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 Following the operator's presentation, the civil penalty may be reaffirmed, reduced, or withdrawn.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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. 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Summary:
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. 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.