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Pipeline Integrity Management Utility Internal Auditor’s Training August 25, 2015

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Page 1: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Pipeline Integrity Management

Utility Internal Auditor’s Training

August 25, 2015

Page 2: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

With you today…

Jared Racine

Power and Utilities Manager

Strategy&, part of the PwC network

[email protected]

(678) 419-2672

1

Page 3: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Background on integrity management

Introduction to DIMP and TIMP

Regulatory landscape

Safe and reliable assets

Natural gas infrastructure

Recent pipeline incidents

Upcoming regulatory changes

Components of pipeline safety

The role of internal audit + case studies

2

Background on integrity management

Page 4: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Introduction to TIMP and DIMP

3

• Regulation:

– Federal

• DOT – Department of Transportation / PHMSA – Pipeline and Hazardous Materials

Safety Administration

– TIMP – Transmission Integrity Management Program (effective 2004)

– DIMP – Distribution Integrity Management Program (effective 2011)

• NTSB – National Transportation Safety Board

– State and local

Page 5: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

PHMSA TIMP

4

• TIMP – Transmission Integrity Management Program1

– Covered segments within High Consequence Areas (HCAs)

– Threat identification for covered segments and risk assessment in accordance with ASME B31.8S considering available data

– Baseline assessment to address threats

– Pressure reduction and remediation of anomalies

– Additional preventive and mitigative measures

– Continual evaluation and re-assessment

– Integrity verification process (IVP) for maximum allowable operating pressure (MAOP)2

1) PHMSA 49 CFR Part 192, Subpart O – https://primis.phmsa.dot.gov/gasimp/

2) Current status of IVP – https://www.aga.org/pipeline-integrity-verification-process

pending

Page 6: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

PHMSA DIMP

5

• DIMP – Distribution Integrity Management Program1

– Less prescriptive than TIMP

– Leak management

– Legacy pipeline replacement prioritization

• State and local regulators typically have additional requirements for integrity management of distribution assets

– Maximum leak survey intervals based on population density

– Maximum leak repair windows based on grade / classification

1) PHMSA 49 CFR Part 192, Subpart P – https://primis.phmsa.dot.gov/dimp/

DIMP Required Elements:

1) Knowledge

2) Identify Threats

3) Evaluate and Rank Risks

4) Identify and Implement Measures to

Address Risks

5) Measure Performance, Monitor Results,

and Evaluate Effectiveness

6) Periodically Evaluate and Improve Plan

7) Report Results

Page 7: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Background on integrity management

Introduction to DIMP and TIMP

Regulatory landscape

Safe and reliable assets

Natural gas infrastructure

Recent pipeline incidents

Upcoming regulatory changes

Components of pipeline safety

The role of internal audit + case studies

6

Background on integrity management

Page 8: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

• US is the leader in natural gas production as of 20121

• US oil and gas infrastructure investment of $60 to $90 billion for the next 10 years2

– Natural gas infrastructure represents roughly 30% of total investment

– Half of the US interstate transmission pipeline was installed between 1950 and 19703

Natural gas infrastructure

7

1) BP Statistical Review of World Energy 2012

2) IHS base case – API infrastructure Investment Study

3) 2009 Distribution, Transmission, and Liquid Annual Data published by the PHMSA, U.S. Department of Transportation. http://www.phmsa.dot.gov/

4) Data based on the NPMS’ 2013 (CY2012) gas pipelines only – https://www.npms.phmsa.dot.gov/Documents/NPMS_Pipelines_Map.pdf

Map of US gas transmission

pipeline system4

Page 9: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

• PG&E asset family structure1 from 2014 Gas Safety Plan

– Gas storage

– Compression & Processing

– Measurement & Control

– Transmission Pipe

– Distribution Mains

– Distribution Services

– Customer-connected Equipment

– Compressed Natural Gas / Liquefied Natural Gas

• Unique risk profile for each asset type

Example of classifying asset types

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1) Pacific Gas & Electric Gas Safety Plan, 2014 – http://www.pge.com/includes/docs/pdfs/safety/systemworks/gas/GasSafetyPlan_2014.pdf

Page 10: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Recent pipeline incidents

9

2010 – San Bruno

• 30-inch diameter intrastate transmission pipeline ruptured

• Failure caused by seam weld flaw in combination with increasing pressure

• Integrity management blamed for not remediating risk

2011 – Allentown

• 12-inch diameter distribution main pipeline ruptured

• Failure caused by circumferential crack on cast iron pipeline

• Integrity management blamed for not continually surveying and failing to replace cast iron in a timely fashion

2012 – Sissonville

• 20-inch diameter interstate trasmission pipeline ruptured

• Failure caused external corrosion due to deteriorated coating and ineffective cathodic protection

• Integrity management blamed for not inspecting the corrosion more frequently

2014 – East Harlem

• Natural gas-fueled explosion

• Failure caused by defective fusion joint and sagging line without support

• Quality procedures and public awareness blamed for severity of incident

Page 11: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Guidance frameworks

10

ISO 55000 / PAS 55

• Asset-focused international standard

• Based on asset management system including several components:

– Organizational context

– Leadership, policy, and roles

– Asset management objectives and actions to address risks

– Training and awareness

– Information and communication

– Operational planning and control

– Monitoring and measurement

– Continuous improvements

API RP 1173

• Pipeline safety guidance document

• Based on a pipeline safety management system including several components in a Plan-Do-Check-Act cycle1

1) Safety Management Systems – https://primis.phmsa.dot.gov/dimp/docs/LGA_Wednesday_10AM%20SMS_McLaren_07.22.2015.pdf

Page 12: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Upcoming regulatory changes

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• Pipeline Safety, Regulatory Certainty, and Job Creation Act of 20111 authorized PHMSA’s federal pipeline safety programs through 2015 – completed 26 of the 42 mandates and 2 of the 6 required actions

• PHMSA expects to issue updated rules by the end of the year which may include previously explored enhancements such as IVP

• Re-authorization could include additional mandates or required actions such as new in-line inspection (ILI) technology

1) Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 – http://www.phmsa.dot.gov/pipeline/psa/overview-and-progress

Page 13: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Background on integrity management

Introduction to DIMP and TIMP

Regulatory landscape

Safe and reliable assets

Natural gas infrastructure

Recent pipeline incidents

Upcoming regulatory changes

Components of pipeline safety

The role of internal audit + case studies

12

Background on integrity management

Page 14: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Context of industry

Percentage of respondents saying there’s high scope for improvement in the following areas of P&U company operations1

13

P&U areas for improvement

1) 13th PwC Annual Global Power & Utilities Survey

Page 15: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

PwC’s gas operations framework

14

Asset managementRisk prioritized work

Investment balancingAllocate capital and

expense to minimize risk

Work managementComplete projects and

manage work

Gas Operations Excellence

Critical Enablers

Data Management/Analytics

Regulatory Strategy

Risk Management

Performance Management

QA/QC

Technology

Governance and

Accountability

Page 16: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Pipeline safety assessment

15

Combination of evolving guidance frameworks used to assess the pipeline safety program

API: American Petroleum Institute COSO: The Committee of Sponsoring Organizations of the Treadway Commission

RP: Recommended Practice ISO: International Standards Organization PAS: Publicly Available Standard

• Baseline pipelines specific practices for safety management

• Plan-Do-Check-Act Cycle• Pipeline safety

management system (PSMS) must be flexible, scalable and supported by strong culture of safety

• Integrated framework for internal controls across all industries

• Leverages various types of control throughout all functions of the organization

• Outlines asset management capabilities to manage physical assets

• Can be applied to integrate risk , data, and performance management along with asset management

• Aligns the asset management objectives with the organizational objectives

• Safety management strategies of companies in the following industries reviewed: utilities, energy, chemicals, aviation

Page 17: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Gas operations – governance and accountability

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• Governance and accountability includes organizational and strategic aspects of pipeline safety

– Leadership commitment, roles, responsibilities, and governance authority with an understanding of organizational context

– Alignment of internal and external stakeholder objectives

– Governance and management of change

– Alignment of incentive structure to system and public safety

• Audit topics:

– Organizational alignment with integrity management requirements

– Decision-making authority and process

– Documentation of historical integrity management decisions

– Established review process for asset management, investment balancing, work management, and critical enablers

Page 18: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

• Asset management considers the sophistication of risk identification and mitigation decision process connected to the corporate strategy

– Alignment of organizational strategy and objectives and asset-specific strategies and plans

– Development and maintenance of asset management policies, strategic objectives, and plans

– Validation of asset data

• Audit topics:

– Compliant integrity management programs with PHMSA and company policies

– Documented asset management objectives and plans to reduce risk

– HCA identification and maintenance process

Gas operations – asset management

17

1) PwC, Asset management progression – http://www.pwc.com/en_US/us/power-and-utilities/assets/pwc-asset-management-powering-your-journey-to-success.pdf

Asset management progression1

Page 19: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

• Investment balancing allocates resources to the riskiest projects and development of critical enablers

– Implementation of asset management plans to define work execution across asset lifecycle

– Risk management, training, competence, information management and the coordination among these functions

• Audit topics:

– Defined budgeting process and project selection decision tree

– Established performance metrics and periodic goals based on investments

– Communication and alignment of investment priorities

Gas operations – investment balancing

18

1) PwC, Asset investment planning lifecycle – http://www.pwc.com/en_US/us/power-and-utilities/assets/pwc-asset-management-powering-your-journey-to-success.pdf

Asset investment planning lifecycle1

Page 20: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Gas operations – work management

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• Work management completes the selected projects and controls the schedule and finances of execution

– Execution of selected project to improve asset health(i.e., inspect, maintain, repair, and replace)

– Assignment to qualified operators

– Contractor relations and responsibilities

• Audit topics:

– Adherence to regulatory and corporate standards

– Validation and maintenance of operator qualifications

– Contractor compliance with corporate standards

– Leak survey, grading/classification, and remediation process

Page 21: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Gas operations – critical enablers

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• Critical enablers improve the operations with supporting capabilities, tools, and controls

– Records and data management setup and practices including completeness, accuracy, and availability

– Internal and external communication to employees, regulators, customers, and other stakeholders

– Performance management to identify and measure of critical metrics

– Risk management to define, evaluate, and develop mitigation plans for an acceptable risk profile of operating the infrastructure

– Identification, selection, and implementation of the required technology to support business decisions and operations

– Controls to ensure quality throughout the operations

• Audit topics:

– Completeness and accuracy of asset data across records and systems

– Measurement of performance and metric alignment with organizational objectives

– Adherence to risk evaluation procedures and mitigation plans

Page 22: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Pipeline safety framework

21

Manage the connection of findings across several audit topics with a high-level framework

Asset managementRisk prioritized work

Investment balancingAllocate capital and

expense to minimize risk

Work managementComplete projects and

manage work

Gas Operations Excellence

Critical Enablers

Data Management/Analytics

Regulatory Strategy

Risk Management

Performance Management

QA/QC

Technology

Governance and

Accountability

Page 23: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Background on integrity management

Introduction to DIMP and TIMP

Regulatory landscape

Safe and reliable assets

Natural gas infrastructure

Recent pipeline incidents

Upcoming regulatory changes

Components of pipeline safety

The role of internal audit + case studies

22

Background on integrity management

Page 24: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Internal audit of pipeline safety

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• Understand high-level components of integrity management

• Identify critical inputs to pipeline safety evaluation

• Evaluate consistent application of process and documentation of decision making

• Case studies

– Leak survey and leak database

– Pipeline prioritization for replacement

– Data management and system of record

Page 25: Utility Internal Auditor’s Training · 2015-08-27 · Strategy& | PwC Background on integrity management Introduction to DIMP and TIMP Regulatory landscape Safe and reliable assets

Strategy& | PwC

Questions?

Jared Racine

Power and Utilities Manager

Strategy&, part of the PwC network

[email protected]

(678) 419-2672

24

© 2015 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see

www.pwc.com/structure for further details. This content is general information purposes only, and should not be used as a substitute for consultation with professional advisors.