Colorado failed to adequately regulate natural gas pipelines, state audit finds
The program charged with overseeing Colorado’s natural gas pipelines has been plagued with “pervasive” problems that repeatedly violated both state and federal regulations, state auditors found, with deficiencies ranging from inadequate inspections to a lack of documented action against repeat-offender gas operators, even after explosions that killed and injured people.
The 121-page report, presented to legislators Monday by the Office of the State Auditor, cast the state’s Gas Pipeline Safety Program as an entity riddled with issues and lacking the oversight necessary to ensure it protects public safety. The findings touch on virtually all areas of the program, and the state legislator who requested the audit nearly two years ago said it was worse than she had anticipated.
The audit found that state inspectors rarely issued written notices that pipeline operators were out of compliance with state and federal law, despite finding thousands of violations. Several pipeline units later involved in explosions had previously been flagged as noncompliant, but formal action — if any — occurred afterward, and often only in the form of verbal warnings. In one case, when a mislabeled pipe exploded and killed a 49-year-old Gypsum woman, Black Hills Energy received only a verbal warning, despite the pipeline program determining that Black Hills was responsible for the incident.
The audit also determined that inspectors weren’t fully trained, fines were rarely assessed, and post-accident investigations were inconsistent and faulty, leaving some homeowners stranded in hotels. Inspections didn’t happen at the frequency required by federal guidelines. Safety complaints were unanswered or ignored, the report’s authors wrote. Small operators — with fewer than 100 customers, often at mobile home parks or apartment complexes — appeared to face more stringent enforcement action than larger providers that had hundreds of instances of repeated noncompliance.
The program’s issues have prompted federal authorities to withhold hundreds of thousands of dollars from Colorado in recent years. The federal Pipeline and Hazardous Materials Safety Administration jointly handles pipeline oversight with state authorities, like Colorado’s Public Utilities Commission (which oversees the gas safety program). In exchange for enforcing federal rules, state partners get a share of their costs reimbursed by the feds. More compliance means more reimbursement.
Federal data shows that Colorado had the third-lowest reimbursement rate of any state (plus Puerto Rico and Washington, D.C.) in 2022. The auditors warned that the issues “could also affect the Program’s certification to serve as the State’s pipeline safety program on behalf of the federal government.”
“We did find pervasive, significant problems in all of the areas of the program’s operations,” Jenny Page, the audit manager of the review, told the Denver Post. Asked what the program had done well, Page paused for a moment and said some aspects of training weren’t found to have issues. Otherwise, the results were uniform: “Every area that we looked at, all their key operations, we had findings and we had recommendations for improvement.”
In all, the report recommended 39 changes to the program, and it criticized the Department of Regulatory Agencies — under which both the utilities commission and the pipeline program operate — for giving the utilities commission too much autonomy with too little oversight.
Katie O’Donnell, spokeswoman for the department, said state officials were discussing “systemic program change” in response to the audit. The state has committed to enacting nearly all of those changes in the next year.
“They give us some insight,” she said of the audit. “On our end, that assessment needs to be happening. It will be looking at better processes and protocols to make sure we are doing our own diligence and checking. For us, it allows us to have a starting roadmap for how to fix those problems.”
Not just poor record-keeping
Still, O’Donnell said, a “majority” of the audit’s findings were related to poor documentation and record-keeping by the pipeline program. Inspections or enforcement actions may have been issued without anyone noting it in records, she said. The director of the utilities commission, Rebecca White, told legislators the same thing Monday.
But Page, the audit’s manager, said the issues ran deeper than poor record-keeping.
“There was still sufficient records for us to audit and for us to see (the program) wasn’t following federal laws and federal regulations as well as state laws and state regulations,” Page said. “Anytime there are significant record-keeping issues, we would say that. But there were enough records that were clearly documenting that they were not following the requirements they were supposed to follow.”
Even by itself, the poor documentation identified by auditors violated various regulations, as do the use of verbal warnings (White told lawmakers the program has stopped using verbal warnings). The audit found that one staff member reported completing all of the required annual maintenance inspections of a certain type of unit in half a day. Given the number of possible units, that would’ve meant that the staff member spent just over two minutes on each inspection.
Thirteen of 15 inspectors weren’t adequately trained on the work they were conducting, and three had potential conflicts of interest related to inspecting previous employers, the audit found. (White told legislators poor documentation obfuscated that supervisors were overseeing in-training inspectors). The manager hired in 2021 to oversee the program was determined in a federal review to lack “sufficient knowledge of pipeline safety technology, enforcement applications, and administrative procedures.” The program agreed, according to the audit, and said the new manager would be brought up to speed “with time.”
Thousands of instances out of compliance
Despite finding thousands of issues with pipeline and gas operators between 2017 and 2022, the program rarely issued written reprimands. During those years, inspectors discovered 5,643 instances of gas operators being out of compliance with various state and federal regulations. But in only 6% of those cases did the program “enforce safety requirements,” like issuing a warning letter or penalty assessment. When actions were taken, they were often less serious than the offending gas operator’s history and risk to public safety suggested they should be, the audit found.
That lack of documented intervention continued even after explosions or other accidents. The audit identified eight incidents between April 2018 and February 2022 — including home explosions and gas leaks that led to two deaths, several injuries and hundreds of thousands of dollars in damages — where the program issued, at most, verbal warnings after the fact.
Most of those incidents had no documented compliance action from the state, according to the report. Action wasn’t taken before the incidents, either, despite all of the involved gas operators having a “history of prior noncompliance” in the units or areas involved in the incidents, according to the audit. One Black Hills unit had 41 instances of “unsatisfactory” noncompliance before an explosion injured several people in Aspen in February 2022.
Are monetary penalties working?
A ninth incident led to a $50,000 fine. But that’s only because the operator, Atmos Energy, failed to report the problem, in which 2,500 homes and businesses lost power for four days, Page said. The fine was later lowered to $5,000, the statutory minimum.
While auditors had identified problems throughout the program, the questions about oversight of large operators — many with repeated instances of not complying with regulations — were fundamental to the program’s mission.
“Yes, the program has a lot of areas where it can improve. But is it at least enforcing compliance for the worst of the worst — the operators that have ongoing safety issues, the repeat safety issues?” Page said.
The answer, she continued, was no.
Xcel Energy, for instance, had more than 1,000 instances of “multiple and repeat” noncompliance between 2017 and 2022. The state program issued no actions against Xcel during that period to enforce the regulations, the audit found, despite an April 2018 explosion determined to be Xcel’s fault.
Monetary penalties were rarer still. The program issued 23 financial penalties for 5,643 regulatory violations between 2017 and 2022, totaling nearly $11 million. But only $208,530 of that money was collected, the audit found. Other penalties were often reduced to nothing: The program asked the Public Utilities Commission to reduce 19 penalties to $0, which, the auditors said, violated a state law that caps such reductions to a minimum of $5,000. The audit also dinged the program for not considering other factors — like repeated noncompliance — when considering reducing penalties.
Officials with the utilities commission and the state Department of Regulatory Agencies said that they sought to avoid fines and instead wanted to incentivize operators to make needed changes on their own. White, the director of the utilities commission, told lawmakers Tuesday that operators would agree to devote money that otherwise would’ve been spent on penalties to addressing their compliance issues.
But that approach doesn’t work, auditors argued, and the program lacked follow-up confirmation that operators had done what they said they would. The report referenced a 2017 study on pipeline safety that found “operators were only motivated to comply with regulations when it is more expensive not to be in compliance.”
“When the Program does not use its regulatory power to penalize operators to help ensure that they comply with safety regulations in a timely manner, the State is not sufficiently fulfilling its responsibilities to ensure that gas pipelines are safe,” the auditors wrote.
O’Donnell, the spokeswoman for the regulatory department, said ongoing discussions included whether the program’s approach to fines is working. White told lawmakers that “compliance actions and penalties were not fully documented, and we need to do a better job of that.”
Rep. Tammy Story, a Conifer Democrat who requested the audit in fall 2021, said the findings “were even worse than I anticipated” and that there would likely be “further action in the legislature” taken to address the problems. Sen. Rhonda Fields, an Aurora Democrat and member of the audit committee that heard the findings Monday, told state officials to step up their timeline to enact change.
“We’re watching what you all are doing,” she said. “I just need to impress upon you all how important it is that we maintain the highest standard of safety as it relates to everything that I’m seeing, and I just think that many of these things that are highlighted are things that are fixable.”
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