\nmaximum allowable operating pressure (MAOP) for certain pipelines (1) constructed of\nsteel pipe manufactured using modem steel chemistry and rolling practices and standards,\nand (2) inspected and tested to more rigorous standards.\nThis report examines the benefits and costs of the regulatory changes. Additionally, the\nreport includes the analysis required by the Regulatory Flexibility Act.\n2. BACKGROUND\nGas transmission pipelines in the United States use steel pipe almost exclusively.' Under\nFederal pipeline safety regulations, steel transmission pipelines must use a MAOP that is\nbelow the specified minimum yield strength (SMYS) of the steel pipe. Each pipeline\nclass, based on population density, ranging from Class 1 (undeveloped, rural land)\nthrough Class 4 (densely populated urban areas) has a different MAOP, which are\ncurrently as follows:\n• Class 1: 72% of SMYS\n• Class 2: 60% of SMYS\n• Class 3: 50% of SMYS\n• Class 4: 40% of SMYS.\nThe estimated percentages of transmission mileage in these four class locations are:\n• Class 1: 80%^ to 90%^ of mileage\n• Class 2: 5%\"* to 10%^ of mileage\n• Class 3: Less than 5%^ to 10%^ of mileage\n• Class 4: Approximately 0.5% of mileage.\nWhen Federal regulations were adopted in 1970, 72 percent of SMYS was selected as the\nupper MAOP limit to ensure conservative safety margins. The manufactured quality of\n' Howard J. Murphy, Jr., Energy Experts International, \"Reconsideration of Maximum Allowable\nOperating Pressure: Costs and Benefits - A Macroeconomic View,\" PHMSA-2006-23447-35.\n^ Ibid..\n^ Richard B. Kuprewicz, Accufacts Inc., \"Increasing MAOP on U.S. Gas Transmission Pipelines,\" a paper\nprepared for the Pipeline Safety Trust, PHMSA-2006-23447-50.\n^ Ibid.\n^ Howard J. Murphy, Jr., Op. Cit.\n^ Richard B. Kuprewicz, Op. Cit.\n' Howard J. Murphy, Jr., Op. Cit.\n^ Richard B. Kuprewicz, Or. Cit.\n\n<<<PAGE 7>>>\n\nsteel pipe at the time necessitated the conservative safety margins. Since then,\nmanufacturers have dramatically improved the quality of steel pipe. Additionally,\npipeline construction practices and operation and maintenance (O&M) procedures of\npipeline operators have improved. In response to the material, construction, and O&M\nadvances, several nations, including Canada and the United Kingdom, have allowed\npipelines to operate up to 80 percent of SMYS.'° A few nations, including Japan and\nGermany, mandate a MAOP lower than 72 percent of SMYS.\"\nIn 1970, Federal regulators allowed pipelines that had operated successfully for many\nyears at a stress level greater than 72 percent of SMYS to continue to operate at the\nhigher stress level. Currently, approximately five thousand miles of gas transmission\npipelines in the U.S. are operating at a stress level that is greater than 72 percent of\nSMYS because of grandfathering.'^ Operators desiring a MAOP greater than 72 percent\nof SMYS may apply to PHMSA for waivers (i.e., special permits). When evaluating\nwaiver applications, the key consideration for PHMSA is whether the pipelines can\noperate at higher stress levels without compromising safety.\nBeginning in 2006, PHMSA evaluated requests for special permits from three companies\nseeking to operate natural gas transmission pipelines at higher pressures than currently\nallowed by regulation. Those requests were made by:\n• Alliance Pipeline L.P.' ^\n• Maritimes & Northeast Pipeline, L.L.C.\"^\n• Rockies Express Pipeline L.L.C.'^\nThe requests were for proposed and existing pipelines, and all requested permission to\noperate at 80% of SMYS in the Class 1 locations. Some requests also included increases\nin the MAOP for other class locations.\nPHMSA afforded the public an opportunity to provide comments on each special permit\nrequest and received favorable comments from both industry respondents and the public.\nAdditionally, PHMSA briefed its technical advisory committees, held a public meeting,\nand brought stakeholders into the development of permitting criteria. PHMSA received\nsupportive comments at these meetings.\nPHMSA granted all three requested special permits. In granting them, PHMSA required\nthe operators to demonstrate compliance with certain design specifications and imposed\nadditional safety standards.\n' Joy O. Kadner, PHMSA, \"Reconsideration of Maximum Allowable Operating Pressures for Natural Gas\nPipelines, PHMSA-2006-23447-46.\n'\"Ibid.\n\" Howard J. Murphy, Jr., Energy Experts International, \"Reconsideration of Maximum Allowable\nOperating Pressure: Costs and Benefits - A Macroeconomic View,\" PHMSA-2006-23447-35.\n'^ Richard B. Kuprewicz, Op.cit.\n\" See DOT Docket PHMSA-2006-23387.\n'^Ibid.\n'• ^ Ibid.\n\n<<<PAGE 8>>>\n\n3. STATEMENT OF THE PROBLEM\nThe rule for permitting a greater maximum allowable operating pressure supports the\nSecretary of Transportation's priorities by improving performance and harnessing\n21 ^'-Century technologies. Increasing operating pressure can ease supply constraints by\nboosting pipeline capacity by as much as 10 percent. Increasing capacity also enhances\npipeline efficiency. This enhanced performance is made possible by technological\nadvances in metallurgy and pipe manufacture, as well as by improved pipeline lifecycle\nmanagement practices. Pipelines built with improved steel pipe and operated in\ncompliance with improved lifecycle management practices can operate safely at higher\ninternal pressures. Since incipient pipeline flaws can occur during pipe manufacture or\ninstallation, the technological advances decrease the risk of these flaws resulting in pipe\nfailure over time due to the operating pressure. Furthermore, improved lifecycle\nmanagement practices, which include rigorous testing, allow operators to detect flaws\nwell before failure. Because revised regulations allowing increased capacity encourage\nthe use of newer pipeline materials and associated safety standards, the result should have\na net positive effect on overall pipeline safety.\nPHMSA's rulemaking grows out of the Agency's examination of the safety issues in\nallowing existing or proposed pipeline to operate at higher pressure. From a policy\nperspective, the experience with previously granted special permits has been very\npositive. One of the successful operators that obtained a special permit, Maritimes &\nNortheast Pipeline, plans to take advantage of the extra capacity allowed by the higher\nMAOP to redirect gas supply to the New York City metropolitan area, the most capacity-\nstrained market in the nation.\nIncorporating the special permit standards into PHMSA's regulations allows qualified\npipelines to operate at higher pressure. The rule eases regulatory burdens, encourages the\ndevelopment of new infrastructure, improves regulatory certainty, and reduces Agency\nworkload associated with granting individual applications.\n4. RATIONALE FOR REGULATORY ASSESSMENT\nExecutive Order 12866 directs all Federal agencies to develop both preliminary and final\nregulatory analyses if their regulations are likely to be \"significant regulatory actions\"\nwith an annual impact on the economy of $100 million. The Order also requires a\ndetermination as to whether a proposed rule could adversely affect the economy or a\nsection of the economy in terms of productivity and employment, the environment, public\nhealth, safety, or State, local, or tribal governments. In accordance with the regulatory\nphilosophy and principles provided in Sections 1(a) and (b) and Section 6(a)(3)(C) of\nExecutive Order 12866, an economic analysis of the regulatory changes must be\nconducted. Furthermore, the Regulatory Flexibility Act of 1980, as amended, requires\nFederal agencies to conduct a separate analysis of the economic impact of proposed rules\non small entities. The Unfunded Mandates Act also requires an impact analysis for rules\nthat that may result in the expenditure by State, local, and tribal governments, in the\n\n<<<PAGE 9>>>\n\naggregate, or by the private sector, of $132 million or more ($100 million adjusted for\ninflation) in any one year.\nIn accordance with the above directives, PHMSA has performed an evaluation of the\npotential compliance costs of the rule and other feasible regulatory options and identified\nthose benefits that can be expressed in monetary terms. To the extent possible, this\nevaluation is based on the available data and information from a range of sources\nincluding PHMSA's Incident Reporting Database and comments received from\nstakeholders. PHMSA estimates that the impact of implementing the rule will be greater\nthan $100 million in any one year. PHMSA does not expect the rule to adversely affect\nthe economy or any sector of the economy in terms of productivity and employment, the\nenvironment, public health, safety, or State, local, or tribal government. PHMSA has\ndetermined, as required by the Regulatory Flexibility Act, that the rule will not have a\nsignificant economic impact on a substantial number of small entities in the United\nStates. In addition, PHMSA has estimated that this rule will not impose annual\nexpenditures of $132 million or more on State, local or tribal governments or the private\nsector, and thus will not require an Unfunded Mandates Act analysis.\n5. ALTERNATIVES CONSIDERED\nIn addition to taking no rulemaking action (the baseline) PHMSA considered the\nfollowing two alternatives with respect to MAOP:\n• Delay rulemaking\n• Undertake rulemaking.\nEach of these alternatives is evaluated below.\n5.1 Baseline: No action\nPHMSA could continue to address individual special permit applications on a case-by-\ncase basis. Although this approach would give PHMSA additional oversight control, it\nwould be less efficient for industry and for the Agency than promulgating a regulatory\nstandard. For this reason, this is used as a baseline by which to measure costs and\nbenefits of the other regulatory alternatives.\n5.2 Delay rulemaking\nInstead of embarking on the immediate development and implementation of a regulatory\nstandard, PHMSA could delay rulemaking and continue to work with consensus\nstandard-setting organizations. Current consensus standards already allow increased\noperating pressures, but without the additional safety requirements PHMSA has imposed\nin special permits. The standard-setting organization responsible for these standards is\ncurrently establishing a subcommittee to address operation of pipelines at higher\npressures.\n\n<<<PAGE 10>>>\n\nPHMSA could delay rulemaking in order to gain more experience with evaluating\napplications and monitoring compliance and outcomes. Furthermore, the Agency could\nwait until the new subcommittee of the standards organization has completed its work. A\ndelay would then allow the Agency to have more confidence in any proposed regulatory\nstandard it promulgates. Delaying the rulemaking, however, would necessitate\ncontinuing the less-efficient permit process. Furthermore, promulgating a rulemaking\ndoes not preclude PHMSA, at some point in the future, from reconsidering or modifying\nsafety requirements as a result of the standard setting organization's further research. For\nthese reasons, PHMSA rejected the option to delay the rulemaking.\n5.3 Undertake rulemaking\nThe third alternative considered by PHMSA was to undertake a new rulemaking without\nundue delay. This would minimize the inefficiencies associated with the special permit\nprocess. For this reason, the rulemaking alternative was chosen by PHMSA. PHMSA\nwill continue to entertain special permit applications for MAOP increases, to the extent\npermitted by the law, until such permits are determined uimecessary. The ongoing permit\nprocess will help inform any rulemaking outcome.\nFurthermore, within this alternative, the Agency has explored two options: Adopt the\ncurrent consensus standard as written, or adopt a rulemaking that has requirements\nsimilar to the additional safety requirements PHMSA has imposed under the special\npermits granted to date. Currently, the rule reflects the latter of these options. OMB\nCircular A-119 and the National Technology Transfer and Advancement Act of 1995\ndirect Federal agencies to use voluntary consensus standards in lieu of Government-\nunique standards in their regulatory and procurement activities, except where such\nstandards are inconsistent with law or otherwise impractical. Therefore, this impact\nanalysis separately estimates the impact of the additional safety requirements that differ\nfrom the consensus standard, describing why the Agency believes this is the best\napproach.\n6. ECONOMIC ANALYSIS\nWith this rule, PHMSA revises the Federal pipeline safety regulations in 49 CFR Part\n192 to allow use of an \"alternative\" MAOP when certain conditions are met. Under the\nrule, the alternative MAOP for each class location is as follows:\n• Class 1: Greater than 72% of SMYS but less than or equal to 80% of SMYS\n• Class 2: Greater than 60% of SMYS but less than or equal to 67% of SMYS\n• Class 3: Greater than 50% of SMYS but less than or equal to 56% of SMYS\n• Class 4: No alternative MAOP for Class 4 locations.\nThe conditions that must be met in order for a segment to be eligible for operation at the\nalternative (higher) MAOP include requirements relating to:\n• Design\n\n<<<PAGE 11>>>\n\n• Materials\n• Construction\n• Operation and maintenance (O&M)\n• Notification.\nWith respect to design and materials, operators must comply with requirements for:\nThe properties of the steel used for the pipe\nThe manufacturing standards for the pipe\nFracture control\nPlate quality control\nSeam quality control\nMill hydrostatic testing\nCoating\nFittings and flanges.\nWith respect to construction, operators must comply with requirements for:\n• Quality assurance\n• Girth welds\n• Depth of cover\n• Initial strength testing\n• Cathodic protection\n• Interference currents.\nWith respect to O&M, operators must comply with requirements for:\nResponding to emergencies in high consequence areas (HCAs)\nMonitoring gas quality for internal corrosion control\nControlling interference that can impact external corrosion\nImplementing external corrosion control - cathodic protection\nImplementing external corrosion control - close interval survey\nImplementing external corrosion control - annual readings\nPatrolling the right of way\nMaintaining the depth of cover\nReevaluating the potential impact radius as necessary\nNotifying the public proximate to the pipeline\nPerforming threat identification and evaluation\nPerforming indirect assessments\nPerforming baseline internal inspections\nPerforming additional inspections\nPerforming direct assessments when internal inspection is not possible\nEvaluating anomalies conservatively and repairing defects expeditiously.\n10\n\n<<<PAGE 12>>>\n\nWith respect to notification, operators must notify PHMSA when they choose to use an\nalternative MAOP.\nThe rule does not require operators of gas transmission pipelines to make any changes.\nRather, the rule provides operators with the option of using an alternative (higher) MAOP\nif their pipelines meet certain specific conditions. The choice of whether to meet those\nconditions and use an alternative MAOP is left to the operators.\nIn the remainder of this section the impacted industry is identified and the affected\nmileage is estimated and the benefits and costs of the rule are considered. All monetary\nvalues, unless otherwise indicated, are given in 2006 constant dollars.'^\n6.1 Impacted Industry\nThe rule covers all existing gas transmission pipelines, of which there are approximately\n320,000 miles,'^ as well as any future gas transmission pipelines.\nAs a result of the rule, PHMSA expects the MAOP for approximately 3,500 miles of\nexisting pipeline to be uprated. As a practical matter, only a portion of the existing gas\ntransmission pipeline network would be a candidate for a higher alternative MAOP, due\nto the requirements associated with increasing the MAOP. Many pipeline operators are\nexpected to find the cost of using the alternative MAOP to be too high. For instance,\nfitting and pressure vessel replacement costs may prevent some pipeline operators from\nconverting to a higher MAOP. Additionally, the costs associated with converting non-\npiggable lines are expected to be prohibitive. Also, PHMSA expects that only post-1980\npipelines will be appropriate for converting to a higher MAOP.\nPHMSA expects approximately 700 miles of new gas transmission pipeline will be\ncertificated each year to take advantage of the regulation and be operated at an alternative\nMAOP. This includes pipeline mileage in Class 1, 2, and 3 locations. PHMSA expects\nthat many operators will only select an alternative MAOP for their new pipeline\nconstruction in Class 1 locations.\nFor this analysis, PHSMA expects that at the end of the first year after implementation of\nthe rule, 4,200 miles of pipeline would begin to be operated at an alternative MAOP.\nThis consists of 3,500 miles of existing pipeline and 700 miles of newly laid pipeline.\nFurthermore, PHMSA expects that in each subsequent year and additional 700 miles of\nnew pipeline would begin to be operated at an alternative MAOP.\n'* To convert nominal dollars into 2006 constant dollars, the implicit price deflator for Gross Domestic\nProduct, transformed from 2000=100 to 2006=100, was used (for the implicit price deflators, 2000=100,\nsee Table 1. 1.9, Implicit Price Deflators for Gross Domestic Product, Bureau of Economic Analysis,\nNational Income Accounts). The 2006 deflator (2000=100) was calculated by averaging the quarterly\nimplicit price deflators for the first and second quarters of 2006.\n'\"' See PHMSA, Distribution & Transmission Annual Mileage Totals (1984-2005),\nhttp://ops.dot.gov/stats/stats.htm.\n11\n\n<<<PAGE 13>>>\n\n6.2 Benefits\nThe main expected benefits of the rule are the following:\n• A reduction of the consequences (e.g., deaths, injuries, property damage, and lost\ngas) resulting from pipeline incidents.\n• Fuel cost savings.\n• A reduction in pipeline capital expenditures.\n• An increase in pipeline capacity.\n• An increase in line pack.\n• A reduction in adverse environmental impacts.\nThese benefits are discussed below. Following the discussion of each individual benefit,\nthe total benefits and their present value are estimated. The benefits discussion concludes\nwith a review of benefits uncertainties.\n6.2.1 Reduced Incident Consequences from Pipeline Incidents\nThe operation of natural gas transmission pipelines at higher MAOP is not expected to\nincrease the number or severity of pipeline incidents. '^ The rule's requirements, such as\nmonthly right-of-way patrolling, additional internal inspections, and anomaly repair, are\nexpected to prevent incidents that would have occurred in the absence of the rule, and to\nhelp mitigate the consequences of the incidents that do occur.\nA quantitative estimate of the benefits associated with reduced incident consequences is\nnot developed for this analysis. While PHMSA expects the rule to reduce the incidents\nand incident consequences on the pipeline mileage affected by the rule, quantification of\nthe benefits resulting from those reductions would be difficult. For instance,\ndifferentiating the benefits attributable to increased right-of-way patrolling from those\nattributable to other regulatory safety requirements relating to the prevention or\nmitigation of excavation or natural forces damage may be impracticable for analytical\npurposes. As another example, differentiating the benefits attributable to additional\ninternal pipeline inspections from those attributable to other regulatory safety\nrequirements relating to corrosion damage prevention and control may present similar\nchallenges.\nAdditionally, PHMSA expects that some pipeline operators have already adopted the\npractices required by the rule. As a result, the estimated benefits associated with the\nsafety improvements attributable to the rule are reduced.\n'* See, for instance, Joy O. Kadner, PHMSA, \"Reconsideration of Maximum Allowable Operating\nPressures for Natural Gas Pipelines,\" PHMSA-2006-23447-46; Alan Eastman, Mears Group, Inc., \"Impact\nof 80% SMYS Operation on Time Dependent Threats,\" PHMSA-2006-23447-28.\n12\n\n<<<PAGE 14>>>\n\n6.2.2 Fuel Cost Savings\nNatural gas engines or turbines are frequently used to drive the compressors that move\nthe product through gas transmission pipelines. Industry expects the rule will reduce fuel\ncosts for pipeline owners operating existing pipelines at an alternative MAOP.\nIn a submission to PHMSA relating to its petition to increase the MAOP on 874.7 miles\nof pipeline in the U.S. from 72% of SMYS to 80% of SYMS, Alliance Pipeline estimated\nthat it could save $11.9 million on its fuel costs in 2007 with the higher MAOP. In\ncalculating this estimate, gas was assumed to cost $5.72 per million BTUs (British\nthermal units).'^\nFor this analysis, PHMSA assumes that the annual fuel cost savings realized by operators\nof pipelines choosing to go with an alternative MAOP would be $14,000 per mile\n($11.9 million / 874.7 miles). This estimate is based on the fuel cost savings information\nprovided by Alliance Pipeline. For existing pipelines, this would be the major benefit of\nchanging the formula for calculating MAOP. New pipelines built with thinner-walled\npipe would not, however, see this same benefit.\nAssuming that 3,500 miles of existing pipeline are initially affected in the first year, the\ntotal cost savings in that year would be $49 million ($14,000 * 3,500 miles). It should be\nnoted that all fuel savings are annually recurring. That is, they will continue to be realized\neach and every year after an existing pipeline operates at an alternative MAOP.\n6.2.3 Reduced Capital Expenditures\nIn constructing new pipelines, companies have another option as a result of this\nrulemaking: instead of building the pipeline to the standard currently required and\nincreasing its pressure, they can reduce the wall thickness of the new pipeline (thus\nresulting in savings on steel cost)'^' to achieve the \"same\" operating pressure under the\nnew formula for calculating MAOP. This is a straightforward result from the formula for\ncalculating MAOP below; increasing the design factor allows either pressure to go up or\nwall thickness to go down. For this analysis, PHMSA assumes that new pipelines would\nchoose to take advantage of reduced capital expenditures.\nTo determine the wall thickness of pipe (t) needed for a specific operating pressure (P),\nan operator would use the design formula specified in § 192.105 and solve for t as\nfollows:\n\" Submission by Alliance Pipeline, L.P., to PHMSA, Feb. 20, 2006, PHMSA-2005-23387-8.\n^° This analysis does not attempt to forecast the increased benefits as fuel costs rise.\n^' See, for example, the response by BP Canada Energy Marketing Corp. to dockets PHMSA-2005-23387,\nPHMSA-2005-23447, and PHMSA-2005-23448 or Howard J. Murphy, Jr., Energy Experts International,\n\"Reconsideration of Maximum Allowable Operating Pressure: Costs and Benefits - A Macroeconomic\nView,\" PHMSA-2006-23447-35.\n13\n\n<<<PAGE 15>>>\n\n22\nt = (P X D) / (2 X S X F).\nThe increase in the design factor F in this rulemaking results in a decreased value for t.\nThe use of thinner walled pipe results in a savings in the amount of steel needed.\nInformation on the total capital expenditure savings attributable to the use of an\nalternative MAOP by pipeline operators is not readily available. Neither is information\non the capital expenditure savings attributable to the expected reduction in the required\ninvestment in compressors for existing pipelines. PHMSA has developed an estimate for\nthe capital expenditure savings attributable to the expected reduction in the required\ninvestment in pipe, which is based on information obtained by PHMSA from materials\nsubmitted in support of special permits for five pipeline projects. That information is\npresented in Table I. PHMSA's estimate of the expected reduction in the required\ninvestment in pipe is $78,260 per mile ([$1,644,426,015 - $1,482,036,466] / 2,075 miles).\nThe estimate assumes that the cost of steel for pipe is $1,300 per ton.\nTABLE 1. STEEL PIPE COST COMPARISON: PIPELINES OPERATING AT\n72% OF SMYS VERSUS PIPELINES OPERATING AT 80% OF SMYS\nPIPELINE PROJECT CHARACTERISTICS\nProject\nStatus\nPipe size\n(Inches)\nMAOP\n(psig)\nGrade\nof\nsteel\n(psi)\nProject\nlength\n(MUes)\nProject\nlength\n(Feet)\n1\nGulf South\n2\nCenterPoint\n3\nREX\n4\nKMLP\nSpecial\npermit\ngranted\nSpecial\npermit\ngranted\nSpecial\npermit\ngranted\nSpecial\npermit\ngranted\nSpecial\nPermit\nPending\n42\n1333\n70000\n212\n1,119,360\n42\n1168\n70000\n170\n897,600\n42\n1481\n80000\n1323\n6,985,440\n42\n1440\n70000\n137\n723,360\n5\n6\nOzark\nOzark\nTOTAL\n24\n36\n1200\n1200\n70000\n70000\n8\n225\n2,075\n42,240\n1,188,000\n10,956,000\n22 D and S are defined in § 192.105 as the nominal diameter of the pipe and its yield strength, respectively.\n14\n\n<<<PAGE 16>>>\n\nESTIMATED COST OF STEEL WITH PIPELINE OPERATING AT\n72% OF SMYS\nProject\nPipe\nPipe wall\nWeight\nTotal\nEstimated total\nsize\nthickness\nof steel\nweight of\ncost of steel*\n(Inches)\n(Inches)\nsteel\n(Pounds)\nper foot\n(Tons)\n1\nGulf South\n42\n0.56\n246.0732\n137,722\n$179,038,953\n2\nCenterPoint\n42\n0.49\n215.9717\n96.928.11\n$126,006,547\nREX\n42\nKMLP\n0.54\n239.332\n265.5396\n835.919.65\n$1.086,695,543\n42\n0.60\n96,040.36\n$124,852,471\nOzark\n24\nOzark\n36\n0.29\n72.4302\n1,529.73\n$1.988,643\nTOTAL\n0.43\n162.968\n96.802.97\n$125,843,858\n$1,644,426,015\nESTIMATED COST OF STEEL WITH PIPELINE OPERATING AT\n80% OF SMYS\nProject\nPipe\nPipe wall\nthickness\nWeight\nTotal\nEstimated total\nSize\nof steel\nweight of\ncost of steel*\n(Inches)\n(Inches)\nper foot\nsteel\n1\nGulf South\n0.500\n(Pounds)\n(Tons)\n221.8175\n124,146.82\n$161,390,863\nCenterPoint\n0.438\n194.6024\n87,337.57\n$113,538,840\n3\nREX\n0.486\n215.6793\n753,307.56\n$979,299,829\nKMLP\n0.540\n239.332\n86,561.60\n$112,530,075\nOzark\n0.258\n65.48091\n1,382.96\n$1,797,843\n6\nOzark\n36\n0.386\n146.9555\n87.291.55\nTOTAL\n$113,479,016\n$1,482,036,466\n*Cost of steel estimated at $1,300 per ton.\nSource: Materials submitted to PHMSA in support of special permits.\nAssuming that 700 miles of new pipeline are initially affected by the rule in the first year\nand that 700 miles of new pipeline are added each year thereafter, the expected annual\ncapital expenditure savings attributable to the reduction in pipe investment would be\napproximately $54.6 million ($78,000 per mile * 700 miles). This estimate does not\nriptudes, saginal expenditud sial atributable to compressor investment for existing\n6.2.4 Increased Pipeline Capacity\nIn the case of new pipelines, the ability to use an alternative MAOP will make it possible\nto transport more of the product. Quantifying the value of this increased capacity is\n23 For estimates of the potential savings on compressor investment on the Alaska Natural Gas\nMaximum Allowable Operating Pressure: Costs and Benefits - A Macroeconomic View,\" PHMSA-2006-\nTransportation System, see Howard J. Murphy, Jr., Energy Experts International, \"Reconsideration of\n23447-35.\n15\n\n<<<PAGE 17>>>\n\ndifficult, and no estimate has been developed for this analysis. Nonetheless, PHMSA\nexpects the value of increased capacity due to use of alternative MAOP by gas pipelines\nto be significant. Estimates made with respect to the proposed trans-Alaskan gas pipeline\ninclude an estimated increase of 14.2 million standard cubic feet of gas per day. In areas\nwhere production is already well established, there is an even greater potential for\nincreased pipeline capacity. For example, one recipient of a special permit estimated a\ndaily increase of at least 62 million standard cubic feet of gas. In addition to simply\nbeing better able to meet demand, increased capacity will eventually mean cost savings\nwith the elimination of the need for some future pipelines (i.e., the capacity added by\nusing an alternative MAOP may eliminate the need to construct a new pipeline with that\ncapacity at some later date).\n6.2.5 Increased Line Pack\n\"Line pack\" is essentially the quantity of natural gas filling a pipeline or pipeline segment\nand the amount of line pack varies by pressure in the pipeline. On pipelines using an\nalternative MAOP, the line pack would be greater than it would be if an alternative\nMAOP were not used. Line pack may be either owned by the pipeline operator or\nprovided by its customers.\nIncreased line pack has several advantages. First, it reduces the amount of external\nstorage that is needed for natural gas. The reduction in the amount of external storage\nneeded may result in capital or O&M cost savings for pipeline operators or their\ncustomers. Currently in the U.S., an estimated 95 to 98 percent of external natural gas\nstorage is underground in depleted oil or gas reservoirs that have been retrofitted to\nhandle gas injection and withdrawal.^^ Added storage via increased line pack could be\nparticularly important in areas where underground storage is limited, such as in the\nSouthwest.^^\nSecond, increased line pack allows more product to be delivered to customers when\nsegments of a pipeline must be (1) taken out of service for routine maintenance or (2)\nshut down due to pipeline accidents or problems with pipeline valves, compressors, or\nother equipment.\nThird, increased line pack allows pipelines greater latitude in covering peaks in natural\ngas demand. This would be of value serving certain natural gas consumers, such as\nelectric utilities, \".. .with load profiles that are not uniform.\" ^\n\"' * Howard J. Murphy, Jr., Energy Experts International, \"Reconsideration of Maximum Allowable\nOperating Pressure: Costs and Benefits - A Macroeconomic View,\" PHMSA-2006-23447-35.\n\" Special Permit Analysis and Findings, Gulf South Pipeline Company, PHMSA-2006-26533-4.\n^ ^ Jeffrey H. Foutch, \"Times Are Changing for Gas Storage,\"\nhttp://ww\\v.falcongasstorage.com/ filelib/FileCabinetyArticles/Times%20are%20Changing.pdf?FileName=\nTimes%20are%20Chanping.pdf.\n^'' Submission by Kern River Gas Transmission Company, Docket No. PHMSA-2005-23447-23.\n''Ibid..\n16\n\n<<<PAGE 18>>>\n\nThe value of these and any other benefits attributable to increased line pack cannot be\nreadily quantified, but may be substantial. PHMSA believes the reduced amount of\nexterior storage capacity needed resulting from increased line pack may result in capital\nor operation and maintenance savings for the pipelines or their customers. Increased line\npack increases the ability to continue gas delivery during short outages such as\nmaintenance and to increase the amount of gas quickly during peak periods.\n6.2.6 Reduced Adverse Environmental Impacts\nAllowing pipeline operators to use an alternative MAOP would have environmental\nbenefits. Because of the potential for increased capacity by pipelines using an alternative\nMAOP, fewer pipelines might be needed. This means that, all other things equal, less\nlocal ecology would be disturbed by the construction of new pipelines and fewer\nenvironmentally sensitive areas would be disturbed by operation and maintenance\nactivities, such as pipeline repairs. In addition, the new requirements are expected to\nreduce the likelihood of leaks, and thereby reduce the potential harm that natural gas\nescaping from those leaks could have on the atmosphere. The value of the environmental\nbenefits resulting from the use of an alternative MAOP cannot be readily quantified. It\nmay be substantial, however.\n6.2.7 Other Expected Benefits\nPHMSA notes that a number of additional benefits would result from the rule. Those\nbenefits include the reduction of certain costs, other than steel costs, associated with the\nconstruction of new pipelines (e.g., pipe transport, compressor, and welding costs).\nAlthough not quantified in this report, these additional benefits are expected to be\nsubstantial.\n6.2.8 Total Benefits\nTable 2 presents a summary of the estimated benefits of the rule. As a consequence of\nthe rule, PHMSA estimates that pipeline operators will realize annually recurring benefits\nof $49 million in fuel cost savings that begin in the initial year after the rule goes into\neffect. Additionally, PHMSA estimates that each year, pipeline operators will realize\none-time, non-recurring benefits of $54.6 million (since 700 miles of new pipeline\noperating at an alternative MAOP are added each year, the one-time benefits resulting\nfrom this added mileage will be the same each year). In total, operators will realize\n$103.6 million ($49.0 million + $54.6 million) in benefits per year. These estimates only\ninclude the benefits attributable to (1) fuel savings and (2) reduced capital expenditures\nrelated to pipe on new pipelines. Estimates do not include any benefits attributable to (1)\nreduced incident consequences, (2) reduced capital expenditures related to compressors\non new pipelines, (3) increased pipeline capacity, (4) increased line pack, (5) less\nenvironmental disturbance, or (6) other improvements, since those benefits were not\nquantified in analysis. PHMSA believes these additional benefits could add millions, and\npotentially hundreds of millions, to the total benefits.\n17\n\n<<<PAGE 19>>>\n\nTABLE 2. SUMMARY AND TOTAL FOR THE ESTIMATED BENEFITS OF\nTHE RULE\nBenefit\nEstimate for Year 1\nEstimate of benefits\n(Million)\noccurring in each\nsubsequent year\n(Million)\nReduced incident consequences\nNot quantified\nNot quantified\nFuel cost savings\n$49.0\n$49.0\nReduced capital expenditures\n$54.6\n$54.6\nIncreased pipeline capacity\nNot quantified\nNot quantified\nIncreased line pack\nNot quantified\nNot quantified\nReduced adverse environmental\nNot quantified\nNot quantified\nOther expected benefits\nNot quantified\nNot quantified\nTOTAL\n$103.6\n$103.6\nThe present value of the estimated benefits and the annualized value of benefits over 20\nyears using 3 percent and 7 percent discount rates are presented in Table 3. When\nconsidering the present value estimates, it should be remembered that they do not include\nthe non-quantified benefits, which are likely to be significant.\nTABLE 3. PRESENT AND ANNUALIZED VALUE OF THE ESTIMATED\nBENEFITS CALCULATED OVER 20 YEARS\nDiscount rate\nPresent value of\nAnnualized value of\nbenefits\nbenefits\n($ Million)\n(Million)\n3%\n1,541\n101\n7%\n1,098\n97\n6.2.9 Benefit Uncertainties\nThe benefit estimates developed for this rule are built on several key assumptions:\n• Pipeline operators using an alternative MAOP will experience annual fuel cost\nsavings of $14,000 per mile. This estimate depends on the price of gas.\n• 4,200 miles of pipeline (3,500 miles of existing pipeline plus 700 miles of new\npipeline) will adopt an alternative MAOP in the first year after implementation of\nthe rule and an additional 700 miles of pipeline will begin to use an alternative\n• Pipeline operators with new pipelines using an alternative MAOP will experience\na capital expenditure cost savings attributable to pipe of $78,000 per mile.\nThese assumptions introduce uncertainties into the benefits calculations. The impacts of\nthese uncertainties on the benefits estimates are discussed below.\n18\n\n<<<PAGE 20>>>\n\nImpact of Fuel Cost Savings Per Mile\nThe fu","truncated":true,"body_characters":99753}