Pipeline Safety: Preliminary Information on the Office of Pipeline Safety's Enforcement Activities
Published: 2004-06-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Interstate pipelines carrying natural gas and hazardous liquids (such as petroleum products) are safer to the public than other modes of freight transportation. The Office of Pipeline Safety (OPS), the federal agency that administers the national regulatory program to ensure safe pipeline transportation, has been undertaking a broad range of activities to make pipeline transportation safer. However, the number of serious accidents--those involving deaths, injuries, and property damage of $50,000 or more--has not fallen. Among other things, OPS takes enforcement action against pipeline operators when safety problems are found. OPS has several enforcement tools to require the correction of safety violations. It can also assess monetary sanctions (civil penalties). This testimony is based on ongoing work for the Senate Committee on Commerce, Science and Transportation and for other committees, as required by the Pipeline Safety Improvement Act of 2002. The testimony provides preliminary results on (1) the effectiveness of OPS's enforcement strategy and (2) OPS's assessment of civil penalties.
section_title: What GAO Found
paragraphs: The effectiveness of OPS's enforcement strategy cannot be determined because the agency has not incorporated three key elements of effective program management--clear program goals, a well-defined strategy for achieving goals, and performance measures that are linked to program goals. Without these key elements, the agency cannot determine whether recent and planned changes in its strategy will have the desired effects on pipeline safety. Over the past several years, OPS has focused on other efforts--such as developing a new risk-based regulatory approach--that it believes will change the safety culture of the industry. While OPS has become more aggressive in enforcing its regulations, it now intends to further strengthen the management of its enforcement program. In particular, OPS is developing an enforcement policy that will help define its enforcement strategy and has taken initial steps toward identifying new performance measures. However, OPS does not plan to finalize the policy until 2005 and has not adopted key practices for achieving successful performance measurement systems, such as linking measures to goals. OPS increased both the number and the size of the civil penalties it assessed against pipeline operators over the last 4 years (2000-2003) following its decision to be "tough but fair" in assessing penalties. OPS assessed an average of 22 penalties per year during this period, compared with an average of 14 per year for the previous 5 years (1995-1999), a period of more lenient "partnering" with industry. In addition, the average penalty increased from $18,000 to $29,000 over the two periods. About 94 percent of the 216 penalties levied from 1994 through 2003 have been paid. The civil penalty is one of several actions OPS can take when it finds a violation, and these penalties represent about 14 percent of all enforcement actions over the past 10 years. While OPS has increased the number and size of civil penalties, stakeholders--including industry, state, and insurance company officials and public advocacy groups--expressed differing views on whether these penalties deter noncompliance with safety regulations. 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 were too small to be effective sanctions.

section_title: Letter
paragraphs: We appreciate the opportunity to participate in this hearing on the  oversight of the Office of Pipeline Safety (OPS). As you know, pipeline  transportation for hazardous liquids and natural gas is the safest form of  freight transportation, and OPS has taken many steps to make it safer.  However, the number of serious hazardous liquid accidents has stayed  about the same while the number of serious natural gas accidents has  increased. (See fig. 1.) Finally, the serious accident rate—which considers  the amount of product and distance shipped—for hazardous liquids has  decreased. None of these statistics show a constant pattern. In part, the  lack of significant change over time and the fluctuation over time may be  due to the relatively small number of serious accidents—an average of  about 150 per year for both types combined.
The accident rate is the number of serious accidents per billion ton-miles shipped. (A ton-mile is 1 ton  of a product shipped 1 mile.)
The accident rates are based on the volume of petroleum products shipped. Federal agencies and  industry associations we contacted could not provide data on other hazardous liquids shipped.  Aggregated industry data on the amounts of products shipped through hazardous liquid pipelines for  2002 and 2003 are not available so we do not present accident rate information for those years. We  are inquiring into the availability of data on natural gas shipped through interstate pipelines; these  data are needed to calculate the accident rates for this type of pipeline.
A cornerstone to OPS’s efforts over the past several years has been the  agency’s development and implementation of a risk-based approach that it  believes will fundamentally improve the safety of pipeline transportation.  This approach, called integrity management, requires interstate pipeline  operators to identify and fix safety-related threats to their pipelines in  areas where an accident could have the greatest consequences. OPS  believes that this approach has more potential to improve safety than its  traditional approach, which focused on enforcing compliance with safety  standards regardless of the threat to pipeline safety. Officials have  emphasized that integrity management, coupled with other initiatives,  such as oversight of operators’ programs to qualify employees to operate  their pipelines, represents a systematic approach to overseeing and  improving pipeline safety that will change the safety culture of the  industry and drive down the number of accidents.
Now that its integrity management approach and other initiatives are  substantially under way, OPS recognizes that it needs to turn its attention  to the management of its enforcement program. Accordingly, my  testimony today focuses on opportunities for improving certain aspects of  OPS’s enforcement program that should be useful to OPS as it decides  how to proceed and to this committee as it continues to exercise  oversight.
My statement is based on the preliminary results of our ongoing work for  this committee and others. As directed by the Pipeline Safety  Improvement Act of 2002, we have been (1) evaluating the effectiveness of  OPS’s enforcement strategy and (2) examining OPS’s assessment of  monetary sanctions (called civil penalties) against interstate pipeline  operators that violate federal pipeline safety rules. We expect to report on  the results of our work on these and other issues next month.
Our work is based on our review of laws, regulations, program guidance,  and discussions with OPS officials and a broad range of stakeholders. To  evaluate the effectiveness of OPS’s enforcement strategy, we determined  the extent to which the agency’s strategy incorporates three key elements  of effective program management: clear program goals, a well-defined  strategy for achieving goals, and measures of performance that are linked  to program goals. We also examined how OPS assessed civil penalties  from 1994 through 2003 and the extent to which pipeline operators have  paid them. Finally, we interviewed stakeholders on whether OPS’s civil  penalties help deter safety violations. As part of our work, we assessed  internal controls and the reliability of the data elements needed for this  engagement, and we determined that the data elements, with one  exception, were sufficiently reliable for our purposes. We performed our  work in accordance with generally accepted government auditing  standards.
The effectiveness of OPS’s 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 the  program goals. Without these three key elements, OPS cannot determine  whether recent and planned changes in its enforcement strategy are  having or will have the desired effects on pipeline safety. Under a more  aggressive enforcement strategy (termed “tough but fair”) that OPS  initiated in 2000, 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. However, OPS has not  established goals that specify the intended results of this new strategy,  developed a policy that describes the strategy and the strategy’s  contribution to pipeline safety, or put measures in place that would allow  OPS to determine and demonstrate the effects of this strategy on pipeline  safety. OPS 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. However, it does not  anticipate finalizing this policy until sometime in 2005 and has not adopted  key practices for achieving successful performance measurement systems,  such as linking measures to program goals.
OPS increased both the number and the size of the civil penalties it  assessed in response to criticism that its enforcement activities were weak  and ineffective. For example, from 2000 through 2003, following its  decision to be tough but fair in assessing civil penalties, OPS assessed an  average of 22 penalties per year, compared with an average of 14 penalties  per year from 1995 through 1999, when OPS’s policy was to “partner” with  industry, rather than primarily to enforce compliance. In addition, from  2000 through 2003, OPS assessed an average civil penalty of about $29,000,  compared with an average of $18,000 from 1995 through 1999.  Departmental data show that operators have paid 94 percent (202 of 216)  of the civil penalties issued over the past 10 years. Civil penalties are one  of several enforcement actions that OPS can take to increase compliance  and represent about 14 percent of all enforcement actions taken over the  past 10 years. Although OPS has increased both the number and the size of  its civil penalties, it is not clear whether this action will help deter  noncompliance with the agency’s safety regulations. The pipeline safety  stakeholders we spoke with expressed differing views on whether OPS’s  civil penalties deter noncompliance with the pipeline safety regulations.  Some—such as pipeline industry officials—said that civil penalties of any  size act as a deterrent, in part because they keep companies in the public  eye. Others—such as pipeline safety advocacy groups—said that OPS’s  civil penalties are too small to deter noncompliance.
subsections: section_title: Background
paragraphs: OPS, within the Department of Transportation’s Research and Special  Programs Administration (RSPA), administers the national regulatory  program to ensure the safe transportation of natural gas and hazardous  liquids by pipeline. The office attempts to ensure the safe operation of  pipelines through regulation, national consensus standards, research,  education (e.g., to prevent excavation-related damage), oversight of the  industry through inspections, and enforcement when safety problems are  found. The office uses a variety of enforcement tools, such as compliance  orders and corrective action orders that require pipeline operators to  correct safety violations, notices of amendment to remedy deficiencies in  operators’ procedures, administrative actions to address minor safety  problems, and civil penalties. OPS is a small federal agency. In fiscal year  2003, OPS employed about 150 people, about half of whom were pipeline  inspectors.
Before imposing a civil penalty on a pipeline operator, OPS issues a notice  of probable violation that documents the alleged violation and a notice of  proposed penalty that identifies the proposed civil penalty amount. Failure  by an operator to inspect the pipeline for leaks or unsafe conditions is an  example of a violation that may lead to a civil penalty. OPS then allows the  operator to present evidence either in writing or at an informal hearing.  Attorneys from RSPA’s Office of Chief Counsel preside over these  hearings. Following the operator’s presentation, the civil penalty may be  reaffirmed, reduced, or withdrawn. If the hearing officer determines that a  violation did occur, the Office of Chief Counsel issues a final order that  requires the operator to correct the safety violation (if a correction is  needed) and pay the penalty (called the “assessed penalty”). The operator  has 20 days after the final order is issued to pay the penalty. The Federal  Aviation Administration (FAA) collects civil penalties for OPS.
From 1992 through 2002, federal law allowed OPS to assess up to $25,000  for each day a violation continued, not to exceed $500,000 for any related  series of violations. In December 2002, the Pipeline Safety Improvement  Act increased these amounts to $100,000 and $1 million, respectively.
section_title: Key Management Elements Are Needed to Determine the Effectiveness of OPS’s Enforcement Strategy
paragraphs: The effectiveness of OPS’s enforcement strategy cannot be determined  because OPS has not incorporated three key elements of effective program  management—clear performance goals for the enforcement program, a  fully defined strategy for achieving these goals, and performance measures  linked to goals that would allow an assessment of the enforcement  strategy’s impact on pipeline safety.
subsections: section_title: OPS’s Enforcement Strategy Has Been Evolving
paragraphs: OPS’s enforcement strategy has undergone significant changes in the last 5  years. Before 2000, the agency emphasized partnering with the pipeline  industry to improve pipeline safety rather than punishing noncompliance.  In 2000, in response to concerns that its enforcement was weak and  ineffective, the agency decided to institute a “tough but fair” enforcement  approach and to make greater use of all its enforcement tools, including  larger and more frequent civil penalties. In 2001, to further strengthen its  enforcement, OPS began issuing more corrective action orders requiring  operators to address safety problems that led or could lead to pipeline  accidents. In 2002, OPS created a new Enforcement Office to focus more  on enforcement and help ensure consistency in enforcement decisions.  However, this new office is not yet fully staffed, and key positions remain  vacant.
In 2002, OPS began to enforce its new integrity management and operator  qualification standards in addition to its minimum safety standards.  Initially, while operators were gaining experience with the new, complex  integrity management standards, OPS primarily used notices of  amendment, which require improvements in procedures, rather than  stronger enforcement actions. Now that operators have this experience,  OPS has begun to make greater use of civil penalties in enforcing these  standards.
OPS has also recently begun to reengineer its enforcement program.  Efforts are under way to develop a new enforcement policy and  guidelines, develop a streamlined process for handling enforcement cases,  modernize and integrate the agency’s inspection and enforcement  databases, and hire additional enforcement staff. However, as I will now  discuss, OPS has not put in place key elements of effective management  that would allow it to determine the impact of its evolving enforcement  program on pipeline safety.
section_title: OPS Needs Goals for its Enforcement Program
paragraphs: Although OPS has overall performance goals, it has not established  specific goals for its enforcement program. According to OPS officials, the  agency’s enforcement program is designed to help achieve the agency’s  overall performance goals of (1) reducing the number of pipeline  accidents by 5 percent annually and (2) reducing the amount of hazardous  liquid spills by 6 percent annually. Other agency efforts—including the  development of a risk-based approach to finding and addressing  significant threats to pipeline safety and of education to prevent  excavation-related damage to pipelines—are also designed to help achieve  these goals.
OPS’s overall performance goals are useful because they identify the end  outcomes, or ultimate results, that OPS seeks to achieve through all its  efforts. However, OPS has not established performance goals that identify  the intermediate outcomes, or direct results, that OPS seeks to achieve  through its enforcement program. Intermediate outcomes show progress  toward achieving end outcomes. For example, enforcement actions can  result in improvements in pipeline operators’ safety performance—an  intermediate outcome that can then result in the end outcome of fewer  pipeline accidents and spills. OPS is considering establishing a goal to  reduce the time it takes the agency to issue final enforcement actions.  While such a goal could help OPS improve the management of the  enforcement program, it does not reflect the various intermediate  outcomes the agency hopes to achieve through enforcement. Without  clear goals for the enforcement program that specify intended  intermediate outcomes, agency staff and external stakeholders may not be  aware of what direct results OPS is seeking to achieve or how  enforcement efforts contribute to pipeline safety.
section_title: OPS Needs to Fully Define Its Enforcement Strategy
paragraphs: OPS has not fully defined its strategy for using enforcement to achieve its  overall performance goals. According to OPS officials, the agency’s  increased use of civil penalties and corrective action orders reflects a  major change in its enforcement strategy. However, although OPS began  to implement these changes in 2000, it has not yet developed a policy that  defines this new, more aggressive enforcement strategy or describes how  it will contribute to the achievement of its performance goals. In addition,  OPS does not have up-to-date, detailed internal guidelines on the use of its  enforcement tools that reflect its current strategy. Furthermore, although  OPS began enforcing its integrity management standards in 2002 and  received greater enforcement authority under the 2002 pipeline safety act,  it does not yet have guidelines in place for enforcing these standards or  implementing the new authority provided by the act.
According to agency officials, OPS management communicates  enforcement priorities and ensures consistency in enforcement decisions  through frequent internal meetings and detailed inspection protocols and  guidance. Agency officials recognize the need to develop an enforcement  policy and up-to-date detailed enforcement guidelines and have been  working to do so. To date, the agency has completed an initial set of  enforcement guidelines for its operator qualification standards and has  developed other draft guidelines. However, because of the complexity of  the task, agency officials do not expect that the new enforcement policy  and remaining guidelines will be finalized until sometime in 2005.
The development of an enforcement policy and guidelines should help  define OPS’s enforcement strategy; however, it is not clear whether this  effort will link OPS’s enforcement strategy with intermediate outcomes,  since agency officials have not established performance goals specifically  for their enforcement efforts. We have reported that such a link is  important.
section_title: OPS Needs Adequate Measures of the Effectiveness of Its Enforcement Strategy
paragraphs: According to OPS officials, the agency currently uses three performance  measures and is considering three additional measures to determine the  effectiveness of its enforcement activities and other oversight efforts. (See  table 1.) The three current measures provide useful information about the  agency’s overall efforts to improve pipeline safety, but do not clearly  indicate the effectiveness of OPS’s enforcement strategy because they do  not measure the intermediate outcomes of enforcement actions that can  contribute to pipeline safety, such as improved compliance. The three  measures that OPS is considering could provide more information on the  intermediate outcomes of the agency’s enforcement strategy, such as the  frequency of repeat violations and the number of repairs made in response  to corrective action orders, as well as other aspects of program  performance, such as the timeliness of enforcement actions.
We have found that agencies that are successful in measuring performance  strive to establish measures that demonstrate results, address important  aspects of program performance, and provide useful information for  decision-making. While OPS’s new measures may produce better  information on the performance of its enforcement program than is  currently available, OPS has not adopted key practices for achieving these  characteristics of successful performance measurement systems:    Measures should demonstrate results (outcomes) that are directly linked  to program goals. Measures of program results can be used to hold  agencies accountable for the performance of their programs and can  facilitate congressional oversight. If OPS does not set clear goals that  identify the desired results (intermediate outcomes) of enforcement, it  may not choose the most appropriate performance measures. OPS officials  acknowledge the importance of developing such goals and related  measures but emphasize that the diversity of pipeline operations and the  complexity of OPS’s regulations make this a challenging task.
Measures should address important aspects of program performance  and take priorities into account. An agency official told us that a key  factor in choosing final measures would be the availability of supporting  data. However, the most essential measures may require the development  of new data. For example, OPS has developed databases that will track the  status of safety issues identified in integrity management and operator  qualification inspections, but it cannot centrally track the status of safety  issues identified in enforcing its minimum safety standards. Agency  officials told us that they are considering how to add this capability as part  of an effort to modernize and integrate their inspection and enforcement  databases.
Measures should provide useful information for decision-making,  including adjusting policies and priorities. OPS uses its current  measures of enforcement performance in a number of ways, including  monitoring pipeline operators’ safety performance and planning  inspections. While these uses are important, they are of limited help to  OPS in making decisions about its enforcement strategy. OPS has  acknowledged that it has not used performance measurement information  in making decisions about its enforcement strategy. OPS has made  progress in this area by identifying possible new measures of enforcement  results (outcomes) and other aspects of program performance, such as  indicators of the timeliness of enforcement actions, that may prove more  useful for managing the enforcement program.
section_title: OPS Has Increased Its Use of Civil Penalties; the Effect on Deterrence Is Unclear
paragraphs: In 2000, in response to criticism that its enforcement activities were weak  and ineffective, OPS increased both the number and the size of the civil  monetary penalties it assessed. Pipeline safety stakeholders expressed  differing opinions about whether OPS’s civil penalties are effective in  deterring noncompliance with pipeline safety regulations.
subsections: section_title: OPS Now Assesses More and Larger Civil Penalties
paragraphs: OPS assessed more civil penalties during the past 4 years under its current  “tough but fair” enforcement approach than it did in the previous 5 years,  when it took a more lenient enforcement approach. (See fig. 2.) From 2000  through 2003, OPS assessed 88 civil penalties (22 per year on average)  compared with 70 civil penalties from 1995 through 1999 (about 14 per  year on average). For the first 5 months of 2004, OPS proposed 38 civil  penalties. While the recent increase in the number and the size of civil  penalties may reflect OPS’s new “tough but fair” enforcement approach,  other factors, such as more severe violations, may be contributing to the  increase as well.
Overall, OPS does not use civil penalties extensively. Civil penalties  represent about 14 percent (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, among other things. In  contrast, civil penalties represent monetary sanctions for violating safety  regulations but do not require safety improvements. 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.
The average size of the civil penalties has increased. For example, from  1995 through 1999, the average assessed civil penalty was about $18,000.  From 2000 through 2003, the average assessed civil penalty increased by  62 percent to about $29,000. Assessed penalty amounts ranged from $500  to $400,000.
In some instances, OPS reduces proposed civil penalties when it issues its  final order. We found that penalties were reduced 31 percent of the time  during the 10-year period covered by our work (66 of 216 instances). These  penalties were reduced by about 37 percent (from a total of $2.8 million to  $1.7 million). The dollar difference between the proposed and the assessed  penalties would be over three times as large had our analysis included the  extraordinarily large penalty for the Bellingham, Washington, incident. For  this case, OPS proposed a $3.05 million penalty and had assessed $250,000  as of May 2004. If we include this penalty, then over this period OPS  reduced total proposed penalties by about two-thirds, from about $5.8  million to about $2 million.
OPS’s database does not provide summary information on why penalties  are reduced. According to an OPS official, the agency reduces penalties  when an operator presents evidence that the OPS inspector’s finding is  weak or wrong or when the pipeline’s ownership changes during the  period between the proposed and assessed penalty. It was not practical for  us to gather information on a large number of penalties that were reduced,  but we did review several to determine the reasons for the reductions.  OPS reduced one of the civil penalties we reviewed because the operator  provided evidence that OPS inspectors had miscounted the number of  pipeline valves that OPS said the operator had not inspected. Since the  violation was not as severe as OPS had stated, OPS reduced the proposed  penalty from $177,000 to $67,000.
section_title: Operators Paid Full Amounts of Most Civil Penalties
paragraphs: Of the 216 penalties that OPS assessed from 1994 through 2003, pipeline  operators paid the full amount 93 percent of the time (200 instances) and  reduced amounts 1 percent of the time (2 instances). (See fig. 3.) Fourteen  penalties (6 percent) remain unpaid, totaling about $837,000 (or 18 percent  of penalty amounts).
In two instances, operators paid reduced amounts. We followed up on one  of these assessed penalties. In this case, the operator requested that OPS  reconsider the assessed civil penalty and OPS reduced it from $5,000 to  $3,000 because the operator had a history of cooperation and OPS wanted  to encourage future cooperation.
For the 14 unpaid penalties, neither FAA’s nor OPS’s data show why the  penalties have not been collected. We expect to present a fuller discussion  of the reasons for these unpaid penalties and OPS’s and FAA’s  management controls over the collection of penalties when we report to  this and other committees next month.
section_title: The Effect of OPS’s Larger Civil Penalties on Deterring Noncompliance Is Unclear
paragraphs: Although OPS has increased both the number and the size of the civil  penalties it has imposed, the effect of this change on deterring  noncompliance with safety regulations, if any, is not clear. The  stakeholders we spoke with expressed differing views on whether the civil  penalties deter noncompliance. The pipeline industry officials we  contacted believed that, to a certain extent, OPS’s civil penalties  encourage pipeline operators to comply with pipeline safety regulations  because they view all of OPS’s enforcement actions as deterrents to  noncompliance. However, some industry officials said that OPS’s  enforcement actions are not their primary motivation for safety. Instead,  they said that pipeline operators are motivated to operate safely because  they need to avoid any type of accident, incident, or OPS enforcement  action that impedes the flow of products through the pipeline and hinders  their ability to provide good service to their customers. Pipeline industry  officials also said that they want to operate safely and avoid pipeline  accidents because accidents generate negative publicity and may result in  costly private litigation against the operator.
Most of the interstate agents, representatives of their associations, and  insurance company officials expressed views similar to those of the  pipeline industry officials, saying that they believe civil penalties deter  operators’ noncompliance with regulations to a certain extent. However, a  few disagreed with this point of view. For example, the state agency  representatives and a local government official said that OPS’s civil  penalties are too small to be deterrents. Pipeline safety advocacy groups  that we talked to also said that the civil penalty amounts OPS imposes are  too small to have any deterrent effect on pipeline operators. As discussed  earlier, for 2000 through 2003, the average assessed penalty was about  $29,000.
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 of noncompliance—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. Thus, for example,  the expected costs of a legal settlement could overshadow the lower  operating costs expected from noncompliance, and noncompliance might  be deterred.
Mr. Chairman, this concludes my prepared statement. We expect to report  more fully on these and other issues when we complete our work next  month. We also anticipate making recommendations to improve OPS’s  ability to demonstrate the effectiveness of its enforcement strategy and to  improve OPS’s and FAA’s management controls over the collection of civil  penalties. I would be pleased to respond to any questions that you or  Members of the Committee might have.
section_title: Contacts and Acknowledgments
paragraphs: For information on this testimony, please contact Katherine Siggerud at  (202) 512-2834 or siggerudk@gao.gov. Individuals making key  contributions to this testimony are Jennifer Clayborne, Judy Guilliams- Tapia, Bonnie Pignatiello Leer, Gail Marnik, James Ratzenberger, and  Gregory Wilmoth.
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