[Federal Register Volume 60, Number 244 (Wednesday, December 20, 1995)]
[Notices]
[Pages 65725-65729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30775]



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DEPARTMENT OF TRANSPORTATION
Research and Special Programs Administration

[Docket No. PS-142; Notice 2]


Considerations for a Program Framework for Risk Management 
Demonstrations

AGENCY: Office of Pipeline Safety, DOT.

ACTION: Notice.

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SUMMARY: The Research and Special Programs Administration's (RSPA) 
Office of Pipeline Safety (OPS) is considering how to implement a 
program administrative framework to receive, analyze, accept, monitor 
and revise risk management plans that interstate natural gas 
transmission and hazardous liquid pipeline companies would submit as 
risk management demonstration projects. RSPA is not yet prepared to 
consider a conceptual administrative framework for intrastate 
companies.

    A demonstration project framework is needed to validate benefits in 
applying risk management in the pipeline industry and to determine how 
it would work most effectively. A framework is also needed to evaluate 
the use of 

[[Page 65726]]
company-specific risk management plans as an alternative to the 
existing regulatory requirements and to plan for a transition should 
the demonstration justify it. For demonstration projects to help 
further the transition, the framework must identify how pipeline 
companies would submit, implement and improve risk management 
demonstration plans and how OPS, in consultation with State pipeline 
safety agencies, would evaluate and monitor them.
    The demonstration projects are intended to test whether company-
specific plans can provide equal or greater safety than the current 
regulatory requirements provide. The results will be evaluated, and if 
determined to be successful, OPS would consider expanding the 
application. Participation in risk management initiatives will be 
voluntary and subject to OPS discretion.
    The proposed framework outlined below was distributed and discussed 
at a public meeting on this subject held on November 7, 1995, in McLean 
Virginia. Provisions for written comments to the framework were 
announced in a Federal Register notice published September 21, 1995. 
Through this notice, OPS is again requesting comments on the proposed 
framework.

DATES: Responses to this request for comments should be submitted on or 
before February 20, 1996.

ADDRESSES: Send comments in duplicate to the Dockets Unit, Room 8421, 
Research and Special Programs Administration, U.S. Department of 
Transportation, 400 Seventh Street, SW, Washington, DC 20590. Identify 
the docket and notice number stated in the heading of this notice. All 
comments and docketed material will be available for inspection and 
copying in room 8421 between 8:30 a.m. and 5 p.m. each business day.

FOR FURTHER INFORMATION CONTACT: Patrick J. Ramirez, (202) 366-9864 
regarding the subject matter of this notice. Contact the Dockets Unit, 
(202) 366-5046, for docket material.

SUPPLEMENTARY INFORMATION:

I. Background

    The Office of Pipeline Safety (OPS) furthers pipeline safety 
through a compliance-based system of primarily performance-based 
regulations embodied in 49 CFR Parts 192-195 and Part 199. The program 
is conducted in partnership with the states, where certified states 
take responsibility for intrastate pipeline systems and OPS retains 
responsibility for interstate pipeline systems.
    Certain pipeline incidents in the last two years have heightened 
public awareness of, and concerns about, pipeline safety and 
environmental protection. Although the pipeline safety record compares 
favorably with other forms of energy transportation, recent incidents 
have raised the question of whether safety and environmental protection 
can be improved by means other than the current system of compliance 
with minimum federal requirements. There are also expectations of 
increasing cost and complexity of managing pipeline systems from future 
potential regulations. Many government and industry officials are 
interested in new approaches that might more effectively evaluate risks 
and focus resources in areas with the greatest potential for reducing 
risk. There is also interest in improving accountability of the 
industry and the government to the public.
    The Department of Transportation transmitted a legislative proposal 
for reauthorization of the pipeline safety program on March 13, 1995 
that would establish a structure to evaluate pipeline risks and their 
consequences, develop solutions to address the risks, and establish 
priorities for implementing the solutions. This process is generally 
referred to as Risk Assessment Prioritization.
    The pipeline industry supported an approach that focused on 
operator risk management by explicitly authorizing demonstration 
projects. This approach was included in H.R. 1323 which was ordered 
reported by the House Committee on Transportation and Infrastructure on 
April 5, 1995. A similar bill was reported by the House Committee on 
Commerce. Section 6 of H.R. 1323 would require the Secretary to 
establish a demonstration project on risk management that would seek 
voluntary participation by operators to demonstrate applications of 
risk management. In carrying out the demonstrations, the Secretary 
would ensure that approved plans under the project achieve an 
equivalent or greater overall level of safety than would be achieved by 
complying with the existing regulatory requirements. The Department 
formally expressed its view to the Committee on Transportation and 
Infrastructure that this provision is consistent with the Department's 
proposal for a risk management program.
    The pipeline risk management demonstration projects for interstate 
natural gas and hazardous liquid transmission companies would be a 
vital step in the transition between compliance-based regulations and 
risk management. The demonstration projects would allow both the 
government and industry to gain some experience before extending the 
program. The transition period between compliance-based regulation and 
risk management programs used by a large segment of the pipeline 
industry will likely take several years.
    To study the applicability and benefits of formal pipeline risk 
management programs, OPS, representatives of the oil and gas industry, 
states and local interest groups formed two ``risk assessment quality 
action teams'' (RAQTs). The first, in 1994, focused on oil and 
petroleum product transmission application of risk management and the 
second, in 1995, focused on natural gas transmission. Both RAQTs have 
been defining how risk management might be beneficially applied in the 
pipeline industry. This work has been based on how other industries and 
government agencies are using risk assessment and management to more 
efficiently allocate resources for safety.

II. Risk Assessment Quality Team (RAQT) Findings

A. Definition of Risk Management

    Risk management is the process of deciding what to do about risk 
associated with a system. Risk can be expressed as the likelihood of an 
event occurring multiplied by the severity or the consequence of its 
effect. The goal of risk management is to set priorities for using 
finite resources to reduce risk.
    A formal definition of risk management from a Gas Research 
Institute report, adopted by the Gas RAQT is: ``Risk Management is the 
systematic application of management policies, procedures, finite 
resources and practices to the tasks of analyzing, assessing and 
controlling risks to protect the public, the environment and company 
employees and assets.''
    The Oil RAQT report stated that ``Risk management is the overall 
logical process by which a company understands the risk associated with 
operation of its facilities and determines whether and how to take 
action to reduce or accept risks. ``

B. Successful Efforts in Other Industries

    The RAQTs focused on how risk management practices have been 
applied worldwide to reduce risk from chemical, nuclear and industrial 
process hazards as well as from pipeline system leaks and ruptures. The 
teams' technical conclusions were influenced by the experience of 
industries and current effective practices of risk management. 

[[Page 65727]]
In the industries referenced above, the risk management process is 
applied to the entire physical system that is the source of the risk 
and follows a life cycle analysis. Various analytical approaches can be 
performed qualitatively or quantitatively and at many levels of effort. 
Both teams placed considerable importance on the historical role and 
value that has accrued from industry codes and standards and recognized 
the major influence of the insurance industry on corporate loss 
reduction programs.

C. Expected Benefits in the Pipeline Industry

    Companies in the industries using risk management have reported 
improved safety records and reduction in the number of incidents. The 
execution of risk management generally leads to a discipline of 
detailed review of the system, its operation and maintenance. This 
expanded review can lead to identifying new sources of risk that may 
not be recognized in a compliance-based management process. Another 
aspect of the risk management discipline is that it entails a rigorous 
and comprehensive analysis of the likelihood of incidents and the 
magnitude of the consequences.
    Many pipeline companies have elements of risk management systems in 
place, although they lack a comprehensive program with formal 
documentation and public reporting. Practices identified include use of 
risk assessment techniques that exceed current regulatory requirements. 
Clearly an area of improvement in the future would be integration of 
practices into a formal program with clear tracking of goals, 
activities and performance measurement.
    Many pipeline operators routinely exceed the safety levels mandated 
in current regulation. The Gas RAQT found that the gas transmission 
industry expends significant resources complying with minimum 
requirements, and then further allocates resources for practices which 
exceed the minimum regulatory requirements.
    OPS would like to consider an alternative plan that would allow 
operators flexibility to determine how best to meet safety goals under 
Federal and state oversight. For example, rather than OPS requiring 
operators to use a particular inspection tool on their pipelines, an 
alternative approach would be OPS allowing operators to employ their 
understanding of their systems to prioritize resources to best ensure 
pipeline integrity. Operators could take an integrated systems approach 
from start to finish rather than the current practice of maintaining 
some systems because they meet federal requirements and then overlaying 
additional safety measures.
    OPS believes that there are many methods and initiatives outside 
the current regulatory structure that hold promise for pipeline 
industry use in maintaining or improving safety while recognizing 
competitive pressures in the marketplace. OPS is considering risk 
management demonstration projects to test the effectiveness of risk 
management and to provide a basis for refining the process to improve 
pipeline safety in the years ahead.

D. Conceptualization of a Risk Management Process

    To set parameters for integrating risk management programs into the 
oversight of pipeline transportation as an option to the current 
compliance-based scheme, certain assumptions are fundamental: (1) Each 
pipeline system is different, (2) each risk does not pose the same 
probability of occurrence and consequence, and (3) given the right 
analytical tools, technical discretion and financial capability, 
pipeline operators can make better decisions about how to allocate 
resources with the data available.
    For risk management to work, operators will need to give OPS 
detailed information about, and the reasons for, taking alternative 
safety actions in addition to providing baseline safety level 
information and performance measures to evaluate program progress. At 
the same time, OPS will give operators greater latitude to choose how 
to assess and manage risk and what methodologies are most effective.
    OPS is considering the approach to risk management that the Gas 
RAQT outlined. The team report was developed with support from the Gas 
Research Institute and input from the risk management project team of 
the Interstate Natural Gas Association of America. It identifies (1) 
Process elements that define technical details of risk management 
execution and (2) program elements that define administrative, 
managerial and logistical aspects of execution with the structure of an 
organization.
    The process steps have conceptually been expressed in a three, 
four, or five step approach in other industries, but each approach 
basically utilizes a Risk Assessment, Risk Control and Decision making, 
and Performance Measurement process. These steps result in assessing 
threats from specific problems or sources, ranking their relative 
importance, determining which have greatest risk reduction potential, 
allocating resources, and monitoring the effectiveness of prevention 
and mitigation actions over time.
    The program elements constitute a management framework that 
implements and supports the process by taking the results of the 
assessment and decisions and putting them into practice in day-to-day 
operations. Program elements could include Management Responsibilities, 
Standards, Guidelines, Operation and Maintenance, Training, Security, 
Incident Reporting, Emergency Preparedness and Response, 
Communications, and Auditing and Corrective Action, to name some 
examples.
    The process and program elements of risk management can be 
performed at various levels of detail. The RAQTs referred to this as a 
``graded approach'' --the methods applied should be commensurate with 
the risk. Further, the RAQTs expect that companies wishing to 
demonstrate risk management programs may wish to try the concepts out 
within a part of a pipeline system, rather than within the entire 
pipeline.
    In summary, risk management is based on sound engineering 
principles and good business practices to help make decisions that 
reduce risk. A pipeline risk management program depends on good data to 
help predict accident likelihood and consequence in the risk assessment 
stage. All elements of the pipeline business, including location, 
product, process, equipment, components, procedures, supervision, 
management, records, and human resources are considered and integrated. 
Eventually, risk management should address the life of the pipeline 
system from design and construction through start up, operation, 
maintenance, and shut down.

III. Integrating Risk Management Programs into the National Pipeline 
Safety Program

    While government and industry objectives to assure safety and 
environmental protection would remain the same under risk management, 
and the respective roles and responsibilities remain the same 
fundamentally, risk management offers the opportunity to approach the 
objectives in a manner that is more flexible to individual 
circumstance. The new approach will be more open, interactive and 
dynamic. OPS believes that the program framework must have the 
following characteristics:
    (1) Because consideration needs to be given to providing 
information and assurances about pipeline safety to other levels of 
government, the 

[[Page 65728]]
communication process needs to be more interactive and efficient.
    (2) Because the primary function of these communications will be 
the exchange of proposals and their justification, data must be 
provided on the current safety level or baseline and the expected 
levels resulting from the program. The data development process and 
cost must be practical.
    (3) Because assessing the program is a critical but new function, 
the performance measurement activity will likely advance incrementally.

IV. Risk Management Demonstration Project Objectives

    OPS offers the following risk management demonstration project 
objectives for public comment and discussion:
    <bullet> To give a limited number of qualified interstate 
transmission operators the opportunity to conduct risk management 
demonstration projects.
    <bullet> To determine whether risk management provides equal or 
greater safety than a compliance-based approach.
    <bullet> To help each operator comprehensively assess threats to 
integrity, whatever the scope of the project, or whatever aspect of its 
system is involved in the project.
    <bullet> To demonstrate how appropriately the draft risk management 
standards address risks and can be applied effectively.
    <bullet> To determine how operators consider low probability--high 
consequence incidents in addition to past accident or component failure 
history.
    <bullet> To determine how operators evaluate smaller precursor 
events that could lead to larger failures.
    <bullet> To have operators demonstrate how an integrated review of 
safety operations across the company can expedite prompt response to 
situations that could lead to failures.
    <bullet> To have operators systematically correlate data, rank 
planned actions according to their potential to reduce risk, and follow 
through on these actions.
    <bullet> To promote technological innovation.
    OPS seeks comment on whether these objectives are appropriate for a 
four year demonstration project.

V. Program Framework Elements

    This program administrative framework to receive, analyze, approve, 
monitor and revise risk management plans is being considered for 
interstate natural gas transmission and hazardous liquid pipeline 
companies that would submit proposals for risk management demonstration 
projects.
    The framework being considered would have four primary elements, 
appropriate to the features and characteristics of risk management. The 
first two elements would be developed through industry standards 
processes. The contents would be similar to the description in II D of 
this document. The second two OPS would construct:

(1) Industry Technical Process Standard (R1), covering Risk Assessment, 
Risk Control and Decision-making, and Performance Measurement.
(2) Industry Quality Program Standard (Q1), covering the operator's 
management framework that implements and supports this process, and 
puts risk management into daily operations.
(3) Federally developed risk management program participation 
requirements for communications and reporting, planned oversight and 
evaluation.
(4) Third party review to simultaneously validate the quality and 
adequacy of the technical review and administrative process used by 
OPS.

    Elements (1) and (2) of the program framework would be the basis 
for operators to apply for and OPS to accept a risk management program 
demonstration project.
    To develop knowledge and skill in the application and use of the 
industry standards, OPS envisions a cooperative effort to develop risk 
management training curriculum concurrently with the standards. 
Further, OPS expects that trade groups, OPS, and state agencies would 
participate in design and development.
    OPS would encourage a broad range of stakeholders, including 
Federal and State pipeline safety officials, to participate in review 
of the draft industry standards. This process is expected to begin 
under the auspices of the several trade organizations. While developing 
and approving Risk Management standards (R1 and Q1) would be a multi-
year process, a basic draft would be considered as a point of reference 
for the demonstration program preliminary review.
    The third element, Federally developed requirements likely to be 
subject to public notice and comment, should identify the project 
administrative framework components, particularly requirements for 
applying for the program, obtaining interim project approval, 
participating in long-term evaluation and monitoring, conflict 
resolution, penalties, incentives, and program maintenance.

VI. Third Element: Possible Elements of the Administrative Risk 
Management Demonstration Project Process

    (1) An Informal Consultation with OPS and States. The interstate 
transmission operator would consult OPS Headquarters staff, Regional 
Directors and State pipeline safety program officials affected by the 
pipeline system to declare program technical objectives. These 
regulatory officials would express safety concerns and give advice 
before formal proposals are submitted.
    Identifying risk management proposal objectives would begin with 
the operator submitting a letter of intent. The letter would describe 
the initial proposal including a request for a consultation with OPS 
and other pipeline safety regulators on the proposal and justification. 
In the consultation, the operator would discuss such issues as how 
hazards are assessed and how risks are currently managed, baseline 
performance data to indicate the safety level under current regulatory 
activities and future indicators, program goals, and the scope of the 
demonstration program.
    During the consultation with OPS and state pipeline safety 
regulators, an operator would explain the risks it intends to address 
and the nature and extent of its proposal. The operator would 
demonstrate why it believes the proposal could make its pipeline 
operate at least as safely as it does by adhering to the current 
federal safety requirements. Federal and State pipeline regulators 
would actively participate in the consultation, responding to the 
operator and raising any concerns.
    (2) Formal Written Proposal. An operator would submit a formal 
written proposal to OPS, resulting from the consultation. The proposal 
would state how the operator would apply the two industry risk 
management standards and how the plan is expected to meet or exceed the 
safety level achieved through the current regulatory program.
    The proposal would describe the risk assessment process, the means 
for and the technical rationales for ranking actions, improvement 
targets, and a preliminary risk reduction plan with decision points for 
action. Also included would be baseline performance measures against 
which process targets can be set. Organizational structure, financial 
capability, and engineering control accountability and integrated 
evaluation would be briefly described. An operator 

[[Page 65729]]
would need to address in the formal proposal the concerns raised in the 
consultation session and to provide assurances that management commits 
to allocating enough resources and to implementing the program in 
accordance with the proposal.
    (3) Program Sufficiency Review. OPS and state officials affected by 
the pipeline system would examine the proposal for completeness against 
the technical process and quality program standards. This is estimated 
to occur within sixty to ninety days of the date OPS received the 
proposal. The review would determine safety expectations from the 
program initiatives and that current safety would be equalled or 
exceeded. OPS would also consider experience with the operator, 
compliance history and performance.
    The sufficiency review could result in a proposal being accepted or 
returned. OPS acceptance at this stage would mean officially accepting 
the demonstration project as an alternative to complying with the 
current regulatory process. A returned proposal would lead to second 
consultation where recommendations would be made or the project could 
be postponed to a later date.
    (4) Technical Process Review. OPS and its consultants would perform 
this review after several months of the project's operation under the 
risk management scheme and periodically thereafter to assure that the 
program is meeting the safety goals established by the program 
performance indicators or metrics. It will take several years to assess 
trends on long range issues. This review would involve substantive 
engineering reviews to validate former assumptions and expected 
outcomes. A follow-on joint government/industry team process would be 
charged with the task of developing guidelines on use of performance 
measurements. The review would verify that operators were keeping to 
their planned program milestones.
    (5) Required Public Prospectus. As part of the process review, an 
operator in the demonstration programs would prepare public documents 
that explain its risk management plans and objectives. An operator 
would explain how it plans to meet or exceed existing safety levels, 
what its performance metrics are and how well it has performed. The 
public would be able to read the operator prospectus before OPS 
conducts the process reviews and forward any questions to OPS to 
present during the regularly scheduled audit. OPS could provide 
feedback through public notice or other means. This mechanism is 
designed to improve accountability to the public.
    (6) Conflict Resolution. Procedures may be developed to resolve 
conflicts between an operator and the government or other stakeholders 
on program adequacy.
    (7) Civil Penalties. Penalties would be administered for an 
operator not following the technical process and quality program 
standards and not keeping its program commitments within its risk 
management plan and would be addressed within the provisions of the 
existing regulations.

VII. Fourth Element: Third Party Review Being Considered

    The final planned framework element being considered would be a 
third party review that would be conducted during the four year 
demonstration project. OPS would contract with an independent 
scientific organization to give OPS findings on the planned framework. 
Findings would include whether the draft standard is adequate and 
complete, and whether the administrative project framework is 
sufficient to assure that the program is delivering the expected goals.

VIII. Evaluation and Follow-Up

    A limited number of demonstration projects would provide the 
opportunity to evaluate whether operators' risk management decisions on 
how best to use their companies' resources to protect people and the 
environment are an appropriate alternative to industry-wide regulation. 
The Demonstration program in its entirety would be evaluated in the 
final year. A successful evaluation would (1) determine that risk 
management can be a cost-effective way to manage risks pipelines pose 
and (2) give operators flexibility to manage risk based on their 
companies' needs, conditions and expertise rather than complying with 
compliance-based safety regulations.
    Successfully completing the demonstration projects is an important 
part of the Government's evolving regulatory process. OPS and industry 
having sufficient pipeline operator safety data is critical to managing 
the risks pipelines pose. OPS does not have enough safety data to be 
statistically meaningful as a risk management baseline. OPS believes 
the demonstration program would identify the type and amount of 
pipeline performance data, pipeline characteristics including failure 
data, needed to manage risk. The demonstration projects might also lead 
to more research and development activity in designing models to 
predict pipeline failure. The demonstration projects would also be the 
basis for improving the industry technical standards for other 
operators to develop more effective risk management programs and 
helping OPS be more creative, effective, and flexible in overseeing and 
approving ways to make pipelines safer.
    OPS would report lessons learned from the demonstration projects 
through public meetings and to Congress. The report would address 
project results, including whether or not the demonstrations maintained 
or strengthened safety and how OPS and industry can improve safety.

    Issued in Washington, DC on December 11, 1995.
Richard B. Felder,
Associate Administrator for Pipeline Safety.
[FR Doc. 95-30775 Filed 12-19-95; 8:45 am]
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