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Testimony:

Before the Subcommittee on Highways, Transit and Pipelines, Committee 
on Transportation and Infrastructure, House of Representatives:

United States General Accounting Office:

GAO:

For Release on Delivery Expected at 10:00 a.m. EDT:

Wednesday, June 16, 2004:

Pipeline Safety:

Preliminary Information on the Office of Pipeline Safety's Efforts to 
Strengthen Its Enforcement Activities:

Statement of Katherine Siggerud, Director, Physical Infrastructure 
Issues:

GAO-04-875T:

GAO Highlights:

Highlights of GAO-04-875T, a testimony before the Subcommittee on 
Highways, Transit and Pipelines, Committee on Transportation and 
Infrastructure, House of Representatives 

Why GAO Did This Study:

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 House Committee on 
Transportation and Infrastructure and for other committees, as required 
by the Pipeline Safety Improvement Act of 2002. This The testimony 
provides preliminary results on (1) the effectiveness of OPS’s 
enforcement strategy and (2) OPS’s actions for assessing assessment of 
civil penalties.

What GAO Found:

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. But, OPS 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 made 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: 

[See PDF for image]

[End of figure]

OPS has increased both the number and the size of the civil penalties 
it has 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 amount 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 a number ofseveral 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, it is not clear to what degree, if 
any, this action will have on deterring noncompliance with safety 
regulations. A wide range of stakeholders—-including industry, state, 
and insurance company officials and public advocacy groups-—expressed 
differing views about on whether OPS's these civil 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. 

What GAO Recommends:

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-04-875T.

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.

[End of section]

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 
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 
integrity management program 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.

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.[Footnote 1] However, the number of serious 
hazardous liquid accidents has stayed about the same while the number 
of serious natural gas accidents has increased.[Footnote 2] (See fig. 
1.) Finally, the serious accident rate--which considers the amount of 
product and the distance shipped--for hazardous liquids has decreased. 
None of these statistics show a consistent 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--on average 
about 150 per year for both types combined.

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

[See PDF for image]

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.

[End of figure]

The hazardous liquid accident rate is 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 
rate 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 the House Committee on Transportation and Infrastructure 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 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, and program 
guidance and on our discussions with OPS officials and a broad range of 
stakeholders.[Footnote 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 
these goals, and measures of performance that are linked to the program 
goals. We also examined the extent to which OPS assessed civil 
penalties from 1994 through 2003 and 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 
exception, were sufficiently reliable for our purposes.[Footnote 4] We 
performed our work in accordance with generally accepted government 
auditing standards.

In summary:

* 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.

* 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. 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:

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.[Footnote 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.[Footnote 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 a 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 
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.[Footnote 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.

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

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 the goals that would allow an assessment 
of the enforcement strategy's impact on pipeline safety.

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.[Footnote 8] In 2001, to further strengthen its enforcement, 
OPS began issuing more corrective action orders requiring operators to 
address safety problems that had 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.[Footnote 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.

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 the strategy will contribute to the achievement of the 
agency's 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 for 
implementing the new authority provided by the act.[Footnote 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 
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.[Footnote 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.[Footnote 12]

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

Measure: Measures OPS currently uses: Achievement of agency performance 
goals; 
Examples: Annual numbers of natural gas and hazardous liquid pipeline 
accidents and tons of hazardous liquid materials spilled per million 
ton-miles shipped.

Measure: Measures OPS currently uses: Inspection and enforcement 
activity; 
Examples: Number of inspections completed; hours per inspection; 
accident investigations; enforcement actions taken, by type; and 
average proposed civil penalty amounts.

Measure: Measures OPS currently uses: Integrity management 
performance; 
Examples: 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].

Measure: Measures OPS is considering developing: Management of 
enforcement actions; 
Examples: 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.

Measure: Measures OPS is considering developing: Safety improvements 
ordered by OPS; 
Examples: Actions by pipeline operators in response to corrective 
action orders, including miles of pipeline assessed, defects 
discovered, repairs made, and selected costs incurred.

Measure: Measures OPS is considering developing: Results of integrity 
management and operator qualification inspections; 
Examples: The percentage of pipeline operators that did not meet 
certain requirements and the reduction in the number of operators with 
a particular deficiency. 

Source: GAO analysis of OPS information.

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

[End of table]

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.[Footnote 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:

* 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.[Footnote 14]

* 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.

* Measures should provide useful information for decision-making, 
including adjusting policies and priorities.[Footnote 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.

OPS Has Increased Its Use of Civil Penalties; the Effect on Deterrence 
Is Unclear:

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.[Footnote 16] Pipeline safety 
stakeholders expressed differing opinions about whether OPS's civil 
penalties are effective in deterring noncompliance with pipeline safety 
regulations.

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.

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

[See PDF for image]

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

[End of figure]

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.[Footnote 17] From 2000 through 2003, the average assessed 
civil penalty increased by 62 percent to about $29,000.[Footnote 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.[Footnote 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 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 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 the OPS 
inspector had stated, OPS reduced the proposed penalty from $177,000 to 
$67,000.

Operators Paid Full Amounts of Most Civil Penalties:

Of the 216 penalties that OPS assessed from 1994 through 2003, pipeline 
operators paid the full amount 93 percent of the time (200 instances) 
and a reduced amount 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:

[See PDF for image]

[End of figure]

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 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. 
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.[Footnote 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.

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 Subcommittee might have.

Contacts and Acknowledgments:

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

FOOTNOTES

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

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

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

[4] The 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.

[5] In 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. 

[6] Standards 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 general agreement within industry.

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

[8] For 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). 

[9] OPS 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."

[10] We 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).

[11] See 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).

[12] In addition, measures of pipeline operators' 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.

[13] See, 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). 

[14] We 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).

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

[16] The 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.

[17] All 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). 

[18] The 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.

[19] OPS 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 emerge from bankruptcy court. 

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