PHMSA recently issued pre-publication copies of several rules and notices, which have now been formally published in the Federal Register, triggering various deadlines. On Friday, October 14, 2015, the Agency published (1) interim final emergency order rules authorizing the issuance of emergency orders to the entire industry in response to imminent hazards under certain conditions (effective immediately) and requesting industry comments within sixty days and (2) a final gas distribution excess flow valve rule, expanding requirements for excess flow valves in distribution service lines effective in six months. On Monday, October 17, 2016, the Agency for the first time published its civil penalty policy, noting that operators in enforcement proceedings may request a proposed civil penalty calculation in PHMSA enforcement actions.
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).
A previously abandoned natural gas pipeline exploded in Seattle, Washington on March 9, 2016, injuring nine firefighters, destroyed two buildings, and damaged multiple nearby structures. The entity responsible for regulating intrastate and interstate gas pipelines in the state, the Washington Utilities and Transportation Commission, recently released a report from its investigation of the incident, concluding that it was caused by (1) external damage to the above-ground portion of the service line; and (2) improper abandonment of the line, which had not been cut and capped when it was taken out of service in 2004. The report highlights the importance of adhering to federal regulatory requirements concerning proper pipeline abandonment, which was also the subject of a recent PHMSA Advisory Bulletin issued in response to a Congressional directive in the 2016 PIPES Act.
Taking the first step to implement its new emergency order authority, PHMSA has issued an interim final rule which will be effective immediately upon publication in the Federal Register. Final rules must be issued by March 19, 2017, but PHMSA will accept and consider comments filed within 60 days of publication. Congress conferred pipeline emergency order authority to PHMSA in the Protecting our Infrastructure of Pipeline and Enhancing Safety (PIPES) Act of 2016 . Under the Act, PHMSA can issue emergency orders to a group of operators or the entire industry based upon a written finding that an unsafe condition or practice constitutes or is causing “an imminent hazard” which must be corrected immediately. An entity subject to the order would be able to petition PHMSA for administrative review of the order, requesting a formal or informal hearing, and subsequent expedited judicial review in federal District Court. While the interim final rule largely tracks the relevant provisions of the PIPES Act and existing hazardous materials regulations, there are several important aspects of the rule that may require clarification and industry comment, particularly with respect to the basis for issuance, effective notice and time to appeal and the fact that the Agency retains unilateral authority to extend the effectiveness of an order during any proceedings.
The recent shut-down of Colonial Pipeline Company’s Line 1 in Alabama should remind the public and the government just how critical oil and gas pipelines are to America’s energy supply needs. As in most of the country, energy and food supplies are generally replaced on a short time frame, with three days being a typical limit on storage. Any disruption in service thus creates a shortage in essential services, in very short order. Gas prices in six Eastern states jumped quickly after the Colonial incident, due to increased costs and limits on product volume shipped by truck. Colonial is working diligently with PHMSA to investigate, repair and remediate the incident site, and, even as that work is ongoing, Colonial is constructing a temporary bypass line to restore service as quickly as possible. But Colonial’s Line 1 supplies upwards of 40% of all refined gasoline needs along the East Coast, and until pipeline service is restored, the effects will be noticed by a large percentage of the U.S. population.
PHMSA issued an advisory to operators regarding the applicability of its safety regulations to idled, inactive and abandoned pipe. Congress directed PHMSA to issue such an advisory in the recent PIPES Act of 2016, in response to several high profile incidents involving idled pipe. While operators frequently refer to idled, decommissioned, mothballed and/or inactive pipe, PHMSA does not recognize those terms. In its advisory, the Agency explains that it considers pipelines to be either active and subject to all relevant safety regulations or abandoned (i.e. permanently removed from service). With respect to a pipeline that is “purged” of all combustibles but not yet formally abandoned, PHMSA confirms its current practice of accepting deferral of certain activities, including inline inspection, as long as deferred activities are completed prior to or as part of returning a pipeline to service. This is consistent with prior PHMSA guidance.
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.
As the September 30th deadline for the Pipeline Safety Act reauthorization draws near, the Senate Committee on Commerce, Science, and Transportation convened a pipeline safety field hearing in Billings, Montana and recently scheduled a second hearing for September 29th in Washington, DC. Newly confirmed PHMSA Administrator Marie Therese Dominguez’s comments at the field hearing provide insight into current developments and priorities of the federal agency that is tasked with pipeline safety. In particular, Administrator Dominguez committed to issuing two outstanding rulemaking proposals in the near term, signaled that the Agency is increasing its focus on inspection and enforcement, committed to “vigorously” promote pipeline safety management systems, and conduct its own organizational self-assessment.
New FAQs on PHMSA/OSHA Boundaries for Regulatory Oversight at Midstream Facilities have been developed and presented to PHMSA management for final approval. The 7 new Frequently Asked Questions (FAQs) were presented to PHMSA management and the Technical Advisory Committees (TACs) for both the liquid and gas industries at a meeting in D.C. at the end of August 2015. The FAQs are intended to avoid gaps or overlaps in regulatory oversight of midstream facilities, and provide more certainty to both the regulated community and state and federal agencies.
PHMSA has recently issued a Final Rule establishing review criteria for state excavation damage programs, as well as a process for enforcing Federal excavation damage requirements in states with inadequate excavation damage prevention enforcement. The Final Rule will be published in tomorrow’s Federal Register and is effective January 1, 2016.
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