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Pipe safety rule would cost 56 times the federal estimates, industry study finds

The federal pipeline safety regulator's would costsignificantly more and yield far less benefit than official projectionssuggest, the American Petroleum Institute said.

The sweeping rule proposalcould cost the industry $33.4 billion, with benefits ranging between $306million and $568 million, according to an ICF International study conducted forthe American Petroleum Institute. The cost estimate is about 56 times the U.S.Pipeline and Hazardous Materials Safety Administration's regulatory impactanalysis estimates of roughly $597 million in costs. PHMSA also estimated $3.2billion to $3.7 billion in benefits.

Calling the rules "arbitrary and capricious," APIMidstream Director Robin Rorick said during a July 7 conference call that theadministration "significantly underestimates the cost that would berequired to implement" the regulatory requirements.

ICF enumerated a host of ways in which aspects of theregulatory requirements were not fully factored into PHMSA's cost estimates,including the costs of submitting annual reports, dealing with leak backlogsand applying pipeline integrity requirements to significantly greater mileagethan has previously been considered. PHMSA did not adequately account for theup-front time and costs for companies as they try to determine what parts oftheir systems are affected by which parts of the rule, nor did theadministration account for the costs to gathering operators to verify themaximum allowable operating pressure, or MAOP, of large swaths of theirsystems, the ICF report said.

The most expensive elements of the proposed rule would bethe gathering-line regulation expansions and the requirements related to moretimely repairs, the API said. These two factors alone would carry more than $32billion in costs, according to the ICF study. Under PHMSA's estimate, theywould cost $222 million.

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The industry group took issue with PHMSA's interest inoverseeing small-diameter gathering lines, arguing that over 2,000gathering-line operators could face compliance costs that approach their annualrevenues, disproportionately affecting smaller operators.

The API also said proposed rules on establishing a pipeline'smaximum allowable operating pressure, or MAOP, and conducting integrityassessments would be significantly more costly than PHMSA expects, projecting a$772.3 million price tag, compared with PHMSA's $267 million projection.

Rorick said PHMSA's requirements for verifying MAOP are "veryrigid" and may result in operators having to "start digging up lineseverywhere."

"[There are] better ways to get that information,"Rorick said. "There are better and more appropriate technologies andprocesses we could use."

API also argued against PHMSA's benefits estimates, and theICF report said that there were "a number of inconsistencies" thathad a significant impact on the calculations. Rorick added that PHMSA had factoredin cost savings to the industry that the API disputes.

While Rorick did not rule out the possibility that the APIcould sue PHMSA over the regulation if it gets finalized as is, he said theorganization hopes to work out its concerns through the PHMSA comment processon the rulemaking.

PHMSA in March issued the notice of proposed rulemaking,which would expand data collection requirements, compel companies to betterunderstand pressure limitations, increase construction oversight and broadencertain rules' reach beyond high-consequence areas, among other requirements.The regulatory proposal came in response to congressional mandates and NationalTransportation Safety Board recommendations.

The comment period ran through July 7.

Further downstream, the American Gas Association on July 7underscored the utility sector's concernsabout the regulation. AGA called the proposal a "shift away fromperformance-based regulations" and said the rulemaking would de-emphasizethe unique characteristics of pipeline systems in favor of more prescriptivestandards. AGA said it included in its comments a number of alternativeapproaches to PHMSA's proposals.

PHMSA Administrator Marie Therese Dominguez in a July 7emailed statement defended the rule's practicality and potential forimplementation.

"The proposed rule will make commonsense and criticalimprovements to pipeline safety by incorporating lessons learned from theSan Bruno incident,responding to important NTSB recommendations, and implementing betterprotections for communities," Dominguez said. "The rulemaking processis intended to be comprehensive, and we look forward to reviewing all commentsreceived from the public and our stakeholders as we work to finalize this rulein the months ahead."