U.S. DOT/PHMSA - Regulatory Impact Analysis and Regulatory Flexibility Act Analysis 3

Page 1Regulatory Impact Analysis and Regulatory Flexibility Act Analysis Pipeline Safety: Operator Qualification, Cost Recovery and other Pipeline Safety Changes PHMSA-2013-0163 Office of Pipeline Safety Pipeline and Hazardous Materials Safety Administration (PHMSA) U.S. Department of Transportation February 2017 1#

Page 2Executive Summary This package of regulatory changes addresses errors and inconsistencies in the current regulations, provides additional clarifications, incorporates industry standards, and updates certain regulatory requirements. The changes also address statutory requirements from the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (Public Law 112-90) and safety recommendations from the NTSB, as well as petitions for rulemaking. Many of the revisions are small changes that will not lead to substantial changes in regulatory requirements, operator practices, or overall costs and benefits. Benefit-Cost Analysis Annual compliance costs are estimated at $0.6 million, less savings to be realized from the removal of farm taps from the Distribution Integrity Management Program (DIMP) requirements. PHMSA could not quantify annual benefits as readily due to data limitations; however, it designed several provisions specifically to reduce pipeline incidents and the associated consequences, including the potential to prevent a future high-consequence event, such as those that have occurred on gas transmission and hazardous liquid pipelines in the past. PHMSA streamlined processes and clarified requirements, allowing operators and PHMSA to conserve and focus resources on safety-related activities and be better prepared to respond in the event of an incident. Regulatory Flexibility Act Analysis The Regulatory Flexibility Analysis found that the rule could affect a substantial number of small entities because of the market structure of the gas and hazardous liquids pipeline industry, which includes many small entities. However, these impacts are not significant. The post- accident drug testing provision will add $132 in documentation costs per reportable incident. The other provisions will not add appreciable costs, and at least one provision (farm taps) will yield compliance cost savings. Unfunded Mandates Act Analysis PHMSA determined that the rule will not impose annual expenditures on State, local, or tribal governments of the private sector in excess of $155 million, and thus does not require an Unfunded Mandates Act analysis.1 1 The Unfunded Mandates Act threshold was $100 million in 1995 Adjusted for inflation, the current figure as used in DOT guidance is $155 million. Thomson, K. and Monje, C., Departmental Guidance: Threshold of Significant Regulatory Actions Under the Unfunded Mandates Reform Act of 1995. 2#

Page 31 Introduction The Pipeline and Hazardous Materials Safety Administration (PHMSA) is promulgating a package of changes to the pipeline safety regulations. On January 3, 2012, President Obama signed into law the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (“the Act”). 2 The changes address Sections 9 and 13 of the Act, correct errors, address inconsistencies, and respond to rulemaking petitions. Requirements in several subject matter areas are affected, including telephonic or electronic notifications of accidents and incidents, cost recovery for design reviews, the renewal of expiring special permits, farm taps, reversal of flow or change in product, control room responsibilities and team training, and editorial changes. The rule also provides standards for assessment tools via incorporation by reference in Part 195, modifies the criteria used to make decisions about conducting post-accident drug and alcohol tests and additional testing in Part 199, requiring electronic reporting of drug and alcohol testing results in Part 199, and requiring post-accident drug and alcohol testing in Part 199. This report analyzes the benefits and costs of the regulatory changes as required by Section 1 of Executive Order 12866 (as amended by E.O.s 13258 (2002), 13422 (2007), and 13497 (2009)) and Section 1 of Executive Order 13563.3 Executive Orders 12866 and 13563 require agencies regulate in the most cost-effective manner make a reasoned determination that the benefits of the intended regulation justify its costs, and develop regulations that impose the least burden on society. Analysis of the potential impacts on small entities is also required by the Regulatory Flexibility Act. The Final Regulatory Flexibility Act analysis is also included in this document (see Section 8). 2 Background PHMSA, pipeline operators, and others have identified certain errors, inconsistencies, updates to standards incorporated by reference, and other deficiencies in the Pipeline Safety Regulations. As such, PHMSA is making a set of miscellaneous changes to the Pipeline Safety regulations concerning the following subjects, which are described in more detail in sections 3.1 to 3.12 below: • Accident and Incident Notification • Cost Recovery for Design Reviews • NTSB Recommendation on Control Room Center Staff 2 Public Law 112-90 3 The text of E.O. 12866 can be found here: http://www.archives.gov/federal-register/executive- orders/pdf/12866.pdf and E. O. 13563 here: http://www.whitehouse.gov/sites/default/files/omb/inforeg/eo12866/eo13563_01182011.pdf 3#

Page 4• Special Permit Renewal • Farm Taps • Reversal of Flow or Change in Product • Control Room Team Training • Assessment tools by Incorporation by Reference • modifying the criteria used to make decisions about conducting post-accident drug and alcohol tests • Electronic Reporting of Drug and Alcohol Testing Results • Post-Accident Drug and Alcohol Testing 3 Identification of the Problem and the Need for the Rule Under the Federal Pipeline Safety Laws, 49 U.S.C. 60101 et seq., the Secretary of Transportation must prescribe minimum safety standards for pipeline transportation and for pipeline facilities. The Secretary has delegated this authority to the PHMSA Administrator (49 CFR 1.97(a)). The rule creates changes in the regulations consistent with the protection of persons and property while changing unduly burdensome or nonsensical requirements. Executive Order 12866 states that "Federal agencies should promulgate only such regulations as are required by law, are necessary to interpret the law, or are made necessary by compelling need, such as material failures of private markets to protect or improve the health and safety of the public, the environment, or the well-being of the American people ... ." The mission of PHMSA is to ensure the safety of the natural gas and hazardous liquids pipeline system. Pipeline operators do not always bear the full costs of an incident. Even in cases where they provide compensation for losses that can be monetized, those monetary penalties or settlements do not necessarily capture the full impact on affected parties, especially when a death or injury occurs. As a result, there is a negative externality present in which the company may not take the full societal cost of a possible incident into account in its decision-making. The negative externality alters the company’s decision about safety precautions, leading to a need for government to set minimum levels of safety precautions. Pipeline safety regulations are designed to address this potential market failure. The rulemaking package analyzed here is more specifically intended to improve compliance with these regulations by updating references and technical standards, providing clarification, and removing conflicting language. Some of the provisions also promote improved pipeline integrity and safety by addressing small gaps in the current regulations, as discussed in more detail below. Executive Orders 12866 and 13563 direct all Federal agencies to consider the costs and benefits of “significant regulatory actions.” Federal agencies are directed to develop a formal Regulatory Impact Analysis consistent with Office of Management and Budget (OMB) Circular A-4 for all “economically significant” rules, or those rules estimated to have an impact of $100 million in 1995 dollars or more in any one year. The Order also requires a determination as to whether a 4#

Page 5rule could adversely affect the economy in terms of productivity and employment, the environment, public health, safety, or State, local, or tribal governments. The goal of the analysis is to provide decision makers with a clear indication of the most efficient alternative – that is, the alternative that generates the largest net benefits to society. This rule is not a significant regulatory action under Section 3(f) of Executive Order 12866 (58 FR 51735), and therefore is not reviewed by OMB. This rule is not significant under the Regulatory Policies and Procedures of the Department of Transportation (44 FR 11034). It falls below the $100 million per year in annual impact threshold. This regulatory analysis: • Identifies the target problem, including a statement of the need for the action. • Identifies available alternative approaches • Defines the baseline. • Defines the scope and parameters of the analysis. • Defines and evaluates the costs and benefits of the action and the main alternatives identified by the analysis. • Compares the costs and benefits. • Interprets the cost and benefit results. Subsections 3.1 to 3.13 describe the regulatory changes in detail and the specific needs to which each regulatory change responds. 3.1 Accident and Incident Notification Currently, PHMSA requires pipeline owners and operators to notify the National Response Center by telephone or electronically at the earliest practicable moment following discovery (§§ 191.5 and 195.52). In an advisory notice (67 FR 57060) dated September 6, 2002, PHMSA advised owners and operators of gas and hazardous liquids pipeline systems and liquefied natural gas (LNG) facilities that at the earliest practicable opportunity usually means 1 to 2 hours after discovery of the incident. Section 9 of the Act requires PHMSA to require a specific time limit for telephonic or electronic reporting of pipeline accidents and incidents. In this rulemaking, PHMSA revises the pipeline safety regulations to establish time limits for telephonic or electronic notification of an accident or incident to require such notification at the earliest practicable moment following the confirmed discovery of an accident or incident, not later than 1 hour following the time of such confirmed discovery. Owners and operators must also revise their initial telephonic or electronic notice to the Secretary and the National Response Center with an estimate of the amount of the product released, an estimate of the number of fatalities and injuries, if any, and any other information determined appropriate by the Secretary. 5#

Page 6This information must be reported within 48 hours of the accident or incident, to the extent practicable. Owners and operators of gas and hazardous liquid pipelines and LNG facilities are already required to report an incident to the NRC in Washington, DC, at the earliest practicable opportunity (usually one to two hours after discovering the incident). However, under Section 9(b)(1) of the Act, PHMSA is required to issue regulations requiring owners and operators to notify the NRC no later than one hour of discovery of a pipeline accident or incident. Therefore, the rule requires that pipeline operators report accidents and incidents within one hour of confirmed discovery. 3.2 Cost Recovery for Design Reviews This rulemaking action amends the Federal pipeline safety regulations to prescribe a fee structure and assessment methodology for recovering Agency costs associated with design reviews of new gas and hazardous liquid pipelines with overall design and construction costs totaling at least $2,500,000,000 or that contain new and novel technologies. PHMSA has no method for recovering design review costs from the operator of the pipeline incurred by the agency while conducting these reviews. Section 13 of the Act requires PHMSA to recover costs associated with design reviews. Section 13 of the Act allows PHMSA to prescribe a fee structure and assessment methodology for recovering costs associated with design reviews. Specifically, cost recovery can apply to any project that : 1) costs at least $2,500,000,000 as adjusted by the Secretary to take into account changes in CPI, 2) uses new or novel technologies or design, as determined by the Secretary. The Act also requires the Secretary of Transportation to issue guidance to clarify the meaning of the term "new or novel technologies" one year after the date of enactment. As directed, in January 2013, PHMSA issued guidance on its website to clarify the meaning of the term ‘‘new or novel technologies or design’’ as meaning, “any products, designs, materials, testing, construction, inspection, or operational procedures that are not addressed in Title 49 CFR Part 192, 193, or 195 due to technology or design advances and innovation.” PHMSA conducts facility design safety reviews in connection with proposals to construct, expand, or operate gas or hazardous liquid pipelines or liquefied natural gas pipeline facilities. Reviews include design, construction, and operational inspections and oversight. These reviews divert a significant amount of PHMSA’s limited resources from the agency’s pipeline safety enforcement responsibilities. Currently, PHMSA has no method for recovering design review costs from the operator of the pipeline that are incurred by the agency while conducting these reviews. The rule prescribes a fee structure and assessment methodology for recovering the costs associated with design reviews. Section 13 of the Act permits the agency to require the entity or individual proposing the project to pay the costs incurred by PHMSA relating to such reviews. PHMSA is exercising the cost recovery authority described in Section 13(a) of the Act 6#

Page 7by prescribing a fee structure and assessment methodology that is based on the costs of providing these reviews. PHMSA has developed a sample master cost recovery agreement for use by PHMSA and the applicant for a project proposal meeting the criteria of 49 CFR Part 190, Subpart D requirements. The sample master cost recovery agreement will be posted on PHMSA’s website and in Docket No. PHMSA-2013-0163. 3.3 NTSB Recommendation on Control Room Center Staff This portion of the rule addresses the National Transportation Safety Board’s (NTSB) recommendation to clarify operator qualification (OQ) requirements for control rooms (Safety Recommendation P-12-8). Specifically, PHMSA will require each operator to define the roles and responsibilities and qualifications of personnel who have the authority to direct or supersede the specific technical actions of controllers (a change to 49 CFR 192.631(b) and 49 CFR 195.446(b)). 3.4 Special Permit Renewal This rulemaking action amends 49 CFR 190.341 of the Federal pipeline safety regulations to add procedures for renewing a special permit. As defined in Section 190.341(a), a special permit is an order by which PHMSA waives compliance with one or more of the pipeline safety regulations. In order to grant a request for a special permit, PHMSA must determine that granting the permit would “not be inconsistent with pipeline safety.” Special permits are authorized by statute in 49 USC § 60118(c), and the application process is set forth in 49 CFR 190.341. PHMSA performs extensive technical analysis on special permit applications and typically conditions a grant of a special permit on the performance of alternative measures that will provide an equal or greater level of safety. PHMSA is committed to public involvement and transparency in special permit proceedings and publishes notice of every special permit application received in the Federal Register for comment. In the past, PHMSA has included an expiration date for certain special permits depending on the nature of the permit. Starting in 2009, PHMSA began adding an expiration date to all new permits. By doing so, PHMSA is able to ensure that each special permit will be re-reviewed no later than the expiration date. This process ensures that a special permit will not continue to be used if it is no longer in the best interest of public safety. Since the special permits that were issued with expiration dates in 2009 will start expiring in 2014, PHMSA is adding renewal procedures to the pipeline safety regulations. PHMSA acknowledges that not all active special permits have expiration dates. Therefore, PHMSA may seek to modify any existing special permit without an expiration date through the “order to show cause” process described in 190.341(h)(2). 7#

Page 83.5 Farm Taps This rulemaking action amends the Federal pipeline safety regulations in 49 CFR Part 192. The amendment includes adding a new section (§ 192.740) to cover regulators and over-pressure protection equipment for an individual service line that originates from a transmission, gathering, or production pipeline, and revises § 192.1003 to exclude farm taps from the requirements of pipeline Distribution Integrity Management Program (DIMP). A “farm tap” is industry jargon for a pipeline that branches from a transmission, gathering, or production pipeline to deliver gas to a farmer or other landowner. PHMSA has recognized farm taps as distribution lines for many years. Historically, PHMSA and its predecessor agencies have held that farm taps are service lines—a subset of distribution pipelines. Rulemaking proceedings and responses to requests for interpretation have recognized this fact on numerous occasions, dating as far back as 1971. On December 4, 2009, PHMSA published the DIMP final rule for gas distribution pipelines (74 FR 63906). That rule applies integrity management requirements to all distribution pipelines. Unlike the integrity management requirements for hazardous liquid or gas transmission pipelines, the DIMP requirements do not focus on a subset of pipelines in “high consequence areas,” but instead apply to all distribution pipelines. Therefore, little consideration was given to the potential impact or appropriateness of subjecting farm taps to DIMP requirements. Farm taps are mostly located in less-populated areas (Class 1 and 2 locations) and risk to the public is generally low, though it can vary by location and service type. DIMP identifies needed risk control practices for threats associated with distribution systems, whereas threats to typical farm taps are limited, and most are already addressed within Part 192. Therefore, PHMSA is amending Part 192 to exempt farm taps from the requirements of Part 192, Subpart P - Gas Distribution Pipeline Integrity Management. However, to better protect customers served by these lines, PHMSA is amending Part 192, Subpart M - Maintenance by adding a new section that prescribes inspection activities for pressure regulators and over-pressurization protection equipment on service lines that originate from transmission, gathering, or production pipelines. 3.6 Control Room Team Training In response to NTSB recommendation P-12-7, PHMSA is making a small addition to the regulations related to Control Room Management (49 CFR 192.631 and 195.446). Specifically, PHMSA is reinforcing the need for team training and exercises that include not only controllers, but other individuals, such as supervisors, that controllers would reasonably be expected to interface with during normal, abnormal, and emergency conditions. 3.7 Reversal of Flow or Change in Product On November 26, 2010, PHMSA published a final rule (75 FR 72878) that established and required participation in the National Registry of Pipeline and LNG Operators. This final rule 8#

Page 9amends the Federal pipeline safety regulations to require operators to notify PHMSA electronically of the occurrence of certain events no later than 60 days before the events occur. PHMSA is expanding the scope of reportable events in §§ 191.22 and 195.64 to include the reversal of flow of product or change in product in a mainline pipeline. This notification is not required for pipeline systems already designed for bi-directional flow, or when the reversal is not expected to last for a duration of 30 days or less. The rule requires operators to notify PHMSA electronically no later than 60 days before there is a reversal of the flow of product through a pipeline, and also in the instance that there is a change in the product flowing through a pipeline. Examples include, but may not be limited to, changing a transported product from liquid to gas, from crude oil to highly volatile liquids (HVL), and vice versa. In addition, a modification in §§ 192.14 and 195.5 reflect the 60 days notification. 3.8 Pipeline Assessment Tools The National Technology Transfer and Advancement Act of 1995 (Pub. L. 104-113; March 7, 1996) directs Federal agencies to use voluntary consensus standards and design specifications developed by voluntary consensus standard bodies instead of government-developed voluntary technical standards, when applicable. OMB Circular A-119: “Federal Participation in the Development and Use of Voluntary Consensus Standards and in Conformity Assessment Activities” sets the policy for Federal use and development of voluntary consensus standards. As defined in OMB Circular A-119, voluntary consensus standards are technical standards developed or adopted by organizations, both domestic and international. These organizations use agreed upon procedures to update and revise their published standards every 3 to 5 years to reflect modern technology and best technical practices. The legal effect of incorporation by reference is that the material is treated as if it were published in the Federal Register and the Code of Federal Regulations (CFR). This material, like any other properly issued rule, has the force and effect of law. Congress authorized incorporation by reference to reduce the volume of material published in the Federal Register and CFR (See 5 U.S.C. 552(a) and 1 CFR Part 51). Congress granted authority to the Director of the Federal Register to determine whether incorporation by reference serves the public interest. Section 24 of the Act amended 49 U.S.C. 60102 by adding a new requirement on documents incorporated by reference after January 3, 2013. The law states, “Beginning one year after the date of enactment of this subsection, the Secretary may not issue guidance or a regulation pursuant to this chapter that incorporates by reference any documents or portions thereof unless the documents or portions thereof are made available to the public, free of charge, on an Internet Web site.’’ To meet this requirement, PHMSA negotiated agreements with the majority of the standards-setting organizations with documents incorporated by reference in the pipeline safety regulations. The American Petroleum Institute (API) and the National Association of Corrosion Engineers (NACE) International have signed such agreements with PHMSA. Also, the 9#

Page 10American Society for Nondestructive Testing (ASNT) has provided access for free copies during the comment period. This rule incorporates by reference consensus standards for assessing the physical condition of in-service hazardous liquids pipelines using in-line inspection (ILI) and stress corrosion cracking direct assessment (SCCDA). Periodic assessment of hazardous liquids pipelines is required by § 195.452. These sections allow use of the inspection techniques addressed in these standards. Incorporation of the consensus standards assure better consistency, accuracy and quality in pipeline assessments conducted using these techniques. In addition, the incorporation of these standards address part of the NTSB Recommendation P-12-3 by identifying crack defects and seam corrosion using crack tools and circumferential tools. PHMSA is incorporating by reference the following consensus standards into 49 CFR Part 195: API STD 1163, “In-Line Inspection Systems Qualification Standard” (August 2005); NACE Standard Practice RP0102- 2010 “Inline Inspection of Pipelines;” NACE SP0204-2008 “Stress Corrosion Cracking Direct Assessment;” and ANSI/ASNT ILI-PQ-2005, “In-line Inspection Personnel Qualification and Certification” (2005). Also, PHMSA is allowing pipeline operators to conduct assessments using tethered or remote control tools not explicitly discussed in NACE SP0102-2010, provided the operators comply with applicable sections of NACE SP0102-2010. Note that this rulemaking action addresses only Part 195, but PHMSA will consider making a similar proposal for 49 CFR Part 192 under a separate rulemaking action. 3.9 Electronic Reporting of Drug and Alcohol Testing Results PHMSA’s pipeline safety regulations at 49 CFR 191.7 and 49 CFR 195.58 require electronic reporting of most pipeline safety reports through the PHMSA Portal. PHMSA is also requiring electronic reporting for anti-drug testing results required under § 199.119 and alcohol testing results required under § 199.229. Pipeline operators with less than 50 covered employees are required to submit these reports only when PHMSA provides written notice. PHMSA is modifying these regulations to specify that PHMSA will provide notice to operators in the PHMSA Portal. 3.10 Post-Accident Drug and Alcohol Testing PHMSA's regulations require documentation of decisions not to administer a post-accident alcohol test. The requirement to document a decision not to administer a post-accident drug test is implied in the regulations, but not explicitly required. PHMSA is adding a section to the post- accident drug testing regulation to require documentation of such a decision. The NTSB issued the following safety recommendation (NTSB Recommendation P-11-12): "Amend 49 CFR 199.105 and 49 CFR 199.225 to eliminate operator discretion with regard to testing covered employees. The revised language requires drug and alcohol testing of each employee whose performance either contributed to the accident or cannot be completely discounted as a contributing factor to the accident." 10#

Page 11Accordingly, PHMSA is also modifying 49 CFR 199.105 and 49 CFR 199.225 by restating and further defining the existing requirement to conduct post-accident drug and alcohol testing of all employees except those for whom sufficient information establishes that they had no role in the accident. 4 Identification of Available Alternative Approaches 4.1 No Action PHMSA identified only the no action alternative to the regulation. Under this alternative, no new requirements would be levied. No costs would be incurred to implement new requirements. No new benefits would result. PHMSA has an obligation to ensure the safe and effective transportation of hazardous liquids and gases by pipeline. The rule serves that purpose by clarifying the pipeline safety regulations, eliminating conflicting provisions, responding to new statutory mandates, and eliminating unduly burdensome requirements. A failure to undertake these actions would allow for the continued imposition of unnecessary compliance costs without increasing public safety. Accordingly, PHMSA rejected the “no action” alternative. 4.2 Regulatory Revisions This alternative was determined by PHMSA as the preferred regulatory option and is compared in the document with the baseline “no action” alternative. PHMSA is making certain amendments, corrections, and editorial changes to the pipeline safety regulations. These revisions would eliminate inconsistencies and respond to several petitions for rulemaking and recommendations from stakeholders, thereby facilitating the safe and effective transportation of hazardous liquids and gases by pipeline. The changes serve that purpose by clarifying the pipeline safety regulations and eliminating unduly burdensome requirements. 5 Industry Information The affected industry comprises owners and operators of regulated natural gas and hazardous liquid pipelines. These include a mix of large and small businesses, as well as publically owned utilities, municipalities, and other organizations. Using a combination of PHMSA 2014 Annual Report data and the Dun and Bradstreet company database, there are approximately 3,000 regulated entities when all corporate subsidiaries are separately counted, with a total of roughly 150,000 onsite employees. There are wide variations across entities with respect to the share of employees actually engaged in pipeline operations, especially for public agencies. Among these entities, common industry (NAICS) codes are 211111, Crude Petroleum and Natural Gas Extraction; 221210, Natural Gas Distribution; 324110, Petroleum Refineries; 486910, Pipeline Transportation of Refined Petroleum Products; 486210, Pipeline Transportation of Natural Gas; and 424720, Petroleum and Petroleum Products Merchant Wholesalers. 11#

Page 12Many of the specific provisions in this rulemaking apply only to specific subsets of this population, such as operators of gas gathering lines, as described in more detail in Section 6 below. 6 Definition and Evaluation of the Benefits and Costs 6.1 Data Sources and Limitations Cost information is taken from PHMSA databases and external datasets as detailed more specifically below. In many cases the changes are so small as to entail little to no quantifiable costs. 6.2 Costs In the sub-sections below, each provision of the rulemaking is analyzed individually for potential cost implications. 6.2.1 Accident and Incident Notification There is an existing requirement to notify the NRC by telephone of incidents at the “earliest practicable moment” after discovery. This provision clarifies the existing rule and accompanying guidance by providing additional specificity on the expected timeframe. As a clarification to an existing requirement, this section does not entail any significant changes in compliance costs. 6.2.2 Cost Recovery for Design Reviews Under this provision, PHMSA will conduct design reviews for certain large-scale pipeline projects on a cost-recovery basis rather than at the agency’s own expense. The cost recovery provision represents a transfer between parties, with no net societal costs or benefits. Particularly for projects meeting the project cost criterion, the relatively small cost of the design review is unlikely to hinder innovation in design techniques. 6.2.3 NTSB Recommendation on Control Room Center Staff OQ programs are designed to ensure that each worker conducting pipeline activities, such as operations and maintenance, has the appropriate knowledge and skills to perform that function. PHMSA is making a minor revision in scope that responds to NTSB Recommendation P-12-8. It specifies that pipeline operators’ OQ plans must define the roles, responsibilities, and qualifications of any employees who have the authority to direct or supersede pipeline controllers’ actions. As NTSB noted, it is inconsistent with safe operating principles to have controllers’ actions guided or overridden by employees who do not necessarily have the same level of operator qualification. This change makes explicit that an employee who guides or overrules a pipeline controller is also effectively acting as a controller, even if he/she has another job title. PHMSA is making this change in response to NTSB’s recommendation and to make the regulations as clear as possible. However, PHMSA already addresses this issue through its Frequently Asked Questions for the OQ program and its definition of “controller” (49 CFR 192.3 12#

Page 13and 195.2), which includes anyone who monitors and controls the safety-related operations of a pipeline from a control room. Supervisors already fall under this functional definition to the extent that they direct first-line controllers, though this may not be clear to all operators. This clarification explicitly reinforces that point. As a clarification of an existing requirement, there are no incremental compliance costs. 6.2.4 Special Permit Renewal This section establishes a new set of administrative procedures to handle Special Permit renewals. Since Special Permits previously did not carry expiration dates, this change is necessary to have a defined process for renewals. This provision deals solely with agency procedures and has little or no direct costs. 6.2.5 Farm Taps In this provision, farm taps are removed from the DIMP program in favor of a less stringent set of inspection activities and over-pressurization protection equipment. This change will yield cost savings for operators. The overall cost savings could not be quantified because PHMSA’s database does not record the number of farm taps. However, PHMSA previously estimated that implementing a DIMP program and conducting required mitigation would cost the affected industry approximately $78 million per year after start-up. Removing farm taps from DIMP will relieve a small portion of these costs. 6.2.6 Control Room Team Training Many pipeline operators already conduct team training and exercises that include both controllers and others staff (e.g. supervisors) that controllers may interface with during normal, abnormal, and emergency situations. For these operators, the revision will have little to no impact on their training approach or compliance costs. For operators who currently do not conduct this type of team training, an additional training module will be required. PHMSA previously estimated that there are approximately 524 control room supervisors for hazardous liquids pipelines and 631 for gas pipeline (1,155 total). Average hourly wages (including benefits) for these personnel are estimated at $82. 4 Similar types of control room training require 4 hours per person per year plus $105 per person for the training itself.5 Putting these figures together, and assuming very conservatively that no operators are already conducting this type of 4 These personnel are expected to be equivalent to the BLS job category “Industrial Engineers, Including Health and Safety” (17-2110). Using a multiplier for benefits based on Employer Costs of Employee Compensation, the fully loaded wage rate is approximately $81.73 ($52.06 × 1.57). Wage rate source: BLS, May 2014, NAICS 486000 – Pipeline Transportation, http://www.bls.gov/oes/current/naics3_486000.htm. Benefits source: BLS, Employer Costs of Employee Compensation, September 2015, Table 3 – State and Local Government Workers. 5 PHMSA, Pipeline Safety: Control Room Management/Human Factors, Revision of Implementation Period, Regulatory Evaluation, June 2011. The original estimate was for $100 in 2011 dollars. Adjusting for inflation using the BLS CPI Inflation Calculator (http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=100&year1=2011&year2=2015) leads to an estimate of $105 in 2015 dollars. 13#

Page 14team training, the annual compliance cost is approximately $500,155 (that is, 1,155 × 4 × $82 = $378,840 for the opportunity cost of the supervisors’ time, plus 1,155 × $100 = $121,275 for the cost of the training itself) 6.2.7 Reversal of Flow or Change in Product There will be relatively few notifications under this section since it excludes temporary changes and pipelines designed for bidirectional flow. Moreover, PHMSA’s intention is that changes in batched petroleum products (e.g. gasoline, diesel, jet fuel) would not constitute a reportable “change in product” as these are commonplace. Overall, based on historical information, PHMSA estimates that it will receive approximately 8 notifications per year. Only a simple notification will be required, which could be handled electronically, so total compliance costs are minimal. 6.2.8 Pipeline Assessment Tools This section clarifies existing requirements for the inspection of hazardous liquids pipelines by citing specific technical standards for those inspections and incorporating the standards by reference. This rule addresses in part NTSB recommendation P-12-3 by incorporating by reference consensus standards for assessing the physical condition of in-service hazardous liquids pipelines using ILI and SCCDA. Incorporation of the consensus standards assures better consistency, accuracy and quality in pipeline assessments conducted using these techniques. PHMSA asked the Standards Developing Organizations to develop these standards, and now that they are developed, PHMSA is adopting them to bring consistency throughout the industry. These standards provide tables to guide tool section choices and help select the right tool for the right anomaly. Overall, these consensus standards and guidance on tool selection should not entail additional costs for pipeline operators. The standards reflect widespread industry practices, so PMHSA does not expect any incremental compliance costs. The standards documents are freely available online. 6.2.9 Electronic Reporting of Drug and Alcohol Testing Results This section requires electronic reporting of testing results through the same PHMSA portal that is used for other reporting. This change should yield small cost savings for operators and for PHMSA compared to hard-copy documentation. 6.2.10 Post-Accident Drug and Alcohol Testing Under the provisions of this section, operators will be required to document any decisions not to administer post-accident drug testing to a particular employee, as is required for post-accident alcohol testing. Although this requirement is somewhat implied by the current regulations, it is not explicitly stated and may not be a universal practice. There will, therefore, be small recordkeeping and documentation costs associated with the provision. 14#

Page 15The regulation does not specify a precise form that the documentation must take. Given the requirements, a reasonable estimate would be 2 hours per incident to prepare documentation on any decision not to administer drug testing. According to the Bureau of Labor Statistics, the average wage rate of a Human Resources Specialist (Occupation Code 13-1071) in the Pipeline Transportation industry (NAICS 486000) is $42. (The figures are similar for other job series and industries that may be relevant). When applying the benefits multiplier of 1.57 described above, the estimated hourly wage rate, including benefits, becomes approximately $66. Over the past 5 years, there has been an average of 609 reported pipeline incidents per year. Although many firms may already document their decisions since this is required for post- accident alcohol testing and may be useful for company records, we assume conservatively that each incident will require some new documentation. The total compliance cost is approximately $80,621 per year (609 incidents × 2 hours × $66/hour). 6.2.11 Cost Summary Overall, these changes are largely minor provisions with little or no substantive change to industry practices or compliance costs. For the three provisions with quantifiable costs, these are estimated at $500,000 per year for the Control Room Management training provisions and $51,000 per year for the Post-Accident Testing provisions. The overall total is approximately $0.6 million per year. These estimates are generally upper bounds, in that they assume that pipeline operators are not already in compliance with the regulations. Some of these cost increases will be offset by the reduction in DIMP-related costs associated with the Farm Tap provisions, though these could not be estimated due to data limitations. 6.3 Benefits Pipeline incidents can result in death, injury, property damage, and environmental damage. The benefits of the regulatory changes stem primarily from improvements to regulatory clarity and from upgraded safety requirements that are intended to reduce the number and severity of pipeline incidents. In the sub-sections below, we analyze the expected benefits of each provision of the rulemaking individually. We discuss benefits qualitatively rather than quantified due to the minor nature of most changes and the limitations of available data. 6.3.1 Accident and Incident Notification This is a Congressionally mandated clarification of an existing requirement. Improving the clarity of the regulations with an objective standard is likely to improve overall compliance and timeliness. In addition, there are inherent safety benefits in having timely information on incidents, both for emergency response and for incident investigation. 15#

Page 166.3.2 Cost Recovery for Design Reviews Cost recovery represents a transfer between parties and does not entail societal benefits. However, this change will promote safety by allowing the agency to conserve its limited resources for other high-priority safety-related activities. NTSB Recommendation on Control Room Center Staff Clarifying the scope of the OQ requirements to include control room supervisors and others who may direct or supersede the actions of pipeline controllers responds to NTSB Recommendation P-12-008. The revision makes current requirements more explicit and removes potential inconsistencies in the OQ coverage of supervisors and other personnel. While the benefits cannot be readily quantified, NTSB noted that the lack of a clear OQ requirement for all control room personnel was a contributing factor to the July 2010 pipeline rupture incident in Marshall, Michigan, which involved cleanup costs in excess of $700 million.6 6.3.3 Special Permit Renewal This section establishes a new set of administrative procedures to handle the renewal of Special Permits. PHMSA did not quantify the benefits of these changes. 6.3.4 Farm Taps This section would remove farm taps from DIMP thereby establishing an alternative, safe but less stringent inspection program. Because farm taps are already covered by Part 192 regulations and by the new maintenance requirements, PHMSA expects that there will be no adverse change in safety outcomes from this change. 6.3.5 Reversal of Flow or Change in Product Although reversal of flow or change in product is infrequent, it is important for PHMSA to be informed of these changes. In the event of an incident, emergency responders need basic information about the commodity and the direction of the flow in order to mitigate consequences and protect the public. Therefore, this provision contributes to safety benefits from pipeline regulations. 6.3.6 Control Room Team Training Team training and exercises are well-established techniques that help to ensure that all control center staff have the training, skills, incident protocols, and working relationships needed to avoid incidents and to respond appropriately when incidents do occur. By explicitly requiring that this training include not only controllers but also supervisors and others with whom the controllers may interface, PHMSA expects that safety benefits will accrue in the form of avoided pipeline incidents and mitigated damages. By conducting training and enhancing working relationships, communication will be improved and control room teams will be better equipped 6 National Transportation Safety Board, Pipeline Accident Report NTSB/PAR-12/01, https://www.ntsb.gov/investigations/AccidentReports/Reports/PAR1201.pdf 16#

Page 17to respond should an incident occur. These benefits are not readily quantifiable because PHMSA’s incident database does not specifically track incidents related to control room interactions. However, NTSB noted in its report on the July 2010 pipeline rupture in Marshall, Michigan, that the lack of team training was a contributing factor to the severity of the incident. According to NTSB, the operator in this case “failed to train control center staff in team performance, thereby inadequately preparing the control center staff to perform effectively as a team when effective team performance was most needed.”7 PHMSA designed this provision to address that failure and improve the effective of team performances during normal, abnormal, and emergency conditions. 6.3.7 Pipeline Assessment Tools Safety benefits of this section stem from adopting specific technical standards to help operators interpret existing requirements. This aids with compliance and ensures consistency across the industry. 6.3.8 Electronic Reporting of Drug and Alcohol Testing Results Electronic transmission and notification allows PHMSA to more readily incorporate testing results into its safety analyses and investigations, and allows scarce resources to be allocated to other safety activities rather than managing hardcopy filings. 6.3.9 Post-Accident Drug and Alcohol Testing The requirements for post-accident drug and alcohol testing ensure that operators document any decision not to administer a post-accident drug test (as is required for alcohol tests). The safety benefits from this change relate to incident investigation and root-cause analysis. Having documentation of why a drug test was not administered in a particular case will provide incident investigators with more information needed to identify the likely cause(s) of incidents that occur. This information, in turn, helps to identify trends and prevent future pipeline incidents. Additionally, this change clarifies the existing rule for operators, which requires alcohol tests but simply implies drug tests. This change further specifies exactly what is required and expected of operators. 6.3.10 Benefits Summary As discussed in the sub-sections above, many of the changes are minor and PHMSA did not quantify benefits. However, updating regulations, removing inconsistencies, providing clarification, and incorporating industry standards all help to improve compliance with pipeline safety regulations and reduce the likelihood of serious pipeline incidents. The changes related to drug and alcohol testing also assist PHMSA, NTSB, and other investigators in their efforts, by providing additional documentation of testing decisions. These 7 National Transportation Safety Board, Pipeline Accident Report NTSB/PAR-12/01, https://www.ntsb.gov/investigations/AccidentReports/Reports/PAR1201.pdf 17#

Page 18investigations help to prevent future pipeline incidents by identifying the causes of incidents that occur. 7 Summary and Conclusion This package of regulatory changes would address errors and inconsistencies in the current regulations, provide additional clarifications, and incorporate industry standards. The changes also address statutory requirements from the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (Public Law 112-90) and safety recommendations from the NTSB, as well as petitions for rulemaking. Many of the revisions are small changes that would not lead to substantial changes in regulatory requirements and operator practices. Combining all of the changes, annual compliance costs are estimated at approximately $0.6 million, less savings to be realized from the removal of farm taps from the DIMP requirements. Annual benefits cannot be quantified as readily due to data limitations; however, PHMSA designed the provisions to reduce pipeline incidents and the associated consequences and expects favorable safety impacts. There will be numerous intangible benefits from the improved clarity and consistency of regulations and improved abilities to conduct post-incident investigations. Improvements to post-incident investigation may also provide information that would prevent a future high-consequence event. 8 Final Regulatory Flexibility Act Analysis 8.1 Reasons for Agency Action PHMSA works to ensure the safety of the nation’s gas and hazardous liquid pipelines. Government regulation of pipeline safety standards addresses the market failure of negative externalities, namely the costs that pipeline incidents impose on other parties for which there may be no market compensation. PHMSA’s safety regulations require periodic updating to remove errors and inconsistencies, update technical standards that are incorporated by reference, modify agency administrative procedures, and address gaps in existing safety requirements. The rule comprises a set of miscellaneous changes to the Pipeline Safety regulations, with the goal of improving clarity, compliance, and overall safety. 8.2 Objectives of, and legal basis for, the rule The rule enhances pipeline safety through a set of small improvements to the Pipeline Safety Regulations. The ultimate objective is to lessen the frequency and societal consequences of pipeline incidents, including property damage, environmental degradation, personal injury, and loss of life. PHMSA’s overall mandate to regulate pipeline safety is set by federal law under 49 USC 60102 et seq. More specifically, the rule addresses several statutory requirements from the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (Public Law 112-90). Several provisions also address safety recommendations from the National Transportation Safety 18#

Page 19Board, an independent Federal agency charged with investigating serious transportation accidents and making safety recommendations. 8.3 Description and estimate of the number of small entities to which the rule applies; projected reporting, recordkeeping and other compliance requirements of the rule and the impact on small entities Affected entities for this rule are owners and operators of gas and hazardous liquid pipelines. PHMSA’s Annual Report data, when combined with 2015 Dun and Bradstreet external company data, indicate that there are roughly 2,730 affected pipeline operators. PHMSA defined small entities by using the definition of "small business" found in the Small Business Act (5 U.S.C. section 601(3)). The Small Business Act authorizes the Small Business Administration (SBA) to define "small business" by issuing regulations. The SBA periodically reviews and reissues these definitions. SBA (2014) has established size standards for various types of economic activities, or industries, under the North American Industry Classification System (NAICS). These size standards generally define small businesses based on the number of employees or annual receipts. Table 2 shows the SBA size standards for pipeline transportation as an example. The SBA definition of a small business applies to a firm's parent company and all affiliates as a single entity. 19#

Page 20Table 2. Small Business Size Standards: Oil and Gas Extraction, Utilities, and Pipeline Transportation NAICS Code Description Standard 211111 Crude Petroleum and Natural Gas Extraction1 500 employees 221210 Natural Gas Distribution 500 employees 486110 Pipeline Transportation of Crude Oil 1,500 employees 486210 Pipeline Transportation of Natural Gas $27.5 million 486910 Pipeline Transportation of Refined Petroleum Products 1,500 employees 486990 All Other Pipeline Transportation $37.5 million Source: SBA (2014) NAICS = North American Industrial Classification System SBA = Small Business Administration 1. Gathering line operators A "small governmental jurisdiction" is the government of a city, county, town, township, village, school district, or special district with a population of less than 50,000 (5 U.S.C. section 601(5)). States and tribal governments are not considered small governments. A "small organization" is any "not-for-profit enterprise which is independently owned and operated and is not dominant in its field" (5 U.S.C. section 601(4)). For gas operators, PHMSA used gas transmission and gas gathering annual report and safety program data of unique operator identifications (OPIDs) to identify operators affected by the rule. To identify operators affected by the requirements that are small businesses, PHMSA used information provided by Dun & Bradstreet. Dun & Bradstreet provides PHMSA estimates of small business classification based on SBA size standards for operators that file an annual report. PHMSA used a dataset of pipeline operators identified by Dun and Bradstreet which includes information on their SBA size determination. PHMSA further reviewed these determinations for operators that are owned by larger companies or exceed the appropriate size standard using information from the operators’ websites, Security and Exchange Commission (SEC) filings, PHMSA Annual and Safety Program reports and other sources such as Mergent (http://www.mergentonline.com) or Manta (http://www.manta.com). Small government entities are defined as those representing municipal or county governments with populations below 50,000 individuals. To identify small municipal governments that operate gas transmission pipelines, PHMSA searched the Dun & Bradstreet name field for “county,” “city,” “town,” “utilities board,” “gas system,” and “municipal”; searched for industrial classification and executive titles used by municipal governments (e.g., executive offices, mayor, commissioner); used a list of the largest American Public Gas Association members; and used information from the OPID application forms indicating municipal operators. 20#

Page 21PHMSA then identified the population of the municipalities to identify those that meet the size standard for small governmental jurisdictions. Table 3 summarizes the results for gas transmission and gas gathering entities. Table 3. Operating Gas Transmission and Gas Gathering Entities Affected by the Rule1 Category Impacted Small Entities2 Total Small Entities2 Total OPIDs3 Businesses4 221 221 1,2896 Governmental jurisdictions5 57 58 97 OPID = operator identification 1. Gas Transmission and Gathering operators that filed an annual report in 2014. 2. Includes only currently reporting operators. Additional currently unregulated gathering line operators may be small entities. 3. Businesses may have more than one OPID (parent company and subsidiaries) 4. Based on SBA size standards. 5. Based on population of less than 50,000. 6. PHMSA Annual Report Summary, 1019 transmission operators, 367gathering operators, less municipal operators. http://www.phmsa.dot.gov/pipeline/library/data-stats/pipelinemileagefacilities For hazardous liquid operators, PHMSA used hazardous liquid annual report and safety program data as well as the Dun & Bradstreet data described above. As described above for gas operators, PHMSA further reviewed for operators that are owned by larger companies or exceed the size standard using information from the operators’ websites, Security and Exchange Commission (SEC) filings, and other sources such as Manta.com. Table 4 summarizes the results. Table 4. Operating Hazardous Liquid Entities Affected by the Rule1 Size Category Number Small2 73 Large 348 Total 421 1. Hazardous liquid pipeline operating entities that filed an annual report in 2014. Based on these estimates, PHMSA has determined that 221 small gas transmission and gas gathering entities, 57 small governmental jurisdictions, and 73 small hazardous liquid entities could be impacted by this rule for a total of 351 small entities. As detailed in Section 6 above, several of the changes affect only small subsets of the overall pipeline industry. Others provisions affect the pipeline industry more broadly, but consist of minor changes with little to no impact on overall compliance costs for affected entities. The one provision with quantifiable costs is the documentation of post-accident drug tests. This provision entails recordkeeping costs in the range of $132 per incident. All small entities (as noted above) are potentially affected by this change. However, pipeline incidents are relatively rare events 21#

Page 22and additional recordkeeping will only be required in the event of a decision not to administer a post-accident drug test, so overall compliance costs are minimal. 8.4 Federal rules which may duplicate, overlap or conflict with the rule PHMSA did not identify other Federal rules that duplicate, overlap, or conflict with the rule. In fact, PHMSA designed many of the provisions to eliminate inconsistencies in the existing regulations. 8.5 Alternatives considered In addition to the package of regulatory updates, PHMSA considered a no-action alternative in which no changes would be implemented. The no-action alternative was rejected because it would not respond to the statutory requirements of the Act or to NTSB recommendations, would allow for continued inconsistencies in regulations, and would result in the continued imposition of unnecessary compliance costs without increasing public safety. Because the rule is focused on ensuring safety, has very small incremental compliance costs, and does not have a significant economic impact on small entities, PHMSA did not consider establishing different compliance or reporting requirements or timetables for small entities. PHMSA did make small revisions to the rule based on docket comments received. 8.6 Summary and conclusion The rule responds to requirements in the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 and to NTSB recommendations. It addresses errors and inconsistencies in the current Pipeline Safety Regulations, updates technical standards that are incorporated by reference, modifies agency administrative procedures, and addresses gaps in existing safety requirements. The rule could affect a substantial number of small entities because of the market structure of the gas and hazardous liquids pipeline industry, which includes many small entities. At least 587 small entities could be affected by one or more portions of the rulemaking, with smaller numbers affected by particular provisions. Estimated compliance costs indicate that these impacts are not significant. The post-accident drug testing provision adds $132 in estimated documentation costs per reportable incident. The other provisions do not add appreciable costs, and at least one provision (Farm Taps) yields compliance cost savings. 22#