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

2. 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

3. Confidential Information of PI Confluence, Inc. 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

4. Summary of Audit and Enforcement Items  547 items  49 companies  ‘05, ‘06, ‘07 15% 26% 59%

5. Confidential Information of PI Confluence, Inc. 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

6. Confidential Information of PI Confluence, Inc. 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

7. Confidential Information of PI Confluence, Inc. 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

8. Confidential Information of PI Confluence, Inc. 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

9. Summary by Protocol Element  Top 4 Elements: Threat-Risk; Direct Assessment; Baseline Assessment Planning& High Consequence Area identification…

10. 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)

11. IOC by Protocol Element  Top 3 Issue of Concern: Threat-Risk, BAP, Direct Assessment….

12. NOA by Protocol Element  Top 3 Notice of Amendment: Threat-Risk, HCA, Remediation….

13. NOPV by Protocol Element  Top 3 Notice of Proposed Violation: Direct Assessment, Threat-Risk, HCA….

14. The Nature of the Issues Position / Procedure / Process Management

15. Confidential Information of PI Confluence, Inc. 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.

16. 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 ….. Processes Processes 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

17. 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”

18. 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

19. Process Management allows you to organize these events / processes into a logical, elemental workflow Risk Assessment Update

20.  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

21. +230% + 44% “Positions” (all data)  Position issues did not seem to display a pattern

22. +230% + 44% “Procedures” (all data)  Procedural issues; however played a more significant role in 2006

23. “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

24. 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

25. 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

26. 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 %

27. 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

28. Summary by Protocol Element (enforcement data only)  If we circle back on the elements with the most enforcement issues… (Threat-Risk and Direct Assessment)

29. Top Protocol Element Analysis (enforcement data)  We see that for Threat - Risk C1d, C1a, C3a and C1c have been cited the most……

30. Threat – Risk Specifics 56% 43% Threat-Risk C.01d - Threat Susceptibility, Threat Elimination C.01a – Risk Modeling C.03a – Risk Assessment Process C.01c – Interactive Threats

31. Nature of Threat Risk Issues (enforcement data)  The nature of the issues in Threat – Risk were Process Management

32. Top Protocol Element Analysis  While for Direct Assessment, D5c, D4a and D2d received the most attention ……

33. Direct Assessment Specifics 68% 56% 23% 43% Direct Assessment D.05c - ECDA Effectiveness D.04a - Excavations D.02d - ECDA Regions (primarily cased crossings)

34.  The nature of the Direct Assessment issues were Procedural Nature of Direct Assessment Issues (enforcement data)

35. 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

36. 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. Repeatability You Decide…

37. 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

38. 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

39. 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

40. Questions? If You Would Like a Copy of this Presentation, Please Leave a Business Card Gary White President / CEO PI Confluence, Inc. August 21, 2007