Statement of Tim Felt

President and CEO, Explorer Pipeline

Before the Senate Committee on Commerce, Science and Transportation

On Reauthorization of the Pipeline Safety Program

and

H.R. 5678, H.R. 5782 and S. 3961

November 16, 2006

Mr. Chairman, Members of the Committee, my name is Tim Felt. I am
President and CEO of Explorer Pipeline Company, headquartered in Tulsa,
Oklahoma. Explorer operates 1,400 miles of petroleum products pipeline
serving 16 states extending from the Gulf Coast throughout the
mid-western United States.

I am a member of the API Pipeline Committee, vice-chairman and treasurer
elect of the Association of Oil Pipe Lines, and the oil pipeline
industry's board member for the Common Ground Alliance, a voluntary,
private sector organization dedicated to the prevention of excavation
damage to underground facilities. I appreciate the opportunity to appear
today on behalf of API and AOPL. Together, API and AOPL represent the
companies responsible for the vast majority of U.S. oil pipeline
transportation.

[Summary]{.underline}

As the Committee reviews the current state of pipeline safety and the
progress that has been made since the 2002 Act, these are the main
points I would like to emphasize:

-   We need to enact pipeline safety reauthorization legislation before
    the end of this Congress. A lot of work has gone into the current
    bills, and there are no major disagreements about what a compromise
    among the various bills should look like. Let's get a good bill
    passed now.

```{=html}
<!-- -->
```
-   The Pipeline Safety Improvement Act of 2002 is a success. Industry
    and DOT have cooperated to achieve significant improvement in
    pipeline safety, and this improvement is demonstrated by our
    industry's record. This record is reflected on the charts that
    accompany my testimony.

-   The oil pipeline industry is making the investments needed to fully
    comply with the law and related regulations and in many cases to
    exceed their requirements. We plan to invest over \$1 billion in
    pipeline safety improvements over the next five years. Because of
    this, it is very important that Congress reauthorize the DOT
    pipeline safety program in 2006. Reauthorization sends a clear
    signal that these investments are appropriate, and DOT is on the
    right track in implementing the 2002 Act.

-   In addition, several billions of dollars of investments in new oil
    pipeline infrastructure are underway or planned in the near term.
    Certainty in the safety requirements this infrastructure must meet
    is very important for these investments.

-   The Administration, the jurisdictional committees of the House and
    Senate, the industry and the pipeline advocates are in virtual
    agreement on the core provisions of a compromise reauthorization
    bill that could be passed in 2006. Passage of a bill before final
    congressional adjournment is our shared goal.

-   If this Congress passes a reauthorization bill, the protections
    provided by this compromise will be available now. If this Congress
    fails to pass a bill, a subsequent Congress must start over to adopt
    new legislation approving the needed authority. That could take
    months or years. Congress can act now and should act now.

We urge you to act promptly to reconcile any differences between the
Senate bill, S. 3961, and the bills approved by the House Committees and
send a compromise bill to the President this year.

[The Role of Pipelines in Petroleum Supply]{.underline}

In discussing pipeline safety legislation, it is useful to remind the
Committee of the role oil pipelines play in energy supply. An
understanding of this role leads to appreciation of the need for
effective and workable policies that provide certainty so this key part
of the petroleum distribution system operates efficiently and safely.

About 40 percent of the total U.S. energy supply comes from petroleum,
but the transportation sector depends on petroleum for 97 percent of its
energy. Two-thirds of domestic crude oil and refined products
transportation is provided by pipeline. Pipelines do this safely and
efficiently. The cost to deliver a gallon of petroleum by pipeline is
very low, typically 2-3 cents per gallon. Transportation -- airlines,
automobiles, trucks, barges and ships \-- could not function without
pipelines to deliver crude oil to refineries and refinery output of
petroleum fuels to consumers in various parts of the country. The
national oil pipeline system is a bargain for consumers and an
absolutely essential part of the US economy.

Oil pipelines are common carriers whose rates are regulated by the
Federal Energy Regulatory Commission. Oil pipeline income is driven by
the volume delivered and does not depend on the price of the products
transported. Oil pipeline companies do not profit from high oil prices.
In fact, high oil prices have a negative impact on oil pipeline income
by raising power costs and reducing demand for petroleum.

# Progress in Pipeline Safety

Oil pipeline operators have been subject to the DOT's pipeline integrity
management regulations since March 2001, before enactment of the 2002
Act. DOT's inspections of operators' plans show that integrity testing
will eventually cover approximately 82 percent of the nation's oil
pipeline infrastructure. The oil pipeline industry is well past the
halfway point in the implementation of integrity management. DOT has
audited each of these operators under these regulations at least two
times -- an initial "quick hit" audit and one subsequent full audit.
Many are involved in a third audit cycle. Operators are finding and
repairing conditions in need of repair and less serious conditions
discovered in the course of investigating defects. Operators are fixing
what they find, often going beyond the requirements of the regulations.

[Improved spill record]{.underline}

These inspections and repairs have improved the oil pipeline spill
record dramatically in the last five years, as the exhibits show. The
data for these exhibits comes from a voluntary industry program that
since 1999 has collected extensive data on oil pipeline performance.
These figures represent line pipe releases, which are those that occur
outside the company's facilities and are the releases most likely to
impact the public and the environment. Line pipe is rightly the primary
focus of DOT's program, so the improvement in our record is direct
evidence of the wisdom of the DOT approach.

The trend in oil pipeline incidents is down for each cause category. The
number of total releases dropped 51 percent, releases due to corrosion
dropped 67 percent, and releases due to operator error dropped by 63
percent. Finally, releases from third party damage from excavation
dropped 37 percent.

This safety improvement record only covers half the 7-year baseline
assessment period for oil pipelines. We expect the record to show
continued improvement as we complete the first full cycle and move
through subsequent mandatory 5-year reassessment intervals.

The federal pipeline safety program is working. Congress needs to pass a
reauthorization bill that endorses and, where appropriate, strengthens
this excellent program.

[Legislation]{.underline}

The legislative proposals -- the Administration's H.R. 5678, the House
versions of H.R. 5782 and the Senate's S. 3961 \-- all assume
continuation of the current DOT program and seek to make it better. I
would like to highlight the provisions of these proposals that we
believe are the most significant and deserve the most attention by the
Committee. My testimony will also discuss improvements we recommend for
certain of the provisions. While none of these bills is perfect from our
perspective, the Committee should understand that we see nothing that
would cause AOPL and API to oppose enactment of compromise pipeline
safety reauthorization legislation based on these bills. Enactment of
the legislation is more important than any concerns we have with
individual provisions.

[Underground Damage Prevention]{.underline}

Pipeline releases caused by excavation damage are the most traumatic,
the largest, and are the most likely to threaten the public and the
environment. At the center of H.R. 5678, H.R. 5782 and S. 3961 are
similar provisions that will strengthen the impact of state laws
designed to prevent underground damage. Incentives are provided to
states that adopt strong damage prevention laws and programs. To qualify
for these incentives a state must also be adequately enforcing its
damage prevention laws. Improvement in enforcement of state damage
prevention laws would make real improvement in pipeline safety.

In addition, these bills all make it a federal civil violation to ignore
state underground damage prevention laws. We believe this expression of
the seriousness the federal government attaches to damage prevention
enforcement is one of the most important safety advances proposed in
these or any recent pipeline safety bills.

[Common Ground Alliance]{.underline}

As noted at the beginning of my testimony, I serve as the Common Ground
Alliance Board member for the oil pipeline industry. The CGA is one of
the best things that has happened in pipeline safety in many years. CGA
provides a forum to work underground damage prevention issues that
simply doesn't exist anywhere else. CGA brings solutions to the table
instead of problems. One of CGA's current roles is to lead the public
awareness campaign to promote use of the nationwide, toll-free 811
telephone number for one-call notification that was required by the 2002
Act. Section 17 of S. 3961 should specifically authorize funds to
support the 811 campaign.

[Low-Stress Pipelines]{.underline}

Earlier this year there was a significant leak from a crude oil pipeline
on the North Slope of Alaska that was under DOT's jurisdiction, but was
operating at less than 20% of specified minimum yield strength --
low-stress.  Crude oil from this release covered an approximately
two-acre area.  Based on API's Pipeline Performance Tracking System, our
industry's internal data library on oil pipeline spills, this particular
leak was a statistical anomaly in its size and is not at all typical of
releases from low stress pipelines. Nevertheless, the leak shows that
anomalies do occur and must be considered in managing the risks
pipelines present.  That pipeline was regulated by the Alaska Department
of Environmental Conservation, but was not covered by the DOT
regulations then in effect because it was operating at low stress, did
not cross a navigable waterway, was in a rural area and did not
transport highly volatile liquids.

DOT has accelerated a rulemaking process that was underway before the
leak occurred to address the regulation of low-stress pipelines. In the
House, one of the pipeline safety reauthorization bills directly
addresses the regulation of low stress pipelines other than gathering
lines. AOPL and API worked with the House Energy and Commerce Committee
and are supporting a provision in that Committee's version of H.R. 5782
that would subject the pipeline on the North Slope that leaked and
similar pipelines to the same DOT regulation that currently covers
high-stress pipelines. Section 13 of S. 3961 is similar to this House
provision. We continue to support the House Energy and Commerce
Committee low-stress provision and urge this Committee to adopt the same
language so that the treatment of low stress pipelines will be the same
in each bill.

[Safety Orders]{.underline}

Sec. 6 of S. 3691 modifies DOT's current authority to issue mandatory
orders to pipeline operators. Title 49 section 60117(l) was added by the
Pipeline Safety Improvement Act of 2002 to allow DOT to issue a "safety
order" to an individual operator in situations that appear to require
action, but do not rise to the level of danger implied in a "hazardous
facility" designation under section 60112, the principal authority
available to DOT to order actions by an operator. The intent in 2002, as
we understand it, was to provide DOT with an enforcement tool with a
lower threshold that would not require DOT to first declare that an
operator's facility "is or would be hazardous" before actions would be
required of the operator that could be documented in the public record.
Unfortunately, the existing section 60117(l) does not provide for notice
or an opportunity for a hearing before an order would be issued. This
existing provision is seriously lacking in due process protection for
pipeline operators who might be subject to such an order.

The Administration's bill, the House Energy and Commerce bill and Sec. 6
of S. 3961 all amend section 60117(l) to add a welcome notice
requirement and opportunity for a hearing at DOT before any order could
be issued. Ensuring a modicum of due process addresses a significant
omission in the 2002 Act. However, Sec. 6 goes on, in effect, to
eliminate the due process benefit by practically abolishing any
threshold or burden of proof for DOT in triggering a safety order. The
Secretary of Transportation may order an operator to make possibly
extensive expenditures on all or a portion of the operator's system to
address "any condition that poses a risk" based on any "factors the
Secretary considers appropriate". Under these provisions an operator
could be virtually powerless to contest effectively any DOT requirement
to make what the operator believes to be unnecessary expenditures of
scarce resources to address questionable risks.

Notwithstanding these concerns, we recognize that some version of Sec. 6
is likely to be included in any final pipeline safety reauthorization
bill. Therefore we urge the Committee to transform the provision into a
problem-solving tool instead of a provision that assumes a contest among
lawyers is always necessary. We suggest the Committee direct that the
administrative procedures implementing this order offer the pipeline
operator an opportunity to confer informally with DOT before exercising
the operator's right to a hearing. We believe informal consultation will
produce remedies acceptable to both operator and DOT that will resolve
the vast majority of DOT's concerns without the need for a formal
hearing. Any action taken by mutual agreement as a result of the
consultation could be reduced to writing and made both public and
enforceable. We believe this simple modification will save time and
legal costs and bring about safety improvements sooner. If the operator
and DOT cannot agree on a remedy, the DOT would retain the authority to
conduct a formal hearing and issue its order.

Finally, we suggest the Committee to modify Sec. 6 of S. 3961 to focus
the authority on pipeline integrity risks and remove pipeline
"replacement" as a remedy for this low-threshold order. If DOT is going
to take the expensive step of ordering replacement of a pipeline, it
should be done under the higher-threshold hazardous facility order
authority of title 49 section 60112.

[Enforcement Transparency]{.underline}

Sec. 9 of S. 3961 requires DOT to post information on a monthly basis
about pipeline enforcement actions taken by the Secretary or the
Pipeline and Hazardous Materials Safety Administration. We have no
objection to this proposal as long as the normal due process and
confidentiality attaching to negotiation and settlement of cases is
preserved. The House Energy and Commerce Committee language captures
these safeguards and in addition ensures that no information will be
disclosed under this provision that would not be disclosed under the
Freedom of Information Act. We believe consistency with the Freedom of
Information Act should be required in whatever bill passes.

[Cost Recovery for Extraordinary Events]{.underline}

Sec. 19 of S. 3691 authorizes DOT to recover DOT's costs of
investigating major pipeline safety incidents "from the person or
persons responsible for the incident". The amounts collected would not
be returned to the Treasury, but would remain available to DOT until
expended to cover the cost of investigating and monitoring incidents. We
question the wisdom of this provision. DOT should budget for these types
of expenses through the normal federal budget process. The additional
fees authorized by Sec. 19 would not be subject to congressional control
or oversight through the appropriations process. There would be no
effective check on the operation of this authority once this bill
passes.

[Other Provisions]{.underline}

My comments today have not addressed every provision of every proposal.
Most of the provisions I have not discussed we do not oppose or do not
directly affect the oil pipeline industry. I would reiterate that the
important goal at this point is enactment of the legislation. Passage of
compromise legislation is more important than any concerns we have with
individual provisions.

With so little time left in the current Congress, we hope the Committee
will work with the House to put together (and quickly) a bill that has
broad appeal and can pass both Houses. The test for inclusion of a
provision should be whether it is acceptable to all the interested
parties. We need to move forward by consensus, and we need to move
rapidly if a bill is to pass. It would be a shame to have come this far
and worked together so well and yet not achieve passage of the bill. The
protections for the public that a bill would provide are within reach,
particularly in the area of damage prevention and state cooperation.
These protections should be made available now. We should not make the
public wait for some future Congress to enact these protections.

[Closing]{.underline}

In summary, current pipeline safety law is working, and working very
well. Improvements can be made, particularly in strengthening
underground damage prevention, but fundamental changes are not needed.
The legislative proposals before Congress all seek to make improvements
in the fundamentally sound DOT pipeline safety program based on the
Pipeline Safety Improvement Act of 2002. We need to move promptly to
agree on the improvements that can gain broad support and incorporate
these improvements in a pipeline safety reauthorization bill that can be
enacted this year. The oil pipeline industry stands ready to help in any
way we can in the achievement of this worthy goal.

This concludes my remarks, I will be happy to respond to questions.