Several legislative developments of significance to the pipeline and energy transportation industries are in progress, with the introduction of a bipartisan pipeline safety reauthorization bill in the House, the passage of a bipartisan energy bill in the Senate, and the passage of a bill in the Senate that provides for the use of drones to monitor pipelines and other energy infrastructure.
PHMSA’s expansive Natural Gas Notice of Proposed Rulemaking will be published in the Federal Register tomorrow, April 8, 2016. The Agency released a pre-publication version of its proposed rulemaking several weeks ago, but note that the Federal Register pre-publication version of what will be officially published tomorrow contains slight non-substantive differences from the Agency’s prior released version (e.g., capitalizations, movement of certain proposed revisions among subsections, etc.). The proposal significantly expands numerous requirements for gas transmission and gathering pipelines. Publication in the Federal Register triggers the start of the comment period, with comments due on or before June 7, 2016, unless an extension is granted. Due to the complexity and volume of the proposed changes, several industry trade groups already have requests pending for a 60 day extension of the comment deadline.
The legacy of Keystone XL lives on, as fallout from that politically influenced debate has created a stigma for many new pipeline construction projects. The Sierra Club and other opposition groups openly admitted that their challenge to the Keystone XL pipeline was really a stalking horse to bring more attention to climate change generally. While that opposition was not intended as a more specific objection to pipelines, regional and local citizen groups are now opposing almost any form of new pipeline construction, on a more confrontational basis, using Keystone XL climate change type arguments even where they are not relevant.
Secretary of Transportation Anthony Foxx and the Pipeline and Hazardous Materials Safety Administration (PHMSA) Administrator Marie Therese Dominguez have appointed a new Chief Counsel for PHMSA, Teresa A. Gonsalves. Ms. Gonsalves’ immediately prior experience is with the Office of Personnel Management and the U.S. Postal Service. Administrator Dominguez, who has been in her current position for less than a year, also came from prior experience with the U.S. Postal Service.
PHMSA’s oil spill response regulations have been subject to increased scrutiny by Congress, the NTSB and citizen groups since the 2010 Deepwater Horizon and Marshall, Michigan incidents. The National Academy of Sciences (NAS) recently published a diluted bitumen study which concludes that while diluted bitumen does not pose an increased risk in transportation, it behaves differently than lighter crude oils following a spill. As a result, NAS made recommendations to various federal agencies with oil spill response oversight and oil pipeline operators to ensure adequate responses to spills of diluted bitumen. In response, PHMSA announced that it will convene a public workshop on April 12, 2016 on these and other oil spill response planning issues covered by its pipeline regulations (Part 194) and rail and motor carrier regulations (Part 130).
PHMSA has released a Notice of Proposed Rulemaking (NPRM or Notice) to substantially revise that Agency’s rules (at 49 CFR Part 192) for construction, operation and maintenance of natural gas pipeline systems. The Notice was made available to the public on March 17, 2016 (accompanied by a press release dated March 15, 2016). Public comments on the NPRM will be accepted for 60 days following publication of the Notice in Federal Register (the Notice has not been published yet).
Congress directed PHMSA to consider numerous new rules for natural gas pipelines in the 2011 reauthorization of the Pipeline Safety Act. That directive was made largely in response to several serious gas pipeline incidents in 2010 and 2011, including the San Bruno, California fatality incident. In addition, in 2011 the NTSB issued various recommendations to PHMSA as a result of its investigation of the San Bruno incident, including elimination of the “grandfather” clause and the requirement of a pressure test and spike test for all pre-1970 transmission lines, amending the integrity management rules so that pipelines with manufacturing and construction defects be subjected to a post-construction pressure test of 1.25 MAOP, and require that all transmission lines be configured to accommodate ILI, among others. The Agency has been criticized for taking nearly five years to fulfill its Congressional obligation and to respond to the NTSB recommendations, but both industry and citizen groups welcome the opportunity to finally be able to evaluate and comment on changes being proposed (as opposed to grappling with vague and uncertain advisory guidance).
Some issues anticipated to be addressed in the gas NPRM have been excluded (e.g., proposed elimination of class locations) or postponed for subsequent rulemakings (e.g., whether to mandate automatic shutoff valves (ASVs) and whether to regulate underground natural gas storage). Other proposals within the Notice are almost anti-climactic, such as phase out of the “grandfather clause” authorizing continued use without internal testing of pipelines constructed prior to 1970 largely because the majority of industry has already been making operational changes in anticipation of this change. In addition, the Notice includes proposals for inspection of pipelines within 72 hours following a weather event (a similar proposal was floated for liquid pipelines) and codifying of the Agency’s prior advisory regarding reporting of MAOP exceedances.
Some of the more significant proposals within the Notice include changes to the integrity management program, such as proposed revisions to: repair criteria for HCA pipeline segments to address crack defects; risk assessment and models; new proposed integrity assessment methods, selection and use of direct assessment methods; additional requirements to address corrosion threats; hydrostatic “spike” test requirements for crack or crack-like defects; and treatment of longitudinal seam weld pipe (would be considered stable threat only if pressure tested to 1.25 MAOP). The NPRM also proposes numerous non-integrity management requirements, including: expanding application of several IM program elements (assessment, periodic reassessment and repair criteria) to “moderate consequence areas” (pipelines near 5 or more buildings or right of way for interstate freeway, etc.) and class 3 and 4 locations; expanding the scope of regulated gathering lines; significantly increasing corrosion control requirements; and requiring material documentation and MAOP verification and testing requirements to class 3 and 4 locations and HCAs. In addition, the proposed rule would also codify the “traceable, verifiable and complete” standard that PHMSA issued in its post-San Bruno records advisory and require that all pipelines maintain a management of change process.
In short, this is an aggressive proposal which industry should carefully consider, and prepare and submit thoughtful comment. Hunton & Williams will continue to monitor and will post updates as appropriate.
As the U.S. House of Representatives considers reauthorization of the Pipeline Safety Act (PSA), a House Transportation & Infrastructure Subcommittee requested input from the Department of Transportation (DOT) Office of Inspector General (OIG) on ways to enhance the enforcement of criminal pipeline safety laws under the PSA. In a letter dated March 8, 2016, DOT Inspector General (IG) Scovel provided two recommendations: (1) that the mental state required for prosecutions under the Pipeline Safety Act be reduced from “knowingly and willfully” to “recklessly;” and (2) that the law provide for greater whistleblower incentives, such as the one recently enacted by the Fixing America’s Surface Transportation Act (FAST Act).
The U.S. House of Representatives convened a Hearing last week regarding reauthorization of the Pipeline Safety Act (PSA) and is now considering draft legislation. In light of the recent methane leak in Aliso Canyon, California, House Subcommittee members echoed support for many of the provisions in the Senate reauthorization bill, S 2276, including federal safety standards for underground natural gas storage and requirements that PHMSA satisfy its remaining mandates from the prior 2011 reauthorization law. In addition, PHMSA and the Pipeline Safety Trust (PST) advocated for some additional provisions, including providing the Agency with “emergency order authority.” Overall, both the PST and industry recommended a straightforward reauthorization without numerous additional mandates.
In the Hearing, the House Subcommittee on Railroads, Pipelines and Hazardous Materials Chairman Jeff Denham (CA) described pipeline safety reauthorization as his “top legislative priority” for 2016. PHMSA Administrator Dominguez testified first and advocated for new emergency authority to provide for emergency industry-wide orders that could prohibit a dangerous practice or respond to unsafe conditions, practices or activities. Currently, PHMSA has emergency authority with respect to facilities that, in the Agency’s judgment, are or would be “hazardous” (referred to as a “corrective action order”) or pose an integrity risk (referred to as a “safety order”). 49 U.S.C. §§ 60112; 60117(l). In addition, PHMSA may, under certain circumstances (including emergencies), issue a final rule that is immediately effective. The Agency does not, however, have the authority to issue emergency orders that are immediately applicable to the entire industry (similar to that of the Federal Railroad Association). In addition, Dominguez laid out her agency’s plan in the next few months to address the remaining mandates from the prior (2011) reauthorization and discussed a reorganization of the agency referred to as “PHMSA 2021” with the purpose of making the agency more data-driven and transparent, and increasing emphasis on safety management systems (SMS).
Meanwhile, Representative Hahn (whose district includes the Wilmington, CA neighborhood affected by a 2014 oil spill) asked the Committee to work with her to include third party verification as part of the reforms, referencing her bill HR 4624, which she recently reintroduced. In addition, the PST asked Congress in drafting provisions on underground storage to look to Representative Sherman’s legislation HR 4578, the Underground Storage Safety Act. Another House bill referenced during the Hearing was HR 4429, the Natural Gas Leak Prevention Act, which would require minimum federal standards for underground natural gas storage. Industry representatives from AOPL, API, AGA and INGAA argued that reauthorization should contain no significant new safety mandates, in light of several new rulemakings already underway. INGAA and AGA confirmed their support for regulation of underground natural gas storage, but encouraged consideration of recent industry standards.
A subcommittee of the House Energy and Commerce Committee will consider draft legislation today, March 1, 2016. While it contains fewer requirements, the House draft legislation largely mirrors the major provisions under Senate bill 2276 and would add two new requirements. These include a (1) provision clarifying that the PSA citizen suit provision allows for an injunction against the U.S. for failure to perform a nondiscretionary duty under the PSA (in response to a recent 9th Circuit decision) and annual inline inspections of hazardous liquid pipelines facilities in high consequence areas that located underwater at depths greater than 150 feet (and that are not offshore). Meanwhile, the Senate tried to move its reauthorization bill last week, but adjourned without acting on it. Notably, emergency authority is not yet included in the draft legislation before the House or S 2276.
We recommend that operators monitor these developments closely and maintain contact with their trade organizations. To the extent that Congress adds a provision that would provide PHMSA with industry-wide emergency order authority, we note that the Agency’s current authority provides for individual emergency CAO orders, safety orders and industry-wide emergency final rules (under certain circumstances). Further, in light of PHMSA’s backlog of rulemaking mandates and tendency to use guidance to impose new regulatory requirements, it is hoped that any legislation that provides for industry-wide emergency order authority be carefully drafted to limit unnecessary and unauthorized imposition of injunctive relief on the pipeline industry.
The ongoing leak of methane from Southern California Natural Gas Company’s Aliso Canyon/Porter Ranch underground storage field near Los Angeles has drawn national attention to underground natural gas storage, triggering regulatory and legislative efforts to regulate these facilities at federal and state levels. On the regulatory front, President Obama recently committed to direct PHMSA to promulgate new storage regulations. Just this week, PHMSA announced a new Advisory Bulletin on managing the integrity of underground natural gas storage facilities.
Barring any near catastrophic, unanticipated global event, the U.S. oil and gas industry should see a bottom to the market in 2016, and the beginning of a return to a more balanced and profitable recovery. But that economic recovery will be set against a new global backdrop. The well-documented expansion of oil and gas shale resources over the past 5 to 8 years increased U.S. production markedly. By 2015, the U.S. had become the world’s largest producer of oil and gas. That occurred as the U.S. was recovering from a severe recession, and while global demand for oil and gas held steady. OPEC, Russia, Venezuela and other producing countries all chose not to cut back in production, for fear of losing market share to the new U.S. source of supply. Those facts led to oversupply, and a significant reduction in price for U.S. oil and gas products. The predicted drop in price of crude to $30/bbl occurred in 2015, then dropped below $30 in early 2016. And while the global price of oil and gas remained suppressed, the U.S. supply of stored oil and gas inventory hit record highs by the end of 2015.