Perspectives

The myth of the abandoned line

A perspective by Gary Sloman,
Executive Director, New Mexico One Call

One definition I especially like of the word myth is “an unproved or false collective belief that is used to justify a common ideology”. Abandoned lines means many things to many people. Regulators, accountants, lawyers, and operating personnel all have their own interpretation of what that term abandoned means. Generally speaking, utility and pipelines that have been abandoned mean the owner of the line has decided to retire a particular line from use and not remove it from the ground. There are several advantages to retiring a line, one is you no longer pay property and other taxes on the value of the line.

Secondly, since it is removed from service you no longer are expected to operate or maintain the line. Sometimes certain maintenance conditions may be imposed on a company in order to remove a line from service and abandon it in place for environmental considerations.

Thirdly, the company usually can forgo most reporting requirements when the line is removed from service. All of these reasons are valid business decisions for abandoning a line.

Generally, the intended business decision can be achieved from an accounting perspective without further complications. However, it is not clear to me that life in the operating arena of a company is made easier unless the line has physically been removed or effort is made to maintain it in the form of locating and marking. The issue underlying my concern is ownership. Yes, I know most operating folks will quote the proverbial line, “we abandoned that line, and therefore we don’t own it anymore”. There may be some corporate policy statements that in fact proceduralize that as well, but corporate policy statements are not law. Good corporate policy statements will follow all applicable laws and regulations. Ownership does not cease when you abandon a line in place. At least I have not been able to find any law or regulations that clearly states ownership ceases when a line is abandoned.

I do find the asset ceases to exist on the books when retired, but ownership and maintenance expectations are not clearly dissolved when a line is retired and in some cases environmental requirements exists because of ownership even after the retirement of the asset because it is still in the ground.

Consider these issues:

1. Usually, a utility line or pipeline is placed in some sort of right-of-way. Normally the company is given rights to use the property of someone else for the purpose of ingress, egress, operating and maintaining the line for its intended use. Most right-of-way agreements tend to have clauses that mandate the line needs to be removed and the property restored to its original condition if the line is no longer used. Usually, such right-of-way becomes null and void after the line is physically removed. If the line is not removed the grantor of the right-of-way is usually informed the line is withdrawn from service, but it may be used in the future. Clearly, preserving the right-of-way agreement and also ownership of the line. Ownership is important because state law 62-14-5 NMSA 1978 requires the owner or operator of the underground facility to locate and mark the underground facility. The excavation law makes no distinction between facilities in service or not in service, but only on who owns or operates the line.

2. Many utility companies use maps as the basis for their property tax records. These records are also used by their spotters to help them find the locations of existing underground utility lines. But their corporate policy requires the map record to be amended so that the line being abandoned is physically removed from the map record to correct the accounting record. When this occurs, information is also physically removed from the location record and the spotter’s use and he no longer knows where an abandoned line exists. If the map record is considered an integral part of your spotting function, then you may want to examine your corporate policy and see if you want to continue this practice of removing the line from the record since altering a locate record might be considered a violation of 18.60.5.17 paragraph I, NMAC, which in part states “A person shall be deemed to have willfully failed to comply with this rule or Chapter 62, Article 14 NMSA 1978 and shall be subject to the penalties in Section 62-14-8 NMSA 1978 if the person: … alters any record relating to excavation activity; or …”. There is nothing to prohibit a company from color coding or highlighting a line to be removed from the tax record and still leaving it on the map record so a spotter can utilize the information. Uniform Standard Accounting Principles do not necessarily make good operating policy.

3. Suppose you are an excavator and you called the two working days before digging, went to the site, determined all facilities were marked that you were told would be there, and you begin digging. A couple of hours into the dig you strike and rupture an abandoned line with residual hydrocarbons flowing out of it into your ditch, which is slightly above the existing water table. The line was not marked and is not near the other markings. What do you do?

First of all, the PRC’s Rules & Regulations requires you to stop digging immediately, call 911, if appropriate, secure the site, keep people a safe distance away, and notify the facility owner. You cannot go back to work until the facility owner tells you it is safe to do so. So you are essentially shut down and now you begin the arduous task of trying to figure out whose line that is that you cut. You call the pipeline company that spotted already and they say they will come and look, but it is not their line.

You call the one call center, the Pipeline Safety Bureau, and everyone is standing around trying to figure out whose line it is, when the pipeline company spotter says sheepishly, “It’s an abandoned line. We don’t own it anymore. We took it off of our records six months ago when we took the line out of service.” This abandoned line has suddenly gotten very expensive, and the excavation law is pointing to the facility owner as the one who violated the excavation law and maybe some environmental laws as well. The owner or operator of the line may be subject to multiple fines for excavation law violations, the facility owner owes you, the excavator, for all your down time and reasonable expense incurred, and the facility owner owns the liability of the cleanup costs and any fines which may be imposed by the environmental regulators. All because someone decided that they did not own the line anymore and removed it off of their books and records.

Again, standard accounting principles do not necessarily make good operating policy. If you are the facility owner, you may succeed in getting some folks to buy that line of reasoning, but a good lawyer for the excavator will clearly show how the burden under the law resides with your company, the owner of the line, and not the excavator. Environmental regulations are written around who owns the line as well, not how you account for it on the books.

I have probably touched on one or two things that many of you will say “we don’t do it that way” and have caused you to question my expertise and authority on this issue. Good. I am not a lawyer, or an accountant, but my purpose is to get you to think about these things and examine your own company practices with the experts. I think you will find the myth that an abandoned line means I don’t own it, will take on a new level of concern when you consider other laws and rules & regulations that companies must comply with which are based on ownership. Here is my list of recommendations to help you in this effort:

1. Examine your company policies and practices. Do not remove abandoned lines from the record a spotter uses to mark lines with. Color code or highlight abandonments. This insures the spotter will be able to mark a line you own.

2. Don’t call things by the accounting terms unless that is what you do in practice (i.e., a removal is done on a map card when a line is abandoned and a retirement order is written to take it off the books). The line is really still there, it is just not in service.

3. Staff should be familiar with the terms and what they mean for the different disciplines, so their use is not confusing.

4. Contact regulators and experts to get their opinions and help on the best practices to use. They are more willing to help than you may give them credit for.

5. Consider marking any line in the ground that is not physically removed. You can even mark it as abandoned if you like. But by marking the lines you absolve yourself of the liabilities of not marking a line you own.

We encourage excavators to never cut an abandoned line. We also encourage facility owners to mark abandoned lines. Yes, there is a cost to do that, but there may be a much larger cost if you don’t mark it.

When an abandoned line is discovered by an excavator, a great deal of confusion occurs trying to find out who the owner of the line is and how to contact them. Unforeseen costs are incurred and the frustration of all the parties involved escalates. It would be a lot simpler if abandoned lines as a matter of practice were tracked, located, and marked. If you are going to avoid the expense of removing a line when retiring it, then you should bear the expense of locating it when necessary.

I am reminded of my days as a police officer when I would discover contraband in a person’s vehicle. Without fail, the defendant’s response was always, “That’s not mine! I don’t know where it came from.” We as an industry can choose to claim “it’s not mine,” or we can choose to do the right thing.