[Federal Register Volume 60, Number 244 (Wednesday, December 20, 1995)]
[Notices]
[Pages 65725-65729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30775]
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DEPARTMENT OF TRANSPORTATION
Research and Special Programs Administration
[Docket No. PS-142; Notice 2]
Considerations for a Program Framework for Risk Management
Demonstrations
AGENCY: Office of Pipeline Safety, DOT.
ACTION: Notice.
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SUMMARY: The Research and Special Programs Administration's (RSPA)
Office of Pipeline Safety (OPS) is considering how to implement a
program administrative framework to receive, analyze, accept, monitor
and revise risk management plans that interstate natural gas
transmission and hazardous liquid pipeline companies would submit as
risk management demonstration projects. RSPA is not yet prepared to
consider a conceptual administrative framework for intrastate
companies.
A demonstration project framework is needed to validate benefits in
applying risk management in the pipeline industry and to determine how
it would work most effectively. A framework is also needed to evaluate
the use of
[[Page 65726]]
company-specific risk management plans as an alternative to the
existing regulatory requirements and to plan for a transition should
the demonstration justify it. For demonstration projects to help
further the transition, the framework must identify how pipeline
companies would submit, implement and improve risk management
demonstration plans and how OPS, in consultation with State pipeline
safety agencies, would evaluate and monitor them.
The demonstration projects are intended to test whether company-
specific plans can provide equal or greater safety than the current
regulatory requirements provide. The results will be evaluated, and if
determined to be successful, OPS would consider expanding the
application. Participation in risk management initiatives will be
voluntary and subject to OPS discretion.
The proposed framework outlined below was distributed and discussed
at a public meeting on this subject held on November 7, 1995, in McLean
Virginia. Provisions for written comments to the framework were
announced in a Federal Register notice published September 21, 1995.
Through this notice, OPS is again requesting comments on the proposed
framework.
DATES: Responses to this request for comments should be submitted on or
before February 20, 1996.
ADDRESSES: Send comments in duplicate to the Dockets Unit, Room 8421,
Research and Special Programs Administration, U.S. Department of
Transportation, 400 Seventh Street, SW, Washington, DC 20590. Identify
the docket and notice number stated in the heading of this notice. All
comments and docketed material will be available for inspection and
copying in room 8421 between 8:30 a.m. and 5 p.m. each business day.
FOR FURTHER INFORMATION CONTACT: Patrick J. Ramirez, (202) 366-9864
regarding the subject matter of this notice. Contact the Dockets Unit,
(202) 366-5046, for docket material.
SUPPLEMENTARY INFORMATION:
I. Background
The Office of Pipeline Safety (OPS) furthers pipeline safety
through a compliance-based system of primarily performance-based
regulations embodied in 49 CFR Parts 192-195 and Part 199. The program
is conducted in partnership with the states, where certified states
take responsibility for intrastate pipeline systems and OPS retains
responsibility for interstate pipeline systems.
Certain pipeline incidents in the last two years have heightened
public awareness of, and concerns about, pipeline safety and
environmental protection. Although the pipeline safety record compares
favorably with other forms of energy transportation, recent incidents
have raised the question of whether safety and environmental protection
can be improved by means other than the current system of compliance
with minimum federal requirements. There are also expectations of
increasing cost and complexity of managing pipeline systems from future
potential regulations. Many government and industry officials are
interested in new approaches that might more effectively evaluate risks
and focus resources in areas with the greatest potential for reducing
risk. There is also interest in improving accountability of the
industry and the government to the public.
The Department of Transportation transmitted a legislative proposal
for reauthorization of the pipeline safety program on March 13, 1995
that would establish a structure to evaluate pipeline risks and their
consequences, develop solutions to address the risks, and establish
priorities for implementing the solutions. This process is generally
referred to as Risk Assessment Prioritization.
The pipeline industry supported an approach that focused on
operator risk management by explicitly authorizing demonstration
projects. This approach was included in H.R. 1323 which was ordered
reported by the House Committee on Transportation and Infrastructure on
April 5, 1995. A similar bill was reported by the House Committee on
Commerce. Section 6 of H.R. 1323 would require the Secretary to
establish a demonstration project on risk management that would seek
voluntary participation by operators to demonstrate applications of
risk management. In carrying out the demonstrations, the Secretary
would ensure that approved plans under the project achieve an
equivalent or greater overall level of safety than would be achieved by
complying with the existing regulatory requirements. The Department
formally expressed its view to the Committee on Transportation and
Infrastructure that this provision is consistent with the Department's
proposal for a risk management program.
The pipeline risk management demonstration projects for interstate
natural gas and hazardous liquid transmission companies would be a
vital step in the transition between compliance-based regulations and
risk management. The demonstration projects would allow both the
government and industry to gain some experience before extending the
program. The transition period between compliance-based regulation and
risk management programs used by a large segment of the pipeline
industry will likely take several years.
To study the applicability and benefits of formal pipeline risk
management programs, OPS, representatives of the oil and gas industry,
states and local interest groups formed two ``risk assessment quality
action teams'' (RAQTs). The first, in 1994, focused on oil and
petroleum product transmission application of risk management and the
second, in 1995, focused on natural gas transmission. Both RAQTs have
been defining how risk management might be beneficially applied in the
pipeline industry. This work has been based on how other industries and
government agencies are using risk assessment and management to more
efficiently allocate resources for safety.
II. Risk Assessment Quality Team (RAQT) Findings
A. Definition of Risk Management
Risk management is the process of deciding what to do about risk
associated with a system. Risk can be expressed as the likelihood of an
event occurring multiplied by the severity or the consequence of its
effect. The goal of risk management is to set priorities for using
finite resources to reduce risk.
A formal definition of risk management from a Gas Research
Institute report, adopted by the Gas RAQT is: ``Risk Management is the
systematic application of management policies, procedures, finite
resources and practices to the tasks of analyzing, assessing and
controlling risks to protect the public, the environment and company
employees and assets.''
The Oil RAQT report stated that ``Risk management is the overall
logical process by which a company understands the risk associated with
operation of its facilities and determines whether and how to take
action to reduce or accept risks. ``
B. Successful Efforts in Other Industries
The RAQTs focused on how risk management practices have been
applied worldwide to reduce risk from chemical, nuclear and industrial
process hazards as well as from pipeline system leaks and ruptures. The
teams' technical conclusions were influenced by the experience of
industries and current effective practices of risk management.
[[Page 65727]]
In the industries referenced above, the risk management process is
applied to the entire physical system that is the source of the risk
and follows a life cycle analysis. Various analytical approaches can be
performed qualitatively or quantitatively and at many levels of effort.
Both teams placed considerable importance on the historical role and
value that has accrued from industry codes and standards and recognized
the major influence of the insurance industry on corporate loss
reduction programs.
C. Expected Benefits in the Pipeline Industry
Companies in the industries using risk management have reported
improved safety records and reduction in the number of incidents. The
execution of risk management generally leads to a discipline of
detailed review of the system, its operation and maintenance. This
expanded review can lead to identifying new sources of risk that may
not be recognized in a compliance-based management process. Another
aspect of the risk management discipline is that it entails a rigorous
and comprehensive analysis of the likelihood of incidents and the
magnitude of the consequences.
Many pipeline companies have elements of risk management systems in
place, although they lack a comprehensive program with formal
documentation and public reporting. Practices identified include use of
risk assessment techniques that exceed current regulatory requirements.
Clearly an area of improvement in the future would be integration of
practices into a formal program with clear tracking of goals,
activities and performance measurement.
Many pipeline operators routinely exceed the safety levels mandated
in current regulation. The Gas RAQT found that the gas transmission
industry expends significant resources complying with minimum
requirements, and then further allocates resources for practices which
exceed the minimum regulatory requirements.
OPS would like to consider an alternative plan that would allow
operators flexibility to determine how best to meet safety goals under
Federal and state oversight. For example, rather than OPS requiring
operators to use a particular inspection tool on their pipelines, an
alternative approach would be OPS allowing operators to employ their
understanding of their systems to prioritize resources to best ensure
pipeline integrity. Operators could take an integrated systems approach
from start to finish rather than the current practice of maintaining
some systems because they meet federal requirements and then overlaying
additional safety measures.
OPS believes that there are many methods and initiatives outside
the current regulatory structure that hold promise for pipeline
industry use in maintaining or improving safety while recognizing
competitive pressures in the marketplace. OPS is considering risk
management demonstration projects to test the effectiveness of risk
management and to provide a basis for refining the process to improve
pipeline safety in the years ahead.
D. Conceptualization of a Risk Management Process
To set parameters for integrating risk management programs into the
oversight of pipeline transportation as an option to the current
compliance-based scheme, certain assumptions are fundamental: (1) Each
pipeline system is different, (2) each risk does not pose the same
probability of occurrence and consequence, and (3) given the right
analytical tools, technical discretion and financial capability,
pipeline operators can make better decisions about how to allocate
resources with the data available.
For risk management to work, operators will need to give OPS
detailed information about, and the reasons for, taking alternative
safety actions in addition to providing baseline safety level
information and performance measures to evaluate program progress. At
the same time, OPS will give operators greater latitude to choose how
to assess and manage risk and what methodologies are most effective.
OPS is considering the approach to risk management that the Gas
RAQT outlined. The team report was developed with support from the Gas
Research Institute and input from the risk management project team of
the Interstate Natural Gas Association of America. It identifies (1)
Process elements that define technical details of risk management
execution and (2) program elements that define administrative,
managerial and logistical aspects of execution with the structure of an
organization.
The process steps have conceptually been expressed in a three,
four, or five step approach in other industries, but each approach
basically utilizes a Risk Assessment, Risk Control and Decision making,
and Performance Measurement process. These steps result in assessing
threats from specific problems or sources, ranking their relative
importance, determining which have greatest risk reduction potential,
allocating resources, and monitoring the effectiveness of prevention
and mitigation actions over time.
The program elements constitute a management framework that
implements and supports the process by taking the results of the
assessment and decisions and putting them into practice in day-to-day
operations. Program elements could include Management Responsibilities,
Standards, Guidelines, Operation and Maintenance, Training, Security,
Incident Reporting, Emergency Preparedness and Response,
Communications, and Auditing and Corrective Action, to name some
examples.
The process and program elements of risk management can be
performed at various levels of detail. The RAQTs referred to this as a
``graded approach'' --the methods applied should be commensurate with
the risk. Further, the RAQTs expect that companies wishing to
demonstrate risk management programs may wish to try the concepts out
within a part of a pipeline system, rather than within the entire
pipeline.
In summary, risk management is based on sound engineering
principles and good business practices to help make decisions that
reduce risk. A pipeline risk management program depends on good data to
help predict accident likelihood and consequence in the risk assessment
stage. All elements of the pipeline business, including location,
product, process, equipment, components, procedures, supervision,
management, records, and human resources are considered and integrated.
Eventually, risk management should address the life of the pipeline
system from design and construction through start up, operation,
maintenance, and shut down.
III. Integrating Risk Management Programs into the National Pipeline
Safety Program
While government and industry objectives to assure safety and
environmental protection would remain the same under risk management,
and the respective roles and responsibilities remain the same
fundamentally, risk management offers the opportunity to approach the
objectives in a manner that is more flexible to individual
circumstance. The new approach will be more open, interactive and
dynamic. OPS believes that the program framework must have the
following characteristics:
(1) Because consideration needs to be given to providing
information and assurances about pipeline safety to other levels of
government, the
[[Page 65728]]
communication process needs to be more interactive and efficient.
(2) Because the primary function of these communications will be
the exchange of proposals and their justification, data must be
provided on the current safety level or baseline and the expected
levels resulting from the program. The data development process and
cost must be practical.
(3) Because assessing the program is a critical but new function,
the performance measurement activity will likely advance incrementally.
IV. Risk Management Demonstration Project Objectives
OPS offers the following risk management demonstration project
objectives for public comment and discussion:
To give a limited number of qualified interstate
transmission operators the opportunity to conduct risk management
demonstration projects.
To determine whether risk management provides equal or
greater safety than a compliance-based approach.
To help each operator comprehensively assess threats to
integrity, whatever the scope of the project, or whatever aspect of its
system is involved in the project.
To demonstrate how appropriately the draft risk management
standards address risks and can be applied effectively.
To determine how operators consider low probability--high
consequence incidents in addition to past accident or component failure
history.
To determine how operators evaluate smaller precursor
events that could lead to larger failures.
To have operators demonstrate how an integrated review of
safety operations across the company can expedite prompt response to
situations that could lead to failures.
To have operators systematically correlate data, rank
planned actions according to their potential to reduce risk, and follow
through on these actions.
To promote technological innovation.
OPS seeks comment on whether these objectives are appropriate for a
four year demonstration project.
V. Program Framework Elements
This program administrative framework to receive, analyze, approve,
monitor and revise risk management plans is being considered for
interstate natural gas transmission and hazardous liquid pipeline
companies that would submit proposals for risk management demonstration
projects.
The framework being considered would have four primary elements,
appropriate to the features and characteristics of risk management. The
first two elements would be developed through industry standards
processes. The contents would be similar to the description in II D of
this document. The second two OPS would construct:
(1) Industry Technical Process Standard (R1), covering Risk Assessment,
Risk Control and Decision-making, and Performance Measurement.
(2) Industry Quality Program Standard (Q1), covering the operator's
management framework that implements and supports this process, and
puts risk management into daily operations.
(3) Federally developed risk management program participation
requirements for communications and reporting, planned oversight and
evaluation.
(4) Third party review to simultaneously validate the quality and
adequacy of the technical review and administrative process used by
OPS.
Elements (1) and (2) of the program framework would be the basis
for operators to apply for and OPS to accept a risk management program
demonstration project.
To develop knowledge and skill in the application and use of the
industry standards, OPS envisions a cooperative effort to develop risk
management training curriculum concurrently with the standards.
Further, OPS expects that trade groups, OPS, and state agencies would
participate in design and development.
OPS would encourage a broad range of stakeholders, including
Federal and State pipeline safety officials, to participate in review
of the draft industry standards. This process is expected to begin
under the auspices of the several trade organizations. While developing
and approving Risk Management standards (R1 and Q1) would be a multi-
year process, a basic draft would be considered as a point of reference
for the demonstration program preliminary review.
The third element, Federally developed requirements likely to be
subject to public notice and comment, should identify the project
administrative framework components, particularly requirements for
applying for the program, obtaining interim project approval,
participating in long-term evaluation and monitoring, conflict
resolution, penalties, incentives, and program maintenance.
VI. Third Element: Possible Elements of the Administrative Risk
Management Demonstration Project Process
(1) An Informal Consultation with OPS and States. The interstate
transmission operator would consult OPS Headquarters staff, Regional
Directors and State pipeline safety program officials affected by the
pipeline system to declare program technical objectives. These
regulatory officials would express safety concerns and give advice
before formal proposals are submitted.
Identifying risk management proposal objectives would begin with
the operator submitting a letter of intent. The letter would describe
the initial proposal including a request for a consultation with OPS
and other pipeline safety regulators on the proposal and justification.
In the consultation, the operator would discuss such issues as how
hazards are assessed and how risks are currently managed, baseline
performance data to indicate the safety level under current regulatory
activities and future indicators, program goals, and the scope of the
demonstration program.
During the consultation with OPS and state pipeline safety
regulators, an operator would explain the risks it intends to address
and the nature and extent of its proposal. The operator would
demonstrate why it believes the proposal could make its pipeline
operate at least as safely as it does by adhering to the current
federal safety requirements. Federal and State pipeline regulators
would actively participate in the consultation, responding to the
operator and raising any concerns.
(2) Formal Written Proposal. An operator would submit a formal
written proposal to OPS, resulting from the consultation. The proposal
would state how the operator would apply the two industry risk
management standards and how the plan is expected to meet or exceed the
safety level achieved through the current regulatory program.
The proposal would describe the risk assessment process, the means
for and the technical rationales for ranking actions, improvement
targets, and a preliminary risk reduction plan with decision points for
action. Also included would be baseline performance measures against
which process targets can be set. Organizational structure, financial
capability, and engineering control accountability and integrated
evaluation would be briefly described. An operator
[[Page 65729]]
would need to address in the formal proposal the concerns raised in the
consultation session and to provide assurances that management commits
to allocating enough resources and to implementing the program in
accordance with the proposal.
(3) Program Sufficiency Review. OPS and state officials affected by
the pipeline system would examine the proposal for completeness against
the technical process and quality program standards. This is estimated
to occur within sixty to ninety days of the date OPS received the
proposal. The review would determine safety expectations from the
program initiatives and that current safety would be equalled or
exceeded. OPS would also consider experience with the operator,
compliance history and performance.
The sufficiency review could result in a proposal being accepted or
returned. OPS acceptance at this stage would mean officially accepting
the demonstration project as an alternative to complying with the
current regulatory process. A returned proposal would lead to second
consultation where recommendations would be made or the project could
be postponed to a later date.
(4) Technical Process Review. OPS and its consultants would perform
this review after several months of the project's operation under the
risk management scheme and periodically thereafter to assure that the
program is meeting the safety goals established by the program
performance indicators or metrics. It will take several years to assess
trends on long range issues. This review would involve substantive
engineering reviews to validate former assumptions and expected
outcomes. A follow-on joint government/industry team process would be
charged with the task of developing guidelines on use of performance
measurements. The review would verify that operators were keeping to
their planned program milestones.
(5) Required Public Prospectus. As part of the process review, an
operator in the demonstration programs would prepare public documents
that explain its risk management plans and objectives. An operator
would explain how it plans to meet or exceed existing safety levels,
what its performance metrics are and how well it has performed. The
public would be able to read the operator prospectus before OPS
conducts the process reviews and forward any questions to OPS to
present during the regularly scheduled audit. OPS could provide
feedback through public notice or other means. This mechanism is
designed to improve accountability to the public.
(6) Conflict Resolution. Procedures may be developed to resolve
conflicts between an operator and the government or other stakeholders
on program adequacy.
(7) Civil Penalties. Penalties would be administered for an
operator not following the technical process and quality program
standards and not keeping its program commitments within its risk
management plan and would be addressed within the provisions of the
existing regulations.
VII. Fourth Element: Third Party Review Being Considered
The final planned framework element being considered would be a
third party review that would be conducted during the four year
demonstration project. OPS would contract with an independent
scientific organization to give OPS findings on the planned framework.
Findings would include whether the draft standard is adequate and
complete, and whether the administrative project framework is
sufficient to assure that the program is delivering the expected goals.
VIII. Evaluation and Follow-Up
A limited number of demonstration projects would provide the
opportunity to evaluate whether operators' risk management decisions on
how best to use their companies' resources to protect people and the
environment are an appropriate alternative to industry-wide regulation.
The Demonstration program in its entirety would be evaluated in the
final year. A successful evaluation would (1) determine that risk
management can be a cost-effective way to manage risks pipelines pose
and (2) give operators flexibility to manage risk based on their
companies' needs, conditions and expertise rather than complying with
compliance-based safety regulations.
Successfully completing the demonstration projects is an important
part of the Government's evolving regulatory process. OPS and industry
having sufficient pipeline operator safety data is critical to managing
the risks pipelines pose. OPS does not have enough safety data to be
statistically meaningful as a risk management baseline. OPS believes
the demonstration program would identify the type and amount of
pipeline performance data, pipeline characteristics including failure
data, needed to manage risk. The demonstration projects might also lead
to more research and development activity in designing models to
predict pipeline failure. The demonstration projects would also be the
basis for improving the industry technical standards for other
operators to develop more effective risk management programs and
helping OPS be more creative, effective, and flexible in overseeing and
approving ways to make pipelines safer.
OPS would report lessons learned from the demonstration projects
through public meetings and to Congress. The report would address
project results, including whether or not the demonstrations maintained
or strengthened safety and how OPS and industry can improve safety.
Issued in Washington, DC on December 11, 1995.
Richard B. Felder,
Associate Administrator for Pipeline Safety.
[FR Doc. 95-30775 Filed 12-19-95; 8:45 am]
BILLING CODE 4910-60-P
