[BETA] Fortnightly

True story: Early one crisp spring morning, a damaged electric distribution line arced onto a natural gas pipeline that it was directly touching. The pipe began leaking and natural gas migrated down the trench, where it met a French drain leading to the cellar of a brand-new home. As the family slept above, the cellar filled with gas, reaching the correct mixture for combustion. When the house’s sump-pump switched on, the house exploded, throwing the two children out the windows and onto the lawn while the mother and father burned.

Such a tragic event could have been avoided by ensuring a minimal clearance between the electric line and the natural gas pipe.

The natural gas company began a forensic investigation of the incident. The house that exploded was one of 700 gas and electric installations that were already finished in a new subdivision of 3,000 homes. Initially the company dug up 30 installations, but from these investigators knew enough to dig up all the installations in the subdivision.

The cost of the incident was enormous in terms of the tragedy to human life, as well as in operating and construction costs, the company’s reputation, legal liabilities, regulatory oversight and inter-company coordination in new construction. Since the impacts can be vast in scope for any company, management’s first job is to know the risk by measuring it, and second, if needed, to fix it.

The process of understanding and fixing risk exposures traditionally requires asking a series of questions. Can such events reasonably be prevented in the first place? If so, how? And can it be made an on-going permanent process? What are the initial costs and subsequent benefits—in terms of cost savings, reputation, market competitiveness, regulatory oversight at state and federal levels, stockholder returns, workforce design, training programs, management longevity and tied-in compensations systems?

An entirely new and better approach allows companies actually to measure this kind of risk—that is, to measure the degrees of compliance regarding actual field practices versus written standards and procedures. This approach to measuring risk and compliance is drawn from five engagements conducted for natural gas distribution systems located in as many states, each with its own regulatory commission. The methodology was created and implemented for these companies and presented to each of the five state regulatory commissions as an ongoing system with which to continuously measure compliance going forward.

Compliance and Risk Management

Compliance is particularly important in the gas industry because of potential risk to the public and customers, utility employees and property. In the late 1960s, following a series of explosions and fires involving natural gas and petroleum product pipelines, the National Pipeline Safety Act (DOT-192) was promulgated, mandating detailed and comprehensive standards and procedures for pipeline construction, operation, maintenance, inspections, incident documentation and emergency response. State regulators were charged with