[Federal Register Volume 62, Number 59 (Thursday, March 27, 1997)]
[Notices]
[Pages 14719-14731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7827]


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DEPARTMENT OF TRANSPORTATION
Research and Special Programs Administration
[Docket No. PS-142; Notice 5]


Requests for Applications for the Pipeline Risk Management 
Demonstration Program

AGENCY: Office of Pipeline Safety, DOT.

ACTION: Notice of request for letters of intent.

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SUMMARY: The Research and Special Programs Administration's (RSPA) 
Office of Pipeline Safety (OPS) invites eligible pipeline operators to 
submit Letters of Intent expressing interest in participating in its 
Pipeline Risk Management Demonstration Program. This notice begins the 
solicitation process by specifying a deadline and address for Letters 
of Intent, by directing interested operators to supplementary guidance 
documents, and by providing updated guidance for operators interested 
in participating.
DATES: Letters of Intent will be accepted no later than July 25, 1997.

ADDRESSES: Letters of Intent should be sent to Richard B. Felder, 
Associate Administrator for Pipeline Safety, Research and Special 
Programs Administration, Department of Transportation, Room 2335, 400 
7th St., SW, Washington, DC, 20590.

SUPPLEMENTAL DOCUMENTS:

    (1) Program Framework for Risk Management Demonstrations (61 FR 
58605): Describes the processes by which OPS will receive, review, 
approve, monitor, modify, and terminate company risk management 
demonstration projects, and provides a description of the information a 
company should include in its Letter of Intent. The guidance in the 
Program Framework is current except where noted in Section II of this 
notice. The significant information in the Program Framework is 
contained in Appendix A of this document or available on the Internet 
at OPS address http://ops.dot.gov.
    (2) Interim Risk Management Program Standard: Describes the 
essential elements and characteristics of a company's risk management 
program. A Letter of Intent should include evidence that the company 
will address all considerations raised in the Program Standard. It is 
available by contacting Eben Wyman at (202)366-0918 or on Internet at 
OPS address http://ops.dot.gov.
    (3) Guidance on Performance Measures: Provides the basis for 
participating companies and OPS to assess, through the demonstration 
projects, whether risk management is an effective alternative to the 
current regulatory environment; and to determine whether superior 
public safety and environmental protection is being achieved. OPS 
considers the performance measures proposed in the consultation process 
to be critical to approving a demonstration project. Companies may 
include proposed performance measures, if available, in their Letters 
of Intent. The March 1997 guidance is available by contacting Eben 
Wyman at (202)366-0918 or on Internet at http://opspm.volpe60.dot.gov.
    (4) Risk Management Communications Plan: Outlines the processes to 
enable all stakeholders (including OPS, companies, States, and local 
officials) to exchange information about the goals, objectives, and 
status of the Demonstration Program and individual projects. The 
Communications Plan describes the information OPS intends to share with 
stakeholders via local prospectuses once candidate companies are 
selected for consultations. Companies may consult the Plan to ensure 
their Letters of Intent contain sufficient information for the 
prospectuses, and for guidance on local level communications the 
company should conduct. OPS will continue to develop communications 
with the public during the Demonstration Program. The Plan is available 
by contacting Eben Wyman at (202)366-0918 or on Internet at OPS address 
http://ops.dot.gov.
    (5) Risk Management Training Curricula: Describes the content of 
the risk management training that will be provided to industry and 
regulator participants in the Demonstration Program. Companies who 
submit Letters of Intent and who OPS identifies as candidates for 
selection will be invited to participate in the training. The company 
may request an orientation with the OPS personnel who will be assigned 
to evaluate and monitor its demonstration project. An outline of the 
curricula is available by contacting Eben Wyman at (202)366-0918 or on 
Internet at OPS address http://ops.dot.gov.
    (6) Proceedings from January 28, 1997 Public Meeting held at the 
Hilton Riverside Hotel, New Orleans, LA: Record of OPS response to 
public comment on elements of the Demonstration Program. Available by 
contacting Eben Wyman at (202)366-0918, or on Internet at OPS address 
http://ops.dot.gov. A summary of OPS comments at the public meeting is 
contained in Appendix B of this notice.

FOR FURTHER INFORMATION CONTACT: Eben M. Wyman, (202) 366-0918, or by 
E-mail ([email protected]), regarding the subject matter of this 
document. Persons wishing to review previously submitted comments may 
contact the RSPA Dockets Clerk, (202) 366-5046, U.S. Department of 
Transportation, room 8421, 400 Seventh Street, SW, Washington, DC 
20590. Inquiries should identify the docket number (PS-142). The 
Dockets Facility is open from 10:00 a.m. to 5:00 p.m., Monday through 
Friday, except on Federal holidays when the facility is closed.

SUPPLEMENTARY INFORMATION:

I. Overview

    The Program Framework for Risk Management Demonstrations (Program 
Framework)(61 FR 58605), published on November 15, 1996, describes the 
Pipeline Risk Management Demonstration Program and its objectives and 
statutory basis, and provides guidance for pipeline operators who may 
wish to participate. The Demonstration Program will enable 
participating pipeline operators to substitute compliance with the 
provisions of an OPS-approved demonstration project for compliance with 
existing pipeline safety standards. The objective of the Demonstration 
Program is to test whether allowing operators the flexibility to 
allocate safety resources through risk management is an effective way 
to improve public safety, environmental protection, and reliability of 
service. It will also provide data on how to administer risk management 
as a permanent feature of the Federal pipeline safety program, should 
risk management prove to be a viable regulatory alternative.

[[Page 14720]]

    Guidance for participation by companies, regulators, and the public 
in the Demonstration Program is contained in the documents referenced 
at the front of this notice. OPS expects documents (1) through (5) will 
be refined and improved as more is learned during the course of the 
Program. OPS will report at least annually on the Program's progress, 
via Federal Register notices, nationally broadcast two-way video 
teleconferences, mailed updates on the individual project prospectuses, 
and other means. By March 31, 2000, OPS will submit a Report to 
Congress on the Demonstration Program status. A final report will be 
issued in four years evaluating how effectively safety, environmental 
protection, and reliability of service have been improved by 
participating operators, the feasibility of risk management in general, 
and recommending whether and in what form risk management should be 
incorporated into the Federal pipeline safety program on a permanent 
basis.

II. Modifications and Clarifications to Program Framework

    The following modifications and clarifications to the Program 
Framework for Risk Management Demonstrations are in response to public 
comment to the docket, meetings with individual operators, national 
public, environmental and other interested organizations, and continued 
interaction with industry and the States through ``joint risk 
management quality teams'' (JRAQT).

1. Window for submission of Letters of Intent

    Companies considering participating in a demonstration project must 
submit a Letter of Intent to OPS no later than July 25, 1997. This 
provides operators a 120-day window, rather than the previously 
published 60-day window.

2. Phased Selection of Demonstration Projects

    OPS will likely select a few candidates for consultations before 
the 120-day window for submission of Letters of Intent has closed. This 
phased approach would allow OPS to better manage workload. OPS would 
base these selections on evidence in the Letter of Intent that the 
proposed demonstration project has a high likelihood of being approved 
per the criteria described in the Program Framework.

3. Screening Criteria

    As part of the screening criteria, previously described in the 
Program Framework, OPS will favor companies with a demonstrated 
commitment to risk management and a demonstrated ability to communicate 
with OPS by, for example, being forthcoming with relevant data. OPS 
will favor proposed projects that:
     Are comprehensive, indicating a more systematic and 
thorough assessment of risk and risk control options so that superior 
protection can be achieved;
     Provide a good opportunity to evaluate risk management as 
a regulatory alternative; and
     Contain distinguishing features, such as support from or a 
pre-established relationship with local or stakeholders.

4. Informational Meetings with OPS

    OPS is continuing its informational meetings at company sites to 
discuss demonstration project concepts, to explore the potential for 
more comprehensive project proposals, and to provide companies a better 
understanding of Program objectives, opportunities, and the 
administrative process and approach to application evaluation. In 
addition to assisting companies with questions about risk management, 
these meetings could position OPS to better plan the evaluation phase 
of the Demonstration Program.

5. Local Distribution Companies (LDC) are Not Eligible to Participate 
in the Current Demonstration Program

    As stated in the Program Framework, eligibility for the current 
Demonstration Program is limited to interstate natural gas transmission 
and hazardous liquid pipeline companies. However, on February 26, 1997, 
the National Association of Regulatory Utility Commissioners (NARUC) 
Committee on Gas passed a Resolution supporting an LDC Risk Assessment 
Quality Action Team to conduct a feasibility study of risk management 
as a regulatory alternative.

6. Role of States in the Demonstration Program

    In keeping with the statutory provision (49 US USC 60126(d)) that 
allows the Department to provide for State consultation in the 
Demonstration Program, OPS will contact State pipeline safety agencies 
that may be affected by a proposed demonstration project to discuss the 
extent of the State's involvement in the project. This could entail the 
State providing input on geographic, socioeconomic, and other local 
factors that the Project Review Team (PRT) should consider during its 
consultation with an operator. It could also entail the State pipeline 
safety agency acting as a conduit for other State agencies wishing to 
provide input to the PRT. The State could serve, along with OPS and the 
company, as a point-of-contact for members of the public providing 
comments and raising questions. Should the State pipeline safety agency 
choose not to participate in the Demonstration Program, OPS will find 
alternative means of ensuring that the PRT considers input from other 
State agencies and the public.

7. Meaning of ``Clear & Established Safety Record'' in Presidential 
Directive

    A Presidential directive to the Secretary of Transportation directs 
the Secretary to limit risk management demonstration projects to those 
pipeline operators that have clear and established records of 
compliance with respect to safety and environmental protection. OPS 
will review its records to determine if candidate companies have 
historically met requirements of applicable State pipeline safety 
regulations. Operators should have addressed all safety and 
environmental protection actions prescribed by existing regulations and 
orders, including consent orders and commitments for corrective action 
made to OPS. OPS will consult with other agencies about their knowledge 
of the company's safety and environmental compliance record. A company 
may include in its Letter of Intent a statement identifying the 
relationship of any ongoing prescribed actions to the proposed 
demonstration project.

8. Role of Other Agencies

    At the annual National Response Team (NRT) Regional Response Team 
(RRT) Co-chairs' meeting in February, 1997, OPS invited the 15 State 
NRT agencies to participate in the Demonstration Program. Once OPS 
announces the candidate demonstration sites, OPS will contact NRT 
officials whose regions may be affected by a proposed demonstration 
project to identify an appropriate role for the officials' 
participation in the Demonstration Program. This could entail the NRT 
official identifying any issues and concerns he or she may have with a 
candidate demonstration project, including the company's safety and 
environmental compliance record. OPS will keep these officials abreast 
of the Demonstration Program and individual projects in their regions 
via periodic program briefings, project prospectuses, and updates. At 
the State level, State pipeline safety agencies participating in the 
Demonstration Program may act as

[[Page 14721]]

points-of-contact for other State agencies (including State 
environmental agencies).

10. Clarification of Term ``Stakeholder''

    OPS uses the term stakeholder in reference to parties at the 
National, State, and local levels that have interest in the Pipeline 
Risk Management Demonstration Program.

11. Error in Citing Part 192 as Source of Reporting Requirements for 
Gas Operators

    OPS could issue orders exempting participating operators from any 
but the reporting requirements in 49 CFR Parts 191 or 195, but expects 
that the projects approved in 1997 will require exemptions from only 
one or a portion of the regulations. The Program Framework erroneously 
cited Part 192 as the source for reporting requirements for gas 
operators.

12. Clarify Role of Local Public Officials

    The Program Framework was unclear about why OPS asks that 
participating companies establish a dialogue with local officials in 
proximity to their demonstration projects. The expected benefits of 
local public involvement include:
     Providing information about specific local conditions that 
may not be known at the Federal or State level;
     Ensuring that government agencies have considered all 
relevant factors in making decisions to approve projects; and
     Providing local feedback as to whether the Program is 
accomplishing the goals for which it was designed.
    To broaden opportunities for public involvement, other planned 
outreach opportunities include an Internet homepage with each project's 
status and national two-way video teleconferences available via 
Internet.
    OPS is seeking a diverse set of demonstration projects, and 
encourages all interested interstate natural gas transmission and 
hazardous liquid pipeline operators to submit Letters of Intent for 
consideration.

    Issued in Washington, DC on March 24, 1997.
Richard B. Felder,
Associate Administrator for Pipeline Safety.

Appendix A--Excerpt from the Program Framework for Risk Management 
Demonstrations (61 FR 58606)

SUPPLEMENTAL INFORMATION:

I. Overview

    Section 5 of the Accountable Pipeline Safety and Partnership Act of 
1996 (Pub.L.No.104-304, Oct. 12, 1996) requires OPS to establish the 
Pipeline Risk Management Demonstration Program and sets forth 
requirements for carrying out risk management projects. In a memorandum 
issued when the statute was enacted, the President directed the 
Secretary of Transportation to use his discretion to administer the 
Demonstration Program with certain safeguards in place. The safeguards 
identified in the President's memorandum to the Secretary include 
making provisions for:
     Accepting projects that can achieve superior public safety 
and environmental protection.
     Enabling full and meaningful participation by affected 
communities and constituencies in risk management project approval.
     Using orders ensuring that the requirements of risk 
management projects are subject to full enforcement authority.
     Limiting the number of demonstration projects to ten (10).
     Limiting participation to operators with clear and 
established records of compliance with respect to safety and 
environmental protection.
    The statutory requirements, the President's memorandum to the 
Secretary, comments on previous framework concepts (published in 60 FR 
49040, September 21, 1995, and 60 FR 65725, December 20, 1995), and 
other stakeholder input were used to develop the present framework, 
which provides guidance to operators who may decide to participate in 
the demonstration projects that are expected to begin in 1997.
    Risk management can provide pipeline owners and operators greater 
flexibility in their choice of safety-related activities than is 
possible within OPS's present universally applicable regulatory 
program. Risk management enables a company to customize its safety 
program to address its pipeline's particular risks. Furthermore, risk 
management is a dynamic process, with built-in features for evaluating 
and improving safety activities as experience is gained.
    The demonstration projects will test whether allowing operators the 
flexibility to allocate safety resources through risk management is an 
effective way to improve safety, environmental protection, and 
reliability. They will also provide data on how to administer risk 
management as a permanent feature of the Federal pipeline safety 
program, should risk management prove to be a viable regulatory 
alternative. The new standards, technologies, and communication 
processes developed by operators and OPS for the risk management 
demonstration projects will be adapted to support the range of risk-
based regulatory, compliance, and research and development activities 
OPS presently has under development.
    OPS expects that risk management methods and the formalized process 
of interactions and negotiation between regulators and company 
personnel will result in superior public safety and environmental 
protection than could otherwise be attained through existing regulatory 
requirements. Risk management is, by OPS definition, a more systematic 
and thorough assessment of risk and risk control options, with the 
intended result of superior decision making. As a result of improved 
assessment, OPS believes there is a potential to identify more risk 
than may have been found using existing practices.
    OPS plans to select companies for demonstration projects with a 
demonstrated commitment (1) to work in partnership to evaluate merits 
of risk management processes and technologies and (2) to develop risk 
management as an integral part of company day-to-day business 
practices, at least related to the demonstration project. The selection 
criteria favors projects showing potential for more comprehensive risk 
management applications. All participants will be focused on improving 
safety and environmental results, prioritizing resources more 
effectively, and enhancing the ability of government and industry to 
effect positive outcomes. OPS will have clear profiles of its 
assessment of pipeline integrity before and after the demonstration 
program. At the program conclusion, OPS fully expects to have a better 
understanding of individual pipeline risks and to be in a better 
position to evaluate risk control options.
    Finally, OPS expects risk management to be able to provide better 
accountability for safety and environmental protection, and a better 
basis to communicate with the public. To assure that safety and 
environmental protection improve, OPS will measure local, project-
specific data such as current physical data, new test data, comparison 
with similar segments, outcomes from risk control actions, precursor or 
``anticipative'' event measures, level of risk awareness, history of 
service interruptions and incident data. OPS also expects to measure 
improvements in communications, understanding, and resulting increased 
ability of government and industry to effect desired safety and 
environmental project outcomes. OPS and operators

[[Page 14722]]

participating in the Demonstration Program will report to the public 
periodically during the four year period.
    OPS will be accepting into the Demonstration Program those 
projects, as proposed or ultimately negotiated, that are expected to 
achieve superior public safety and environmental protection than is 
currently being achieved through regulatory compliance. Because of the 
nature of the risk management process, OPS believes that operators 
choosing to participate will be able to propose projects demonstrating 
such protection.
    Each demonstration project is expected to have a four-year 
duration. Participation in risk management demonstrations will be 
voluntary and subject to OPS approval based on criteria set forth later 
in this notice. Eligibility for the demonstration projects beginning in 
1997 is limited to interstate natural gas transmission and hazardous 
liquid pipeline companies. RSPA may later broaden eligibility to 
include distribution and other intrastate operators.

II. Activities Presently Underway and Next Steps

    The December 20, 1995, Federal Register notice gave the background 
for OPS's consideration of company-specific risk management projects as 
an alternative to the existing regulations. The notice described many 
of the safety, environmental, legislative, technical, public 
perception, and economic factors driving government, corporate, and 
public interest in risk management.
    Since December 1995, OPS has been working with ``joint risk 
management quality teams'' (JRAQT) composed of representatives of State 
pipeline regulatory agencies, the oil and gas industries, and local 
public safety and environmental representatives to develop the five 
primary components of the Pipeline Risk Management Demonstration 
Program. These components include the Interim Risk Management Program 
Standard, the guidance for assessing risk management as a regulatory 
alternative using general industry data, the training protocols for 
instructing government and corporate participants about their new roles 
under risk management, a plan for productive communication between all 
participants and the public, and the regulatory framework presented in 
this notice. The standard and the regulatory framework are now ready 
for public comment. The guidance for assessing risk management as a 
regulatory alternative will be ready for public comment in November.
    The Interim Risk Management Program Standard will serve as a common 
ground upon which the pipeline industry can develop and refine 
effective risk management demonstration projects that regulators can 
approve and monitor. It defines certain elements that all programs 
should contain, but allows flexibility to each company to customize its 
project to fit its particular needs and corporate practices, and allows 
projects to evolve as experience is gained. The standard will also 
provide companies guidance for selecting performance measures to ensure 
that safety and environmental protection are safeguarded in 
demonstration projects. Directions for obtaining and commenting on the 
standard are at the front of this notice.
    The regulatory framework component presented in this notice guides 
pipeline companies in how they can gain OPS approval of their risk 
management projects and describes how OPS would monitor the plans. The 
framework presented here will guide the demonstration projects that 
begin in 1997. The experience gained from the demonstration projects 
will help OPS to later develop a permanent procedure for approving risk 
management projects, if risk management proves to be a viable 
regulatory alternative. Directions for public comment on the regulatory 
framework are also at the front of this notice.
    To help ensure that the Demonstration Program components provide 
the flexibility to fairly and consistently evaluate and support actual 
risk management projects, OPS has been conducting a series of meetings 
with individual operators since August 1996. The topics of discussion 
include risk management projects the operator has in place or under 
consideration and criteria OPS might use to evaluate them. During the 
meetings, operators also learn about and comment on the Demonstration 
Program components under development.
    OPS has held two public meetings on risk management demonstration 
projects and will hold a third on Tuesday, January 28, 1997, in New 
Orleans, Louisiana. At that meeting, OPS and the JRAQT will present the 
Interim Risk Management Program Standard that operators will use during 
the demonstration projects. OPS will also present prototype risk 
management projects to illustrate the documentation needed and the 
types of issues to be addressed during project review, approval and 
monitoring. After the meeting, OPS will publish a Federal Register 
notice to begin the project approval process described in Section IV of 
this notice. Between now and the January meeting, OPS will continue to 
refine the Demonstration Program components based on public comment on 
this notice, meetings with individual operators, national public, 
environmental and other interested organizations, and continued 
interaction with industry and the States through the JRAQT teams.

III. Risk Management Demonstration Project Objectives and Policies

    The objectives of the Pipeline Risk Management Demonstration 
Program, which stem from the statutory requirements and the 
Presidential directive, are to accomplish the following:
     To show that more effective allocation of resources can 
result in improved safety and environmental protection over what is 
presently achieved through regulatory compliance.
     To address risks not addressed by regulations by 
capitalizing on features inherent to the risk management process, such 
as improved quality and integration of safety data and, as a result, 
more comprehensive assessment of threats.
     To systematically test risk management as a regulatory 
alternative through objective evaluation under a broad range of 
conditions.
     To establish a common framework for productive 
communication with public safety officials and the public, and for 
getting meaningful public input into the risk management process.
     To develop and apply new risk assessment models, processes 
and technologies.
    OPS believes that the following elements need to be structured into 
the Demonstration Program:

(1) Operators participating in the Pipeline Risk Management 
Demonstration Program will need to provide sufficient data and 
background information to enable OPS to determine whether risk 
management is an effective regulatory alternative that provides 
superior safety and environmental protection.

    Implicit in a company's participation in the Demonstration Program 
should be the commitment to work in partnership with OPS to determine 
whether and how risk management might become a permanent feature of the 
Federal pipeline safety program. OPS will ask for evidence that risk 
management, as it relates to the proposed demonstration project, is or 
will be developed and implemented as an integral part of the day-to-day 
business practices of the company. OPS will also periodically ask

[[Page 14723]]

companies for suggested refinements to the primary program components.
    In keeping with the Interim Risk Management Program Standard, the 
operator must identify project-specific performance measures that 
demonstrate the effectiveness of the risk-control decisions being made. 
During the project approval process, OPS will determine whether these 
local project-specific performance measures appear appropriate and 
adequate. Throughout a demonstration project, the operator will 
evaluate local and broader program measures and ensure that the 
performance measures are appropriate and adequate. The operator would 
periodically report on these project-specific performance measurements 
to OPS.
    OPS is developing guidance for additional more general measures 
operators would report during the four-year demonstration period to 
enable OPS to determine the effectiveness of risk management as a 
regulatory alternative. These measures will help OPS answer the 
following questions:
     Does risk management result in a greater safety, 
environmental protection, and service reliability than would otherwise 
be achieved through compliance with the safety regulations?
     Are resources being better prioritized and more 
effectively applied under risk management?
     Has agency and industry involvement in the discussion of 
risks and risk control options, and the agency and industry's ability 
to impact desired outcomes, increased under risk management?

(2) Operators will be allowed to reallocate resources geographically, 
as long as safety is adequately safeguarded at each location along a 
demonstration site

    OPS will allow operators the flexibility in a risk management 
demonstration project to reallocate safety resources across several 
pipeline segments. An operator may substitute one or more activities 
for others, or do away with redundant activities altogether, as long as 
the basic safety and environmental protection along the pipeline is 
safeguarded at each point. However, it is still expected that the 
overall demonstration project performance will result in superior 
safety and environmental protection.

(3) OPS will consider approving demonstration projects of various 
scopes and complexities

    The scope of a risk management demonstration project may be an 
entire pipeline system and all safety activities, or may be focused on 
parts of a system and specific activities.
    Since operators have different levels of experience with, and 
confidence in, risk management, OPS expects some proposals to begin 
with approaches that are limited in scope. Therefore, an operator may 
propose a phased entry into a demonstration project, broadening the 
scope of the project as experience is gained. During the project 
approval process, OPS will favor projects showing a potential for 
expansion and more comprehensive application of risk management. OPS 
expects to work with companies to develop a profile which compares the 
demonstration site to the rest of the pipeline.
    OPS recognizes that significant benefits can accrue from even the 
less sophisticated applications of risk management. Because no single 
risk management approach will be universally appropriate for every 
situation, OPS is looking for those that match the level of risk 
management with the complexity of the risks being managed. However, any 
operator who participates in the Demonstration Program must have in 
place the program elements defined in the Interim Risk Management 
Program Standard. The program elements provide the structure for the 
limited scope proposal.
    When an operator proposes risk control alternatives to implement 
during a demonstration project, the operator should demonstrate a 
knowledge and understanding of the range of risks along the 
demonstration site and show that it has considered significant failure 
modes. An operator may draw on corporate experience, skills, and 
available documentation to support the proposed alternatives.

(4) OPS considers an operator's compliance with the provisions of an 
OPS-approved risk management project to be an equivalent and acceptable 
alternative to compliance with the regulations

    OPS considers the provisions of an approved risk management project 
to be a regulatory commitment. The terms and conditions of the project 
will be incorporated into an order that is subject to enforcement 
authority. By this order, an operator conducting risk management 
activities in an approved project will be exempt from regulations 
corresponding to the stated scope of the project, but will be required 
to comply with the provisions of the project. An operator not complying 
with the provisions of its OPS-approved project will be subject to the 
same civil penalties administered under existing regulations.
    OPS has the authority to exempt, by order, an owner or operator 
participating in a risk management demonstration project from all or a 
portion of the regulatory requirements, and from any new regulations, 
applying to the covered pipeline facility. OPS could issue orders 
exempting participating operators from any but the reporting 
requirements in 49 CFR Parts 192 or 195, but expects that the projects 
approved in 1997 will require exemptions from only one or a portion of 
the regulations.
    When the project concludes at the end of four years, or if it is 
terminated earlier, consideration will be given to installations or 
facility modifications made during the demonstration project that 
conflict with existing or future regulatory actions. Actions taken by 
the operator in good faith in an approved risk management project could 
be ``grandfathered'' and exempt from future regulatory compliance, 
provided safety and environmental protection are not compromised.

(5) The operator is responsible for active communication with State and 
local officials regarding risk management. OPS will ensure that such 
communication is part of the operator's demonstration project plan and 
that the communication is carried out.

    OPS sees potential for risk management to provide better 
accountability to the public for safety and environmental programs. OPS 
is beginning to explore appropriate strategies for productive 
communication with public safety officials and the public, and for 
getting meaningful public input into the risk management process. 
Similarly, OPS realizes the importance of training and other 
information exchange in supporting the institutional change that would 
occur under risk management.
    Companies must establish appropriate dialogue with State and local 
public safety and environment officials. At a minimum, these public 
officials should be aware that a risk management demonstration project 
is underway on the pipeline, that OPS is monitoring the project, and 
who functions as a point-of-contact. Such a dialogue would enable local 
officials to reassure the public that an appropriate regulatory 
presence is in place and how the overall safety and environmental 
protection are enhanced by risk management. OPS will discuss external 
communications with the operator during a consultation prior to formal 
application.

[[Page 14724]]

IV. Process for Selecting Projects

    OPS is providing the following as guidance for operators to seek 
approval of their risk management demonstration projects. OPS plans to 
formally solicit operators to voluntarily participate in the risk 
management demonstration projects via a Federal Register Notice in 
first quarter 1997. That notice will give target dates for the various 
steps described below.
    (1) Letter of Intent
    Operators would notify OPS of interest in participating in a 
demonstration project, and OPS would screen operators to ensure that 
only companies whose demonstration project concepts have a reasonable 
likelihood of being approved expend the resources to develop formal 
applications. OPS will screen Letters of Intent to identify no more 
than ten projects as candidates for selection in the Demonstration 
Program. Ten is the maximum number OPS can reasonably expect to 
evaluate and, if selected, to monitor. OPS would accept Letters of 
Intent during a 60-day window in early 1997. A Letter of Intent is an 
expression of a company's interest, but does not obligate a company to 
participate in a demonstration.
    OPS would require that a demonstration project cover any part or 
all of a pipeline system that is covered by either 49 CFR Part 192 or 
195, is under State oversight or oversight by a participating 
interstate agent, and is currently in operation or under conversion to 
service. Operators should commit to a project duration of at least four 
years, and provide evidence that they will address all considerations 
raised in the Interim Risk Management Program Standard. This includes 
providing a description of the means by which the company would 
communicate with local officials regarding its demonstration project.
    OPS would like to choose operators who provide evidence of 
consistent corporate commitment to risk management. This could be 
demonstrated by a corporate officer, who controls the resource 
allocation for the demonstration project and competing operations, 
signing the Letter of Intent.
    The Letter of Intent would include a general discussion of risk 
management principles as part of a company's operating philosophy. To 
provide OPS adequate data to choose a diverse set of demonstration 
projects, the Letter would provide a brief system profile of the 
pipeline, including product(s) transported, pipeline age and operating 
history, types of population distributions and geographic conditions in 
proximity of the pipeline, and any other features the operator thinks 
are notable. The Letter would also describe the scope of the project as 
defined per the Interim Risk Management Program Standard and any new 
technologies and processes to be developed or deployed during the 
demonstration phase.
    In making its choice, OPS would consider those operators who have 
clear records of safety and environmental compliance, based on OPS 
records and consultation with other interested agencies. OPS will also 
limit selection to projects which would achieve superior safety and 
environmental protection. Operators should have completed any OPS-
initiated corrective actions.
    OPS will publish for public comment a Federal Register notice 
describing proposals of selected companies and the demonstration sites 
under consideration. OPS will also follow through with national public, 
environmental and other interested organizations about the sites under 
consideration so that local officials can be notified and informed.
    (2) Consultation
    OPS would invite each operator submitting a promising Letter of 
Intent to a consultation within 60 days of receipt of the Letter of 
Intent. The purpose of the consultation would be to familiarize OPS and 
affected States with specific aspects of an operator's risk management 
project concept, to provide guidance to the operator on what 
refinements (if any) are needed for OPS to approve the concept as a 
demonstration project, to enable regulators to plan the expected level 
of monitoring based on the company's own audit process, and to enable 
regulators and the operator to agree on the roles and responsibilities 
of each throughout the project duration. OPS intends that the 
consultation begin a negotiation process that results in a 
demonstration project that OPS could approve.
    OPS will provide notification that encourages local officials and 
the public with questions about demonstration projects to raise them 
with State pipeline safety officials who can raise them in the 
consultation process.
    OPS would constitute a Project Review Team (PRT) to consult with 
the operator, keep abreast of any subsequent discussions, and provide 
technical input on whether a demonstration project could be approved. 
OPS would customize the make-up of each PRT to the company and project. 
The PRT members'' roles would be defined in OPS-developed protocols, 
designed to ensure rigorous yet fair and consistent treatment of all 
operators throughout plan negotiation, approval, and monitoring. The 
mix of States and OPS regional personnel on the PRTs, as well as any 
outside technical expertise consulted, would vary from project to 
project depending on the demonstration's technical focus and geographic 
location.
    Some of the same OPS headquarters staff would be on all PRTs to 
ensure consistent application of policy throughout the project and to 
follow all issues raised during the consultations to their resolution.
    The consultation would focus on the design, operations, and 
maintenance practices that would replace practices required by 49 CFR 
Part 192 or 195, and that would achieve superior overall safety and 
environmental protection. The operator would provide the rationale for 
these risk control alternatives by generally describing the specific 
risk management models, processes, and sources of data supporting their 
selection.
    Other consultation discussion topics would include the program 
goals, the project scope defined per the Interim Risk Management 
Program Standard, the project-specific performance measures, the 
operator's auditing plan, a plan for OPS audits, proprietary issues, 
provisions for public communication, and the outline for a work plan 
including benchmarks, risk assessment processes, new technologies 
applied, points-of-disclosure, and mechanisms for monitoring and 
refinement.

(3) Formal Application and Approval

    An operator would submit an application formally indicating its 
intent to enter into a risk management demonstration project. 
Consistent with the program standard's intent for an efficient 
information flow among appropriate stakeholders, a summary of this 
formal application would be published in the Federal Register, and the 
application itself would be made available for review and comment in 
the docket. OPS will again communicate with national public, 
environmental and other interested organizations about the sites in 
which we intend to approve demonstration projects so that local 
officials can be notified and informed.
    The formal application, including a detailed work plan, would 
document operator/PRT resolution of issues raised during the 
consultation and any subsequent discussions. It would also provide 
assurance of a corporate commitment to implement the project in 
accordance with the operator's risk management application. Other 
issues may be included at the operator's

[[Page 14725]]

discretion, such as how to return to compliance with the regulations 
should a demonstration be terminated.
    OPS would review the application and comments, and decide whether 
to approve the project. If OPS decides to approve the project, OPS 
would issue the operator a written order. The order, in addition to 
exempting an operator from the applicability of specified pipeline 
safety regulatory requirements for the period of the demonstration, 
would set forth the terms and conditions for the operator's 
participation in the demonstration project. The order would be 
enforceable.

(4) Implementation

    A risk management project would start as soon as OPS approves the 
formal application and work plan, issues the order, and notifies the 
public through the Federal Register that the order is in effect. 
Regulators and operators would monitor risk management demonstration 
projects for compliance with the order. OPS would provide each 
participating operator with a plan describing the regulators' expected 
level of effort in monitoring the demonstration, including the type of 
audits, their frequency, the participants, the audit scope, and the 
operator's means of addressing those aspects of the demonstration site 
remaining in compliance with the regulations, but this plan would not 
limit OPS's statutory authority to inspect a pipeline facility during 
the period of the demonstration. Planned OPS audits would coincide with 
the operator's data taking at key decision points, such as when the 
operator evaluates the effectiveness of safety activities or considers 
modifying safety activities.
    An operator would notify OPS of any intent to make substantive 
modifications to the risk management project once a demonstration is 
underway. The PRT may reconvene to renegotiate project approval or to 
resolve other significant issues. Provisions will be made for public 
review and comment on renegotiated projects.
    OPS could, through appropriate administrative action, address any 
unsafe conditions that arise during the demonstration period to ensure 
that such conditions are quickly addressed. OPS would also administer 
civil penalties within the provisions of the existing regulations for 
operators not complying with the order.

(5) Termination

    OPS intends that, where a risk management demonstration project is 
determined to have been successful, the operator could, in lieu of 
switching to compliance with the regulations, continue to exercise risk 
management on that part of the system that was covered by the 
demonstration. However, this determination could not be made until the 
end of the demonstration period. Upon conclusion of the project, or if 
it is terminated earlier, consideration would be given to installations 
or facility modifications made during the demonstration project that 
conflict with future regulatory actions.
    OPS may consider terminating a demonstration project if:
    (i) The operator requests termination due to changed circumstances;
    (ii) The operator does not comply with the terms and conditions of 
the approved risk management project;
    (iii) Safety has been compromised; or
    (iv) OPS and the operator fail to agree on a substantive 
modification to a risk management project.

V. Summary of Means of Achieving Meaningful Public and Community 
Involvement

    OPS is providing numerous opportunities for public participation in 
the design and implementation of the Pipeline Risk Management 
Demonstration Program. One of OPS's objectives for the demonstrations 
is to establish a common framework for productive communication with 
public safety officials and the public, and for getting meaningful 
public input into the risk management process. OPS believes meaningful 
public input is essential if the demonstrations are to be successful.
    The public was invited to comment on early regulatory framework 
concepts via Federal Register notices published in 60 FR 49040, 
September 21, 1995, and 60 FR 65725, December 20, 1995. OPS is 
soliciting public comment on the latest framework concepts via this 
notice. In addition to the notices, OPS has held two public meetings in 
preparation for the demonstrations and has scheduled a third for 
January 28, 1997, in New Orleans, LA. The previous public meetings were 
held on November 7, 1995, in McLean, Virginia, and on April 14-15, 
1996, in Houston, TX. At the third meeting, OPS plans to present the 
final framework and supporting documents, and to demonstrate the review 
and approval process using prototype risk management projects.
    This notice directs interested members of the public to the docket, 
to the American Petroleum Institute (API), or to a website to obtain 
and comment on the latest draft of the Interim Risk Management Program 
Standard. The standard describes the elements that OPS, its State 
partners, and industry agree must be common to all demonstration 
projects. One requirement is an external communications element, in 
which regulator and other stakeholder interests and concerns are 
understood, and program goals and results are communicated to and 
discussed with the public, as well as Federal, State, and local 
regulators, and other stakeholders as appropriate. The docket 
associated with this notice will have available for review any comments 
received on the standard and on the regulatory framework.
    This notice also describes the numerous opportunities OPS is 
offering the public for comment during the demonstration review and 
approval process. Before formal applications are due, OPS will publish 
for public comment a Federal Register notice describing the 
demonstration projects under consideration and each company's concept 
for communicating with local safety officials should OPS approve its 
demonstration project. The public will be noticed again once the formal 
application is received and approval is imminent. At this time, a 
summary of the formal application will be published in the Federal 
Register, and the application itself will be made available for review 
and comment through the docket. At each opportunity for notice in the 
Federal Register, OPS will communicate with national public, 
environmental and other interested organizations about the sites under 
consideration so that local officials can be notified and informed 
about planned program activities.
    Affected States will be a part of the Project Review Team (PRT) 
recommending whether or not OPS should approve a demonstration project. 
OPS will provide notification that encourages local officials and the 
public with questions about demonstration projects to raise them with 
State pipeline safety officials who can raise them with the PRT.
    OPS and industry's communications effort focusing on public and 
environmental officials and other interested organization 
representatives is intended to provide these officials with adequate 
information to reassure the public that an appropriate regulatory 
presence is in place during the demonstrations, and to describe how 
safety and environmental protection will be enhanced by risk 
management. OPS would appreciate comments on whether these mechanisms 
are adequate to ensure public and community involvement, and if not, 
what OPS and operators choosing to participate in the

[[Page 14726]]

demonstration projects can do to achieve such involvement.

VI. Report to Congress

    By March 31, 2000, OPS will submit a Report to Congress on the 
results of the demonstration projects, evaluating how effectively 
safety, environmental protection, and reliability have been improved by 
participating operators, the feasibility of risk management in general, 
and recommending whether and in what form risk management should be 
incorporated into the Federal pipeline safety program on a permanent 
basis.

Appendix B--The Pipeline Risk Management Demonstration Program Public 
Meeting, January 28, 1997, New Orleans, Louisiana

    Note: The complete transcript of this Public Meeting is 
available on the Internet at: http://ops.dot.gov

1. Background and Objectives

Moving into Implementation

    Over the last few years, the Office of Pipeline Safety (OPS) has 
been investigating the use of risk management as a regulatory 
alternative that would produce superior performance in more cost-
effective ways. Over this time, OPS has worked in partnership with the 
pipeline industry and State regulators through a series of Risk 
Assessment Quality Teams (RAQTs) and has discussed progress and 
concerns at a series of meetings and conferences, including a Pipeline 
Safety Summit in 1994, and Risk Management Conferences in 1995 and 
1996.
    The initial RAQTs, which investigated the feasibility of using risk 
management within the pipeline industry, concluded that risk management 
had the potential to provide significant benefits by improving safety, 
environmental protection, reliability, and cost-effective operation. 
However, these Teams noted a variety of technical and regulatory issues 
that still needed to be resolved, and recommended that a demonstration 
program be planned and implemented to test the viability of risk 
management as a regulatory alternative.
    The first Risk Management Conference, held in McLean, Virginia, in 
November 1995, identified the most important of these issues. A major 
conclusion from this first Risk Management Conference was that a set of 
``building blocks'' needed to be developed to provide an adequate 
foundation upon which a viable and responsible Risk Management 
Demonstration Program could be constructed. After this conference, 
partnerships representing OPS, States, localities, industry and the 
public were formed to design and construct the following building 
blocks:
     The Risk Management Program Framework that defines how OPS 
receives, reviews, approves, and monitors operators risk management 
demonstration projects;
     The Risk Management Program Standard that defines the 
essential elements and characteristics of an operator's risk management 
program;
     Guidance on Performance Measures that supports the ability 
of operators and OPS to monitor performance, ensure that superior 
performance is being achieved, and evaluate the results of the Risk 
Management Demonstration Program;
     A Communications Plan that describes how information about 
the demonstration projects will be provided to local safety officials 
and other interested parties, and how information from these parties 
will be input to the demonstration process;
     A Training Plan that defines how OPS, States, and industry 
will be trained in the risk management building blocks.
    Work commenced on these building blocks in early 1996. A second 
Risk Management Conference was held in Houston, Texas in April, 1996 to 
review progress and to hear input, concerns, and suggestions about the 
building blocks.
    A draft version of the Program Framework was developed by OPS and 
published in the Federal Register on November 15, 1996, followed by a 
60-day public comment period.
    A draft Program Standard was developed by the Program Standard 
Quality Team and referenced in the Federal Register notice. Comments 
were received, and incorporated into an Interim Program Standard in 
early January, 1997.
    A draft Performance Measures Guidance was produced by the 
Performance Measures Working Group, and distributed for comment in 
December, 1996.
    A draft Communications Plan was produced by OPS and the JRAQT 
Coordination Team and distributed for comment in early January, 1997.
    A draft Training Plan was produced by OPS and distributed for 
comment in early January, 1997.
    The Accountable Pipeline Safety and Partnership Act of 1996 was 
passed by Congress and signed into law by President Clinton on October 
12, 1996. This Act required the Secretary of Transportation to 
``establish risk management demonstration projects--A) to demonstrate, 
through the voluntary participation by owners and operators of gas 
pipeline facilities and hazardous liquid pipeline facilities, the 
application of risk management, and B) to evaluate the safety and cost-
effectiveness of the program.'' President Clinton provided additional 
direction to the Secretary through a Memorandum that directed the 
Secretary to implement administrative safeguards for carrying out the 
law that will enhance accountability and protection of public safety 
and the environment.

Meeting Purpose

    This Public Meeting was designed to allow OPS to: 1) Present to the 
public the basic risk management demonstration program building blocks, 
2) Describe and illustrate, with simple examples, how the review and 
approval process is envisioned to work, and 3) Obtain input from all 
interested parties concerning the building blocks or any other aspect 
of the Risk Management Demonstration Program.
    Each of the draft building block documents, the Act of 1996, the 
President's Directive, and other relevant documents were provided as 
handout to each person attending the meeting and distributed to all 
State pipeline safety agencies.
    [OPS received input from this Meeting, revised the draft building 
blocks as necessary, and published a final Program Framework in the 
Federal Register in March 1997, inviting companies to submit Letters of 
Intent for risk management demonstration projects.]

2. Conference Synopsis

    This section provides a brief summary of each of the major sessions 
on the Meeting agenda.

Welcome and Introduction

Richard Felder--Associate Administrator for Pipeline Safety
    Mr. Felder opened the conference by welcoming everyone. He noted 
that OPS and its State and industry partners started out over two years 
ago with the realization that there may be a better way of approaching 
pipeline safety regulation, an approach that is not event-driven and 
that does not result in specification-based regulation. OPS is looking 
for a better approach that will give superior safety through 
customization, flexibility, collaboration, and innovation.
    Mr. Felder read a letter from Mr. Bruce Ellsworth, a Public Service 
Commissioner in New Hampshire and

[[Page 14727]]

Chairman of the National Association of Regulatory Utility 
Commissioners, to illustrate changes in perception from the first risk 
management meetings until now. Mr. Ellsworth noted that he was 
originally skeptical about replacing the existing safety regulations 
with risk management. He believes that the Natural Gas Pipeline Safety 
Act of 1968 has led to an outstanding safety record, and was reluctant 
to fix something that was not broken. However, as a result of his 
participation on the Joint Risk Assessment Policy Steering Team, he has 
seen that there may be an opportunity to make the system work better, 
cheaper, and more effectively. Mr Ellsworth's letter stated that he 
believed OPS has been right in exploring the viability of risk 
management as a regulatory alternative, and communicated his support 
for the pilot demonstration program.
    Mr. Felder then delineated the basic building blocks of the 
Demonstration Program and emphasized the new awareness and resolve on 
the part of OPS to address the issues of public involvement.

RSPA Perspectives

Kelley Coyner, Research and Special Programs Administration
    Ms. Coyner's discussion focused on the two twins of ``opportunity'' 
and ``responsibility'' that risk management presents. Risk management 
provides a tremendous opportunity, but only if we take the 
responsibility to do it right very seriously. She said that the 
pipeline risk management initiative was consistent and supportive of 
President Clinton's vision of a government that is humble enough not to 
solve all of our problems, but strong enough to give us the tools to 
solve our problems ourselves.
    Ms. Coyner described the opportunities that risk management 
provides to comprehensively analyze risks, prioritize resources, and 
track performance; to be smarter and more accountable. She spoke of the 
responsibilities of continuing the partnerships that got us to this 
point, to continuously improve as we move forward, and to set clear and 
ambitious performance goals.
    A major theme of Ms. Coyner's talk was the need for communication 
and public involvement. Improving public involvement has been a program 
goal from the beginning. She asked members of the audience to take 
seriously the challenge to make sure that OPS and its partners are off 
to a good start and going in the right direction by providing their 
comments in this public meeting.

Risk Management Building Blocks Panel

Program Framework

Stacey Gerard, Office of Pipeline Safety

Program Standard

Denise Hamsher, Lakehead Pipe Line

Performance Measures Guidance

Ivan Huntoon, Office of Pipeline Safety, Don Stursma, Iowa Commerce 
Department

Communications Plan

Stacey Gerard, Office of Pipeline Safety

Training Outline

Richard Sanders, Transportation Safety Institute

Program Framework

    Ms. Gerard discussed the Program Framework, which describes the 
processes by which OPS will receive, review, approve, audit, and 
communicate information about operator risk management demonstration 
projects. She described the contents of the draft Program Framework 
(published in the Federal Register) and the comments received on this 
draft. Ms. Gerard also discussed the Accountable Pipeline Safety and 
Partnership Act of 1996 and the President's Directive that accompanied 
the law. She noted that the President's Directive requires that risk 
management demonstration projects produce superior safety and 
environmental protection, and directed OPS to place more emphasis on 
meaningful public and community involvement.
    Ms. Gerard outlined the basic steps in the regulatory process, 
including:
     The Letter of Intent (LOI), in which the company 
communicates its intention to develop and propose a risk management 
demonstration project;
     The Screening Process, in which OPS screens the LOI to 
select a set of potential projects that have the best chance of 
supporting the Demonstration Program goals;
     Pre-consultations, in which OPS staff meets with the 
selected operators to discuss their proposed project, clarify 
information in the LOI, and prepare the Project Review Team (PRT) for 
an efficient consultation with the operator;
     The Consultation Process, in which an PRT meets with the 
company, and through a series of discussions, information exchange, and 
interactions come to agreement on the scope and characteristics of an 
acceptable risk management demonstration project, leading to the 
submittal of an application by the operator;
     The Review and Approval Process, in which OPS reviews the 
operator's application, approves it if appropriate, and reflects the 
commitments and terms and conditions of the program in a DOT Order;
     The Audit Plan, developed by OPS, which will coincide with 
the company's Work Plan milestones and decision points, and which 
describes the specific processes and areas of OPS audits of the risk 
management demonstration project;
     The Implementation Phase, in which OPS and the operator 
monitor progress, and modify or terminate the project as necessary.
    She noted that, based on comments to the FR Notice, the window of 
time for submitting LOIs will be extended to 90 or 120 days. She 
strongly encouraged capable companies to submit LOIs.
    Ms. Gerard discussed the issue of the ``clear and established'' 
safety record required by the President in his Directive of all 
demonstration program participants. She noted that OPS wanted companies 
with a clear record of compliance to start the project, and OPS will 
work with companies to be sure there is a clear record.
    Ms. Gerard also discussed the issue of ``superior performance''. 
The President's Directive states that: ``The Secretary [of 
Transportation] shall require each project to achieve superior levels 
of public safety and environmental protection when compared with 
regulatory requirements that otherwise would apply.'' Ms. Gerard noted 
that, consistent with other aspects of the President's Directive, 
superior performance would be achieved through a combination of:
    (a) Improved analytical and decision-making processes. Risk 
management programs consistent with the Program Standard would be 
expected to include a comprehensive examination of risks, improved 
allocation of resources, enhanced communications within the company, 
better interactions with the regulators, meaningful public involvement, 
and other features that would lead to superior performance.
    (b) Selection of an integrated set of risk control activities that 
is expected to reduce risks to the public, workers, and the 
environment.
    (c) Full accountability. Operators will be expected to identify 
project-specific performance measures and submit project work plans 
that explicitly define operator commitments. These commitments are 
reflected in Orders that delineate the terms and conditions under which 
the operator's risk management program is authorized, and which are 
subject to the full

[[Page 14728]]

enforcement authority of the United States.
    She clarified the role of the States, stating that OPS is inviting 
the States to participate in the PRT process, but not mandating 
participation of the States.

Program Standard

    Ms. Hamsher, Co-Chair of the Joint Risk Assessment Program Standard 
Team, described the basic objectives of the Program Standard, how it 
was developed, and its basic elements. She stated that the Program 
Standard describes the basic elements and characteristics of an 
operator's risk management program. The Program Standard describes the 
basic program and process elements, and the functional requirements of 
a risk management program, but does not specify exactly how these 
elements or functions should be performed, allowing operators to 
customize their specific programs and technical tools to their 
situation and needs. It is not an instruction manual, a substitute for 
training, or a tool box. The Program Standard can provide the starting 
point for the OPS review of proposed demonstration projects, but it is 
not intended as a checklist for review and approval of demonstration 
projects.
    Ms. Hamsher discussed some of the risk management guiding 
principles that were developed by the JRAQT. One of the key guiding 
principles is that risk management is a management decision support 
process. It is not just a set of technical models, but a comprehensive 
program that is integrated with the overall operation of the company to 
produce better decisions leading to superior performance. Risk 
management supports responsible, prudent, and experienced managers, it 
does not replace them. She also noted a guiding principle that risk can 
be controlled and often reduced, but it cannot be totally eliminated. 
We all need to reinforce, and communicate this realization so that 
expectations for zero risk are not established. Another guiding 
principle that went into the development of the Standard was that risk 
management produces integrated information about safety and 
environmental protection. Risk management increases information and 
information flow, between the company, its regulators, and the public.
    She noted that the JRAQT recognized that the technical models, 
tools, and processes associated with a risk management program 
necessarily include some subjective judgements, uncertain assumptions, 
and limited data. Accordingly, the Program Standard includes a 
Performance Monitoring element that includes the definition and 
monitoring of performance measures that are directly tied to validating 
the specific assumptions and input data of the operator's risk 
assessment model and process.
    Ms. Hamsher concluded by discussing the future of the Program 
Standard. Progress on the demonstration projects will be monitored, and 
the Program Standard will be refined and improved over the next four 
years. However, because of the way the Program Standard was developed, 
laying out the basic elements without prescribing details, it is not 
expected that major modifications will be necessary over the 
demonstration period. It is expected that this Program Standard will 
eventually be transformed into an industry consensus standard.

Performance Measures Guidance

    Mr. Huntoon, Regional Director for the OPS Central Region, and Don 
Stursma, from the Iowa Commerce Department, discussed the work of the 
Performance Measures Workgroup and the issues the group addressed in 
producing the draft Guidance on Performance Measures. The Performance 
Measures Workgroup was formed after a number of issues related to 
performance measures were identified by the JRAQT Program Standard 
Team.
    The Workgroup concluded that there were two key areas where 
performance measures were important:
    (1) In monitoring the specific results produced by individual 
company demonstration projects to ensure that the underlying 
assumptions and input data of the risk assessment and risk control 
models are valid, and that the approved projects are indeed resulting 
in superior performance as predicted.
    (2) In assessing the overall success of the Risk Management 
Demonstration Program, providing input to the required OPS report to 
Congress, and other progress reports.
    Key issues that the Workgroup addressed were the availability of 
data to support meaningful performance monitoring and the cost and 
sensitivity of data reporting.
    The report produced by the Workgroup is intended to provide 
guidance for operators who are planning to participate in the risk 
management demonstration program. The guidance should assist operators 
in developing a performance monitoring process as described in the 
Program Standard, and provide OPS the information it needs to assess 
the overall effectiveness of risk management as a regulatory 
alternative.
    The project-specific performance measures will be included as part 
of the operator's demonstration project application, and will depend 
upon the expected outcomes of the demonstration project, and the 
selected risk control activities. Mr. Huntoon delineated some of the 
criteria developed by the Workgroup for these project-specific 
performance measures.
    In order to assess the overall benefit of risk management as a 
regulatory alternative, the Workgroup felt that program-wide 
performance measures were needed to allow individual companies and OPS 
to address the following questions:
    (1) Safety and Reliability. Does risk management result in greater 
safety, environmental protection, and service reliability than would 
otherwise be achieved through compliance with the safety regulations?
    (2) Resource Effectiveness. Are resources being better prioritized 
and more effectively applied under risk management?
    (3) Communication and Partnership. Have agency and industry 
involvement in the discussion of risks and risk control options, and 
the agency's and industry's ability to impact desired outcomes 
increased under risk management?
    Mr. Stursma discussed each of these major areas in turn, describing 
the issues that the Workgroup discussed in the process of producing the 
Guidance on Performance Measures. He also gave a variety of practical, 
everyday examples of the different types of performance measures to 
illustrate the concepts.
    He noted that the information gained from these program-wide 
performance measures will be used by OPS to prepare a report to 
Congress on the results of the Risk Management Demonstration Program. 
The report will address each individual project and provide an overall 
recommendation on the application of risk management as a regulatory 
alternative. It was recommended that a successor group to the 
Performance Measures Workgroup be formed, which would prepare annual, 
interim progress reports. It is expected that OPS, the successor group 
to the Performance Measures Workgroup, and operators participating in 
the demonstration program will jointly prepare the interim annual 
progress reports.

Communication Plan

    Ms. Gerard described the evolution of the Communications Plan and 
its basic elements. She reiterated the importance of meaningful public 
involvement to the

[[Page 14729]]

success of the risk management program, and summarized the numerous 
mechanisms planned for communication and involvement. In response to 
concerns expressed by some that the public would only be informed too 
late in the game to have any meaningful impact, Ms. Gerard pointed out 
that OPS will, right at the beginning of the review and approval 
process, summarize the Letters of Intent from companies selected to 
provide risk management project applications. In addition to 
publication in the Federal Register, project summaries will be 
distributed to local safety officials, and feedback loops will be 
established to obtain input from interested parties, at the very 
beginning of the consultation process. Information that comes in will 
feed into the pre-consultation and consultation process.
    Each project summary, referred to as a prospectus, will describe to 
local officials the objectives of each project, the safety alternatives 
being discussed, and the company's approach to communications with the 
public. The prospectus will define at least three points of contact for 
anyone wishing to provide information or comment. One point of contact 
will be from OPS Headquarters, one will be at the State level (if the 
State agrees), and one from the operating company. As new or additional 
information is developed during the consultation process, the 
prospectus will be updated to keep people posted on events throughout 
the process.
    At the time of the formal application from the company, the 
company's application will be made available in the docket, and a 
summary will be published in the Federal Register. When the application 
is approved and an Order is issued, OPS will issue another Federal 
Register Notice.
    Ms. Gerard stated that the aggressive OPS communications effort 
under risk management is a much larger commitment that they have ever 
made before because they understand how important meaningful public 
involvement is to the success of the program.

Training Outline

    Mr. Sanders, from the Transportation Safety Institute, summarized 
the training program that OPS is developing to support the risk 
management demonstration program. OPS is committed to joint government/
industry training to ensure that all parties have a mutual 
understanding of the program, and speak the same language (or can at 
least accurately interpret each other's language) to facilitate the 
consultation process, and ensure high quality, comprehensive risk 
management programs result that produce superior performance.
    Mr. Sanders outlined the currently envisioned training program, 
which is designed to support the Project Review Team, OPS, and the 
company during the project review and approval process. The program 
includes:
     An Overview of the Risk Management Demonstration Program.
     The Demonstration Process and Building Blocks.
     The Risk Management Program and Process Elements.
     OPS Auditing of an Approved Risk Management Demonstration 
Project.
     Prototypical Examples to Illustrate the Demonstration 
Process.
    The training program will be developed in a modular format, so that 
orientations and training courses can be customized to the specific 
audience, its level of experience, and its specific training needs. The 
first two blocks of the training listed above, and selected portions of 
the other blocks, can be provided as an orientation or ``headstart'' 
program to those that have not been actively involved in the program 
development phase, or who wish to establish a common starting point.
    The Risk Management Program and Process Elements portion of the 
training is based on the Program Standard building block produced by 
the JRAQT, and will provide overview descriptions of various types of 
risk assessment and prioritization models and processes.
    Mr. Sanders asked for review of the training material, and input 
about training needs, including the usefulness of video, computer-based 
training, or Internet interactive training.

Prototypes

Moderator: Mike Neuhard, Fairfax County Fire Department
Panelists: Bruce Hansen, Office of Pipeline Safety, Andy Drake, 
PanEnergy Corporation, Beth Callsen, Office of Pipeline Safety, Gary 
Zimmerman, Shell Pipeline
    Two examples of possible regulatory alternatives, one from the 
natural gas industry and one from the hazardous liquid industry were 
discussed to illustrate the demonstration process described in the 
Program Framework and discussed in the Building Blocks Panel. The 
examples were simplified versions of what would be expected in a real 
demonstration project, designed to illustrate the interactive process 
between OPS and the company, and were not presented as practical 
examples of comprehensive risk management programs or to illustrate the 
critical public involvement aspects of the process.
    The topics addressed by each of the prototypes included:
     The information expected in the Letter of Intent.
     The characteristics of the proposed demonstration project 
that OPS would look for in screening Letters of Intent.
     The topics that would be discussed at pre-consultation 
sessions between OPS staff and the operator.
     The discussions between the PRT and the company concerning 
the risk-based justification for the proposed safety alternatives.
     The performance measures necessary to validate assumptions 
of the risk models and to confirm that superior performance was being 
produced.

Audience Questions and Comments

    Questions and comments from the audience were received by speakers 
and panelists at a few different points in the meeting. Some of the 
major areas of questions and comments are summarized below. A full, 
verbatim set of all questions, comments, and OPS responses is available 
in the meeting transcript.
     The liability of companies under risk management 
demonstration projects for compliance with the existing Federal or 
State regulations.
    Mr. Felder stated that a company that implements an OPS-approved 
demonstration project is committed to abiding under the terms of their 
approved application, as reflected in the associated OPS Order. 
Participation in a demonstration project is not an exemption from the 
minimum Federal pipeline safety standards as a whole. The underlying 
regulations that would otherwise apply would not apply to the segment 
of the pipeline within the demonstration project; the approved project 
and corresponding Order would apply. There should be no problem from 
the public's perspective if the company is in compliance with the 
provisions of its demonstration project as opposed to being in 
compliance with the underlying regulations; compliance with provisions 
of the project is equivalent to compliance with the pipeline safety 
regulations. The up-front review and approval process assures at the 
outset that the demonstration project will result in a superior level 
of safety compared to what you would have under the minimum State 
standards.
     The quality of the data to support risk management.
    Mr. Felder noted that some of the audience comments reflected the

[[Page 14730]]

situation at OPS in years past, but did not reflect the many efforts 
over the past few years that OPS has taken in increasing partnership 
with industry, States, and the public to identify new regulatory 
pathways, to get the type of information needed to regulate 
effectively. He also noted that considerable work has gone into 
ensuring that the risk management process will significantly improve 
the amount and quality of data that will be available to OPS. The past 
is not a good indicator of where OPS is going in the future as far as 
risk information and data is concerned.
     The level and type of communication with the public, and 
OPS's role in this process.
    Mr. Felder and Ms. Gerard reiterated the importance placed on 
communication by OPS, and the need to engage in an unprecedented 
outreach effort from OPS, but also noted the joint responsibility for 
communication among OPS, industry, local safety officials, and the 
public. Government cannot, and should not, do everything. Mr. Felder 
said that it was important to understand that the people who run the 
companies are also citizens of the country. They have a great stake in 
the outcome of the work they do, and a great stake in the communities 
that they affect. That is why OPS is enlisting their resources as part 
of the public outreach process. He further noted that OPS is working 
with national organizations because they have people and resources in 
every community in America, and this can leverage OPS efforts in 
getting down to the local community level. He stated that we need a 
communication partnership among Federal regulators, the States, 
national organizations, local officials, and the public.
    Mr. Felder also pointed out that the situation with a risk 
management demonstration project is not analogous to the siting of new 
pipeline, where a company may be introducing a new risk into a 
community that did not exist before. Risk management demonstration 
projects will only be allowed by OPS where the company can demonstrate 
that superior performance can be achieved. The communications and due-
process needs and mechanisms are accordingly different than that 
associated with a new right-of-way or zoning change hearing where new 
and additional risks are being introduced.
    Ms. Hamsher pointed out that, in addition to the OPS Communication 
Plan, the Program Standard contained explicit requirements for the 
company to develop a two-way communications effort, ensuring that 
public information will be input to the risk assessment and risk 
control processes.
     Public access to the Letters of Intent.
    Mr. Felder stated that the Letters of Intent, as well as the formal 
company application will be available in the docket for public 
examination.
     The interactive nature of the screening process.
    Mr. Felder and Ms. Gerard stated that the screening process may 
require information meetings and interactions with the companies to 
clarify points in the Letters of Intent or to gather additional 
information needed by OPS. However, any interactions, consultations, or 
discussions with the company or States does not change the ultimate 
responsibility for public safety, which sits in the hands of the OPS 
regulators.
     The relationship between the OPS program and other 
regulators such as EPA.
    Mr. Felder noted that OPS has had close collaboration with Mineral 
Management Service and works closely with the Coast Guard, a part of 
DOT. OPS is interested in putting together a larger network of agencies 
to share experiences about risk management and other alternative 
approaches to regulation. OPS has already performed a study that looked 
at over a dozen other State agency programs in risk management, 
defining and incorporating lessons learned from these programs into the 
pipeline risk management program. OPS has began meeting with EPA and 
will continue to consult with the EPA on issues of mutual interest.
    [Subsequent to the public meeting, OPS briefed the 15 State 
National Response Team (NRT) agencies and invited them to participate 
in the Demonstration Program. As part of the screening and selection 
process, OPS will contact NRT officials whose regions may be affected 
by a proposed demonstration project to identify an appropriate role for 
the officials' participation in the Demonstration Program. This could 
entail the NRT official identifying any issues and concerns he or she 
may have with a candidate demonstration project, including the 
company's safety and environmental compliance record. OPS will keep 
these officials abreast of the Demonstration Program and individual 
projects in their regions via annual program briefings, project 
prospectuses, and updates.]
     Limitations on the number of demonstration projects.
    Mr. Felder stated that OPS is restricted by Presidential directive 
to ten demonstration projects, involving interstate pipelines. No 
demonstration projects are planned for the local distribution companies 
at this time. In addition, OPS will be undertaking a variety of other 
initiatives related to regulatory reform and risk-based regulation 
beyond the demonstration projects themselves. OPS is committed to 
ensuring a high quality demonstration program that protects and 
improves safety and the environment, understands the significant 
resources required to support this program, and will not take on any 
more projects than it can responsibly and prudently handle.

Summary and Closing

John Riordan, Interstate Natural Gas Association of America (INGAA) 
Pipeline Safety Task Force, Joe Martinelli, API General Committee on 
Pipelines, Rich Felder, Office of Pipeline Safety
    Mr. Riordan, from MidCon and the spokesman for INGAA, discussed how 
the Board of INGAA, which is represented by the Chief Executive 
Officers of the major pipelines in the United States, Mexico, and 
Canada became interested in risk management as a means to improve 
safety. He noted that society and the marketplace are demanding 
increased accountability from industry and the people that regulate the 
industry, and INGAA believes that the risk management demonstration 
program is very important in this regard. He emphasized the importance 
of communications, and the need to continuously improve in a changing 
world.
    Mr. Martinelli, past President of Chevron Pipeline and Chairman of 
the General Committee on Pipeline for API, recounted the history of how 
industry, OPS, and other interested parties got to this point on risk 
management. He applauded the tremendous amount of work done by a large 
number of people in government and industry and the public. He noted 
that a key recognition four years ago was ``one size fits all'' 
regulation was not in the best interests of anybody, and a fundamental 
change was needed. Mr. Martinelli discussed the difficulty of change, 
whether in a person, a company, or an entire industry, and challenged 
all parties to not be fearful of change. He warned people not to get 
caught up in the ``30-year'' syndrome or the ``not invented here'' 
syndrome that resists change. He also talked about the recognition that 
government and industry had to be more collaborative than adversarial. 
Mr. Martinelli also noted that we were not

[[Page 14731]]

at the end of a journey with the development of the risk management 
building blocks, but just at the beginning of the journey, and the 
journey will be a long and hard one that requires significant continued 
effort from all parties. A key message was: ``Get comfortable with 
change'' and he provided a rule of thumb called the Rule of Three 
Positives. ``When somebody suggests a change to you, don't say: `No, 
that won't work. That's not the way I do it.' When somebody suggests 
something new, stop and think and make three positive comments about 
the new idea before you make one negative comment.'' He challenged the 
companies to be innovative, creative, and provide OPS with so many 
quality demonstration proposals that their selection process will be 
difficult.
    Mr. Felder closed the conference by expressing appreciation to all 
those that attended and to all of his staff that made the public 
meeting possible. He and Stacey Gerard then handed out DOT certificates 
of appreciation to individuals outside the government, in industry, the 
public, and contractors, that have worked with the various Risk 
Assessment Quality Teams.

[FR Doc. 97-7827 Filed 3-26-97; 8:45 am]
BILLING CODE 4910-60-P