Responding to critics who called its enforcement lax, the Department of Transportation’s Office of Pipeline Safety (OPS) has over the past four years increased both the number and size of the civil penalties imposed on pipeline operators who violate safety regulations, but it “is not clear” if this tougher strategy has proved to be a strong enough deterrent for pipeline companies, a Government Accountability Office (GAO) official told a House panel earlier this week.
“Some, such as pipeline operators, thought that any penalty was a deterrent if it kept the pipeline operator in the public eye, while others, such as safety advocates, told us that the penalties [still] were too small to be effective sanctions,” said Katherine Siggerud, director of the GAO’s physical infrastructure issues, during a hearing by the House Energy and Commerce’s energy and air quality subcommittee earlier this week.
She reported on GAO’s preliminary findings of the OPS’s actions to strengthen its enforcement of safety on both natural gas and hazardous liquid pipelines. A final GAO report on OPS’s enforcement activities is due to be issued Friday, she said.
Siggerud suggested that pipelines may need more motivation than penalties to maintain compliance with safety rules. “According to economic literature on deterrence, pipeline operators may be deterred if they expect a sanction, such as a civil penalty, to exceed any benefits of noncompliance. Such benefits could, in some cases, be lower operating costs.
“The literature also recognizes that the negative consequences — such as those stemming from lawsuits, bad publicity and the value of the product lost from accidents — can deter noncompliance along with regulatory agency oversight,” she said. “Thus, for example, the expected costs of a legal settlement could overshadow the lower operating costs expected from noncompliance, and noncompliance might be deterred.”
The OPS levied an average of 22 penalties per year during the 2000-2003 period, up from 14 per year for the previous five years (1995-1999) when it was engaged in more lenient “partnering” with the pipeline industry. In addition, the average amount of the OPS penalty against safety violators rose to $29,000 from $18,000 over the two periods, although it is still small by other agency standards, she said.
For the first five months of 2004, the OPS proposed 38 civil penalties, Siggerud said. “While the recent increase in the number and size of civil penalties may reflect OPS’s new ‘tough but fair’ enforcement approach, other factors, such as more severe [safety] violations, may be contributing to the increase as well.”
Overall the OPS does not use civil penalties extensively, she noted. “Civil penalties represent about 14% (216 out of 1,530) of all enforcement actions taken over the past 10 years. OPS makes more extensive use of other types of enforcement actions that require pipeline operators to fix unsafe conditions and improve inadequate procedures…OPS may increase its use of civil penalties as it begins to use them to a greater degree for violations of its integrity management standards.”
In some cases, the OPS reduces proposed civil penalties when it issues a final order. “We found that [proposed] penalties were reduced 31% of the time during the 10-year period covered by our work (66 of 216 instances). These penalties were reduced by about 37% (from a total of $2.8 million to $1.7 million),” Siggerud said. She noted that the GAO’s analysis did not include the “extraordinarily large penalty” of $3.05 million from the Olympic Pipe Line explosion near Bellingham, WA.
“If we had included this penalty in our analysis we find that over this period OPS reduced total proposed penalties by about two-thirds, from about $5.8 million to about $2 million,” she said.
Also excluded was a proposed $2.5 million penalty against El Paso Natural Gas for the deadly explosion on its South Mainline near Carlsbad, NM, in August 2000, Siggerud noted. The OPS has not assessed a penalty against El Paso as of mid-July. The case has been referred to the Department of Justice for judicial action, she said.
While the OPS reduced “proposed” penalties, it was less willing to cut “assessed” amounts. Of the 216 penalties that the OPS assessed in the past decade, pipeline operators paid the full amount 93% of the time (200 instances) and reduced amounts 1% of the time (2 instances), she said. Fourteen penalties, totaling about $836,700, remain unpaid.
The effectiveness of the OPS’s new “tough but fair” enforcement strategy “cannot be evaluated because the agency has not incorporated three key elements of effective program management — clear program goals, a well-defined strategy for achieving those goals, and measures of performance that are linked to program goals,” Siggerud told lawmakers.
On the plus side, the agency is using the full range of its enforcement tools, rather than relying primarily as it did before on more lenient administrative actions, such as warning letters, she noted. It also is developing an enforcement policy that will help define its enforcement strategy and has taken “some initial steps” toward identifying new measures of enforcement performance, but the OPS does not anticipate finalizing this policy until sometime in 2005, Siggerud said.
In 2002, the agency also created a new Enforcement Office. However, this new office is not yet fully staffed, and key positions remain vacant, she noted. The OPS received greater enforcement authority under the pipeline safety act enacted by Congress two years ago, but “it does not yet have guidelines in place for enforcing these standards or implementing the new authority provided by the act.”
In contrast to the decreasing number of accidents overall for hazardous liquid pipelines, she reported that the annual number of accidents on interstate natural gas pipelines increased by almost 20% to 97 in 2003 from 81 in 1994. The number of serious accidents on interstate gas pipelines also rose, to 84 in 2003 from 64 in 1994.
“For both hazardous liquid and natural gas pipelines, the lack of improvement in the number of serious accidents may be due in part to the relatively small number of these accidents,” she said.
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