Pipeline Safety: Preliminary Information on the Office of
Pipeline Safety's Actions to Strengthen Its Enforcement Program
(20-JUL-04, GAO-04-985T).
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. When safety problems are found, OPS can
take enforcement action against pipeline operators, including
requiring the correction of safety violations and assessing
monetary sanctions (civil penalties). This testimony is based on
ongoing work for the House Committee on Energy and Commerce 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-04-985T
ACCNO: A11041
TITLE: Pipeline Safety: Preliminary Information on the Office of
Pipeline Safety's Actions to Strengthen Its Enforcement Program
DATE: 07/20/2004
SUBJECT: Financial analysis
Hazardous substances
Noncompliance
Performance measures
Pipeline operations
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GAO-04-985T
United States Government Accountability Office
GAO Testimony
Before the Subcommittee on Energy and Air Quality, Committee on Energy and
Commerce, House of Representatives
For Release on Delivery
Expected at 11:00 a.m. EDT PIPELINE SAFETY
Tuesday, July 20, 2004
Preliminary Information on the Office of Pipeline Safety's Actions to Strengthen
Its Enforcement Program
Statement of Katherine Siggerud, Director Physical Infrastructure Issues
GAO-04-985T
Highlights of GAO-04-985T, a testimony before the Subcommittee on Energy
and Air Quality, Committee on Energy and Commerce, House of
Representatives
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. When safety problems are found, OPS can take
enforcement action against pipeline operators, including requiring the
correction of safety violations and assessing monetary sanctions (civil
penalties).
This testimony is based on ongoing work for the House Committee on Energy
and Commerce 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 the next several days that will address
these and other topics and anticipates making recommendations aimed at
improving OPS's enforcement program and management controls over civil
penalty collection.
www.gao.gov/cgi-bin/getrpt?GAO-04-985T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Katherine Siggerud at (202)
512-2834 or siggerudk@gao.gov.
July 20, 2004
PIPELINE SAFETY
Preliminary Information on the Office of Pipeline Safety's Actions to Strengthen
Its Enforcement Program
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 primarily on other efforts-such as developing a new risk-based
regulatory approach-that it believes will change the safety culture of the
industry. OPS has also became more aggressive in enforcing its regulations
and now plans 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 a 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 the size of its 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 Subcommittee:
We appreciate the opportunity to participate in this hearing on progress
made by the Office of Pipeline Safety (OPS) in implementing the provisions
of the Pipeline Safety Improvement Act of 2002. The act strengthens
federal pipeline safety programs, state oversight of pipeline operators,
and public education on pipeline safety. My remarks center on work,
required by the act, that we have almost completed on the effectiveness of
OPS's enforcement strategy and its use of monetary sanctions (civil
penalties) when safety problems are found. The act also requires that we
report in 2006 on OPS's implementation of its risk-based safety program,
called integrity management, and on a requirement that operators assess
their facilities every 7 years for safety risks. We expect to begin work
on these two topics next year.
OPS has been taking many steps to make pipeline transportation safer. 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 aspects of OPS's
enforcement program that should be useful to OPS as it decides how to
proceed and to this subcommittee as it continues to exercise oversight.
My statement is based on the preliminary results of our ongoing work for
the House Committee on Energy and Commerce and for 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 in the next few days.
Our work is based on our review of laws, regulations, program guidance,
and discussions with OPS officials and a broad range of stakeholders.1 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 proposed and assessed civil
penalties from 1994 through 2003 and the extent to which pipeline
operators have paid them.2 Finally, we interviewed stakeholders on whether
OPS's civil penalties help deter safety violations. As part of our work,
we assessed internal controls and the reliability of the data elements
needed for this engagement, and we determined that the data elements, with
one exception, were sufficiently reliable for our purposes.3 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
1These stakeholders represent industry trade associations, pipeline
companies, federal enforcement agencies, state pipeline agencies and
associations, pipeline safety advocacy groups, and pipeline insurers.
2Before OPS imposes a civil penalty, it issues a notice of probable
violation to the pipeline operator that documents the alleged violation
and identifies the proposed civil penalty amount. OPS then allows the
operator to present additional evidence. Unless the proposed violation and
penalty are withdrawn after this step, OPS issues a final order that
requires the operator to pay the penalty (termed "assessed penalties").
3The data elements needed to determine when civil penalties were paid
were, in our opinion, too unreliable to use to report on the timeliness of
payments. This limitation did not create a major impediment to our
reporting on OPS's use of civil penalties overall.
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 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. OPS assessed the penalty that it
proposed 69 percent of the time (150 of 216 civil penalties). For the
remaining 66 penalties, OPS reduced the assessments by about 37
percent-from a total of about $2.8 million to about $1.7 million. OPS's
database does not provide summary information on why penalties are
reduced. As a result, we are not able to provide information on the most
common reasons why penalties were reduced. Civil penalties are one of
several enforcement actions that OPS can take to increase compliance and
represent about 14 percent of all enforcement actions taken over the past
10 years. Although OPS has increased both the number and the size of its
civil penalties, it is not clear whether this action will help deter
noncompliance with the agency's safety regulations. The pipeline safety
stakeholders we spoke with expressed differing views on whether OPS's
civil penalties deter noncompliance with the pipeline safety regulations.
Some-such as pipeline industry officials-said that civil penalties of any
size act as a deterrent, in part because they keep companies in the public
eye. Others-such as pipeline safety advocacy groups-said that OPS's civil
penalties are too small to deter noncompliance.
Background Pipeline transportation for hazardous liquids and natural gas
is the safest form of freight transportation.4 By one measure, the annual
number of accidents, the hazardous liquid pipeline industry's safety
record has greatly improved over the past 10 years. (See fig. 1.) From
1994 through 2003, accidents on interstate hazardous liquid pipelines
decreased by almost 49 percent from 245 in 1994 to 126 in 2003.5 However,
the industry's safety record for these pipelines has not improved for
accidents with the greatest consequences-those resulting in a fatality,
injury, or property damage totaling $50,000 or more-which we term serious
accidents.6 The number of serious accidents stayed about the same over the
10-year period-about 88 every year. The overall accident rate for
hazardous liquid pipelines-which considers both the amounts of products
and the distances shipped-decreased from about 0.41 accidents per billion
ton-miles shipped in 1994 to about 0.25 accidents per billion ton-miles
shipped in 2002.7 The accident rate for serious interstate hazardous
liquid pipeline accidents stayed the same, averaging about 0.15 accidents
per billion ton-miles shipped from 1994 through 2002.
4Hazardous liquid pipelines carry products such as crude oil, diesel fuel,
gasoline, jet fuel, anhydrous ammonia, and carbon dioxide.
5Until February 2002, OPS required pipeline operators to report incidents
with gross product losses of 50 barrels or more. In February 2002, OPS
reduced the reporting threshold to 5 barrels. To maintain consistency over
the 10-year period on which we are reporting, we use the 50-barrel
threshold for product losses after February 2002.
6OPS requires that operators of hazardous liquid and natural gas pipelines
report accidents involving deaths, injuries, and $50,000 or more worth of
property damage, among other things. We selected this indicator because
these reporting requirements are common to both types of pipelines and
because it reflects accidents with serious consequences.
7A ton-mile is 1 ton of a product shipped 1 mile. Aggregated industry data
on the amounts of products shipped through hazardous liquid pipelines for
2003 are not available.
Figure 1: Number of Accidents and Accident Rate for Interstate Hazardous
Liquid Pipelines, 1994 through 2003
Notes: The hazardous liquid accident rate is expressed in terms of
accidents per billion ton-miles 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 2003 are not available, so we do not
present accident rate information for this year.
In contrast to the decreasing number of accidents overall for hazardous
liquid pipelines, the annual number of accidents on interstate natural gas
pipelines increased by almost 20 percent from 81 in 1994 to 97 in 2003.
(See fig. 2.) The number of serious accidents on interstate natural gas
pipelines also increased, from 64 in 1994 to 84 in 2003, though they have
fluctuated considerably over this time. Information on accident rates for
natural gas pipelines is not available because of the lack of data on the
amount of natural gas shipped through pipelines. For both hazardous liquid
and natural gas pipelines, the lack of improvement in the number of
serious accidents may be due in part to the relatively small number of
these accidents.
Figure 2: Number of Accidents on Interstate Natural Gas Pipelines, 1994
through 2003
Note: Data on the amounts of natural gas shipped through interstate
pipelines are not available; these data are needed to calculate the
accident rate.
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. The office attempts to ensure the safe operation of
pipelines through regulation, national consensus standards,8 research,
education (e.g., to prevent excavation-related damage), oversight of the
industry through inspections, and enforcement when safety problems are
found. 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
8Standards 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.
2003, OPS employed about 150 people, about half of whom were pipeline
inspectors.
Before imposing a civil penalty on a pipeline operator, OPS issues a
notice of probable violation that documents the alleged violation and a
notice of proposed penalty that identifies the proposed civil penalty
amount. Failure by an operator to inspect the pipeline for leaks or unsafe
conditions is an example of a violation that may lead to a civil penalty.
OPS then allows the operator to present evidence either in writing or at
an informal hearing. Attorneys from RSPA's Office of Chief Counsel preside
over these hearings. Following the operator's presentation, the civil
penalty may be affirmed, reduced, or withdrawn. If the hearing officer
determines that a violation did occur, the OPS's associate administrator
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.9
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
9To consolidate its accounting functions, in September 1993 RSPA began
contracting with FAA to collect its accounts receivable, including civil
penalties for OPS.
approach and to make greater use of all its enforcement tools, including
larger and more frequent civil penalties.10 In 2001, to further strengthen
its enforcement, OPS began issuing more corrective action orders requiring
operators to address safety problems that led or could lead to pipeline
accidents. In 2002, OPS created a new Enforcement Office to focus more on
enforcement and help ensure consistency in enforcement decisions. However,
this new office is not yet fully staffed, and key positions remain vacant.
In 2002, OPS began to enforce its new integrity management and operator
qualification standards in addition to its minimum safety standards.
Initially, while operators were gaining experience with the new, complex
integrity management standards, OPS primarily used notices of amendment,
which require improvements in procedures, rather than stronger enforcement
actions. Now that operators have this experience, OPS has begun to make
greater use of civil penalties in enforcing these standards.
OPS has also recently begun to reengineer its enforcement program. Efforts
are under way to develop a new enforcement policy and guidelines, develop
a streamlined process for handling enforcement cases, modernize and
integrate the agency's inspection and enforcement databases, and hire
additional enforcement staff. However, as I will now discuss, OPS has not
put in place key elements of effective management that would allow it to
determine the impact of its evolving enforcement program on pipeline
safety.
OPS Needs Goals for Its Enforcement Program
Although OPS has overall performance goals, it has not established
specific goals for its enforcement program. According to OPS officials,
the agency's enforcement program is designed to help achieve the agency's
overall performance goals of (1) reducing the number of pipeline accidents
by 5 percent annually and (2) reducing the amount of hazardous liquid
spills by 6 percent annually.11 Other agency efforts-including the
10For 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).
11OPS 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."
development of a risk-based approach to finding and addressing significant
threats to pipeline safety and of education to prevent excavation-related
damage to pipelines-are also designed to help achieve these goals.
OPS's overall performance goals are useful because they identify the end
outcomes, or ultimate results, that OPS seeks to achieve through all its
efforts. However, OPS has not established performance goals that identify
the intermediate outcomes, or direct results, that OPS seeks to achieve
through its enforcement program. Intermediate outcomes show progress
toward achieving end outcomes. For example, enforcement actions can result
in improvements in pipeline operators' safety performance-an intermediate
outcome that can then result in the end outcome of fewer pipeline
accidents and spills. OPS is considering establishing a goal to reduce the
time it takes the agency to issue final enforcement actions. While such a
goal could help OPS improve the management of the enforcement program, it
does not reflect the various intermediate outcomes the agency hopes to
achieve through enforcement. Without clear goals for the enforcement
program that specify intended intermediate outcomes, agency staff and
external stakeholders may not be aware of what direct results OPS is
seeking to achieve or how enforcement efforts contribute to pipeline
safety.
OPS Needs to Fully Define Its Enforcement Strategy
OPS has not fully defined its strategy for using enforcement to achieve
its overall performance goals. According to OPS officials, the agency's
increased use of civil penalties and corrective action orders reflects a
major change in its enforcement strategy. 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.12
According to agency officials, OPS management communicates enforcement
priorities and ensures consistency in enforcement decisions through
frequent internal meetings and detailed inspection protocols and guidance.
Agency officials recognize the need to develop an enforcement policy and
up-to-date detailed enforcement guidelines and have been working to do so.
To date, the agency has completed an initial set of enforcement guidelines
for its operator qualification standards and has developed other draft
guidelines. However, because of the complexity of the task, agency
officials do not expect that the new enforcement policy and remaining
guidelines will be finalized until sometime in 2005.
The development of an enforcement policy and guidelines should help define
OPS's enforcement strategy; however, it is not clear whether this effort
will link OPS's enforcement strategy with intermediate outcomes, since
agency officials have not established performance goals specifically for
their enforcement efforts. We have reported that such a link is
important.13
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
12We 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).
13See 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).
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.14
Table 1: Enforcement Program Performance Measures That OPS Currently Uses
and Is Considering Developing
Measure Examples
Measures OPS currently uses
Achievement of agency Annual numbers of natural gas and hazardous liquid
performance goals 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
a
and miles of pipeline assessed.
Measures OPS is considering developing
Management of The time taken to issue final enforcement actions, the
enforcement actions extent to which penalty amounts are reduced, and the
extent to which operators commit repeat violations.
Safety improvements Actions by pipeline operators in response to
corrective
ordered by OPS action orders, including miles of pipeline assessed,
defects discovered, repairs made, and selected costs incurred.
Results of integrity The percentage of pipeline operators that did not
meet management and operator certain requirements and the reduction in the
number of qualification inspections 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 the information 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
14In 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.
decision-making.15 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
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.16
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.17 OPS uses its current
15See, 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).
16We 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).
17See, 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).
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.
In 2000, in response to criticism that its enforcement activities were
weak and ineffective, OPS increased both the number and the size of the
civil monetary penalties it assessed.18 Pipeline safety stakeholders
expressed differing opinions about whether OPS's civil penalties are
effective in deterring noncompliance with pipeline safety regulations.
OPS Has Increased Its Use of Civil Penalties; the Effect on 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. 3.)
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.
18The 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 3: 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 18.
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 $18,000.19
From 2000 through 2003, the average assessed civil penalty increased by 62
percent to about $29,000.20 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). This analysis does not include the extraordinarily large
penalty of $3.05 million that OPS proposed as a result of the Bellingham,
Washington, accident because including it would have skewed our results by
making the average penalty appear to be larger than it actually is.21 OPS
has assessed the operator $250,000 as of July 2004.22 If we had included
this penalty in our analysis we find that 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 the 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
19All 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).
20The 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.
21We also excluded from our analysis a proposed $2.5 million penalty
resulting from the Carlsbad, New Mexico, accident. OPS had not assessed a
penalty as of mid-July. RSPA has referred the penalty to the Department of
Justice for judicial action.
22OPS 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.
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. Because we reviewed only a
small number of instances in which penalties were reduced, we cannot say
whether these examples are typical.
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. 4.) Fourteen
penalties (6 percent) remain unpaid, totaling about $836,700 (or 18
percent
of penalty amounts).
Figure 4: 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.
Neither FAA's nor OPS's data show why the 14 unpaid penalties have not
been collected. From the information provided by both agencies, we
determined that OPS closed 2 of the penalty cases without collecting the
penalties, operators are appealing 5 penalties, OPS recently assessed 3
penalties, and OPS acknowledged that 4 penalties (totaling $45,200) should
have been collected.
The Effect of OPS's Larger Civil Penalties on Deterring Noncompliance Is
Unclear
Although OPS has increased both the number and the size of the civil
penalties it has imposed, the effect of this change on deterring
noncompliance with safety regulations, if any, is not clear. The
stakeholders we spoke with expressed differing views on whether the civil
penalties deter noncompliance. The pipeline industry officials we
contacted believed that, to a certain extent, OPS's civil penalties
encourage pipeline operators to comply with pipeline safety regulations
because they view all of OPS's enforcement actions as deterrents to
noncompliance. However, some industry officials said that OPS's
enforcement actions are not their primary motivation for safety. Instead,
they said that pipeline operators are motivated to operate safely because
they need to avoid any type of accident, incident, or OPS enforcement
action that impedes the flow of products through the pipeline and hinders
their ability to provide good service to their customers. Pipeline
industry officials also said that they want to operate safely and avoid
pipeline accidents because accidents generate negative publicity and may
result in costly private litigation against the operator.
Most of the interstate agents, representatives of their associations, and
insurance company officials expressed views similar to those of the
pipeline industry officials, saying that they believe civil penalties
deter operators' noncompliance with regulations to a certain extent.23
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.
23OPS has agreements with 11 state pipeline 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.
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.24 Such benefits could, in some cases, be lower
operating costs. The literature also recognizes that the negative
consequences of noncompliance-such as those stemming from lawsuits, bad
publicity, and the value of the product lost from accidents-can deter
noncompliance along with regulatory agency oversight. Thus, for example,
the expected costs of a legal settlement could overshadow the lower
operating costs expected from noncompliance, and noncompliance might be
deterred.
Mr. Chairman, this concludes my prepared statement. We expect to report
more fully on these and other issues in our report that we expect to issue
later this week. 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 Subcommittee might have.
Contacts and For information on this testimony, please contact Katherine
Siggerud at (202) 512-2834 or siggerudk@gao.gov. Individuals making key
Acknowledgments contributions to this testimony are Jennifer Clayborne,
Judy Guilliams-Tapia, Bonnie Pignatiello Leer, Gail Marnik, James
Ratzenberger, and Gregory Wilmoth.
24Expected sanctions are the product of the sanction amount and the
likelihood of being detected and sanctioned by that amount.
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