Pipeline Safety
Preliminary Information on the Office of Pipeline Safety's Enforcement Activities Gao ID: GAO-04-826T June 15, 2004Interstate 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.
GAO-04-826T, Pipeline Safety: Preliminary Information on the Office of Pipeline Safety's Enforcement Activities
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Testimony:
Before the Committee on Commerce, Science and Transportation, U.S.
Senate:
United States General Accounting Office:
GAO:
For Release on Delivery Expected at 9:30 a.m. EDT:
Tuesday, June 15, 2004:
Pipeline Safety:
Preliminary Information on the Office of Pipeline Safety's Enforcement
Activities:
Statement of Katherine Siggerud, Director,
Physical Infrastructure Issues:
GAO-04-826T:
GAO Highlights:
Highlights of GAO-04-826T, a testimony before the Committee on
Commerce, Science and Transportation, U.S. Senate
Why GAO Did This Study:
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. This The
testimony provides preliminary results on (1) the effectiveness of
OPS‘s enforcement strategy and (2) OPS‘s actions for assessing
assessment of civil penalties.
What GAO Found:
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. (See below.) 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 placed priorityfocused on other areasefforts--”such as
developing a new risk-based regulatory approach”--and that it believes
these efforts will change the safety culture of the industryresult in
large . While OPS has become more aggressive in enforcing its
regulations, it now intends to further devote more attention to
strengthen ing the management of its enforcement program. In
particular, OPS is developing an enforcement policy that will help
define its enforcement strategy and has made 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.
Incorporation of Key Program Management Elements into OPS's
Enforcement Strategy:
[See PDF for image]
[End of figure]
OPS has increased both the number and the size of the civil penalties
it has 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 amount 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 a number ofseveral 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, it is not clear to what degree, if any, this
action will have on deterring noncompliance with safety regulations. A
wide range of stakeholders”including industry, state, and insurance
company officials and public advocacy groups ”expressed differing views
about on whether OPS's these civil 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.
What GAO Recommends:
GAO expects to issue a report in July 2004 that will address these and
other topics and anticipates making recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-826T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Katherine Siggerud at
(202) 512-2834 or siggerudk@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
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.[Footnote 1] However, the number of serious hazardous liquid
accidents has stayed about the same while the number of serious natural
gas accidents has increased.[Footnote 2] (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.
Figure 1: Numbers of Serious Accidents and Accident Rate for Interstate
Pipelines, 1994 through 2003:
[See PDF for image]
Notes: This figure does not include the injuries that occurred during
one series of accidents caused by severe flooding near Houston, Texas,
in October 1994.
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.):
[End of figure]
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.[Footnote 3] 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.[Footnote 4] We performed our
work in accordance with generally accepted government auditing
standards.
In summary:
* 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.
Background:
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.[Footnote 5] 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.[Footnote 6] 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.[Footnote 7]
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.
Key Management Elements Are Needed to Determine the Effectiveness of
OPS's Enforcement Strategy:
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 Been Evolving:
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.[Footnote 8] 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.
OPS Needs Goals for its Enforcement Program:
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.[Footnote 9] 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 Needs to Fully Define Its Enforcement Strategy:
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.[Footnote 10]
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.[Footnote 11]
OPS Needs Adequate Measures of the Effectiveness of Its Enforcement
Strategy:
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.[Footnote 12]
Table 1: Enforcement Program Performance Measures That OPS Currently
Uses and Is Considering Developing:
Measure: Measures OPS currently uses: Achievement of agency performance
goals;
Examples: Annual numbers of natural gas and hazardous liquid pipeline
accidents and tons of hazardous liquid materials spilled per million
ton-miles shipped.
Measure: Measures OPS currently uses: Inspection and enforcement
activity;
Examples: Number of inspections completed; hours per inspection;
accident investigations; enforcement actions taken, by type; and
average proposed civil penalty amounts.
Measure: Measures OPS currently uses: Integrity management
performance;
Examples: Annual numbers of accidents in areas covered by integrity
management standards and of actions by pipeline operators in response
to these standards, such as repairs completed and miles of pipeline
assessed.[A].
Measure: Measures OPS is considering developing: Management of
enforcement actions;
Examples: The time taken to issue final enforcement actions, the extent
to which penalty amounts are reduced, and the extent to which operators
commit repeat violations.
Measure: Measures OPS is considering developing: Safety improvements
ordered by OPS;
Examples: Actions by pipeline operators in response to corrective
action orders, including miles of pipeline assessed, defects
discovered, repairs made, and selected costs incurred.
Measure: Measures OPS is considering developing: Results of integrity
management and operator qualification inspections;
Examples: The percentage of pipeline operators that did not meet
certain requirements and the reduction in the number of operators with
a particular deficiency.
Source: GAO analysis of OPS information.
[A] OPS started collecting some of these data in 2002 but does not
anticipate obtaining all of it on an annual basis until 2005.
[End of table]
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.[Footnote 13] 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.[Footnote 14]
* 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.[Footnote 15] 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.
OPS Has Increased Its Use of Civil Penalties; the Effect on Deterrence
Is Unclear:
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.[Footnote 16] Pipeline safety
stakeholders expressed differing opinions about whether OPS's civil
penalties are effective in deterring noncompliance with pipeline safety
regulations.
OPS Now Assesses More and Larger Civil Penalties:
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.
Figure 2: OPS's Use of Civil Penalties, 2000 through 2003, Compared
with 1995 through 1999:
[See PDF for image]
Note: The amounts in this figure may not be comparable to the amounts
that OPS reports. See footnote 16.
[End of figure]
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.[Footnote 17] From 2000 through 2003, the average assessed
civil penalty increased by 62 percent to about $29,000.[Footnote 18]
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.[Footnote 19] 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.
Operators Paid Full Amounts of Most Civil Penalties:
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).
Figure 3: Number of Civil Penalties Paid, 1994 through 2003:
[See PDF for image]
[End of figure]
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.
The Effect of OPS's Larger Civil Penalties on Deterring Noncompliance
Is Unclear:
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.[Footnote 20] 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.
Contacts and Acknowledgments:
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.
FOOTNOTES
[1] Hazardous liquid pipelines carry products such as crude oil, diesel
fuel, gasoline, jet fuel, anhydrous ammonia, and carbon dioxide.
[2] Serious accidents are those resulting in a death, injury, or
$50,000 or more in property damage.
[3] These stakeholders represent industry trade associations, pipeline
companies, federal enforcement agencies, state pipeline enforcement
agencies and associations, pipeline safety advocacy groups, and
pipeline insurers.
[4] The data elements needed to determine when civil penalties were
paid were, in our opinion, too unreliable to use to report on
timeliness of payments. This limitation did not create a major
impediment to our reporting on OPS's use of civil penalties overall.
[5] In general, OPS retains full responsibility for inspecting
interstate pipelines and enforcing regulations applicable to them. OPS
certifies states to perform these functions for intrastate pipelines.
OPS has agreements with 11 state pipeline enforcement agencies, known
as interstate agents, to help it inspect segments of interstate
pipelines within these states' boundaries. However, OPS undertakes any
enforcement actions identified through inspections conducted by
interstate agents.
[6] Standards are technical specifications that pertain to products and
processes, such as the size, strength, or technical performance of a
product. National consensus standards are developed by standard-setting
entities, such as the American Society for Testing and Materials, on
the basis of an industry consensus.
[7] To consolidate its accounting functions, in September 1993 RSPA
began contracting with FAA to collect its accounts receivable,
including civil penalties for OPS.
[8] For example, in May 2000, we reported that OPS had dramatically
reduced its use of civil penalties and increased its use of
administrative actions over the years without assessing the effects of
these actions. See Pipeline Safety: Office of Pipeline Safety Is
Changing How It Oversees the Pipeline Industry, GAO/RCED-00-128
(Washington, D.C.: May 15, 2000).
[9] OPS refers to the release of natural gas from a pipeline as an
"incident" and a spill from a hazardous liquid pipeline as an
"accident." For simplicity, this testimony refers to both as
"accidents."
[10] We have reported on challenges that OPS faces in enforcing its
complex integrity management requirements consistently and
effectively. See our August 2002 report, Pipeline Safety and Security:
Improved Workforce Planning and Communication Needed, GAO-02-785
(Washington, D.C.: Aug. 26, 2002).
[11] See U.S. General Accounting Office, Managing for Results:
Strengthening Regulatory Agencies' Performance Management Practices,
GAO/GGD-00-10 (Washington, D.C.: Oct. 28, 1999); Agency Performance
Plans: Examples of Practices That Can Improve Usefulness to
Decisionmakers, GAO/GGD/AIMD-99-69 (Washington, D.C.: Feb. 26, 1999);
and The Results Act: An Evaluator's Guide to Assessing Agency Annual
Performance Plans, GAO/GGD-10.1.20 (Washington, D.C., Apr. 1998).
[12] In addition, measures of pipeline operator integrity management
performance and of the results of integrity management and operator
qualification inspections could provide information on the intermediate
outcomes of these regulatory approaches.
[13] See, for example, GAO/GGD/AIMD-99-69; Executive Guide: Effectively
Implementing the Government Performance and Results Act, GAO/GGD-96-118
(Washington, D.C.: June 1996); and Tax Administration: IRS Needs to
Further Refine Its Tax Filing Season Performance Measures, GAO-03-143
(Washington, D.C.: Nov. 22, 2002).
[14] We have reported on the challenges faced by agencies in developing
measures of program results and on their approaches for overcoming such
challenges. See, in particular, GAO/GGD-00-10; Managing for Results:
Measuring Program Results That Are Under Limited Federal Control, GAO/
GGD-99-16 (Washington, D.C.: Dec. 11, 1998); and Managing for Results:
Regulatory Agencies Identified Significant Barriers to Focusing on
Results, GAO/GGD-97-83 (Washington, D.C.: June 24, 1997).
[15] See, for example, GAO/GGD-96-118 and U.S. General Accounting
Office, Results-Oriented Government: GPRA Has Established a Solid
Foundation for Achieving Greater Results, GAO-04-38 (Washington, D.C.:
Mar. 10, 2004).
[16] The civil penalty results we present largely reflect OPS's
enforcement of its minimum safety standards because integrity
management enforcement did not begin until 2002.
Our results may differ from the results that OPS reports because our
data are organized differently. OPS reports an action in the year in
which it occurred. For example, OPS may propose a penalty in one year
and assess it in another year. The data for this action would show up
in different years. To better track the disposition of civil penalties,
we associated assessed penalties and penalty amounts with the year in
which they were proposed--even if the assessment occurred in a later
year.
[17] All amounts are in current year dollars. Inflation was low during
the 1995-2003 period. If the effects of inflation were considered, the
average assessed penalty amount for 1995 through 1999 would be $21,000
and the average amount for 2000 through 2003 would be $30,000 (in 2003
dollars).
[18] The median civil penalty size for the 1995-1999 period was about
$5,800 and the median size for the 2000-2003 period was $12,700.
[19] OPS proposed a $3.05 million penalty against Equilon Pipeline
Company, LLC (Olympic Pipeline Company) for the Bellingham incident and
later assessed Shell Pipeline Company (formerly Equilon) $250,000,
which it collected. According to RSPA's Office of Chief Counsel, the
penalty against Olympic Pipeline is still open, waiting for the company
to come out of bankruptcy court.
[20] Expected sanctions are the product of the sanction amount and the
likelihood of being detected and sanctioned by that amount.
