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Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281 (2004)

Chapter:C Overview of the Transmission Pipeline Industry and Its Regulation

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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APPENDIX C
Overview of the Transmission Pipeline Industry and Its Regulation

Pipelines to transport crude oil were constructed as early as 1874. The network of crude transmission pipelines grew during the first half of the 20th century as crude was discovered and produced throughout the United States, especially in Texas, Louisiana, and Oklahoma. During World War II, the first large transmission pipelines for refined products were constructed, primarily from the Gulf Coast to the Mid-Atlantic states. Construction was motivated by the vulnerability of coastal tankers to German U-boats. Growth of the products pipeline network was aided by development of methods to segregate and move multiple petroleum products in sequential batches. According to 2001 estimates, pipelines now transport 66 percent of the petroleum consumed in the United States, while waterborne vessels transport 28 percent, trucks 4 percent, and rail 2 percent (Rabinow 2004).

The long-distance transport of natural gas was more difficult and was not technologically possible until 1925. Thus its commercial use did not develop as rapidly as did that of refined petroleum. Major expansion of the natural gas transmission pipeline system began after World War II when large crude oil trunk lines were converted for natural gas (Congressional Research Service 1986), and pipelines now transport nearly all of the nation’s natural gas.

This appendix provides a description of the economic structure and regulation of the natural gas and liquids pipeline industry, including an overview of the size and diversity of the industry, the way in which tariffs are set, and financial incentives. Many agencies have a role in pipeline regulation, and various new safety-related programs and regulations have been or are in the process of being implemented. The programs, however, stop short of managing land use to increase safety because the

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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national agencies do not have regulatory authority in these areas. The roles these various agencies, as well as state and local jurisdictions, have in pipeline regulation are described. The reader is referred to Chapter 2 for an overview of approaches that state and local governments have taken to address land use near pipelines.

ECONOMIC STRUCTURE AND REGULATION

Hazardous Liquids Pipeline Industry

Structure of the Industry

The structure of the pipeline industry is diverse and reflects the various needs for transporting natural gas and liquids. Liquids pipelines may be independent entities or may be owned, in whole or in part, by integrated energy companies, by other companies in or out of the energy industry, and by investors. In many instances, they are owned jointly by a combination of entities. A particular pipeline may be organized as a stock corporation, a partnership, a particular form of partnership known as a master limited partnership, or as a limited liability company. Furthermore, the owner may not be the operator of a pipeline. While it is most common for an owner or one of the owners, in the case of a joint venture, to act as the operator, in some instances an independent third party operates the line on behalf of the owners. The way in which a pipeline is owned and structured is a function of many factors, including the purpose of the pipeline, the complexity of the task, historical considerations, legislative and regulatory constraints, the ability to raise capital, and the necessity to manage a wide variety of risks.

The way a liquids pipeline company is structured must take into consideration the purpose of the system. In its simplest form, a pipeline may move a single material from one source to one destination over a distance that may be less than 1 mile or more than 1,000 miles, it might operate in a single state or cross numerous state boundaries, or it might be located in federal waters and not in any state. Examples include pipelines carrying crude oil from one production platform to another in the Gulf of Mexico, crude oil from one marine terminal to one refinery, jet fuel from one refinery or terminal to one airport, fuel oil from one terminal to one power plant, and petrochemicals from one plant to another. Beyond those sim-

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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plest forms, the complexity can become considerable. There can be many sources and a single destination (such as crude gathering), a single source and many destinations (such as a products line serving a single refinery and a number of end markets), and networks that include many sources and many destinations. Whatever the physical layout of the pipeline, it may carry a single product or many discrete products and grades, and it may carry material for one or for many shippers.

Although natural gas and hazardous liquids transmission pipelines have similar construction and safety standards, pipeline parameters vary considerably. Hazardous liquids transmission pipelines span approximately 200,000 miles and range from a few inches up to 48 inches in diameter. Interstate oil pipeline systems, operated by 220 companies, account for about 80 percent of total liquids pipeline mileage and volume transported (Trench 2001). Liquids pipelines in the United States deliver more than 600 billion gallons (or 14 billion barrels) of petroleum each year (Trench 2001).1 Many volumes are shipped more than once (e.g., as crude oil and then again as refined product), so these pipelines transport more than twice the U.S. consumption of oil (Trench 2001, 2). Liquids that are transported by pipeline fall into three broad categories: (a) crude oil and refined petroleum products such as gasoline, diesel and jet fuel, and home heating oil; (b) toxic materials, usually chemicals such as benzene, toluene, xylene, and butadiene; and (c) highly volatile liquids (e.g., butane, ethane), which are gases at atmospheric temperature and pressure but liquids at the operating pressures in pipelines.

More complete descriptions of the liquids pipeline industry are given by Rabinow (2004) and Kennedy (1993).

Economic Regulation

With few exceptions, liquids pipelines are common carriers, and the rates charged and the terms and conditions of the services are regulated by the Federal Energy Regulatory Commission (FERC) for interstate lines and similar state agencies for intrastate lines. The Office of Pipeline Safety (OPS) provides most operational oversight, although other federal agencies, such as the Environmental Protection Agency (EPA) and the

1

There are 42 gallons in a barrel.

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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Minerals Management Service (MMS), play important roles. State agencies regulate intrastate lines, and local jurisdictions become involved in a variety of matters, including siting and emergency response in the event of an incident.

The economic (i.e., rate) regulation of liquids pipelines has evolved over a long period. For the past decade, pipeline rates have been set on the basis of one of four approved methodologies. The most common method has been to adjust historical cost-based rates according to a FERC-set index that uses an inflation factor to establish a ceiling for any rate. Alternatively, pipeline companies may (a) negotiate rates if all shippers using the service concur, (b) use the market-clearing price if FERC has found that the pipeline lacks market power in the affected origin and destination markets, or (c) apply for traditional cost-of-service treatment. Shippers may also request a cost-of-service review of rates. Under the rules of common carriage applicable to most pipelines, the same rate must be charged to all similarly situated shippers. Of the various available methods, the least used since the inception of indexation has been traditional cost-of-service rate making. However, as pipeline assets change hands, more rates are being challenged, which leads to more cost-of-service reviews being conducted by FERC. Pipeline companies do not have pricing freedom to recoup costs imposed on them by local governments. The companies have to work through state and federal regulators to recover their costs.

Interstate rate making applies to about 80 percent of U.S. oil pipeline mileage and volumes transported. Intrastate movements may be regulated by the respective states (often by a public utility commission, but sometimes with a different name, such as the Railroad Commission in Texas and the Regulatory Commission of Alaska), and most state statutes provide for generally similar approaches to economic regulation. An issue that sometimes arises involves decisions as to whether a pipeline is in interstate or intrastate service, because this is not always clear.

In addition to interstate and intrastate issues, there can be some local economic regulatory issues, an example of which is franchise fees. In most cities, utilities that have easements under the streets to distribute water, telecommunications, electricity, and natural gas to consumers pay franchise fees to the city for the right to use those easements. Normally the fees are paid annually and can be substantial, perhaps a percentage of the value of the service being distributed. With few exceptions, liquids pipelines do

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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not use city streets as rights-of-way, although there may be numerous crossings of streets, especially as urban sprawl increases. In most places, liquids pipeline companies pay a fee that bears some relationship to the costs incurred by the city to grant an initial permit and then to administer it. However, in recent years, some cities have tried to impose franchise fees. Litigation has ensued, and for the most part the liquids pipeline companies have prevailed in opposing such fees. The situation in California is different in that a system of franchise fees imposed on oil pipelines has been in place for many years.

Incentives

Pipeline company revenues and profitability are closely tied to the volumes transported; the costs to operate, maintain, and upgrade existing lines; and the costs to build new lines. In today’s competitive transportation market, shippers (even in integrated energy companies) apply considerable pressure on the pipeline companies to keep their tariffs low. Shippers back up their demands by using other transportation options and by challenging tariffs. The result is that pipeline companies are driven to maximize efficiencies in the short term. A continuous trade-off is made between short-term profits and investment to meet a variety of needs, some arising from shippers, others from legislative and regulatory requirements, and still others from public demands (Rabinow 2004). Regardless of the methodology used to establish the tariffs, the cost of transportation represents only a small portion of the total cost of petroleum to a consumer. For example, the cost to move a gallon of gasoline from Houston to New Jersey is about 3 cents (Trench 2001).

The distribution of expenses associated with capital projects is largely influenced by the cost of the pipe and equipment and the cost of constructing the facilities. During the 1990s the single largest capital cost category was pipeline construction (35 percent), followed by the cost of line pipe (20 percent), other station equipment (12 percent), oil tanks (5 percent), pumping equipment (4 percent), and line pipe fittings (3 percent). The category “all other” accounted for the remaining 21 percent and was made up of a large number of smaller categories (Rabinow 2004).

Unlike the postwar period of the 1950s through the 1970s, when some 62 percent of the presently existing pipeline infrastructure was put in place, the 1980s and 1990s saw relatively small additions—9 and

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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7 percent, respectively. The reasons included the decline of inland crude production, which made considerable pipeline mileage available for other purposes; the ability to reduce bottlenecks in existing capacity; and the limited growth of refining capacity. Today factors are emerging that may alter the situation and increase the industry’s need to invest. These include a growing, shifting population, especially in some areas of the country; the limited remaining ability to achieve incremental capacity growth by redeploying existing infrastructure; and the capital-intensive development of new regions, whether to gather and transport large crude reserves in very deep water (5,000 to 10,000 feet) in the Gulf of Mexico or to build large-diameter pipelines in congested, urban areas. Other factors concern the maintenance of older pipelines and the need to replace some portion of those systems, as well as the need to respond to the heightened public expectations of the industry that are reflected in legislative and regulatory requirements, including the development and implementation of expensive, cutting-edge technology (Rabinow 2004).

Natural Gas Pipeline Industry

Structure of the Industry

Natural gas is transported in about 180,000 miles of transmission lines ranging from 20 to 42 inches in diameter. These pipelines are designed to operate at high pressures that generally range from 500 to 1,000 pounds per square inch. Natural gas transmission pipelines are primarily interstate, larger-diameter pipes constructed of carbon steel, engineered and constructed to meet standards established by the American Petroleum Institute and adopted by the U.S. Department of Transportation (USDOT). Most of the natural gas transmission network is owned and operated by large interstate pipeline companies. Natural gas transmission pipeline systems are operated by about 785 companies, which transport most of the 23 trillion cubic feet of natural gas that is currently consumed annually in the United States (EIA 2004).

If a relatively small quantity of natural gas leaks from a crack, flaw, or damaged section of the pipeline, a serious incident may not result if repairs are made in a timely manner. However, if a natural gas transmission line fails catastrophically, there is usually an initial explosion that can

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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injure or kill people in the vicinity and cause extensive property damage. The escaping product continues to burn until the supply is shut off. Because the product is lighter than air, it rises and tends to dissipate quickly, usually posing few environmental risks. In contrast, many of the liquid hydrocarbons transported by transmission pipelines are heavier than air. When a pipeline containing such liquid ruptures, the hazardous liquid often flows along the ground and can enter streams and rivers, contaminating public water supplies and killing fish and other wildlife.

A more complete description of the natural gas pipeline industry is given by Kennedy (1993).

Economic Regulation

Under the Natural Gas Act of 1938, the Federal Power Commission (now known as FERC) regulates the construction of new natural gas pipelines and related facilities and oversees the rates, terms, and conditions of sales for resale and transportation of natural gas in interstate commerce. Traditionally, FERC determined the rates transmission companies could charge purchasers, governed the financial structure of the companies (including profit ranges), and regulated other aspects of pipeline operation. The traditional method of setting natural gas rates was cost-of-service rate regulation, but this approach provided few incentives for regulated companies to lower costs, provide better service, or remove barriers to open commodity trading (FERC 2003a).

According to Kennedy (1993, 308), “Gas price regulation is considered by most energy analysts to have had a negative influence on the search for new gas supplies because the price was held below that needed to make exploration and development profitable.” One of the purposes of the Natural Gas Policy Act of 1978 was to provide more incentives for producers to search for new reserves. The act also created several categories of natural gas—some of which were still to be regulated, some to be deregulated in 1985, and still others to be immediately deregulated. The deregulation of natural gas wellhead prices in 1989 resulted in complete deregulation.

The natural gas industry developed a rate-setting approach using indices created and published by the trade press. This practice followed the more established practice in oil markets. Soon thereafter, certain orders and tariffs proposed by natural gas companies and approved by FERC

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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contained references to these price indices. According to FERC, many negotiated rate transportation contracts establish transportation rates using the basis differentials between two or more price index trading points (FERC 2003b).

Restructuring of the natural gas industry has resulted in a change in contracting as well. During the 1980s, pipeline companies and their customers were burdened with costs resulting from take-or-pay2 provisions in gas procurement contracts that were put in place prior to the new approach to regulation. A producer sold natural gas under a long-term contract, usually lasting 20 years or more, to a pipeline company.

The contract required the pipeline company to purchase the gas at a specified rate, or “take.” Even if the pipeline company did not accept delivery of that amount of natural gas from the producer, the pipeline company had to pay the producer for the agreed amount. The producer insisted on a take-or-pay provision because it ensured a constant market for the gas…. Under most contracts, the pipeline company could recover the gas paid for, but not taken, by taking more than the contract volume over a specified period. (Kennedy 1993, 309)

As a result of regulatory changes in the 1980s, the effects of take-or-pay provisions were significantly reduced.

Under FERC Order 636, which went into effect November 1, 1993, interstate pipeline companies were required to unbundle or separate the sales and transportation services of natural gas. Consequently, the way in which rates were determined for transportation services was revised. While Order 636 resulted in reduced pipeline revenues (although not necessarily profitability), the new method of setting rates allowed pipeline companies to collect most of their costs in fixed demand charges, which reduced the risk of recovering these costs.

These measures, among others, fostered competition in the natural gas commodity market, paved the way for the gradual introduction of competition into the retail purchase of natural gas, and permitted the creation of new transportation and marketing services that have improved the efficiency of the overall natural gas transportation process. Consequently, the

2

“Take-or-pay provisions require the pipeline companies to pay for specified gas quantities (typically a percentage of well deliverability) even if the gas is not delivered” (EIA 1998).

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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interstate pipeline segment of the natural gas industry in the United States has instituted a number of major changes in its operational and business practices over the past decade. In particular, the pipeline industry has significantly changed the transaction processes and mechanisms for transportation services. (Johnson et al. 1999, 1)

While rates are not regulated directly, FERC reviews the filed tariffs of pipeline companies to ensure that they are just and reasonable and nondiscriminating. In instances where a pipeline system has no competition, FERC may set rates by using a traditional public utility accounting regulatory format (Kumins 2001).

Incentives

Since deregulation, incentives in the natural gas pipeline industry are comparable with those in the hazardous liquids pipeline industry. Because of Order 636, in the late 1980s and early 1990s interstate natural gas pipeline companies went from being sellers to primarily transporters of natural gas. Revenues fell dramatically as pipeline services no longer included revenues from the sale of natural gas, but only transportation revenues.

New transmission lines are continuing to be built to meet projected demand. Pipeline construction data indicate that material accounts for 37 percent, labor for 39 percent, right-of-way and damages for 4 percent, and miscellaneous costs for 20 percent of total construction costs. Miscellaneous expenses include engineering, supervision, administration and overhead, interest, contingencies, and filing fees (Kennedy 1993). In 1990, data indicated that natural gas pipeline construction cost ranged from about $200,000 per mile for an 8-inch-diameter pipeline to $1.2 million per mile for a 42-inch-diameter pipeline.

PIPELINE REGULATORY ENVIRONMENT

Jurisdiction over pipeline safety is distributed among government agencies at the federal, state, and local levels. Federal agencies (USDOT and MMS) regulate interstate natural gas and liquids pipelines; state agencies may assume responsibility for enforcing intrastate pipeline regulations and may inspect interstate pipelines, legislate damage prevention laws,

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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legislate land use controls, and sponsor emergency preparedness planning and training. Local (i.e., city, county, town, and village) governments may impose land use controls, contribute to damage prevention through construction permits, and develop emergency preparedness plans (TRB 1988).

Office of Pipeline Safety

The distribution of pipeline regulatory responsibility has evolved since the enactment of the Natural Gas Pipeline Safety Act of 1968, which was the first legislation to require OPS to establish minimum federal safety standards for interstate natural gas transmission and distribution pipelines. The interstate commerce clause was broadly interpreted in this act so that federal regulations extended to intrastate as well as interstate natural gas pipelines. Section 5(a) of the Natural Gas Pipeline Safety Act provides for a state agency to assume all aspects of the safety program for intrastate facilities by adopting and enforcing the federal standards, while Section 5(b) permits a state agency that does not qualify under Section 5(a) to perform certain inspection and monitoring functions. The majority of the states have either 5(a) certifications or 5(b) agreements, while nine states act as interstate agents (FERC 2003c).

A cost-reimbursement formula is used that enables states to recover up to 50 percent of their costs from the federal government. As of 1999, 49 states were certified to implement the intrastate natural gas program, 9 states served as agents to administer the interstate natural gas program, 4 states were permitted to inspect intrastate natural gas or liquids facilities but had no enforcement authority, 12 states were certified to implement the intrastate liquids program, and 4 states served as agents to administer the interstate liquids program (Pates 2000). However, OPS is now in the process of phasing out the interstate agent program because it believes that additional congressional appropriations for OPS preclude the need for interstate agents.

Although federal safety regulations for liquids pipelines were promulgated in 1967, many of the regulations were general in nature and limited to interstate pipelines (TRB 1988). The Federal Railroad Administration of USDOT had regulatory authority for liquids pipeline safety until this authority was transferred to OPS of USDOT in 1972 (Congressional Research Service 1986, 118).

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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The Hazardous Liquid Pipeline Safety Act of 1979 allows for shared governmental responsibility for pipeline safety. Although regulation of the design, construction, maintenance, and operation of natural gas and hazardous liquids pipelines is primarily a federal responsibility, a federal–state partnership is encouraged in which the federal government sets and enforces national safety standards for interstate pipelines but states may perform day-to-day inspection and administrative duties. A state can be certified by OPS to assume jurisdiction over interstate liquids pipelines if it has adopted federal standards and does not impose more stringent standards (except for siting new pipelines) that are incompatible with federal standards (Pates 2000).

OPS is currently mandated to develop safety regulations and other approaches to ensure the safe transportation of natural gas and other hazardous materials by pipeline. OPS carries out this directive by regulating the design, construction, testing, operations, maintenance, and emergency response of pipeline facilities. Many of the regulations are written as performance standards, which set the minimum level of safety and allow the pipeline operator to use various technologies to achieve it.

In addition to regulating pipeline safety, OPS is tasked to ensure that people and the environment are protected from the risk of pipeline incidents. Thus, OPS’s responsibilities include improving and expanding regulations, assessing risks, mandating the repair of defects in a timely manner, communicating information, developing performance measures, providing assistance to local communities, supporting state partners, and promoting damage prevention and the advancement of technology.

Traditionally, OPS has carried out its oversight responsibility by requiring all pipeline operators to comply with uniform minimum standards. Because pipeline operators face different risks depending on such factors as location and product being transported in the pipeline, OPS began exploring the concept of a risk-based approach to pipeline safety in the mid-1990s. The Accountable Pipeline Safety and Partnership Act of 1996 directed OPS to establish a demonstration program to test a risk management approach to pipeline safety, which involved identifying and addressing specific risks faced by individual pipeline operators rather than applying uniform standards regardless of the

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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risks. This “act, together with a presidential memorandum to the Secretary of Transportation, requires OPS to evaluate … whether a risk management approach to pipeline safety can achieve a level of safety and environmental protection that is greater than the level achievable through compliance with the current pipeline safety regulations” (GAO 2000, 17). The Risk Management Demonstration Program allowed individual companies to identify and focus on risks unique to their pipelines. Since the program’s initiation in 1997, OPS has approved six demonstration programs.

OPS has moved forward with the Integrity Management Program. The program for hazardous liquids pipelines allows pipeline operators flexibility to design and implement the program on the basis of pipeline-specific conditions and risks. By December 31, 2001, operators of long-distance hazardous liquids pipelines (i.e., pipeline systems of at least 500 miles) were required to have identified pipeline segments that can affect high-consequence areas. By March 31, 2002, they were required to have developed a framework for their company’s integrity management program and a plan for conducting baseline assessments. Similar rules were issued for operators of small hazardous liquids pipelines (i.e., those less than 500 miles long) with later deadlines. For hazardous liquids pipelines, a high-consequence area is defined as a populated area, an area unusually sensitive to environmental damage, or a commercially navigable waterway.

The final rule for integrity management of natural gas transmission pipelines in high-consequence areas [published on December 15, 2003 (68 Federal Register 69778)] went into effect in February 2004. This rule requires operators of natural gas transmission pipelines to develop integrity management programs for pipelines located where a leak or rupture could do the most harm (i.e., could affect high-consequence areas). The rule requires gas transmission pipeline operators to perform ongoing assessments of pipeline integrity; to improve data collection, integration, and analysis; to repair and remediate the pipeline as necessary; and to implement preventive and mitigative actions. For natural gas transmission pipelines, OPS is developing a definition that focuses on populated areas (GAO 2002; Cycla Corporation 2004). The definition of a high-consequence area may require additional protection for people

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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with limited mobility such as inhabitants of day care centers, old age homes, and prisons (C-FER Technologies 2000).

Federal Energy Regulatory Commission

Although federal regulations promulgated by OPS deal with pipeline safety issues, they do not address such issues as pipeline siting and financing. These issues are often a matter of negotiation between pipeline companies, landowners, and local government zoning boards. FERC is responsible for authorizing the construction and operation of interstate natural gas pipelines and issues certificates of public convenience and necessity for such pipelines. It is also responsible for addressing issues concerning environmental impacts of interstate natural gas pipelines, which often affect siting and routing, financing, and tariffs.

For natural gas transmission lines, FERC’s Office of Energy Projects addresses landowner and environmental concerns by encouraging collaboration among parties, addressing stakeholder concerns before the certification process, incorporating environmental conditions into certificates, and ensuring compliance with conditions. However, USDOT and FERC signed a Memorandum of Understanding on Natural Gas Transportation Facilities, dated January 15, 1993, giving USDOT exclusive authority to promulgate federal safety standards used in the transportation of natural gas. An applicant must certify that it will design, install, inspect, test, construct, operate, replace, maintain, and inspect the facility for which a certificate is requested in accordance with federal safety standards [Section 157.14(a)(9)(vi) of FERC’s regulations] unless it has been granted a waiver of the USDOT requirements in accordance with Section 3(e) of the Natural Gas Pipeline Safety Act. FERC accepts this certification and does not impose additional safety standards (FERC 2003c, 3.12-2).

When a natural gas pipeline company is planning to build an interstate pipeline, a notice of intent to prepare an environmental assessment or an environmental impact statement (EIS) is prepared and sent to federal, state, and local agencies; environmental groups; and landowners of the properties that might be affected. The notice requests comments from interested parties, after which FERC prepares an environmental assessment or an EIS outlining its findings and recommendations. An EIS describes the positive and negative effects of the proposed undertaking and cites

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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possible alternative actions. This is followed by another comment period. Comments received are addressed in the final EIS or the final order granting or denying the pipeline a certificate. In the case of liquids pipelines, if there is a need for any major federal permits, the issuing agency would serve a role similar to that of FERC for natural gas projects.

Other Federal Agencies

U.S. Environmental Protection Agency

EPA, whose mission is to protect human health and to safeguard the natural environment (air, water, and land), develops and enforces regulations (i.e., sets national standards and issues sanctions and takes other actions when the standards are not met). When FERC is required to prepare an EIS for a proposed pipeline, EPA reviews and responds to the filed impact statement.

EPA is a regulatory agency. As such, it enforces many regulations that affect the transport of natural gas and liquids via pipelines. For example, under the Clean Water Act (33 U.S.C. § 1251) as amended by the Oil Pollution Act of 1990 (33 U.S.C. § 2701), EPA can seek injunctions and civil penalties against oil pipeline companies for discharge of oil into navigable waters of the United States and adjoining shorelines.

Bureau of Land Management

The Bureau of Land Management within the Department of the Interior is responsible for the management of public lands and is principally responsible for issuing right-of-way permits authorizing pipelines to cross federal lands (FERC 2002).

Bureau of Reclamation

The Bureau of Reclamation within the Department of the Interior is responsible for managing, developing, and protecting water and related resources in an environmentally and economically sound manner. It may grant rights-of-way for pipelines (FERC 2002).

Bureau of Indian Affairs

The Bureau of Indian Affairs within the Department of the Interior is responsible for approving rights-of-way for pipelines across lands held in trust for an Indian or an Indian tribe (FERC 2002).

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Suggested Citation:"C Overview of the Transmission Pipeline Industry and Its Regulation." Transportation Research Board. 2004. Transmission Pipelines and Land Use: A Risk-Informed Approach -- Special Report 281. Washington, DC: The National Academies Press. doi: 10.17226/11046.
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Fish and Wildlife Service

The Fish and Wildlife Service within the Department of the Interior is responsible for the conservation, protection, and enhancement of fish, wildlife, plants, and their habitats. Applicants for pipeline construction projects are required to consult with the Fish and Wildlife Service on projects that could affect any of these resources. The Fish and Wildlife Service may also authorize use by permit for areas within the National Wildlife Refuge System (FERC 2002).

National Transportation Safety Board

The National Transportation Safety Board (NTSB) investigates significant accidents in all transportation modes, including pipelines, and issues safety recommendations aimed at preventing future accidents. NTSB attempts to determine the probable cause of pipeline accidents involving a fatality or substantial property damage or releases of hazardous materials, as well as selected transportation accidents that involve recurring problems. NTSB identifies major safety issues that are provided to the Research and Special Programs Administration’s OPS as action items, but NTSB does not regulate equipment, personnel, or operations, and it does not initiate enforcement action.

REFERENCES

Abbreviations

EIA Energy Information Administration

FERC Federal Energy Regulatory Commission

GAO General Accounting Office

TRB Transportation Research Board

C-FER Technologies. 2000. A Model for Sizing High Consequence Areas Associated with Natural Gas Pipelines. Report 99068. Gas Research Institute, Edmonton, Alberta, Canada.

Congressional Research Service. 1986. Pipeline Safety—The Rise of the Federal Role. Committee Print 99-Y. 99th Congress, 2d Session, March.

Cycla Corporation. 2004. ops.cycla.com/pipelineInfo/glossary.htm.

EIA. 1998. Natural Gas 1998 Issues and Trends. www.eia.doe.gov/pub/oil_gas/natural_gas/ analysis_publications/natural_gas_1998_issues_trends/pdf/chapter1.pdf. Washington, D.C.

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EIA. 2004. www.eia.doe.gov/neic/quickfacts/quickgas.htm. Washington, D.C.

FERC. 2002. Interagency Agreement on Early Coordination of Required Environmental and Historic Preservation Reviews Conducted in Conjunction with the Issuance of Authorizations to Construct and Operate Interstate Natural Gas Pipelines Certificated by the Federal Energy Regulatory Commission. Washington, D.C., May.

FERC. 2003a. Detailed Strategic Plan. www.ferc.gov/about/strat-docs/09-29-03-detail-strategic-plan.pdf.

FERC 2003b. Discussion on Commission Use of Natural Gas Price Indices. www.ferc.gov/ legal/ferc-regs/land-docs/Harvey-01-15-03-CommissionPresentation-A-5.pdf.

FERC. 2003c. Grasslands Pipeline Project. Final Environmental Impact Statement. FERC/EIS-0154F. Washington, D.C.

GAO. 2000. Pipeline Safety: The Office of Pipeline Safety Is Changing How It Oversees the Pipeline Industry. GAO/RCED-00-128. Washington, D.C., May.

GAO. 2002. Status of Improving Oversight of the Pipeline Industry. Testimony before the Subcommittee on Energy and Air Quality, Committee on Energy and Commerce, House of Representatives. GAO-02-517T. Washington, D.C., March 19.

Johnson, S., J. Rasmussen, and J. Tobin. 1999. Corporate Realignments and Investments in the Interstate Natural Gas Transmission System. Natural Gas Monthly, Oct. www.eia.doe.gov/emeu/finance/sptopics/ng_realign&invest/.

Kennedy, J. L. 1993. Oil and Gas Pipeline Fundamentals. Penn Well Books, Okla.

Kumins, L. 2001. Natural Gas Prices: Overview of Market Factors and Policy Options. RL30815. Congressional Research Service, Washington, D.C.

Pates, J. M. 2000. Testimony on behalf of the National Pipeline Reform Coalition before the U.S. Senate Committee on Commerce, Science, and Transportation. May 11.

Rabinow, R. 2004. The Liquid Pipeline Industry in the United States: Where It’s Been, Where It’s Going. Association of Oil Pipe Lines, Washington, D.C., April.

TRB. 1988. Special Report 219: Pipelines and Public Safety: Damage Prevention, Land Use, and Emergency Preparedness. National Research Council, Washington, D.C.

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TRB Special Report 281: Transmission Pipelines and Land Use: A Risk-Informed Approach calls upon the U.S. Department of Transportation's Office of Pipeline Safety in the Research and Special Programs Administration to work with stakeholders in developing risk-informed land use guidance for use by policy makers, planners, local officials, and the public.

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