Analysis & Presentation of Integrity Management Audit Results Western Regional Gas Conference August 21, 2007 Gary R. White

Analysis & Presentation of Integrity Management

Audit Results

Western Regional Gas Conference

August 21, 2007

Gary R. White

Confidential Information of PI Confluence, Inc.

Data Types

Audit Exit Interviews Issue of Concern (IOC)

Enforcement Letter of Concern Warning Letter Notice of Amendment (NOA) Notice of Proposed Violation w/ Compliance Order Notice of Proposed Violation w/ Civil Penalty

For this presentation, all NOPV have been combined


Data Summary

547 Audit and Enforcement Items 328 Issues of Concern (IOC) 140 Notice of Amendment (NOA) 79 Notice of Proposed Violation CO / CP (NOPV)

PHMSA Audit Results ‘05, ‘06 – IOC - Client (Proprietary Data)

PHMSA Enforcement ‘05, ‘06, ‘07– NOA, NOPV (Public Data)

PHMSA Enforcement Transparency Site:http://primis.phmsa.dot.gov/comm/reports/enforce/Actions_opid_0.html

Summary of Audit and Enforcement Items

547 items 49 companies ‘05, ‘06, ‘07

15%

26%

59%


About Us

We provide software and consulting services that support Pipeline Integrity Process Management

Our web based Integrity Compliance Activity Management platform (ICAM) is a Process Management tool specifically designed to support the implementation of an effective Integrity Management Program

ICAM is currently being implemented to manage integrity on more than 30% of all natural gas transmission pipelines in the U.S


Why We Have This Data

This data was collected thru interaction with current and potential ICAM users as well as from the PHMSA transparency website to ensure that our process management offering supports the guidance as outlined in the Integrity Management Protocols

ICAM manages more than 200 processes and 600 tasks with over 150 communication hand-offs to support the 14 protocols


What We Will Show

Audit and Enforcement Data:

By IOC / NOA / NOPV By Element / Specific Protocol Item By the Nature of the Issue

Positions Procedures Process Management


What We Will Not Show

Any Analysis or Consistency Metrics:

Regarding Specific Auditors Regarding Specific Regions Between Issues and Types of Enforcement Between IOC and Enforcement Between Compliance Orders vs. Civil Penalty Between Fines, Issues, Regions or Auditors

Summary by Protocol Element

Top 4 Elements: Threat-Risk; Direct Assessment; Baseline Assessment Planning& High Consequence Area identification…

Annual Comparison by Protocol Element

Although there were more audits in 2006, the growth trends were in Threat-Risk, BAP, P&M Measures, Continuous Evaluation and Management of Change…. (Soft Protocols)

IOC by Protocol Element

Top 3 Issue of Concern: Threat-Risk, BAP, Direct Assessment….

NOA by Protocol Element

Top 3 Notice of Amendment: Threat-Risk, HCA, Remediation….

NOPV by Protocol Element

Top 3 Notice of Proposed Violation: Direct Assessment, Threat-Risk, HCA….

The Nature of the IssuesPosition / Procedure / Process Management


The Three P’s

Positions include the company’s mission statement, policies, and perspective regarding pipeline integrity; these are often represented by white papers, internal interpretations, other forms of documentation.

Procedures describe “how” the integrity tasks are to be completed; typically documented as operating procedures, engineering standards, best practice papers and manuals.

Process Management controls the implementation of the Integrity Management Program, to maintain consistency, organize documentation, facilitate communications and to support continuous improvement.

Process Management Pyramid

Integrity Plan

Procedures Detail “how” the integrity tasks are to be completed….. And are the foundation of the integrity program

Tasks Tasks are the “Steps” required to obtain an objective …..

ProcessesProcesses are logical groupings of related tasks ….. Created to comply with the protocols

Protocols

Rules

The protocols were developed as guidance to the rule…..

Most Integrity Management Plans restate the Protocols and reference some high level Process...

Process Management, Bridges the Requirements of

the Rule (Protocols) to the Procedures required for

consistent Implementation

Process Management

The integration of processes into protocol based elemental workflows is critical to an effective Integrity Management Program and may be effectively controlled via Process Management.

The following is an example of how Process Management supports the “Risk Assessment Update”

UpdateConsequences perIndustry Standards

/ PHMSA

Update RiskMethodology

Update RiskScores perSegment

Validate RiskResults

Update RiskRanking

Each of the “Processes” shown are required as part of the Risk Assessment update

Risk Assessment must be updated annually as part of Continuous Evaluation …..

Typically, companies have managed these processes as events, on a stand-alone basis


/ PHMSA




Update RiskRanking

Process Management allows you to organize these events / processes into a logical, elemental workflow

Risk Assessment Update

RevisedConsequence

Data

Risk Model

Revised SegmentRisk Scores

Revised RiskRanking

AnnualThreat ID

UpdatedBAP

Upd

ate

P&

M

Pos

tA

sses

smen

t

P&

ME

ffectivnessR

em

ed

iatio

n

Operatio

nalR

evie

w

Update RiskRanking


/ PHMSA




Risk Assessment Update

Process Management controls the information input to a workflow

Process Management defines the output to sequential workflows

Process Management defines and manages the documentation associated with implementation

Process Management supports and manages the requirement for process feedback and communication

+230%

+ 44%

“Positions”(all data)

Position issues did not seem to display a pattern

+230%

+ 44%

“Procedures”(all data)

Procedural issues; however played a more significant role in 2006

“Process Management”(all data)

+230%

+ 44%

While at the same time , Process Management showed tremendous amount of growth between 2005 and 2006 in virtually all elements

Trend Towards Process Management(all data)

+440%

+110% 57%

31%

41%

57%

If we summarize all the data, we see that Process Management expectations are growing faster than Procedural requirements

Trend Towards Process Management(IOC data)

+660%

+450%

67%

30%

50% 31%

If we focus on the actual audits we see that the growth in the requirement for Process Management is much greater

Trend Towards Process Management(enforcement data)

+230%

+ 44% 68% 56%

23%

43%

Yet, when we look at just the enforcement we see that although Process Management shows the largest growth, Procedures account for the largest %

Observations…

What Are We Seeing? Process Management as a main topic in the audits A higher emphasis on Procedures in the enforcement

What Are The Trends? Process Management for the implementation of the

Integrity Program will be the requirement of the future As PHMSA personnel learn to audit process rather

than taking the traditional “Punch List” approach, the focus will be on results and continuous improvement

So let’s look a little closer

Summary by Protocol Element(enforcement data only)

0

5

10

15

20

25

30

35

40

Thre

at-R

isk

Ass

essm

ent

HCA

Rem

edia

tion

BAP

P&M QA

CEA

MO

C

Com

mun

icati

ons

(bla

nk)

Reco

rd K

eepi

ng

Perf

orm

ance

Subm

ittal

NOPVNOA

If we circle back on the elements with the most enforcement issues… (Threat-Risk and Direct Assessment)

Top Protocol Element Analysis(enforcement data)

Threat-Risk

0

1

2

3

4

5

6

7

8

9

10

C.01

.d

C.01

.a

C.03

.a

C.01

.c

C.03

.c

C.02

.f

C.02

C.02

.b

C.03

.d

C.02

.d

C.02

.e

C.02

.a

C.03

C.04

.a

C.04

C.02

.c

C.03

.e

C03.

c

C.03

C.01

(bla

nk)

Threat-Risk

We see that for Threat - Risk C1d, C1a, C3a and C1c have been cited the most……

Threat – Risk Specifics

56%

43%

Threat-Risk

C.01d - Threat Susceptibility, Threat EliminationC.01a – Risk Modeling C.03a – Risk Assessment ProcessC.01c – Interactive Threats

Nature of Threat Risk Issues (enforcement data)

0

1

2

3

4

5

6

7

8

9

C.03

.a

C.01

.d

C.01

.a

C.01

.c

Process ManagementProcedure

The nature of the issues in Threat – Risk were Process Management

Top Protocol Element Analysis

Assessment

0

1

2

3

4

5

6

D.0

5.c

D.0

4.a

D.0

2.d

D.0

3.b

D.0

2.c

D.0

7.e

D.0

7.a

D.0

5.a

D.0

4.g

D.0

3.a

D.1

1.a

D.0

1.a

D.0

2.e

D.0

9D

.01.

cD

.05.

dD

.02.

aD

.OD

.04.

fD

.02.

bD

.04.

hD

.04.

iD

.01

D.0

D.0

4D

.06

D.0

6.a

D.0

2.D

.02

D.0

8.a

D.0

3.e

D.0

9.d

D.1

1 D

.01.

e(b

lank

)

Assessment

While for Direct Assessment, D5c, D4a and D2d received the most attention ……

Direct Assessment Specifics

68% 56%

23%

43%

Direct Assessment

D.05c - ECDA EffectivenessD.04a - ExcavationsD.02d - ECDA Regions (primarily cased crossings)

0

1

1

2

2

3

3

4

4

5D

.05.

c

D.0

2.d

D.0

4.a

Process Management

Procedure

The nature of the Direct Assessment issues were Procedural

Nature of Direct Assessment Issues(enforcement data)

Survivability vs. Repeatability

Survivability is different than Repeatability; Repeatability is not the objective of Process Management, Continuous Improvement is;

Repeatability is following the same steps in a “punch list” manner regardless of the outcome;

Survivability ensures integrity activities are sufficiently documented so that qualified personnel can understand what has been done and why, supporting the best decision on what to do next

Survivability vs. Repeatability

Why did the Engineer cross the road?

Because he looked in the files and that’s what the last Engineer did…

Why was the Engineering position open?

Because the last Engineer crossed the road…

Survivability vs. RepeatabilityYou Decide…

How Does Knowing This Help?

Process Management will be the key to the implementation of a successful Integrity Management Program, ensuring Survivability

Survivability - Ensures that the history of the activity on the pipe was sufficiently documented such that the next person with responsibility can make informed engineering decisions regarding integrity management and public safety

Why is Survivability Important?

To the Integrity Group With turnover and retirement, the integrity

management team must keep the information on the pipeline and not on a sticky pad or in someone’s head

Numerous organizations have as much as 50% retirement scheduled in the next 5 years

To Management With the volume of mergers and acquisitions, the

information about the activities performed on a pipeline need to be available, not just results data

Are You Ready for Process Management?

Integrity Plan

Procedures

Tasks

Processes

Protocols

Rules

Process Management, Bridges the Requirements of

the Rule (Protocols) to the Procedures required for

Implementation

Questions?

If You Would Like a Copy of this Presentation,

Please Leave a Business Card

Gary WhitePresident / CEO

PI Confluence, Inc.

August 21, 2007

Documents

Analysis & Presentation of Integrity Management Audit Results Western Regional Gas Conference August 21, 2007 Gary R. White