Pipeline Safety Legislation

Steve:

As you requested, the following is a detailed update on pipeline safety
legislation currently moving through Congress:

Pipeline safety reauthorization legislation

Authorization for pipeline safety programs, as administered by the U.S. Dept.
of Transportation, Office of Pipeline Safety (OPS), is currently set to
expire at the end of FY 2000. At the beginning of the 106th Congress,
industry was focused on securing a simple, two year re-authorization bill
that basically extends current pipeline safety programs with some modest
increases in funding levels. In fact, the House Commerce Committee (who
shares jurisdiction over pipeline safety with the Transportation &
Infrastructure Committee) acted early in 1999 to pass a simple, two year
reauthorization bill (H.R. 1378).

Unfortunately, the issue became more complex from that point. A serious
liquid pipeline accident in Bellingham, Washington that occurred last summer,
killing several children, dramatically changed the debate over pipeline
safety. Members of the House and Senate from Washington state (backed by
the governor and numerous state and local officials) moved swiftly to
introduce legislation that they feel is designed to address some of the
shortcomings in federal pipeline regulation that they believe may have
allowed the Bellingham incident to occur.

In the Senate, Senator Patty Murray (D-WA) has introduced S. 2004, which is
designed to expand State authority over interstate pipelines in several new
areas, such as inspection and testing, emergency response plans, leak
detection, and operator training and qualification. The bill also would
authorize a large increase in OPS funding through pipeline user fees, to
increase the amount of grants to the States, allow for hiring of additional
inspectors, and increase R&D for inspection and leak detection technologies.
The current OPS budget is around $36 million (with $30 million from user
fees) -- the Murray bill would authorize $50 million in FY2001, which would
require a sizeable increase in user fees. Senator Slade Gorton (R-WA) has
recently decided to co-sposnor the Murray bill, and will be actively involved
in trying to gain Republican support for the bill. On the House side, Rep.
Jack Metcalf (R-WA) has introduced a similar bill, H.R. 3558, which a number
of the Washington representatives have co-sponsored.

Interstate natural gas pipelines have been placed in a very difficult
situation. The Bellingham incident was a liquid pipeline accident, and
liquids pipelines generally have less stringent regulatory requirements than
natural gas pipelines. The Washington delegation has highlighted the fact
that 280 deaths and 1500 injuries have occurred over the past 14 years
related to natural gas pipeline incidents, but they fail to distinguish the
fact that almost all of those incidents were on LDC systems (which
ironically, are entirely State regulated). Only 39 fatalities in that period
were natural-gas related, and the majority of those accidents were caused by
third party damage. In short, the INGAA crowd is being dragged down by the
poor records of the LDCs and the liquid pipelines.

The calls for more state regulation of interstate pipeline are largely
misguided, based on the fact that the interstate pipelines under federal
regulation have an exemplary safety record. In addition, OPS is already
working on a "Pipeline Integrity" Rulemaking that would implement a number of
additional measures to prevent accidents on federally-regulated pipelines.

As you mentioned, INGAA has not been doing the best job representing us on
these issues. They have been working in a group effort with API, AGA, and
the Association of Oil Pipelines (AOPL) to try and deflect the negative
claims of the Murray and Metcalf legislation, but have not been forceful
enough in distinguishing interstate natural gas pipelines' positive record
from the liquids and LDCs. Thus, they have given the impression that INGAA
companies might be willing to submit to additional regulation that liquids
and LDC are under political pressure to submit to due to Bellingham. We have
been working with other major INGAA companies (El Paso, in particular) to
make sure that the perspective and positive record of our natural gas
pipelines is heard clearly by the key legislators.

The odds of these measures (S. 2004, H.R. 3558) passing on their own is
fairly slim. They will get a great deal of attention, however. The Senate
Commerce Committee held a field hearing in Bellingham, Washington yesterday,
at which Senators Gorton and Murray testified along with OPS and the families
of Bellingham victims -- the press coverage was not good (i.e., USA Today
cover story "When Pipelines Are Time Bombs"). These bills (or portions of
them) will likely be offered and considered as amendments to Pipeline Safety
Reauthorization legislation as it comes before the House Transportation &
Infrastructure and Senate Commerce Committee later this year.

The increased controversy caused by these bills will likely doom efforts to
pass a pipeline safety reauthorization bill this year. The leadership of
the House and Senate Committees will not likely want to face a bitter debate
between safety advocates, OPS, States, and industry in their committees in
this tough election year. While this is probably a good sign, there is an
increased risk that industry may face some large hurdles in the
appropriations process.

Appropriations Legislation

While Members of Congress push for their stand alone bills and/or amendments
to reauthorization bills, the greater danger is that some of these issues
will be dealt with in an appropriations context. In particular, the fact
that Senator Slade Gorton is now actively engaged in pushing for extensive
pipeline safety reforms is troubling -- he is a key member of the Senate
Appropriations Committee, is close to Republican leadership, and has a tough
re-election fight coming up. Senator Murray is also on Senate
Appropriations. Both are on the Transportation Appropriations Subcommittee,
which funds OPS.

It is quite likely that the Senators will make a push to get increases in the
OPS budget for FY 2001 that would enable the kinds of reforms contemplated by
their stand-alone legislation (more state funding, more inspectors, more
R&D). Much of this increase would be funded through increases in user fees.
INGAA indicates that it expects we could be facing increases in the range of
10-15% from FY2000. There is also the possibility that an attempt will be
made to add legislative riders to the OPS appropriations -- such as requiring
OPS to mandate inspections, increase operator qualifications, or allow
increased state authority. I would predict that legislative riders can be
prevented, but it will be very difficult to avoid some kind of increases
(beyond mere adjustments for inflation) in the OPS budget and user fees.

The reauthorization will indeed receive attention in 2000, but our advocacy
efforts will clearly need to be focused on the appropriations process, in
order to minimize the impact on interstate pipeline user fees and prevent
other harmful mandates.

We will continue to work with key members of the authorizing and
appropriations committees to ensure that the interstate natural gas
perspective is clearly heard and, if possible, we avoid being dragged down in
attempts to impose more strict regulation on liquids and LDCs.

Please let me know if you have questions or require additional information.
Thank you.