On October 11, 2016, PHMSA released a Policy Statement notifying owners and operators of oil and gas pipelines that it is finally making its civil penalty framework publicly accessible, and that respondents may now request proposed civil penalty calculations in enforcement actions. The Agency is already projected to issue the highest amount of proposed civil penalties in a single year in 2016, and this notice signals that it will “as appropriate, issue higher penalties in order to apply stronger deterrence and drive down incident risk.” PHMSA also confirms the increased penalty amounts as adjusted for inflation for violations occurring on or after August 1, 2016, as a result of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (with maximum civil penalty per day now capped at $205,638 and $2,056,380 for a related series of violations).
PHMSA has never clearly communicated how it interprets the Pipeline Safety Act’s civil penalty provisions and this Policy Statement does not provide industry with much additional clarity. The Agency asserts that while it already provides copies of its penalty policy framework upon request, the posting of this notice is intended to provide “greater transparency regarding administrative civil penalties.” While the Policy is grounded in the statutory and regulatory provisions regarding the assessment of penalties, set forth at 49 U.S.C. § 60122 and 49 C.F.R. § 190.225, the manner in which the Agency actually calculates its “risk-based” proposed penalties using the framework has not been typically elucidated in enforcement actions. Up until now, PHMSA has only shared internal draft documents on penalty considerations in the enforcement context, as part of its Pipeline Safety Violation Report, and those have varied widely and rarely include any explanation as to the basis for a proposed penalty. With this Policy Statement, the Agency states that it will now provide a proposed calculation in enforcement actions. Presumably, the rationale underlying a proposed penalty will also be provided but the Policy Statement is notably silent on that point. In addition, the Policy Statement provides no guidance as to the application of the $2M cap for a “related series of violations.” PHMSA has not in the past clearly communicated how it interprets the Pipeline Safety Act’s limit on civil penalties for any “related series of violations,” and does not endeavor to do so in this Policy Statement.
While the Policy is similar to the prior informal examples of its penalty policy that has been released by PHMSA in the past (e.g., this version that was last revised in 2012, there are a number of significant and potentially concerning revisions in this current announcement, the majority of which have the potential to authorize significantly higher penalties. They include the following:
- Gives “variable credit” for “operator self-reported” violations to PHMSA (including State Partners/regulators) before PHMSA discovery
- Cap is now unlimited (previously was $150,000)
- Clarifies that this determination is “based on operator actions before the violation occurred,” rather than any response to the violation
- Can now be used as a mitigating factor or to increase a penalty by over $2M, in certain circumstances that are akin to criminal acts (e.g., falsifying records, knowing violations) despite the fact this is a civil penalty policy
- Determination is based on operator actions before the violation occurred, not in response to the violation
- Now considers whether an operator has a credible justification for its actions or lack of actions (previously considered whether an operator failed to follow publicly available guidance)
Other Matters as Justice May Require:
- Cap increased from $175,000 to over $2M
- Adds consideration for “any and all appropriate factors will be applied to the violation”
- Adds violation for whistleblower protection
- Adds failure to notify reportable incident prior to PHMSA discovery
- Adds failure to comply with any PHMSA order including CAO or Safety Order
- Adds repeat of a repeat violation
- Adds variable addition where an operator benefited economically from a violation.
Finally, note that this Policy Statement is just that–a policy statement–and it not issued as a rule nor presented as binding agency policy. As such, it is only publicly available guidance with no binding or enforceable effect, much like an Advisory. It also does not rise to the level or extensiveness of penalty policies that have been issued by other federal agencies with penalty authority, such as EPA or the Corps of Engineers. That said, we expect that PHMSA will continue rely on the Policy and present it as evidence in legal proceedings, and it is important for the regulated community to remain informed.