**DEPARTMENT OF**

**TRANSPORTATION**

**Research and Special Programs**

**Administration**

**49 CFR Part 198**

**\[Docket No. PS--119; Amdt. 198--1\]**

**RIN 2137--AC12**

**Allocation Formula for State Grants**

**[agency]{.smallcaps}:** Research and Special Programs Administration
(RSPA), DOT.

**[action]{.smallcaps}:** Final rule.

**SUMMARY:** This final rule codifies the formula for allocating federal
pipeline safety grants to states. Codification is particularly
appropriate at this time, as the formula is undergoing major revision to
make it predominantly performance based. Formula revisions are being
phased in over several years, allowing states time to take steps to meet
performance factors. These factors cover state field operations as well
as procedural compliance with federal requirements. A particularly
critical component of performance is state assumption of safety
jurisdiction over all intrastate pipeline facilities subject to the
minimum federal pipeline safety regulations. A performance-based formula
should lead to improved program effectiveness and, ultimately, to
increased public safety.

**[effective date]{.smallcaps}:** This rule takes effect March 25, 1993.

**[for further information contact]{.smallcaps}:** G. Tom Fortner,
202--366--4564, or Karen Sagett, 202--366--4577.

**[supplementary information]{.smallcaps}:**

**Background**

The Natural Gas Pipeline Safety Act of 1968 (NGPSA), as amended, and the
Hazardous Liquid Pipeline Safety Act of 1979 (HLPSA), as amended,
authorize DOT to provide up to 50 percent of the cost of personnel,
equipment, and activities reasonably required by a state to carry out a
pipeline safety program. From 1971 through 1980, grant appropriations
were sufficient to fund 50 percent of each state\'s program request. In
1981 and subsequent years, requests exceeded appropriations, and methods
of allocation were developed to support state programs with the funds
available. (A detailed description of the formula between 1981 and 1990
appears in an Advance Notice of Proposed Rulemaking (ANPRM), Allocation
Formula for State Grants, published in the February 25, 1991, **Federal
Register** (56 FR 7636).)

Initially, funds were allocated to assure all states adopted the minimum
federal pipeline safety regulations and had basic programs in place. In
1985, a factor was added to the allocation formula as an incentive to
encourage states to improve state program performance and to take on
more responsibility for pipeline safety. This performance factor
accounted for 20 percent of the grant allocation. In 1986, the
performance factor was increased to 25 percent, and in 1992 it was
further increased to 50 percent.

The February 25, 1991, ANPRM solicited ideas on revising the allocation
formula to encourage states to enhance pipeline safety, improve the
effectiveness of their programs, and assume jurisdictional
responsibility over all intrastate pipeline operators. The ANPRM
specifically requested comments on the best mix of performance factors
and appropriate weights to be assigned to each. Additionally, the ANPRM
sought reaction to issues such as defining a minimum level of
performance, protecting states from an abrupt drop in funding, and
phasing in the revised formula. Fourteen comments were received in
response to the ANPRM. Thirteen of the 14 were from state agencies and
one was from a trade association. Eleven of the 14 were generally
supportive of revising the allocation formula. Of the remaining three,
two said the current system of allocating the funds seemed reasonable
and should be continued. The other commenter wanted to return to the
formula first used in 1981.

RSPA issued a Notice of Proposed Rulemaking (NPRM) on March 4, 1992, (57
FR 7705), which (1) summarized the 14 comments received in response to
the ANPRM, (2) proposed an approach for phasing in a performance-based
allocation formula over a multi-year period, and (3) proposed language
to codify the grant allocation formula. The NPRM described the proposed
allocation formula for use in 1992 and 1993 in some detail. In contrast,
proposed language to be included in the regulation was general, since
RSPA is still refining objective performance yardsticks that take into
account state differences. Additionally, RSPA needs to retain some
flexibility to target changing priorities and national concerns and does
not want to revise the regulation each time the formula changes.

RSPA will continue to finetune performance factors. A key aspect of this
further refinement will be hiring \"state liaisons\" in each of the five
pipeline safety Regional Offices to conduct the annual state program
evaluations which are instrumental in assessing state performance. The
liaisons will also provide technical assistance, support, and hands-on
training upon state request. As such, their observations and insights
should be useful in defining performance.

State agency comments will be sought in advance of making any changes to
the formula. Proposed changes will be mailed to state agencies for
discussion at subsequent National Association of Pipeline Safety
Representatives (NAPSR) and National Association of Regulatory Utility
Commissioners (NARUC) meetings held throughout the year. RSPA places
high priority on the continuing involvement of the state partners as
work proceeds on finetuning the allocation formula. RSPA will provide
documentation on proposed changes and actual allocations to the public
upon written request.

**Comments Received**

RSPA received 12 comments in response to the NPRM: Seven from state
agencies, two trade associations, two from gas pipeline operators, and
one from a state interest group. Seven of the 12 commenters were
generally supportive of revising the allocation formula to place more
emphasis on state performance; all seven had suggestions on the
mechanics of the allocation process, state constraints in meeting
various performance factors, or the performance factors to be included.
Four commenters did not specifically comment positively or negatively
about moving toward a performance-based formula but rather zeroed in on
one or two issues. One commenter totally opposed the current and
proposed formulas, saying they measure procedural compliance, *not*
performance. RSPA believes that procedural compliance is very much a
part of overall state program performance.

**Mechanics of the Allocation Process**

The February 25, 1991, ANPRM raised a number of issues related to the
mechanics of the grant allocation process (e.g., defining a base level
of performance, ensuring equity between large and small programs,
setting aside funds for special projects). A number of commenters in
responding to the NPRM addressed these mechanics.

Three states supported defining what constitutes adequate state
performance at a baseline program level. One of these states suggested
developing specific criteria for measuring full, partial, or inadequate
performance. The work of the NAPSR Staffing Formula Committee to develop
a model for projecting the appropriate state technical staffing level
given extent of jurisdictional responsibilities, miles of pipeline,
number of inspection units, and other factors is a step toward defining
a baseline program. RSPA is currently reviewing the Committee\'s
proposed approach. Continuing efforts to define performance will further
lead to a working definition of baseline-level program.

Three states commented on the inequity in the current formula as well as
the proposed formulas for 1992 and 1993 which may negatively impact
large programs. One state with a large program said it would lose even
more funding in 1993 when 75 percent of the allocation will be based on
performance (compared to 50 percent in 1992). That state recommended
establishing a 100-point scale for assigning performance points to allow
for a wider point spread among states, better reflecting program
performance than the current 27 points.

RSPA is attempting to assure that all states are treated equitably in
the distribution of funds. However, until the full 50 percent of state
program costs is appropriated, there will not be adequate funds to
assure each state receives the maximum funding for which it is eligible.
RSPA will adopt a 100-point scale for assigning performance points as
proposed. Beginning in 1993, a state will be eligible to receive a
maximum of 100 performance points. Fifty points will be based on
information provided in the state\'s annual certification/agreement
attachments which document activities for the past year and 50 points
will be based on the state\'s rating on its annual program evaluation
conducted by the RSPA regional pipeline safety office. The
certification/agreement attachments will be used primarily to measure
state procedural compliance in meeting national program objectives,
while the evaluation will be used to assess state field operations.
Together, these two instruments will provide an indication of overall
state program performance.

RSPA will provide state agencies with information on actual performance
factors and the number of points assigned to each factor well in advance
of the allocation of funds, in mailings transmitting the annual
certification/ agreement and program evaluation.

Two states commented on how funds would be prorated if state requests
exceed available appropriations. One state agreed with RSPA that
available funds should be prorated equally so larger programs do not
have to absorb a disproportionate reduction. The other state asked for
clarification on whether all grants would be reduced by the same
percentage or whether a sliding scale would be used based on program
size. The state remarked that reduced grants are disproportionately
burdensome for smaller programs, a consideration which was taken into
account in developing the original grant allocation formula. As noted
above, RSPA is exploring alternatives for assuring equitable treatment
of small and large programs alike when available appropriations are
insufficient to fund state requests.

The state interest group was concerned that too rapid an increase in the
percentage of funding based on performance might trigger unwanted
reductions in good, small state programs. To avoid this occurrence, the
interest group proposed that the word \"maximum\" be inserted in
§198.13(a): \"The *maximum* percent of each state agency allocation that
is based on performance \* \* \*\" RSPA agrees that the transition to a
performance base formula could disrupt small state programs and has
inserted \"maximum\" in the final rule.

Three states were concerned about not having enough lead time to
anticipate changes in the formula. One of these states agreed with the
need for flexibility in the regulation but recommended notifying states
of any changes as far in advance as possible. Another of these states
said varying performance criteria/weight from year to year could have a
disruptive effect on the ability of the state to meet RSPA criteria and
adversely impact the funding level. RSPA will notify states as far in
advance as possible about changes in the formula. Proposed changes will
be discussed at NAPSR and NARUC meetings in the year prior to the
change. Every effort will be made to lessen any hardship related to
formula changes. RSPA has revised the wording in §198.13(e) to provide
written notice of changes 9 months prior to allocating funds instead of
6 months as proposed in the NPRM.

One state believed it would be a good idea to use additional grant funds
for special projects and extraordinary expenses as long as the regular
allocation was not touched. Historically, every year a number of states
spend less money than anticipated at the beginning of the year (e.g.,
staff may resign and not be immediately replaced), and funds have to be
deobligated at the end of the year. To the extent permitted by law, RSPA
will consider earmarking deobligated funds for special projects.

**State Constraints**

At least five state agencies alluded to their lack of control over
getting their legislatures to adopt federal requirements and the
inequity of reducing their grant allocation when they had done
everything within their power to secure passage but failed because of
resistance in the legislature. States proposed a number of creative ways
to deal with the program deficiencies resulting from the lack of
legislative authority. One state suggested that bonus points be assigned
for extra safety activities above the minimum (e.g., more stringent
code, additional jurisdiction, operator training program) and that these
points be used to offset points lost in other areas.

RSPA is making an effort to assist states having difficulty in adopting
necessary federal safety requirements because of legislative resistance.
The state liaisons will be available to assist states develop strategies
for overcoming opposition to safety requirements. With respect to the
assignment of bonus points, RSPA does not think it would be fair to
states that have already achieved the baseline level program to give
extra points to states that go beyond the basics in certain areas to
offset deficiencies in other areas. States need to focus their efforts
on achieving the baseline level program.

Another state suggested the first year a deficiency is identified the
state should be issued a warning; a probation period would be
established but the funding level would not be affected. If the
deficiency was not corrected the second year, the funding level would be
reduced somewhat. If still no correction were made by the third year,
the funding level would be further reduced. Funding would be restored
when corrective action was taken. While RSPA appreciates the intent of
this suggestion, RSPA believes that tracking the status of deficiencies
for 50 states over a 3-year period would be an administrative burden and
therefore will not adopt it. Rather, RSPA will consider giving partial
credit in instances where states are taking steps to remedy a deficiency
or adopt required standards.

Two states made a case for providing sufficient time for adoption of
federal requirements. The NGPSA and HLPSA both require a state to
demonstrate that within 120 days after a federal safety regulation goes
into effect, the state is taking steps to adopt the regulation. RSPA
believes it is reasonable to allow a state 24 months, or two general
sessions of the state legislature, whichever is longer, to adopt a
federal regulation before reducing that state\'s grant allocation. If
the state does not adopt the regulation within 24 months (or two general
sessions of the legislature), its grant allocation will be reduced.
Regardless of whether or not a state has adopted a particular safety
regulation, pipeline operators must still comply with the regulation.

**Specific Performance Factors**

A number of commenters singled out certain performance factors they
wanted included in the formula.

*Damage Prevention/One-Call Systems*

Three commenters mentioned the one-call damage prevention program. Two
of these commenters (the two trade associations) were most supportive of
strong damage prevention laws and giving significant weight to states
having adopted or taking steps to adopt such laws in allocating funds.
Both associations believe state damage prevention programs should
include mandatory requirements for a true one-call system, where all
owners-operators of buried underground utility facilities are required
to participate (natural gas and hazardous liquid pipelines, as well as
water mains, storm sewers, sanitary sewers, steam pipelines, electronic
power cables, telephone cables, fiber optic cables, and cable
television). While these two associations recognized that RSPA regulates
only natural gas and hazardous liquid pipelines, they nevertheless urged
RSPA to place significant weight in allocating funds on whether all
types of underground utility facilities are included in one-call
systems. These two associations want stiff penalties and vigorous
enforcement of damage prevention laws except in emergency excavations
and demolition activities.

Only one state commented on the one-call notification system, saying it
should be included as a performance factor in the formula but ranked
\"low\" to \"medium.\" RSPA will include state adoption of minimum
requirements for a one-call notification system as a performance factor
in the allocation formula.

*Enforcement/Civil Penalties*

Two commenters mentioned enforcement and use of civil penalties in
regard to pipeline safety in general. One of these, a state, thought
enforcement of regulations should be included as a performance factor
with a \"medium\" ranking but that assessment of civil penalties should
not be included at all. One gas pipeline operator said giving weight to
assessment of penalties was not evidence of a good program. The use of
fines as a measure for funding would create undue incentives for
regulators and lead to adversarial relationships with operators. The
operator felt that safety can best be promoted through a cooperative
relationship without the threat of costly fines. States participating in
the pipeline safety program under NGPSA and HLPSA are required to have
injunctive and monetary sanctions substantially the same as RSPA. RSPA
believes the use of civil penalties is an effective deterrent action,
especially in situations involving repeat violations or gross
noncompliance. Accordingly, RSPA will include use of civil penalties as
a performance factor in the allocation formula.

*Inspection Person-Days*

Two commenters mentioned inspection person-days. A state said the
existing inspection person-day requirement (85 days per year) is
reasonable and should be retained. A gas pipeline operator, in its only
comment, felt increasing requirements such as the number of inspection
person-days would increase an operator\'s cost of doing business but not
necessarily increase safety, and that an increase in requirements could
possible strain industry\'s ability to compete in the energy market.
RSPA has no current plans for increasing the number of inspection
person-days a state must meet. RSPA will include inspection person-days
as a performance factor in the allocation formula.

One state was opposed to the current and proposed formulas on the
grounds that these formulas did not measure performance. The state
provided examples of the types of actions important to measuring
performance of a state pipeline safety program including state
prohibition against installation of new cast iron pipe; state program
for cast iron/bare steel pipe removal; state requirement that utilities
leak survey their whole systems with electronic equipment annually,
business districts twice a year, and all buildings used for public
gatherings annually; lost and unaccounted-for natural gas held
effectively at zero; requirement that all defects on steel pipe such as
dents and scratches be removed or repaired; state program encouraging
utilities to actively share pipeline safety information.

Other states mentioned additional performance factors such as pursuing
legislation to prohibit master meter systems, active state promotion of
programs to prevent damage by outside force, and on-the-job training.
RSPA will consider these additional measures of performance as it
refines the formula in future years.

Several commenters agreed with the shift to program performance, but
they were concerned that funds should not be allocated solely on the
basis of performance as it could create a negative incentive for some
states. While funds will be allocated based on state performance, the
formula will also take into account the level of the state request for
funds (i.e., large state programs will need more funds to cover their
program costs than small state programs).

RSPA believes a performance-based formula will be a positive incentive
for states to improve program effectiveness. The Senate Committee on
Appropriations supported the merits of a performance-based allocation
formula in approving RSPA\'s FY 1992 budget request for the pipeline
safety grant program. The Committee urged RSPA to move expeditiously
toward a performance-based approach in awarding grant funds and to
ensure that participating states take full authority over intrastate
pipeline facilities as contemplated in NGPSA and HLPSA.

By defining a baseline-level program with clear performance factors,
RSPA will set forth what is expected of states to be eligible for
maximum grant funding. State agencies administering the program can, in
turn, use this information to strengthen the case to secure necessary
authority from the state public service commission or state legislature
for adoption of federal requirements.

**Regulatory Analysis and Notices**

*Executive Order 12291 and DOT Regulatory Policies and Procedures*

This final rule is not major under Executive Order 12291 (46 FR 13193;
February 19, 1981) and is not significant under DOT Regulatory Policies
and Procedures (44 FR 11034; February 26, 1979), as the rule merely
formalizes an existing administrative procedure. No regulatory
evaluation is required because the rule deals with the allocation of
grant funds and does not impose costs on any state or regulated entity.

*Paperwork Reduction Act*

Information submitted by a state in conjunction with its annual
certification/agreement under section 5(a) or 5(b) of NGPSA and section
205(a) or 205(b) of HLPSA is used in part to allocate grant funds. This
information collection imposes a reporting burden on the state and, as
such, has been approved by the Office of Management and Budget (OMB)
under OMB No. 2137--0584, in accordance with 44 U.S.C. chapter 35.

None of the comments received in response to the March 4, 1992, NPRM
addressed any concerns associated with overly burdensome paperwork
re-quirements. Rather, the comments focused on programmatic matters such
as the mechanics of the grant allocation process, state constraints in
meeting federal performance criteria, and the merits of various
performance factors.

*Regulatory Flexibility Act*

Based on the facts available concerning the impact of this rule, I
certify under section 605 of the Regulatory Flexibility Act that it
would not have a significant economic impact on a substantial number of
small entities.

*Executive Order 12612*

This action would not have substantial direct effects on states, on the
relationship between the federal government and the states, or on the
distribution of power and re-sponsibilities among the various levels of
government. Therefore, in accordance with Executive Order 12612 (52 FR
41685; October 30, 1987), RSPA has determined that this notice does not
have sufficient federalism implications to warrant preparation of a
Federalism Assessment.

**List of Subjects in 49 CFR part 198**

Grant programs, Formula, Pipeline safety.

In consideration of the foregoing, RSPA amends 49 CFR part 198 as
follows:

**PART 198--AMENDED\]**

1\. The authority citation for part 198 continues to read as follows:

**Authority**: 49 App. U.S.C. 1674, 1687, and 2004; 49 CFR 1.53.

2\. New subpart B is added to 49 CFR part 198 as follows:

**Subpart B--Grant Allocation**

Sec.

198.11 Grant authority

198.13 Grant allocation formula

**Subpart B--Grant Allocation**

**§198.11 Grant authority.**

Section 5(d)(1) of the Natural Gas Pipeline Safety Act and section
205(d)(1) of the Hazardous Liquid Pipeline Safety Act authorize the
Administrator to pay out of funds appropriated or otherwise made
available up to 50 percent of the cost of the personnel, equipment, and
activities reasonably required for each state agency to carry out a
safety program for intrastate pipeline facilities under a certification
or agreement with the Administrator or to act as an agent of the
Administrator with respect to interstate pipeline facilities.

**§198.13 Grant allocation formula.**

\(a\) Beginning in calendar year 1993, the Administrator places
increasing emphasis on program performance in allocating state agency
funds under §198.11. The maximum percent of each state agency allocation
that is based on performance follows: 1993--75 percent; 1994 and
subsequent years--100 percent.

\(b\) A state\'s annual grant allocation is based on maximum of 100
performance points derived as follows:

\(1\) Fifty points based on information provided in the state\'s annual
certification/agreement attach-ments which document its activities for
the past year; and

\(2\) Fifty points based on the annual state program evaluation.

\(c\) The Administrator assigns weights to various performance factors
reflecting program compliance, safety priorities, and national concerns
identified by the Administrator and communicated to each State agency.
At a minimum, the Administrator considers the following performance
factors in allocating funds:

\(1\) Adequacy of state operating practices;

\(2\) Quality of state inspections, investigations, and
enforcement/comp-liance actions;

\(3\) Adequacy of state recordkeep-ing;

\(4\) Extent of state safety regulatory jurisdiction over pipeline
facilities;

\(5\) Qualifications of state inspectors;

\(6\) Number of state inspection person-days;

\(7\) State adoption of applicable federal pipeline safety standards;
and

\(8\) Any other factor the Administrator deems necessary to measure
performance.

\(d\) Notwithstanding these per-formance factors, the Administrator may,
in 1993 and subsequent years, continue funding any state at the 1991
level, provided its request is at the 1991 level or higher and
appropriated funds are at the 1991 level or higher.

\(e\) The Administrator notifies each state agency in writing of the
specific performance factors to be used and the weights to be assigned
to each factor at least 9 months prior to allocating funds. Prior to
notification, RSPA seeks state agency comments on any proposed changes
to the allocation formula.

\(f\) Grants are limited to the appropriated funds available. If total
state agency requests for grants exceed the funds available, the
Administrator prorates each state agency\'s allocation.

Issued in Washington, DC, on February 17, 1993.

**Rose A. McMurray,**

*Acting Administrator, Research and Special Programs Administration.*

\[FR Doc. 93--4089 Filed 2--22--93; 8:45 am\]

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