Pipeline Safety: Preliminary Information on the Office of	 
Pipeline Safety's Enforcement Activities (15-JUN-04,		 
GAO-04-826T).							 
                                                                 
Interstate pipelines carrying natural gas and hazardous liquids  
(such as petroleum products) are safer to the public than other  
modes of freight transportation. The Office of Pipeline Safety	 
(OPS), the federal agency that administers the national 	 
regulatory program to ensure safe pipeline transportation, has	 
been undertaking a broad range of activities to make pipeline	 
transportation safer. However, the number of serious		 
accidents--those involving deaths, injuries, and property damage 
of $50,000 or more--has not fallen. Among other things, OPS takes
enforcement action against pipeline operators when safety	 
problems are found. OPS has several enforcement tools to require 
the correction of safety violations. It can also assess monetary 
sanctions (civil penalties). This testimony is based on ongoing  
work for the Senate Committee on Commerce, Science and		 
Transportation and for other committees, as required by the	 
Pipeline Safety Improvement Act of 2002. The testimony provides  
preliminary results on (1) the effectiveness of OPS's enforcement
strategy and (2) OPS's assessment of civil penalties.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-826T					        
    ACCNO:   A10499						        
  TITLE:     Pipeline Safety: Preliminary Information on the Office of
Pipeline Safety's Enforcement Activities			 
     DATE:   06/15/2004
  SUBJECT:   Pipeline Safety 				        
                                                                 

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GAO-04-826T

United States General Accounting Office

GAO Testimony

Before the Committee on Commerce, Science and Transportation, U.S. Senate

For Release on Delivery

Expected at 9:30 a.m. EDT PIPELINE SAFETY

Tuesday, June 15, 2004

     Preliminary Information on the Office of Pipeline Safety's Enforcement
                                   Activities

Statement of Katherine Siggerud, Director Physical Infrastructure Issues

GAO-04-826T

Highlights of GAO-04-826T, a testimony before the Committee on Commerce,
Science and Transportation, U.S. Senate

Interstate pipelines carrying natural gas and hazardous liquids (such as
petroleum products) are safer to the public than other modes of freight
transportation. The Office of Pipeline Safety (OPS), the federal agency
that administers the national regulatory program to ensure safe pipeline
transportation, has been undertaking a broad range of activities to make
pipeline transportation safer. However, the number of serious accidents-
those involving deaths, injuries, and property damage of $50,000 or
more-has not fallen. Among other things, OPS takes enforcement action
against pipeline operators when safety problems are found. OPS has several
enforcement tools to require the correction of safety violations. It can
also assess monetary sanctions (civil penalties).

This testimony is based on ongoing work for the Senate Committee on
Commerce, Science and Transportation and for other committees, as required
by the Pipeline Safety Improvement Act of 2002. The testimony provides
preliminary results on (1) the effectiveness of OPS's enforcement strategy
and (2) OPS's assessment of civil penalties.

GAO expects to issue a report in July 2004 that will address these and
other topics and anticipates making recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-04-826T.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Katherine Siggerud at (202)
512-2834 or [email protected].

June 15, 2004

PIPELINE SAFETY

Preliminary Information on the Office of Pipeline Safety's Enforcement
Activities

The effectiveness of OPS's enforcement strategy cannot be determined
because the agency has not incorporated three key elements of effective
program management-clear program goals, a well-defined strategy for
achieving goals, and performance measures that are linked to program
goals. (See below.) Without these key elements, the agency cannot
determine whether recent and planned changes in its strategy will have the
desired effects on pipeline safety. Over the past several years, OPS has
focused on other efforts-such as developing a new risk-based regulatory
approach- that it believes will change the safety culture of the industry.
While OPS has become more aggressive in enforcing its regulations, it now
intends to further strengthen the management of its enforcement program.
In particular, OPS is developing an enforcement policy that will help
define its enforcement strategy and has taken initial steps toward
identifying new performance measures. However, OPS does not plan to
finalize the policy until 2005 and has not adopted key practices for
achieving successful performance measurement systems, such as linking
measures to goals.

Incorporation of Key Program Management Elements into OPS's Enforcement
Strategy

OPS increased both the number and the size of the civil penalties it
assessed against pipeline operators over the last 4 years (2000-2003)
following its decision to be "tough but fair" in assessing penalties. OPS
assessed an average of 22 penalties per year during this period, compared
with an average of 14 per year for the previous 5 years (1995-1999), a
period of more lenient "partnering" with industry. In addition, the
average penalty increased from $18,000 to $29,000 over the two periods.
About 94 percent of the 216 penalties levied from 1994 through 2003 have
been paid. The civil penalty is one of several actions OPS can take when
it finds a violation, and these penalties represent about 14 percent of
all enforcement actions over the past 10 years. While OPS has increased
the number and size of civil penalties, stakeholders-including industry,
state, and insurance company officials and public advocacy
groups-expressed differing views on whether these penalties deter
noncompliance with safety regulations. Some, such as pipeline operators,
thought that any penalty was a deterrent if it kept the pipeline operator
in the public eye, while others, such as safety advocates, told us that
the penalties were too small to be effective sanctions.

Mr. Chairman and Members of the Committee:

We appreciate the opportunity to participate in this hearing on the
oversight of the Office of Pipeline Safety (OPS). As you know, pipeline
transportation for hazardous liquids and natural gas is the safest form of
freight transportation, and OPS has taken many steps to make it safer.1
However, the number of serious hazardous liquid accidents has stayed about
the same while the number of serious natural gas accidents has increased.2
(See fig. 1.) Finally, the serious accident rate-which considers the
amount of product and distance shipped-for hazardous liquids has
decreased. None of these statistics show a constant pattern. In part, the
lack of significant change over time and the fluctuation over time may be
due to the relatively small number of serious accidents-an average of
about 150 per year for both types combined.

1Hazardous liquid pipelines carry products such as crude oil, diesel fuel,
gasoline, jet fuel, anhydrous ammonia, and carbon dioxide.

2Serious accidents are those resulting in a death, injury, or $50,000 or
more in property damage.

Figure 1: Numbers of Serious Accidents and Accident Rate for Interstate
Pipelines, 1994 through 2003

Notes: This figure does not include the injuries that occurred during one
series of accidents caused by severe flooding near Houston, Texas, in
October 1994.

The accident rate is the number of serious accidents per billion ton-miles
shipped. (A ton-mile is 1 ton of a product shipped 1 mile.)

The accident rates are based on the volume of petroleum products shipped.
Federal agencies and industry associations we contacted could not provide
data on other hazardous liquids shipped. Aggregated industry data on the
amounts of products shipped through hazardous liquid pipelines for 2002
and 2003 are not available so we do not present accident rate information
for those years. We are inquiring into the availability of data on natural
gas shipped through interstate pipelines; these data are needed to
calculate the accident rates for this type of pipeline.

A cornerstone to OPS's efforts over the past several years has been the
agency's development and implementation of a risk-based approach that it
believes will fundamentally improve the safety of pipeline transportation.
This approach, called integrity management, requires interstate pipeline
operators to identify and fix safety-related threats to their pipelines in
areas where an accident could have the greatest consequences. OPS believes
that this approach has more potential to improve safety than its
traditional approach, which focused on enforcing compliance with safety

standards regardless of the threat to pipeline safety. Officials have
emphasized that integrity management, coupled with other initiatives, such
as oversight of operators' programs to qualify employees to operate their
pipelines, represents a systematic approach to overseeing and improving
pipeline safety that will change the safety culture of the industry and
drive down the number of accidents.

Now that its integrity management approach and other initiatives are
substantially under way, OPS recognizes that it needs to turn its
attention to the management of its enforcement program. Accordingly, my
testimony today focuses on opportunities for improving certain aspects of
OPS's enforcement program that should be useful to OPS as it decides how
to proceed and to this committee as it continues to exercise oversight.

My statement is based on the preliminary results of our ongoing work for
this committee and others. As directed by the Pipeline Safety Improvement
Act of 2002, we have been (1) evaluating the effectiveness of OPS's
enforcement strategy and (2) examining OPS's assessment of monetary
sanctions (called civil penalties) against interstate pipeline operators
that violate federal pipeline safety rules. We expect to report on the
results of our work on these and other issues next month.

Our work is based on our review of laws, regulations, program guidance,
and discussions with OPS officials and a broad range of stakeholders.3 To
evaluate the effectiveness of OPS's enforcement strategy, we determined
the extent to which the agency's strategy incorporates three key elements
of effective program management: clear program goals, a well-defined
strategy for achieving goals, and measures of performance that are linked
to program goals. We also examined how OPS assessed civil penalties from
1994 through 2003 and the extent to which pipeline operators have paid
them. Finally, we interviewed stakeholders on whether OPS's civil
penalties help deter safety violations. As part of our work, we assessed
internal controls and the reliability of the data elements needed for this
engagement, and we determined that the data elements, with one

3These stakeholders represent industry trade associations, pipeline
companies, federal enforcement agencies, state pipeline enforcement
agencies and associations, pipeline safety advocacy groups, and pipeline
insurers.

exception, were sufficiently reliable for our purposes.4 We performed our
work in accordance with generally accepted government auditing standards.

In summary:

o  	The effectiveness of OPS's enforcement strategy cannot be evaluated
because the agency has not incorporated three key elements of effective
program management-clear program goals, a well-defined strategy for
achieving those goals, and measures of performance that are linked to the
program goals. Without these three key elements, OPS cannot determine
whether recent and planned changes in its enforcement strategy are having
or will have the desired effects on pipeline safety. Under a more
aggressive enforcement strategy (termed "tough but fair") that OPS
initiated in 2000, the agency is using the full range of its enforcement
tools, rather than relying primarily as it did before on more lenient
administrative actions, such as warning letters. However, OPS has not
established goals that specify the intended results of this new strategy,
developed a policy that describes the strategy and the strategy's
contribution to pipeline safety, or put measures in place that would allow
OPS to determine and demonstrate the effects of this strategy on pipeline
safety. OPS is developing an enforcement policy that will help define its
enforcement strategy and has taken some initial steps toward identifying
new measures of enforcement performance. However, it does not anticipate
finalizing this policy until sometime in 2005 and has not adopted key
practices for achieving successful performance measurement systems, such
as linking measures to program goals.

o  	OPS increased both the number and the size of the civil penalties it
assessed in response to criticism that its enforcement activities were
weak and ineffective. For example, from 2000 through 2003, following its
decision to be tough but fair in assessing civil penalties, OPS assessed
an average of 22 penalties per year, compared with an average of 14
penalties per year from 1995 through 1999, when OPS's policy was to
"partner" with industry, rather than primarily to enforce compliance. In
addition, from 2000 through 2003, OPS assessed an average civil penalty of
about $29,000, compared with an average of $18,000 from 1995 through 1999.
Departmental data show that operators have paid 94 percent (202 of 216) of
the civil penalties issued over the past 10 years. Civil penalties are one

4The data elements needed to determine when civil penalties were paid
were, in our opinion, too unreliable to use to report on timeliness of
payments. This limitation did not create a major impediment to our
reporting on OPS's use of civil penalties overall.

of several enforcement actions that OPS can take to increase compliance
and represent about 14 percent of all enforcement actions taken over the
past 10 years. Although OPS has increased both the number and the size of
its civil penalties, it is not clear whether this action will help deter
noncompliance with the agency's safety regulations. The pipeline safety
stakeholders we spoke with expressed differing views on whether OPS's
civil penalties deter noncompliance with the pipeline safety regulations.
Some-such as pipeline industry officials-said that civil penalties of any
size act as a deterrent, in part because they keep companies in the public
eye. Others-such as pipeline safety advocacy groups-said that OPS's civil
penalties are too small to deter noncompliance.

Background 	OPS, within the Department of Transportation's Research and
Special Programs Administration (RSPA), administers the national
regulatory program to ensure the safe transportation of natural gas and
hazardous liquids by pipeline.5 The office attempts to ensure the safe
operation of pipelines through regulation, national consensus standards,
research, education (e.g., to prevent excavation-related damage),
oversight of the industry through inspections, and enforcement when safety
problems are found.6 The office uses a variety of enforcement tools, such
as compliance orders and corrective action orders that require pipeline
operators to correct safety violations, notices of amendment to remedy
deficiencies in operators' procedures, administrative actions to address
minor safety problems, and civil penalties. OPS is a small federal agency.
In fiscal year 2003, OPS employed about 150 people, about half of whom
were pipeline inspectors.

Before imposing a civil penalty on a pipeline operator, OPS issues a
notice of probable violation that documents the alleged violation and a
notice of proposed penalty that identifies the proposed civil penalty
amount. Failure by an operator to inspect the pipeline for leaks or unsafe
conditions is an

5In general, OPS retains full responsibility for inspecting interstate
pipelines and enforcing regulations applicable to them. OPS certifies
states to perform these functions for intrastate pipelines. OPS has
agreements with 11 state pipeline enforcement agencies, known as
interstate agents, to help it inspect segments of interstate pipelines
within these states' boundaries. However, OPS undertakes any enforcement
actions identified through inspections conducted by interstate agents.

6Standards are technical specifications that pertain to products and
processes, such as the size, strength, or technical performance of a
product. National consensus standards are developed by standard-setting
entities, such as the American Society for Testing and Materials, on the
basis of an industry consensus.

example of a violation that may lead to a civil penalty. OPS then allows
the operator to present evidence either in writing or at an informal
hearing. Attorneys from RSPA's Office of Chief Counsel preside over these
hearings. Following the operator's presentation, the civil penalty may be
reaffirmed, reduced, or withdrawn. If the hearing officer determines that
a violation did occur, the Office of Chief Counsel issues a final order
that requires the operator to correct the safety violation (if a
correction is needed) and pay the penalty (called the "assessed penalty").
The operator has 20 days after the final order is issued to pay the
penalty. The Federal Aviation Administration (FAA) collects civil
penalties for OPS.7

From 1992 through 2002, federal law allowed OPS to assess up to $25,000
for each day a violation continued, not to exceed $500,000 for any related
series of violations. In December 2002, the Pipeline Safety Improvement
Act increased these amounts to $100,000 and $1 million, respectively.

The effectiveness of OPS's enforcement strategy cannot be determined
because OPS has not incorporated three key elements of effective program
management-clear performance goals for the enforcement program, a fully
defined strategy for achieving these goals, and performance measures
linked to goals that would allow an assessment of the enforcement
strategy's impact on pipeline safety.

  Key Management Elements Are Needed to Determine the Effectiveness of OPS's
  Enforcement Strategy

OPS's Enforcement Strategy Has Been Evolving

OPS's enforcement strategy has undergone significant changes in the last 5
years. Before 2000, the agency emphasized partnering with the pipeline
industry to improve pipeline safety rather than punishing noncompliance.
In 2000, in response to concerns that its enforcement was weak and
ineffective, the agency decided to institute a "tough but fair"
enforcement approach and to make greater use of all its enforcement tools,
including larger and more frequent civil penalties.8 In 2001, to further
strengthen its

7To consolidate its accounting functions, in September 1993 RSPA began
contracting with FAA to collect its accounts receivable, including civil
penalties for OPS.

8For example, in May 2000, we reported that OPS had dramatically reduced
its use of civil penalties and increased its use of administrative actions
over the years without assessing the effects of these actions. See
Pipeline Safety: Office of Pipeline Safety Is Changing How It Oversees the
Pipeline Industry, GAO/RCED-00-128 (Washington, D.C.: May 15, 2000).

enforcement, OPS began issuing more corrective action orders requiring
operators to address safety problems that led or could lead to pipeline
accidents. In 2002, OPS created a new Enforcement Office to focus more on
enforcement and help ensure consistency in enforcement decisions. However,
this new office is not yet fully staffed, and key positions remain vacant.

In 2002, OPS began to enforce its new integrity management and operator
qualification standards in addition to its minimum safety standards.
Initially, while operators were gaining experience with the new, complex
integrity management standards, OPS primarily used notices of amendment,
which require improvements in procedures, rather than stronger enforcement
actions. Now that operators have this experience, OPS has begun to make
greater use of civil penalties in enforcing these standards.

OPS has also recently begun to reengineer its enforcement program. Efforts
are under way to develop a new enforcement policy and guidelines, develop
a streamlined process for handling enforcement cases, modernize and
integrate the agency's inspection and enforcement databases, and hire
additional enforcement staff. However, as I will now discuss, OPS has not
put in place key elements of effective management that would allow it to
determine the impact of its evolving enforcement program on pipeline
safety.

OPS Needs Goals for its Enforcement Program

Although OPS has overall performance goals, it has not established
specific goals for its enforcement program. According to OPS officials,
the agency's enforcement program is designed to help achieve the agency's
overall performance goals of (1) reducing the number of pipeline accidents
by 5 percent annually and (2) reducing the amount of hazardous liquid
spills by 6 percent annually.9 Other agency efforts-including the
development of a risk-based approach to finding and addressing significant
threats to pipeline safety and of education to prevent excavation-related
damage to pipelines-are also designed to help achieve these goals.

9OPS refers to the release of natural gas from a pipeline as an "incident"
and a spill from a hazardous liquid pipeline as an "accident." For
simplicity, this testimony refers to both as "accidents."

OPS's overall performance goals are useful because they identify the end
outcomes, or ultimate results, that OPS seeks to achieve through all its
efforts. However, OPS has not established performance goals that identify
the intermediate outcomes, or direct results, that OPS seeks to achieve
through its enforcement program. Intermediate outcomes show progress
toward achieving end outcomes. For example, enforcement actions can result
in improvements in pipeline operators' safety performance-an intermediate
outcome that can then result in the end outcome of fewer pipeline
accidents and spills. OPS is considering establishing a goal to reduce the
time it takes the agency to issue final enforcement actions. While such a
goal could help OPS improve the management of the enforcement program, it
does not reflect the various intermediate outcomes the agency hopes to
achieve through enforcement. Without clear goals for the enforcement
program that specify intended intermediate outcomes, agency staff and
external stakeholders may not be aware of what direct results OPS is
seeking to achieve or how enforcement efforts contribute to pipeline
safety.

OPS Needs to Fully Define Its Enforcement Strategy

OPS has not fully defined its strategy for using enforcement to achieve
its overall performance goals. According to OPS officials, the agency's
increased use of civil penalties and corrective action orders reflects a
major change in its enforcement strategy. However, although OPS began to
implement these changes in 2000, it has not yet developed a policy that
defines this new, more aggressive enforcement strategy or describes how it
will contribute to the achievement of its performance goals. In addition,
OPS does not have up-to-date, detailed internal guidelines on the use of
its enforcement tools that reflect its current strategy. Furthermore,
although OPS began enforcing its integrity management standards in 2002
and received greater enforcement authority under the 2002 pipeline safety
act, it does not yet have guidelines in place for enforcing these
standards or implementing the new authority provided by the act.10

According to agency officials, OPS management communicates enforcement
priorities and ensures consistency in enforcement decisions through
frequent internal meetings and detailed inspection protocols and guidance.
Agency officials recognize the need to develop an enforcement

10We have reported on challenges that OPS faces in enforcing its complex
integrity management requirements consistently and effectively. See our
August 2002 report,

Pipeline Safety and Security: Improved Workforce Planning and
Communication Needed, GAO-02-785 (Washington, D.C.: Aug. 26, 2002).

policy and up-to-date detailed enforcement guidelines and have been
working to do so. To date, the agency has completed an initial set of
enforcement guidelines for its operator qualification standards and has
developed other draft guidelines. However, because of the complexity of
the task, agency officials do not expect that the new enforcement policy
and remaining guidelines will be finalized until sometime in 2005.

The development of an enforcement policy and guidelines should help define
OPS's enforcement strategy; however, it is not clear whether this effort
will link OPS's enforcement strategy with intermediate outcomes, since
agency officials have not established performance goals specifically for
their enforcement efforts. We have reported that such a link is
important.11

OPS Needs Adequate Measures of the Effectiveness of Its Enforcement
Strategy

According to OPS officials, the agency currently uses three performance
measures and is considering three additional measures to determine the
effectiveness of its enforcement activities and other oversight efforts.
(See table 1.) The three current measures provide useful information about
the agency's overall efforts to improve pipeline safety, but do not
clearly indicate the effectiveness of OPS's enforcement strategy because
they do not measure the intermediate outcomes of enforcement actions that
can contribute to pipeline safety, such as improved compliance. The three
measures that OPS is considering could provide more information on the
intermediate outcomes of the agency's enforcement strategy, such as the
frequency of repeat violations and the number of repairs made in response
to corrective action orders, as well as other aspects of program
performance, such as the timeliness of enforcement actions.12

11See U.S. General Accounting Office, Managing for Results: Strengthening
Regulatory Agencies' Performance Management Practices, GAO/GGD-00-10
(Washington, D.C.: Oct. 28, 1999); Agency Performance Plans: Examples of
Practices That Can Improve Usefulness to Decisionmakers,
GAO/GGD/AIMD-99-69 (Washington, D.C.: Feb. 26, 1999); and The Results Act:
An Evaluator's Guide to Assessing Agency Annual Performance Plans,
GAO/GGD-10.1.20 (Washington, D.C., Apr. 1998).

12In addition, measures of pipeline operator integrity management
performance and of the results of integrity management and operator
qualification inspections could provide information on the intermediate
outcomes of these regulatory approaches.

Table 1: Enforcement Program Performance Measures That OPS Currently Uses and Is
                    Considering Developing Measure Examples

Measures OPS currently uses

Achievement of agency performance goals 	Annual numbers of natural gas and
hazardous liquid pipeline accidents and tons of hazardous liquid materials
spilled per million ton-miles shipped.

Inspection and enforcement activity 	Number of inspections completed;
hours per inspection; accident investigations; enforcement actions taken,
by type; and average proposed civil penalty amounts.

Integrity management performance 	Annual numbers of accidents in areas
covered by integrity management standards and of actions by pipeline
operators in response to these standards, such as repairs completed and
miles of pipeline assessed.a

                     Measures OPS is considering developing

Management of enforcement actions 	The time taken to issue final
enforcement actions, the extent to which penalty amounts are reduced, and
the extent to which operators commit repeat violations.

Safety improvements ordered by OPS 	Actions by pipeline operators in
response to corrective action orders, including miles of pipeline
assessed, defects discovered, repairs made, and selected costs incurred.

Results of integrity management and operator qualification The percentage
of pipeline operators that did not meet certain

inspections 	requirements and the reduction in the number of operators
with a particular deficiency.

Source: GAO analysis of OPS information.

aOPS started collecting some of these data in 2002 but does not anticipate
obtaining all of it on an annual basis until 2005.

We have found that agencies that are successful in measuring performance
strive to establish measures that demonstrate results, address important
aspects of program performance, and provide useful information for
decision-making.13 While OPS's new measures may produce better information
on the performance of its enforcement program than is currently available,
OPS has not adopted key practices for achieving these characteristics of
successful performance measurement systems:

o  	Measures should demonstrate results (outcomes) that are directly
linked to program goals. Measures of program results can be used to hold
agencies accountable for the performance of their programs and can

13See, for example, GAO/GGD/AIMD-99-69; Executive Guide: Effectively
Implementing the Government Performance and Results Act, GAO/GGD-96-118
(Washington, D.C.: June 1996); and Tax Administration: IRS Needs to
Further Refine Its Tax Filing Season Performance Measures, GAO-03-143
(Washington, D.C.: Nov. 22, 2002).

facilitate congressional oversight. If OPS does not set clear goals that
identify the desired results (intermediate outcomes) of enforcement, it
may not choose the most appropriate performance measures. OPS officials
acknowledge the importance of developing such goals and related measures
but emphasize that the diversity of pipeline operations and the complexity
of OPS's regulations make this a challenging task.14

o  	Measures should address important aspects of program performance and
take priorities into account. An agency official told us that a key factor
in choosing final measures would be the availability of supporting data.
However, the most essential measures may require the development of new
data. For example, OPS has developed databases that will track the status
of safety issues identified in integrity management and operator
qualification inspections, but it cannot centrally track the status of
safety issues identified in enforcing its minimum safety standards. Agency
officials told us that they are considering how to add this capability as
part of an effort to modernize and integrate their inspection and
enforcement databases.

o  	Measures should provide useful information for decision-making,
including adjusting policies and priorities.15 OPS uses its current
measures of enforcement performance in a number of ways, including
monitoring pipeline operators' safety performance and planning
inspections. While these uses are important, they are of limited help to
OPS in making decisions about its enforcement strategy. OPS has
acknowledged that it has not used performance measurement information in
making decisions about its enforcement strategy. OPS has made progress in
this area by identifying possible new measures of enforcement results
(outcomes) and other aspects of program performance, such as indicators of
the timeliness of enforcement actions, that may prove more useful for
managing the enforcement program.

14We have reported on the challenges faced by agencies in developing
measures of program results and on their approaches for overcoming such
challenges. See, in particular, GAO/GGD-00-10; Managing for Results:
Measuring Program Results That Are Under Limited Federal Control,
GAO/GGD-99-16 (Washington, D.C.: Dec. 11, 1998); and Managing for Results:
Regulatory Agencies Identified Significant Barriers to Focusing on
Results, GAO/GGD-97-83 (Washington, D.C.: June 24, 1997).

15See, for example, GAO/GGD-96-118 and U.S. General Accounting Office,
Results-Oriented Government: GPRA Has Established a Solid Foundation for
Achieving Greater Results, GAO-04-38 (Washington, D.C.: Mar. 10, 2004).

OPS Has Increased Its In 2000, in response to criticism that its
enforcement activities were weak

and ineffective, OPS increased both the number and the size of the civil
Use of Civil Penalties; monetary penalties it assessed.16 Pipeline safety
stakeholders expressed the Effect on differing opinions about whether
OPS's civil penalties are effective in

deterring noncompliance with pipeline safety regulations.

  Deterrence Is Unclear

                             OPS Now Assesses More
                           and Larger Civil Penalties

OPS assessed more civil penalties during the past 4 years under its
current "tough but fair" enforcement approach than it did in the previous
5 years, when it took a more lenient enforcement approach. (See fig. 2.)
From 2000 through 2003, OPS assessed 88 civil penalties (22 per year on
average) compared with 70 civil penalties from 1995 through 1999 (about 14
per year on average). For the first 5 months of 2004, OPS proposed 38
civil penalties. While the recent increase in the number and the size of
civil penalties may reflect OPS's new "tough but fair" enforcement
approach, other factors, such as more severe violations, may be
contributing to the increase as well.

16The civil penalty results we present largely reflect OPS's enforcement
of its minimum safety standards because integrity management enforcement
did not begin until 2002.

Our results may differ from the results that OPS reports because our data
are organized differently. OPS reports an action in the year in which it
occurred. For example, OPS may propose a penalty in one year and assess it
in another year. The data for this action would show up in different
years. To better track the disposition of civil penalties, we associated
assessed penalties and penalty amounts with the year in which they were
proposed-even if the assessment occurred in a later year.

Figure 2: OPS's Use of Civil Penalties, 2000 through 2003, Compared with
1995 through 1999

Note: The amounts in this figure may not be comparable to the amounts that
OPS reports. See footnote 16.

Overall, OPS does not use civil penalties extensively. Civil penalties
represent about 14 percent (216 out of 1,530) of all enforcement actions
taken over the past 10 years. OPS makes more extensive use of other types
of enforcement actions that require pipeline operators to fix unsafe
conditions and improve inadequate procedures, among other things. In
contrast, civil penalties represent monetary sanctions for violating
safety regulations but do not require safety improvements. OPS may
increase its use of civil penalties as it begins to use them to a greater
degree for violations of its integrity management standards.

The average size of the civil penalties has increased. For example, from
1995 through 1999, the average assessed civil penalty was about $18,000.17
From 2000 through 2003, the average assessed civil penalty increased by 62
percent to about $29,000.18 Assessed penalty amounts ranged from $500 to
$400,000.

In some instances, OPS reduces proposed civil penalties when it issues its
final order. We found that penalties were reduced 31 percent of the time
during the 10-year period covered by our work (66 of 216 instances). These
penalties were reduced by about 37 percent (from a total of $2.8 million
to $1.7 million). The dollar difference between the proposed and the
assessed penalties would be over three times as large had our analysis
included the extraordinarily large penalty for the Bellingham, Washington,
incident. For this case, OPS proposed a $3.05 million penalty and had
assessed $250,000 as of May 2004.19 If we include this penalty, then over
this period OPS reduced total proposed penalties by about two-thirds, from
about $5.8 million to about $2 million.

OPS's database does not provide summary information on why penalties are
reduced. According to an OPS official, the agency reduces penalties when
an operator presents evidence that the OPS inspector's finding is weak or
wrong or when the pipeline's ownership changes during the period between
the proposed and assessed penalty. It was not practical for us to gather
information on a large number of penalties that were reduced, but we did
review several to determine the reasons for the reductions. OPS reduced
one of the civil penalties we reviewed because the operator provided
evidence that OPS inspectors had miscounted the number of pipeline valves
that OPS said the operator had not inspected. Since the violation was not
as severe as OPS had stated, OPS reduced the proposed penalty from
$177,000 to $67,000.

17All amounts are in current year dollars. Inflation was low during the
1995-2003 period. If the effects of inflation were considered, the average
assessed penalty amount for 1995 through 1999 would be $21,000 and the
average amount for 2000 through 2003 would be $30,000 (in 2003 dollars).

18The median civil penalty size for the 1995-1999 period was about $5,800
and the median size for the 2000-2003 period was $12,700.

19OPS proposed a $3.05 million penalty against Equilon Pipeline Company,
LLC (Olympic Pipeline Company) for the Bellingham incident and later
assessed Shell Pipeline Company (formerly Equilon) $250,000, which it
collected. According to RSPA's Office of Chief Counsel, the penalty
against Olympic Pipeline is still open, waiting for the company to come
out of bankruptcy court.

Operators Paid Full Of the 216 penalties that OPS assessed from 1994
through 2003, pipeline Amounts of Most Civil operators paid the full
amount 93 percent of the time (200 instances) and Penalties reduced
amounts 1 percent of the time (2 instances). (See fig. 3.) Fourteen

penalties (6 percent) remain unpaid, totaling about $837,000 (or 18
percent

of penalty amounts).

Figure 3: Number of Civil Penalties Paid, 1994 through 2003

In two instances, operators paid reduced amounts. We followed up on one of
these assessed penalties. In this case, the operator requested that OPS
reconsider the assessed civil penalty and OPS reduced it from $5,000 to
$3,000 because the operator had a history of cooperation and OPS wanted to
encourage future cooperation.

For the 14 unpaid penalties, neither FAA's nor OPS's data show why the
penalties have not been collected. We expect to present a fuller
discussion of the reasons for these unpaid penalties and OPS's and FAA's
management controls over the collection of penalties when we report to
this and other committees next month.

The Effect of OPS's Larger Although OPS has increased both the number and
the size of the civil
Civil Penalties on penalties it has imposed, the effect of this change on
deterring
Deterring Noncompliance noncompliance with safety regulations, if any, is
not clear. The
Is Unclear stakeholders we spoke with expressed differing views on whether
the civil

penalties deter noncompliance. The pipeline industry officials we
contacted believed that, to a certain extent, OPS's civil penalties

encourage pipeline operators to comply with pipeline safety regulations
because they view all of OPS's enforcement actions as deterrents to
noncompliance. However, some industry officials said that OPS's
enforcement actions are not their primary motivation for safety. Instead,
they said that pipeline operators are motivated to operate safely because
they need to avoid any type of accident, incident, or OPS enforcement
action that impedes the flow of products through the pipeline and hinders
their ability to provide good service to their customers. Pipeline
industry officials also said that they want to operate safely and avoid
pipeline accidents because accidents generate negative publicity and may
result in costly private litigation against the operator.

Most of the interstate agents, representatives of their associations, and
insurance company officials expressed views similar to those of the
pipeline industry officials, saying that they believe civil penalties
deter operators' noncompliance with regulations to a certain extent.
However, a few disagreed with this point of view. For example, the state
agency representatives and a local government official said that OPS's
civil penalties are too small to be deterrents. Pipeline safety advocacy
groups that we talked to also said that the civil penalty amounts OPS
imposes are too small to have any deterrent effect on pipeline operators.
As discussed earlier, for 2000 through 2003, the average assessed penalty
was about $29,000.

According to economic literature on deterrence, pipeline operators may be
deterred if they expect a sanction, such as a civil penalty, to exceed any
benefits of noncompliance.20 Such benefits could, in some cases, be lower
operating costs. The literature also recognizes that the negative
consequences of noncompliance-such as those stemming from lawsuits, bad
publicity, and the value of the product lost from accidents-can deter
noncompliance along with regulatory agency oversight. Thus, for example,
the expected costs of a legal settlement could overshadow the lower
operating costs expected from noncompliance, and noncompliance might be
deterred.

20Expected sanctions are the product of the sanction amount and the
likelihood of being detected and sanctioned by that amount.

  Contacts and Acknowledgments

(542035)

Mr. Chairman, this concludes my prepared statement. We expect to report
more fully on these and other issues when we complete our work next month.
We also anticipate making recommendations to improve OPS's ability to
demonstrate the effectiveness of its enforcement strategy and to improve
OPS's and FAA's management controls over the collection of civil
penalties. I would be pleased to respond to any questions that you or
Members of the Committee might have.

For information on this testimony, please contact Katherine Siggerud at
(202) 512-2834 or [email protected]. Individuals making key contributions
to this testimony are Jennifer Clayborne, Judy Guilliams-Tapia, Bonnie
Pignatiello Leer, Gail Marnik, James Ratzenberger, and Gregory Wilmoth.

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