# U.S. DOT/PHMSA - Regulatory Impact Assessment - **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:** Not available - **effective on:** Not available - **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:** <<>> :.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) <<>> Table of Contents EXECUTIVE SUMMARY 2 1. INTRODUCTION 5 2. BACKGROUND 5 3. STATEMENT OF THE PROBLEM 7 4. RATIONALE FOR REGULATORY ASSESSMENT 7 5. ALTERNATIVES CONSIDERED 8 7. SUMMARY AND CONCLUSIONS 46 <<>> EXECUTIVE SUMMARY The Pipeline and Hazardous Materials Safety Administration (PHMSA) is making changes to the Federal pipeline safety regulations in 49 CFR Part 192, which cover the transportation of natural gas by pipeline. Specifically, PHMSA is allowing natural gas transmission pipeline operators to raise the maximum allowable operating pressure (MAOP) for certain pipelines (1) constructed of steel pipe manufactured using modem steel chemistry and rolling practices and standards, and (2) inspected and tested to more rigorous standards. The regulation supports the Secretary of Transportation's priorities by improving performance and harnessing 21*'- Century technologies. Not only does increasing operating pressure ease supply constraints by boosting pipeline capacity, but it also enhances pipeline efficiency. This enhanced performance is made possible by technological advances in metallurgy and pipe manufacture, as well as by improved pipeline lifecycle management practices. Pipelines built with improved steel pipe and operated in compliance with improved lifecycle management practices can operate safely at higher internal pressures. Since incipient pipeline flaws can occur during pipe manufacture or installation, the technological advances decrease the risk of these flaws resulting in pipe failure over time due to the operating pressure. Furthermore, improved lifecycle management practices, which include rigorous testing, allow operators to detect flaws well before failure. Because revised regulations allowing increased capacity encourage the use of newer pipeline materials and associated safety standards, the result should have a net positive effect on overall pipeline safety. An analysis of the costs and benefits discounted at both 3 percent and 7 percent over a 20 year period demonstrates that there are significant net benefits. The exhibits below illustrate the calculations. PRESENT VALUE OF THE BENEFITS OF THE RULE CALCULATED OVER 20 YEARS ($Milllon) Benefit Items Annual Benefits Present Value at 3% Discount Present Value at 7% Discount Reduced Fuel Costs Savings Reduced Capital Expenditures Total Benefits 49.0 729 519 54.6 103.6 812 1,541 578 1,097 <<>> PRESENT VALUE OF THE COSTS OF THE RULE CALCULATED OVER 20 YEARS ($Miliion) Cost Item Present Value at 3% Discount Present Value at 7% Discount Baseline Internal Inspections Additional Internal Inspections Anomaly Repairs Remotely Controlled Valves Threat Identification and Evaluations Patrolling Total Costs 28.3 27.2 29.0 17.3 3.0 11.6 2.2 9.0 .6 .5 166.4 238.8 108.6 164.7 NET BENEFITS OF THE RULE ($ Million) Discount rate 3% 7% Present Value of the Benefits Calculated Over 20 Years 1,541 1,098 Present Value of the Costs Calculated over 20 Years 239 165 Net benefits 1,302 933 These analyses find that the rule is not expected to adversely affect the economy nor the environment. The analyses also find that, for those costs and benefits that can be quantified, the present value of net benefits is expected to be between $933 million and $1.3 billion. The undiscounted monetary costs of the rule are expected to average about $16.6 million per year over a 20-year period. The benefits resulting from the rule are estimated to be $103.6 million per year. The rule is expected to be an economically significant regulatory action within the meaning of Section 3(f)(1) of Executive Order 12866, due to the expected benefits of the rule which exceed the annual $100 million threshold for economic significance. PHMSA has also determined, as required by the Regulatory Flexibility Act, that the rule would not have a significant economic impact on a substantial number of small entities in the United States. The rule mandates no action by gas transmission pipeline operators. Rather, it provides those operators with the option of using an alternative MAOP in certain circumstances, when certain conditions can be met. Additionally, PHMSA determined that the rule would not impose annual expenditures on State, local, or tribal <<>> governments or the private sector in excess of $132 million, and thus does not require an Unfunded Mandates Act analysis. <<>> 1. INTRODUCTION The Pipeline and Hazardous Materials Safety Administration (PHMSA) of the U.S. Department of Transportation (DOT) is requiring changes to the Federal pipeline safety regulations in 49 CFR Part 192, which cover the transportation of natural gas by pipeline. Specifically, the regulation allows natural gas transmission pipeline operators to raise the maximum allowable operating pressure (MAOP) for certain pipelines (1) constructed of steel pipe manufactured using modem steel chemistry and rolling practices and standards, and (2) inspected and tested to more rigorous standards. This report examines the benefits and costs of the regulatory changes. Additionally, the report includes the analysis required by the Regulatory Flexibility Act. 2. BACKGROUND Gas transmission pipelines in the United States use steel pipe almost exclusively.' Under Federal pipeline safety regulations, steel transmission pipelines must use a MAOP that is below the specified minimum yield strength (SMYS) of the steel pipe. Each pipeline class, based on population density, ranging from Class 1 (undeveloped, rural land) through Class 4 (densely populated urban areas) has a different MAOP, which are currently as follows: • Class 1: 72% of SMYS • Class 2: 60% of SMYS • Class 3: 50% of SMYS • Class 4: 40% of SMYS. The estimated percentages of transmission mileage in these four class locations are: • Class 1: 80%^ to 90%^ of mileage • Class 2: 5%"* to 10%^ of mileage • Class 3: Less than 5%^ to 10%^ of mileage • Class 4: Approximately 0.5% of mileage. When Federal regulations were adopted in 1970, 72 percent of SMYS was selected as the upper MAOP limit to ensure conservative safety margins. The manufactured quality of ' Howard J. Murphy, Jr., Energy Experts International, "Reconsideration of Maximum Allowable Operating Pressure: Costs and Benefits - A Macroeconomic View," PHMSA-2006-23447-35. ^ Ibid.. ^ Richard B. Kuprewicz, Accufacts Inc., "Increasing MAOP on U.S. Gas Transmission Pipelines," a paper prepared for the Pipeline Safety Trust, PHMSA-2006-23447-50. ^ Ibid. ^ Howard J. Murphy, Jr., Op. Cit. ^ Richard B. Kuprewicz, Op. Cit. ' Howard J. Murphy, Jr., Op. Cit. ^ Richard B. Kuprewicz, Or. Cit. <<>> steel pipe at the time necessitated the conservative safety margins. Since then, manufacturers have dramatically improved the quality of steel pipe. Additionally, pipeline construction practices and operation and maintenance (O&M) procedures of pipeline operators have improved. In response to the material, construction, and O&M advances, several nations, including Canada and the United Kingdom, have allowed pipelines to operate up to 80 percent of SMYS.'° A few nations, including Japan and Germany, mandate a MAOP lower than 72 percent of SMYS." In 1970, Federal regulators allowed pipelines that had operated successfully for many years at a stress level greater than 72 percent of SMYS to continue to operate at the higher stress level. Currently, approximately five thousand miles of gas transmission pipelines in the U.S. are operating at a stress level that is greater than 72 percent of SMYS because of grandfathering.'^ Operators desiring a MAOP greater than 72 percent of SMYS may apply to PHMSA for waivers (i.e., special permits). When evaluating waiver applications, the key consideration for PHMSA is whether the pipelines can operate at higher stress levels without compromising safety. Beginning in 2006, PHMSA evaluated requests for special permits from three companies seeking to operate natural gas transmission pipelines at higher pressures than currently allowed by regulation. Those requests were made by: • Alliance Pipeline L.P.' ^ • Maritimes & Northeast Pipeline, L.L.C."^ • Rockies Express Pipeline L.L.C.'^ The requests were for proposed and existing pipelines, and all requested permission to operate at 80% of SMYS in the Class 1 locations. Some requests also included increases in the MAOP for other class locations. PHMSA afforded the public an opportunity to provide comments on each special permit request and received favorable comments from both industry respondents and the public. Additionally, PHMSA briefed its technical advisory committees, held a public meeting, and brought stakeholders into the development of permitting criteria. PHMSA received supportive comments at these meetings. PHMSA granted all three requested special permits. In granting them, PHMSA required the operators to demonstrate compliance with certain design specifications and imposed additional safety standards. ' Joy O. Kadner, PHMSA, "Reconsideration of Maximum Allowable Operating Pressures for Natural Gas Pipelines, PHMSA-2006-23447-46. '"Ibid. " Howard J. Murphy, Jr., Energy Experts International, "Reconsideration of Maximum Allowable Operating Pressure: Costs and Benefits - A Macroeconomic View," PHMSA-2006-23447-35. '^ Richard B. Kuprewicz, Op.cit. " See DOT Docket PHMSA-2006-23387. '^Ibid. '• ^ Ibid. <<>> 3. STATEMENT OF THE PROBLEM The rule for permitting a greater maximum allowable operating pressure supports the Secretary of Transportation's priorities by improving performance and harnessing 21 ^'-Century technologies. Increasing operating pressure can ease supply constraints by boosting pipeline capacity by as much as 10 percent. Increasing capacity also enhances pipeline efficiency. This enhanced performance is made possible by technological advances in metallurgy and pipe manufacture, as well as by improved pipeline lifecycle management practices. Pipelines built with improved steel pipe and operated in compliance with improved lifecycle management practices can operate safely at higher internal pressures. Since incipient pipeline flaws can occur during pipe manufacture or installation, the technological advances decrease the risk of these flaws resulting in pipe failure over time due to the operating pressure. Furthermore, improved lifecycle management practices, which include rigorous testing, allow operators to detect flaws well before failure. Because revised regulations allowing increased capacity encourage the use of newer pipeline materials and associated safety standards, the result should have a net positive effect on overall pipeline safety. PHMSA's rulemaking grows out of the Agency's examination of the safety issues in allowing existing or proposed pipeline to operate at higher pressure. From a policy perspective, the experience with previously granted special permits has been very positive. One of the successful operators that obtained a special permit, Maritimes & Northeast Pipeline, plans to take advantage of the extra capacity allowed by the higher MAOP to redirect gas supply to the New York City metropolitan area, the most capacity- strained market in the nation. Incorporating the special permit standards into PHMSA's regulations allows qualified pipelines to operate at higher pressure. The rule eases regulatory burdens, encourages the development of new infrastructure, improves regulatory certainty, and reduces Agency workload associated with granting individual applications. 4. RATIONALE FOR REGULATORY ASSESSMENT Executive Order 12866 directs all Federal agencies to develop both preliminary and final regulatory analyses if their regulations are likely to be "significant regulatory actions" with 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 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 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. The Unfunded Mandates Act also requires an impact analysis for rules that that may result in the expenditure by State, local, and tribal governments, in the <<>> aggregate, or by the private sector, of $132 million or more ($100 million adjusted for inflation) in any one year. In accordance with the above directives, PHMSA has performed an evaluation of the potential compliance costs of the rule and other feasible regulatory options and identified those benefits that can be expressed in monetary terms. To the extent possible, this evaluation 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 rule will be greater than $100 million in any one year. PHMSA does not expect the rule to adversely affect the economy or any sector of the economy in terms of productivity and employment, the environment, public health, safety, or State, local, or tribal government. PHMSA has determined, as required by the Regulatory Flexibility Act, that the rule will not have a significant economic impact on a substantial number of small entities in the United States. In addition, PHMSA has estimated that this rule will not impose annual expenditures of $132 million or more on State, local or tribal governments or the private sector, and thus will not require an Unfunded Mandates Act analysis. 5. ALTERNATIVES CONSIDERED In addition to taking no rulemaking action (the baseline) PHMSA considered the following two alternatives with respect to MAOP: • Delay rulemaking • Undertake rulemaking. Each of these alternatives is evaluated below. 5.1 Baseline: No action PHMSA could continue to address individual special permit applications on a case-by- case basis. Although this approach would give PHMSA additional oversight control, it would be less efficient for industry and for the Agency than promulgating a regulatory standard. For this reason, this is used as a baseline by which to measure costs and benefits of the other regulatory alternatives. 5.2 Delay rulemaking Instead of embarking on the immediate development and implementation of a regulatory standard, PHMSA could delay rulemaking and continue to work with consensus standard-setting organizations. Current consensus standards already allow increased operating pressures, but without the additional safety requirements PHMSA has imposed in special permits. The standard-setting organization responsible for these standards is currently establishing a subcommittee to address operation of pipelines at higher pressures. <<>> PHMSA could delay rulemaking in order to gain more experience with evaluating applications and monitoring compliance and outcomes. Furthermore, the Agency could wait until the new subcommittee of the standards organization has completed its work. A delay would then allow the Agency to have more confidence in any proposed regulatory standard it promulgates. Delaying the rulemaking, however, would necessitate continuing the less-efficient permit process. Furthermore, promulgating a rulemaking does not preclude PHMSA, at some point in the future, from reconsidering or modifying safety requirements as a result of the standard setting organization's further research. For these reasons, PHMSA rejected the option to delay the rulemaking. 5.3 Undertake rulemaking The third alternative considered by PHMSA was to undertake a new rulemaking without undue delay. This would minimize the inefficiencies associated with the special permit process. For this reason, the rulemaking alternative was chosen by PHMSA. PHMSA will continue to entertain special permit applications for MAOP increases, to the extent permitted by the law, until such permits are determined uimecessary. The ongoing permit process will help inform any rulemaking outcome. Furthermore, within this alternative, the Agency has explored two options: Adopt the current consensus standard as written, or adopt a rulemaking that has requirements similar to the additional safety requirements PHMSA has imposed under the special permits granted to date. Currently, the rule reflects the latter of these options. OMB Circular A-119 and the National Technology Transfer and Advancement Act of 1995 direct Federal agencies to use voluntary consensus standards in lieu of Government- unique standards in their regulatory and procurement activities, except where such standards are inconsistent with law or otherwise impractical. Therefore, this impact analysis separately estimates the impact of the additional safety requirements that differ from the consensus standard, describing why the Agency believes this is the best approach. 6. ECONOMIC ANALYSIS With this rule, PHMSA revises the Federal pipeline safety regulations in 49 CFR Part 192 to allow use of an "alternative" MAOP when certain conditions are met. Under the rule, the alternative MAOP for each class location is as follows: • Class 1: Greater than 72% of SMYS but less than or equal to 80% of SMYS • Class 2: Greater than 60% of SMYS but less than or equal to 67% of SMYS • Class 3: Greater than 50% of SMYS but less than or equal to 56% of SMYS • Class 4: No alternative MAOP for Class 4 locations. The conditions that must be met in order for a segment to be eligible for operation at the alternative (higher) MAOP include requirements relating to: • Design <<>> • Materials • Construction • Operation and maintenance (O&M) • Notification. With respect to design and materials, operators must comply with requirements for: The properties of the steel used for the pipe The manufacturing standards for the pipe Fracture control Plate quality control Seam quality control Mill hydrostatic testing Coating Fittings and flanges. With respect to construction, operators must comply with requirements for: • Quality assurance • Girth welds • Depth of cover • Initial strength testing • Cathodic protection • Interference currents. With respect to O&M, operators must comply with requirements for: Responding to emergencies in high consequence areas (HCAs) Monitoring gas quality for internal corrosion control Controlling interference that can impact external corrosion Implementing external corrosion control - cathodic protection Implementing external corrosion control - close interval survey Implementing external corrosion control - annual readings Patrolling the right of way Maintaining the depth of cover Reevaluating the potential impact radius as necessary Notifying the public proximate to the pipeline Performing threat identification and evaluation Performing indirect assessments Performing baseline internal inspections Performing additional inspections Performing direct assessments when internal inspection is not possible Evaluating anomalies conservatively and repairing defects expeditiously. 10 <<>> With respect to notification, operators must notify PHMSA when they choose to use an alternative MAOP. The rule does not require operators of gas transmission pipelines to make any changes. Rather, the rule provides operators with the option of using an alternative (higher) MAOP if their pipelines meet certain specific conditions. The choice of whether to meet those conditions and use an alternative MAOP is left to the operators. In the remainder of this section the impacted industry is identified and the affected mileage is estimated and the benefits and costs of the rule are considered. All monetary values, unless otherwise indicated, are given in 2006 constant dollars.'^ 6.1 Impacted Industry The rule covers all existing gas transmission pipelines, of which there are approximately 320,000 miles,'^ as well as any future gas transmission pipelines. As a result of the rule, PHMSA expects the MAOP for approximately 3,500 miles of existing pipeline to be uprated. As a practical matter, only a portion of the existing gas transmission pipeline network would be a candidate for a higher alternative MAOP, due to the requirements associated with increasing the MAOP. Many pipeline operators are expected to find the cost of using the alternative MAOP to be too high. For instance, fitting and pressure vessel replacement costs may prevent some pipeline operators from converting to a higher MAOP. Additionally, the costs associated with converting non- piggable lines are expected to be prohibitive. Also, PHMSA expects that only post-1980 pipelines will be appropriate for converting to a higher MAOP. PHMSA expects approximately 700 miles of new gas transmission pipeline will be certificated each year to take advantage of the regulation and be operated at an alternative MAOP. This includes pipeline mileage in Class 1, 2, and 3 locations. PHMSA expects that many operators will only select an alternative MAOP for their new pipeline construction in Class 1 locations. For this analysis, PHSMA expects that at the end of the first year after implementation of the rule, 4,200 miles of pipeline would begin to be operated at an alternative MAOP. This consists of 3,500 miles of existing pipeline and 700 miles of newly laid pipeline. Furthermore, PHMSA expects that in each subsequent year and additional 700 miles of new pipeline would begin to be operated at an alternative MAOP. '* To convert nominal dollars into 2006 constant dollars, the implicit price deflator for Gross Domestic Product, transformed from 2000=100 to 2006=100, was used (for the implicit price deflators, 2000=100, see Table 1. 1.9, Implicit Price Deflators for Gross Domestic Product, Bureau of Economic Analysis, National Income Accounts). The 2006 deflator (2000=100) was calculated by averaging the quarterly implicit price deflators for the first and second quarters of 2006. '"' See PHMSA, Distribution & Transmission Annual Mileage Totals (1984-2005), http://ops.dot.gov/stats/stats.htm. 11 <<>> 6.2 Benefits The main expected benefits of the rule are the following: • A reduction of the consequences (e.g., deaths, injuries, property damage, and lost gas) resulting from pipeline incidents. • Fuel cost savings. • A reduction in pipeline capital expenditures. • An increase in pipeline capacity. • An increase in line pack. • A reduction in adverse environmental impacts. These benefits are discussed below. Following the discussion of each individual benefit, the total benefits and their present value are estimated. The benefits discussion concludes with a review of benefits uncertainties. 6.2.1 Reduced Incident Consequences from Pipeline Incidents The operation of natural gas transmission pipelines at higher MAOP is not expected to increase the number or severity of pipeline incidents. '^ The rule's requirements, such as monthly right-of-way patrolling, additional internal inspections, and anomaly repair, are expected to prevent incidents that would have occurred in the absence of the rule, and to help mitigate the consequences of the incidents that do occur. A quantitative estimate of the benefits associated with reduced incident consequences is not developed for this analysis. While PHMSA expects the rule to reduce the incidents and incident consequences on the pipeline mileage affected by the rule, quantification of the benefits resulting from those reductions would be difficult. For instance, differentiating the benefits attributable to increased right-of-way patrolling from those attributable to other regulatory safety requirements relating to the prevention or mitigation of excavation or natural forces damage may be impracticable for analytical purposes. As another example, differentiating the benefits attributable to additional internal pipeline inspections from those attributable to other regulatory safety requirements relating to corrosion damage prevention and control may present similar challenges. Additionally, PHMSA expects that some pipeline operators have already adopted the practices required by the rule. As a result, the estimated benefits associated with the safety improvements attributable to the rule are reduced. '* See, for instance, Joy O. Kadner, PHMSA, "Reconsideration of Maximum Allowable Operating Pressures for Natural Gas Pipelines," PHMSA-2006-23447-46; Alan Eastman, Mears Group, Inc., "Impact of 80% SMYS Operation on Time Dependent Threats," PHMSA-2006-23447-28. 12 <<>> 6.2.2 Fuel Cost Savings Natural gas engines or turbines are frequently used to drive the compressors that move the product through gas transmission pipelines. Industry expects the rule will reduce fuel costs for pipeline owners operating existing pipelines at an alternative MAOP. In a submission to PHMSA relating to its petition to increase the MAOP on 874.7 miles of pipeline in the U.S. from 72% of SMYS to 80% of SYMS, Alliance Pipeline estimated that it could save $11.9 million on its fuel costs in 2007 with the higher MAOP. In calculating this estimate, gas was assumed to cost $5.72 per million BTUs (British thermal units).'^ For this analysis, PHMSA assumes that the annual fuel cost savings realized by operators of pipelines choosing to go with an alternative MAOP would be $14,000 per mile ($11.9 million / 874.7 miles). This estimate is based on the fuel cost savings information provided by Alliance Pipeline. For existing pipelines, this would be the major benefit of changing the formula for calculating MAOP. New pipelines built with thinner-walled pipe would not, however, see this same benefit. Assuming that 3,500 miles of existing pipeline are initially affected in the first year, the total cost savings in that year would be $49 million ($14,000 * 3,500 miles). It should be noted that all fuel savings are annually recurring. That is, they will continue to be realized each and every year after an existing pipeline operates at an alternative MAOP. 6.2.3 Reduced Capital Expenditures In constructing new pipelines, companies have another option as a result of this rulemaking: instead of building the pipeline to the standard currently required and increasing its pressure, they can reduce the wall thickness of the new pipeline (thus resulting in savings on steel cost)'^' to achieve the "same" operating pressure under the new formula for calculating MAOP. This is a straightforward result from the formula for calculating MAOP below; increasing the design factor allows either pressure to go up or wall thickness to go down. For this analysis, PHMSA assumes that new pipelines would choose to take advantage of reduced capital expenditures. To determine the wall thickness of pipe (t) needed for a specific operating pressure (P), an operator would use the design formula specified in § 192.105 and solve for t as follows: " Submission by Alliance Pipeline, L.P., to PHMSA, Feb. 20, 2006, PHMSA-2005-23387-8. ^° This analysis does not attempt to forecast the increased benefits as fuel costs rise. ^' See, for example, the response by BP Canada Energy Marketing Corp. to dockets PHMSA-2005-23387, PHMSA-2005-23447, and PHMSA-2005-23448 or Howard J. Murphy, Jr., Energy Experts International, "Reconsideration of Maximum Allowable Operating Pressure: Costs and Benefits - A Macroeconomic View," PHMSA-2006-23447-35. 13 <<>> 22 t = (P X D) / (2 X S X F). The increase in the design factor F in this rulemaking results in a decreased value for t. The use of thinner walled pipe results in a savings in the amount of steel needed. Information on the total capital expenditure savings attributable to the use of an alternative MAOP by pipeline operators is not readily available. Neither is information on the capital expenditure savings attributable to the expected reduction in the required investment in compressors for existing pipelines. PHMSA has developed an estimate for the capital expenditure savings attributable to the expected reduction in the required investment in pipe, which is based on information obtained by PHMSA from materials submitted in support of special permits for five pipeline projects. That information is presented in Table I. PHMSA's estimate of the expected reduction in the required investment in pipe is $78,260 per mile ([$1,644,426,015 - $1,482,036,466] / 2,075 miles). The estimate assumes that the cost of steel for pipe is $1,300 per ton. TABLE 1. STEEL PIPE COST COMPARISON: PIPELINES OPERATING AT 72% OF SMYS VERSUS PIPELINES OPERATING AT 80% OF SMYS PIPELINE PROJECT CHARACTERISTICS Project Status Pipe size (Inches) MAOP (psig) Grade of steel (psi) Project length (MUes) Project length (Feet) 1 Gulf South 2 CenterPoint 3 REX 4 KMLP Special permit granted Special permit granted Special permit granted Special permit granted Special Permit Pending 42 1333 70000 212 1,119,360 42 1168 70000 170 897,600 42 1481 80000 1323 6,985,440 42 1440 70000 137 723,360 5 6 Ozark Ozark TOTAL 24 36 1200 1200 70000 70000 8 225 2,075 42,240 1,188,000 10,956,000 22 D and S are defined in § 192.105 as the nominal diameter of the pipe and its yield strength, respectively. 14 <<>> ESTIMATED COST OF STEEL WITH PIPELINE OPERATING AT 72% OF SMYS Project Pipe Pipe wall Weight Total Estimated total size thickness of steel weight of cost of steel* (Inches) (Inches) steel (Pounds) per foot (Tons) 1 Gulf South 42 0.56 246.0732 137,722 $179,038,953 2 CenterPoint 42 0.49 215.9717 96.928.11 $126,006,547 REX 42 KMLP 0.54 239.332 265.5396 835.919.65 $1.086,695,543 42 0.60 96,040.36 $124,852,471 Ozark 24 Ozark 36 0.29 72.4302 1,529.73 $1.988,643 TOTAL 0.43 162.968 96.802.97 $125,843,858 $1,644,426,015 ESTIMATED COST OF STEEL WITH PIPELINE OPERATING AT 80% OF SMYS Project Pipe Pipe wall thickness Weight Total Estimated total Size of steel weight of cost of steel* (Inches) (Inches) per foot steel 1 Gulf South 0.500 (Pounds) (Tons) 221.8175 124,146.82 $161,390,863 CenterPoint 0.438 194.6024 87,337.57 $113,538,840 3 REX 0.486 215.6793 753,307.56 $979,299,829 KMLP 0.540 239.332 86,561.60 $112,530,075 Ozark 0.258 65.48091 1,382.96 $1,797,843 6 Ozark 36 0.386 146.9555 87.291.55 TOTAL $113,479,016 $1,482,036,466 *Cost of steel estimated at $1,300 per ton. Source: Materials submitted to PHMSA in support of special permits. Assuming that 700 miles of new pipeline are initially affected by the rule in the first year and that 700 miles of new pipeline are added each year thereafter, the expected annual capital expenditure savings attributable to the reduction in pipe investment would be approximately $54.6 million ($78,000 per mile * 700 miles). This estimate does not riptudes, saginal expenditud sial atributable to compressor investment for existing 6.2.4 Increased Pipeline Capacity In the case of new pipelines, the ability to use an alternative MAOP will make it possible to transport more of the product. Quantifying the value of this increased capacity is 23 For estimates of the potential savings on compressor investment on the Alaska Natural Gas Maximum Allowable Operating Pressure: Costs and Benefits - A Macroeconomic View," PHMSA-2006- Transportation System, see Howard J. Murphy, Jr., Energy Experts International, "Reconsideration of 23447-35. 15 <<>> difficult, and no estimate has been developed for this analysis. Nonetheless, PHMSA expects the value of increased capacity due to use of alternative MAOP by gas pipelines to be significant. Estimates made with respect to the proposed trans-Alaskan gas pipeline include an estimated increase of 14.2 million standard cubic feet of gas per day. In areas where production is already well established, there is an even greater potential for increased pipeline capacity. For example, one recipient of a special permit estimated a daily increase of at least 62 million standard cubic feet of gas. In addition to simply being better able to meet demand, increased capacity will eventually mean cost savings with the elimination of the need for some future pipelines (i.e., the capacity added by using an alternative MAOP may eliminate the need to construct a new pipeline with that capacity at some later date). 6.2.5 Increased Line Pack "Line pack" is essentially the quantity of natural gas filling a pipeline or pipeline segment and the amount of line pack varies by pressure in the pipeline. On pipelines using an alternative MAOP, the line pack would be greater than it would be if an alternative MAOP were not used. Line pack may be either owned by the pipeline operator or provided by its customers. Increased line pack has several advantages. First, it reduces the amount of external storage that is needed for natural gas. The reduction in the amount of external storage needed may result in capital or O&M cost savings for pipeline operators or their customers. Currently in the U.S., an estimated 95 to 98 percent of external natural gas storage is underground in depleted oil or gas reservoirs that have been retrofitted to handle gas injection and withdrawal.^^ Added storage via increased line pack could be particularly important in areas where underground storage is limited, such as in the Southwest.^^ Second, increased line pack allows more product to be delivered to customers when segments of a pipeline must be (1) taken out of service for routine maintenance or (2) shut down due to pipeline accidents or problems with pipeline valves, compressors, or other equipment. Third, increased line pack allows pipelines greater latitude in covering peaks in natural gas demand. This would be of value serving certain natural gas consumers, such as electric utilities, ".. .with load profiles that are not uniform." ^ "' * Howard J. Murphy, Jr., Energy Experts International, "Reconsideration of Maximum Allowable Operating Pressure: Costs and Benefits - A Macroeconomic View," PHMSA-2006-23447-35. " Special Permit Analysis and Findings, Gulf South Pipeline Company, PHMSA-2006-26533-4. ^ ^ Jeffrey H. Foutch, "Times Are Changing for Gas Storage," http://ww\v.falcongasstorage.com/ filelib/FileCabinetyArticles/Times%20are%20Changing.pdf?FileName= Times%20are%20Chanping.pdf. ^'' Submission by Kern River Gas Transmission Company, Docket No. PHMSA-2005-23447-23. ''Ibid.. 16 <<>> The value of these and any other benefits attributable to increased line pack cannot be readily quantified, but may be substantial. PHMSA believes the reduced amount of exterior storage capacity needed resulting from increased line pack may result in capital or operation and maintenance savings for the pipelines or their customers. Increased line pack increases the ability to continue gas delivery during short outages such as maintenance and to increase the amount of gas quickly during peak periods. 6.2.6 Reduced Adverse Environmental Impacts Allowing pipeline operators to use an alternative MAOP would have environmental benefits. Because of the potential for increased capacity by pipelines using an alternative MAOP, fewer pipelines might be needed. This means that, all other things equal, less local ecology would be disturbed by the construction of new pipelines and fewer environmentally sensitive areas would be disturbed by operation and maintenance activities, such as pipeline repairs. In addition, the new requirements are expected to reduce the likelihood of leaks, and thereby reduce the potential harm that natural gas escaping from those leaks could have on the atmosphere. The value of the environmental benefits resulting from the use of an alternative MAOP cannot be readily quantified. It may be substantial, however. 6.2.7 Other Expected Benefits PHMSA notes that a number of additional benefits would result from the rule. Those benefits include the reduction of certain costs, other than steel costs, associated with the construction of new pipelines (e.g., pipe transport, compressor, and welding costs). Although not quantified in this report, these additional benefits are expected to be substantial. 6.2.8 Total Benefits Table 2 presents a summary of the estimated benefits of the rule. As a consequence of the rule, PHMSA estimates that pipeline operators will realize annually recurring benefits of $49 million in fuel cost savings that begin in the initial year after the rule goes into effect. Additionally, PHMSA estimates that each year, pipeline operators will realize one-time, non-recurring benefits of $54.6 million (since 700 miles of new pipeline operating at an alternative MAOP are added each year, the one-time benefits resulting from this added mileage will be the same each year). In total, operators will realize $103.6 million ($49.0 million + $54.6 million) in benefits per year. These estimates only include the benefits attributable to (1) fuel savings and (2) reduced capital expenditures related to pipe on new pipelines. Estimates do not include any benefits attributable to (1) reduced incident consequences, (2) reduced capital expenditures related to compressors on new pipelines, (3) increased pipeline capacity, (4) increased line pack, (5) less environmental disturbance, or (6) other improvements, since those benefits were not quantified in analysis. PHMSA believes these additional benefits could add millions, and potentially hundreds of millions, to the total benefits. 17 <<>> TABLE 2. SUMMARY AND TOTAL FOR THE ESTIMATED BENEFITS OF THE RULE Benefit Estimate for Year 1 Estimate of benefits (Million) occurring in each subsequent year (Million) Reduced incident consequences Not quantified Not quantified Fuel cost savings $49.0 $49.0 Reduced capital expenditures $54.6 $54.6 Increased pipeline capacity Not quantified Not quantified Increased line pack Not quantified Not quantified Reduced adverse environmental Not quantified Not quantified Other expected benefits Not quantified Not quantified TOTAL $103.6 $103.6 The present value of the estimated benefits and the annualized value of benefits over 20 years using 3 percent and 7 percent discount rates are presented in Table 3. When considering the present value estimates, it should be remembered that they do not include the non-quantified benefits, which are likely to be significant. TABLE 3. PRESENT AND ANNUALIZED VALUE OF THE ESTIMATED BENEFITS CALCULATED OVER 20 YEARS Discount rate Present value of Annualized value of benefits benefits ($ Million) (Million) 3% 1,541 101 7% 1,098 97 6.2.9 Benefit Uncertainties The benefit estimates developed for this rule are built on several key assumptions: • Pipeline operators using an alternative MAOP will experience annual fuel cost savings of $14,000 per mile. This estimate depends on the price of gas. • 4,200 miles of pipeline (3,500 miles of existing pipeline plus 700 miles of new pipeline) will adopt an alternative MAOP in the first year after implementation of the rule and an additional 700 miles of pipeline will begin to use an alternative • Pipeline operators with new pipelines using an alternative MAOP will experience a capital expenditure cost savings attributable to pipe of $78,000 per mile. These assumptions introduce uncertainties into the benefits calculations. The impacts of these uncertainties on the benefits estimates are discussed below. 18 <<>> Impact of Fuel Cost Savings Per Mile The fu - **truncated:** true - **body characters:** 99753