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Witness Testimony
Mr. Paul D. Koonce
Pipeline Safety Mr. Chairman and Members of the Subcommittee: Good morning. My name is Paul Koonce and I am Chief Executive Officer of Dominion Energy. I am testifying today on behalf of the Interstate Natural Gas Association of America (INGAA). INGAA represents the interstate and interprovencial natural gas pipeline industry in North America. INGAA's members transport over 90 percent of the natural gas consumed in the U.S., through an 180,000-mile pipeline network. Dominion, headquartered in Richmond, Virginia, is one of the nation's largest producers of energy. Dominion's portfolio consists of nearly 24,000 megawatts of electric power transmitted over more than 6,000 miles of transmission lines, 6.3 trillion cubic feet equivalent of natural gas reserves, 7,900 miles of natural gas pipeline and the nation's largest natural gas storage system with more than 960 billion cubic feet of storage capacity. Dominion also serves 5 million electric and natural gas retail customers in nine states. The North American pipeline network provides the indispensable link between natural gas supply and the local distribution companies that serve retail customers. Natural gas represents 25 percent of the primary energy consumed annually in the United States, a contribution second only to petroleum and exceeding that of coal. Consequently, the natural gas pipeline delivery network is a critical part of the nation's infrastructure. This is why the safe and reliable operation of these pipeline systems is so important. Because the natural gas pipeline network is essentially a "just-in-time" delivery system, with limited storage capability, customers large and small depend on reliable around-the-clock service. And of course, the public wants to know that these pipeline systems crisscrossing the nation and serving their communities are safe. Mr. Chairman, these pipeline systems are safe -- the safest mode of transportation in the country -- and working together the pipeline industry and the Office of Pipeline Safety are making this valuable network even more safe and secure. Progress at the Office of Pipeline Safety Since this Subcommittee last debated the issue of pipeline safety, several years ago, a great deal of progress has been made at the Department of Transportation's Office of Pipeline Safety (OPS). As recently as five years ago, many in Congress and in the public at large were saying that the OPS was an agency of sub-standard performance. The General Accounting Office cited the backlog of unfinished, congressionally mandated rulemakings, the numerous DOT Inspector General recommendations that had not been implemented, and the poor acceptance rate for National Transportation Safety Board (NTSB) recommendations. For years, the OPS had the lowest acceptance rate of any modal office at DOT for NTSB safety recommendations, at about 69 percent. Take a look at what has happened since that time. The OPS now has the second-highest acceptance rate for NTSB safety recommendations, right behind the Highway Safety Administration, at 86 percent. The backlog of unfinished, congressionally mandated rulemakings is virtually gone, and by any measure, OPS has made great strides in improving its effectiveness. Perhaps the most important accomplishment by the OPS since the passage of the Pipeline Safety Improvement Act of 2002 is the completion of the natural gas pipeline integrity management rule. This rule, required by the 2002 Act, took the better part of 2003 to develop before its final issuance in December. When the Notice of Proposed Rulemaking was released to the public in early 2003, the INGAA membership had a great deal of concern about its focus, its effectiveness, and workability. However, the OPS took our concerns about the proposed rule seriously, and worked with our industry in developing a final rule that remains true to the mandate from Congress, and does so in a way that is technically-based, practical and effective. INGAA made a commitment to assist OPS in accomplishing these goals in 1999. We have followed through on our commitments to help OPS accomplish their goals. INGAA believes that all of this work on the part of OPS has made the agency a more effective safety regulator. Enforcement has improved. Public education and communications efforts have improved. Audit and inspection activity is more focused and effective. All this should translate into Congress and the public having more faith in the safety and reliability of the natural gas pipeline infrastructure. What the Pipeline Industry is Doing to Implement the New Integrity Rule The pipeline industry has been working hard too. As the nation increases its demand for natural gas, more pipeline capacity is needed to deliver additional supplies to growing markets. Whenever a new pipeline is proposed, or an existing pipeline proposes an expansion, communities and citizen groups raise the issue of safety. These communities and groups often have significant influence in the approval process, and therefore their concerns need to be taken seriously. In order for our industry to meet its objectives for serving a growing natural gas market, we also need to reassure the public that pipelines are a safe mode for energy transportation. Recent accident statistics are worth examination. For the years 2002 and 2003, there were no fatalities or injuries associated with accidents on interstate natural gas pipelines located in "high consequence areas," or the areas with higher population near a pipeline. There were four accidents during this period that resulted in injuries to one pipeline employee and three pipeline contractors, but these occurred on natural gas pipeline segments located in rural areas; i.e., not high consequence areas. Three incidents did occur on interstate natural gas pipelines in high consequence areas during 2002 and 2003, but these did not result in either a fatality or an injury, and were therefore only reported to OPS because the damage costs (including the cost of natural gas lost) exceeded $50,000. The new natural gas pipeline integrity rule has been a significant area of focus for the industry. Let me assure the Subcommittee that we are not resting on our existing safety record. Over a dozen consensus standards have been completed, or are near completion, to support this rule, and have been supported by multimillion dollar collaborative research programs. The Pipeline Safety Improvement Act requires each natural gas pipeline operator to conduct a risk analysis and develop an integrity management plan for pipeline in high consequence areas by December 17th of this year. However, the law also required operators to begin integrity assessments on their pipelines by June 17th of this year. The "highest priority" fifty percent of an operator's high consequence areas (based on the risk analysis) must complete a baseline integrity assessment within five years of enactment (December 17th, 2007), with the remaining fifty percent to be completed within ten years of enactment (December 17th, 2012). This integrity assessment work is already well underway. INGAA has surveyed its membership to measure the amount of inspection activity taking place. One respondent's answers are illustrative of the larger group. This pipeline has about 5900 miles of transmission pipeline, of which about 200 miles is located in high consequence areas (HCAs). To date, about ten miles of these HCAs have completed a baseline assessment, but as a function of inspecting these ten miles of HCAs, the operator has had to also inspect 250 miles of non-HCA pipe adjacent to those sections. The reason for these assessments going beyond the HCA requirement is simple. The vast majority of our pipelines are going to be inspected with internal inspection devices, commonly referred to as "smart pigs." Special launcher and receiver facilities have to be constructed to both introduce a smart pig into a pipeline, and remove it at some point downstream. The most practical place (and often, the only place) to construct these launcher/receiver facilities are at compressor stations, which are typically located about 75 to 100 miles apart along a pipeline. The pipeline segment between compressor stations may have a few, discrete miles of HCAs, but in order to inspect the five or six miles of HCA pipe, the entire 75 to 100 mile segment between the stations will be inspected by the smart pig. INGAA estimates that about 6 percent of total natural gas transmission pipeline mileage is actually located in HCAs, but in order to assess the integrity of this 6 percent of pipeline mileage, about 60 to 70 percent of total interstate pipeline mileage will have to be inspected. Mr. Chairman, I would like to provide the Subcommittee with another example to illustrate my point. One INGAA member company is in the process of modifying a 58-mile section of pipeline so that internal inspection devices can be employed for integrity assessments. Since this pipeline was originally constructed in the mid-1950s, before the advent of smart pigs, it was not engineered to accommodate these devices. The pipeline operator has already identified 14 HCAs along this 58-mile segment, for a total HCA length of 8.74 miles. In order to assess the HCA portions of the pipe, pig launchers and receivers must be installed, and several valves will need to be replaced. The estimated modification costs for this one segment are $5.1 million, and the estimated integrity assessment and repair costs are $640,000. The work on this pipeline segment started last month, and is expected to last five months. One Important Concern The scope of the integrity assessment work to be done over the next eight years gives the INGAA membership some pause for concern. This is due to the fact that a significant number of pipeline segments will have to be removed from service in order to prepare for and perform assessments and any resulting repairs. This unprecedented integrity program will almost certainly affect natural gas deliverability and delivered natural gas commodity prices. The effect could be compounded because, coincidentally, the integrity assessments are happening during what will likely be a protracted period of tight natural gas supplies. In past years, pipelines were able to perform most maintenance and repair activities during the warm months of the year, when natural gas demand was relatively low. During these periods of low seasonal demand, the natural gas pipeline network could more readily handle system downtime. Few, if any, customers were impacted in terms of service disruptions or higher natural gas commodity prices. In today's natural gas market, however, demand not only peaks during the cold winter months, but also during hot summer months, due to the increased use of natural gas to generate electricity. This means that there are fewer weeks of the year when maintenance and repair can take place without impacting customers in some manner. In 2002, the INGAA Foundation prepared an economic analysis of these pipeline capacity reductions, and their effects on consumer prices. The report (1) looked at anticipated pipeline inspection scenarios under an integrity management program, based in large part on how long the industry would be given to perform a baseline assessment. For a ten-year baseline period (i.e., the one ultimately adopted by Congress), the report estimated increased consumer natural gas prices of about $1 billion per year for the first ten years. Please note that these costs are not associated with the actual cost of inspections and repair activities, even though these costs will also be significant. Rather, the study looked only at the "costs to consumers due to deliverability constraints" and their effect on the natural gas commodity markets downstream. One way these unintentional price spikes can be minimized is by allowing for the coordination of inspection and repair activities among various competing pipeline operators. Unfortunately, the task of coordination is a daunting task. Presently the amount of parties involved and anti-trust law currently restrict such coordination. In the absence of such coordination, however, it is possible and even likely that multiple pipelines serving a given market could be down for inspection/repair at the same time, causing significant price increases and even service disruptions for that market. INGAA urges Congress to consider an anti-trust waiver for coordination of pipeline integrity assessment and repair activities. We also want to join with others in urging the various federal and state agencies involved in permitting pipeline inspection and repair activities to do so on a coordinated and expedited basis. We anticipate that our industry will be required to make significant modifications to our pipeline facilities over the next eight years, in order to accommodate internal inspection devices. The construction of smart pig launchers and receivers, for example, as well as replacing pipeline bends, segments and valves that cannot accept internal inspection devices may require permits from federal and state authorities. The interstate natural gas pipeline members of INGAA are regulated economically by the Federal Energy Regulatory Commission (FERC). The FERC must approve the construction of any new interstate natural gas pipeline, or any major expansion or modification (in excess of a certain dollar amount) of an existing interstate natural gas pipeline. The FERC has also accepted the primary role for the enforcement of the National Environmental Policy Act (NEPA) as it relates to pipeline construction and the resulting effects on the environment. In 2002, the FERC lead an effort to create and sign a Memorandum of Understanding (MOU) between all of the federal agencies associated with any permitting activities for pipelines, such as the Corps of Engineers, the Environmental Protection Agency, and the U.S. Fish and Wildlife Service. This MOU commits the signatory agencies to concurrent review of a pipeline construction application, such that agencies can work together rather than at cross-purposes, thus saving time and effort. We are hopeful that this MOU can also be applied to integrity management-related activities. It should be noted, however, that this MOU does not include participation by state agencies. These state agencies are often the most intransigent in terms of approving permits on a timely basis. Once again, a signal from Congress as to the importance of approving these permits in a timely manner will be critical to the success of the Pipeline Safety Improvement Act of 2002. The Proposed Merger of the OPS and the Federal Railroad Administration Before concluding, INGAA would like to provide some comments to the Subcommittee on the proposed merger of the Office of Pipeline Safety and the Federal Railroad Administration (FRA). The Secretary of Transportation announced his intent to move forward with this idea as part of an overall vision to gather the various research functions at DOT and place them under one authority. OPS is currently a part of the Research and Special Programs Administration (RSPA), which the Secretary envisions would be restructured in order to accept all transportation research-related activities from the various modal administrations. Since the OPS is a regulatory body, it would not fit within the new RSPA, and thus the proposal to move it to FRA. INGAA does not have a quarrel with the Secretary regarding his vision for transportation research. Our concern is that the OPS would lose its focus and effectiveness if it were to be subsumed into the much larger FRA. As you have already heard, OPS has made great strides in improving its performance over the last five years. Much of that success is related to the fact that it has been able to act quickly and decisively in improving its programs and enforcement activities. It would indeed be a shame if, after having worked so hard to gain back its credibility, OPS were to lose it once again by getting lost in a large and unfamiliar bureaucracy. Rather than merging with the FRA, INGAA supports the creation of a new Pipeline Safety Administration at DOT. House Transportation and Infrastructure Chairman Don Young introduced legislation (H.R. 4277) last month to create a separate pipeline safety entity at DOT, and we strongly support his efforts. Security Issues I also want to briefly mention pipeline security matters. Because natural gas pipelines are a part of the nation's critical infrastructure, INGAA and its members have been working with numerous federal and state agencies in developing heightened security procedures. The Department of Homeland Security is now verifying these procedures through audits. A key part of this exercise is contingency planning for response and recovery should an incident occur. Along with the Department of Energy, we are modeling the effect and response to possible attacks/outages on key pipeline systems. We also are encouraging participation by the operators of other parts of the infrastructure so that we can appreciate better the interdependencies within our national infrastructure and plan for how best to restore service in the event of an emergency. Conclusion Let me thank you once again, Mr. Chairman, for allowing me to testify today. Safety is of paramount importance to our industry, and we believe that it is our obligation to work with Congress and the OPS to maintain and improve the safe, reliable operation of our pipelines in the years ahead. I would be happy to answer any questions you or the Subcommittee members might have. |
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