Friday, January 8, 2010

IST Compliance

I am going to close out this series of blog ‘re-postings’ about IST with an original post looking at IST compliance issues. The earlier postings in the current series were:
Writing IST Legislation
IST Reader Comment - Scheduling
What Standard to Apply for IST - Limits
What Standard to Apply for IST – Cost Estimates
IST Reader Comments – Sources and Standards
IST Reader Comments – IST Incentives

 Last week I had an interesting telephone conversation with Jon Kalmuss-Katz, a reader from NYU. It was a lengthy discussion of the IST provisions of HR 2868. Jon asked an interesting question during that discussion; he asked my opinion about the probable effectiveness of the IST provisions in HR 2868. As with everything else associated with the entire IST debate, there is no simple answer to that question, but a discussion of the subject seems like an excellent way to close out this series of blogs.

IST Assessment 

I think that the requirement to for every high-risk facility to perform an IST assessment has the potential to be the most effective part of this legislation in getting high-risk chemical facilities to change chemicals and processes. The reason for this is that for many, probably most, of the 6,000+ covered facilities, this will be the first time that they have taken a systematic look at the chemical processes that they use with the view to possibly changing to a safer process.

Now many facilities will have already looked at alternative processes as part of their EPA and OSHA mandated process safety reviews. The facilities with chemical engineering or chemical R&D support are more likely to have looked at safer processes. The reason is actually fairly simple; handling dangerous chemicals is expensive. The government reporting requirements, the added safety equipment, and the liability issues all increase the costs of these processes. As part of the standard business cost-cutting program, most facilities with the technical capabilities to do so will look at alternative processes to reduce their manufacturing costs.

Unfortunately, a large number of chemical facilities will not have adequate technical resources in-house to conduct such a review. In the normal course of business they would just continue to use the same chemicals and processes that they have for years. The EPA and OSHA process safety reviews do not specifically require looking at alternative processes and are rarely checked in any case. So, there is no clear incentive to conduct such studies. If the IST provisions of HR 2868 are passed into law (very likely in some form) these facilities will be required to complete and document an IST assessment. They still won’t have the in-house resources to do this, but, because of the legal requirement, they will turn to outside engineering consultants to conduct and document the assessments.

Now, if these assessments turn up effective alternative processes that will save the companies money, most companies will implement the appropriate process changes. There is every economic incentive to do so and economic incentives drive most of the decision making in corporate America. The key here will be putting effective review procedures in place to ensure that the assessments are actually done.

The big problem with the OSHA and EPA process safety review requirements is that there is no effective governmental check of the adequacy of those reviews unless there is a significant accident at the site. To be fair to those two agencies, Congress has never provided funding or authority for such agency reviews and approvals of the safety studies.

Presumably, DHS would develop an IST Tool to be used as part of the current Chemical Security Assessment Tool (CSAT). Such a tool would have to provide for the submission of enough information that DHS would be able to evaluate the adequacy of the assessment as well as its substance.

Mandated Implementation

The current language of HR 2868 {§2111(b)(1)(A)} as passed in the House only allows the Director of the Office of Chemical Security to consider the information provided in the assessment in making the determination of whether to require the implementation of the inherently safer technology. Included in the Director’s determination is the requirement to ensure that the hazard to be avoided at the facility is not simply transferred to another location.

There is, however, an inherent problem with this that Jon identified in our conversation; how does DHS ensure that the hazard is not transferred to another location? HR 2868 requires that the conversion does not create a new Tier 1 or 2 covered facility {§2111(b)(1)(a)(i)(II)} or conversion of a Tier 3 or 4 facility to Tier 1 or 2 {§2111(b)(1)(a)(i)(III)}.

Take, for example, the case of a facility converting from the use of chlorine to hypochlorite. If the supplier were a Tier 3 or 4 facility, there would be no way of knowing if the new business provided by the converting facility would enough to change the producer to a Tier 1 or 2 facility until that facility reported the change in their chlorine inventory in a new Top Screen after the new business was in place. The new business could be simply off-setting lost business or it could be an increase in business that did not require an increase in on-site chlorine inventory at the hypochlorite manufacturer; in either case there would be no change in the manufacturer’s tier ranking.

Further complicating this determination is the issue of transportation hazard. Section 2111(b)(1)(a)(i)(IV) prohibits requiring implementation of an IST that transfers the risk to ‘transportation infrastructure’. If the hypochlorite producer needed an increase in the number of chlorine shipments to handle the new business, this could be considered such a risk transfer. Again, DHS would not be able to determine this until the producer reported the change in the number of shipments; something not currently required to be reported in Top Screens.

To make matters worse, it may not be possible to identify the potential manufacturing facility where the hypochlorite will be produced. If the implementing facility were sourcing their hypochlorite through a distributor, they would have no way of knowing, nor would DHS, which facility would be manufacturing the hypochlorite. Since hypochlorite is not a COI, the distributor might not even be a reporting facility; much less a CFATS covered facility. And the distributor might use multiple manufacturers or manufacturing locations to source their chemicals.

Assessment Evaluation 

The final issue that Jon and I discussed was the evaluation of the IST assessment conducted by the facility. Since the Director must rely on the facility’s assessment to make the implementation decision, it becomes a relatively simple matter for facilities to avoid implementation; write an assessment that finds it not feasible.

Ignoring for the moment the earlier discussion of why facilities would want to implement technically and financially feasible IST, this is one of the major concerns for advocates of mandating IST implementation. One could certainly describe a situation where an IST implementation was technically and financially feasible, but would be such a headache that the facility would want to avoid being required to implement the technique. This could be further aggravated by the implementation timeline required in the legislation.

The question then becomes, could the facility avoid mandated implementation by the way they wrote their assessment? An assessment could be completely fabricated that would show that the IST implementation was both technically and financially not feasible. Depending on how well the assessment was written, the fabrication might be completely undetectable. Fortunately, there would be few if any (in my opinion, others will certainly disagree) high-risk facilities that would take this clearly illegal route to avoiding a requirement to implement an IST technique. Short of such clearly illegal manipulation of the assessment, there are a number of ways that a facility can manipulate the assessment to avoid mandated implementation.

Cost estimates for implementation are based as much on technical opinion as fact. Every engineer takes available information and adds fudge factors to try to account for the inevitable unforeseen events that come into play in any process change. The earlier in the engineering process that the estimates are made the larger those fudge factors will be. Small changes in that factor can make significant difference in feasibility determination of the assessment.

Other factors that can be massaged during the assessment process include the source for price estimates. Facility engineering staffs know multiple suppliers for almost every service and equipment required for the implementation project. Choosing a higher cost supplier for the assessment quote can significantly increase the cost estimate for implementation. Since these supplier decisions are frequently location based, it would be very difficult for DHS to question such manipulations.

Another factor that could be subject to manipulation is the margin requirement for the products involved in the covered process. Every product in the market place has a required price margin over manufacturing costs. This margin is used in calculating the profitability of the product and thus figures into the calculation of financial feasibility of the IST implementation. Every business uses a different methodology for determining the margin requirements for their products and will frequently require different margins for different products. I have seen required margins as low as a penny a pound and as high as $1000.00 per pound at the same chemical facility.

The factors that affect that calculation vary widely but can include sales price, volume of production, age of the production facility, customer and market share. A small change in the required margin can have a major impact on the financial feasibility of the IST project. With all of these variables (and there are many more variable that can be taken into account when evaluating technical and financial feasibility) it strikes me that there should be no facility that could be forced to implement an IST that they did not fully endorse. Anyone should be able to document an assessment that finds a marginal project to be financially not feasible.

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