... Shakeups at FERC and New PHMSA Rules Impacting the Pipeline Industry - North American Energy Pipelines

Shakeups at FERC and New PHMSA Rules Impacting the Pipeline Industry

This month’s column discusses vacancies at the Federal Energy Regulatory Commission (FERC) and news involving the Pipeline and Hazardous Materials Safety Administration (PHMSA).

FERC Commissioners

The intrigue surrounding FERC commissioner nominees continues. There are currently two open seats, given the death of Kevin McIntyre (R) in January and retirement of Cheryl LaFleur (D) in August. The remaining three Commissioners — Chairman Neil Chatterjee (R), Bernard McNamee (R) and Richard Glick (D) — constitute a quorum. That is important for the oil and natural gas pipeline industry because gas infrastructure orders have generally passed on a razor thin 2-1 vote (with Commissioner Glick dissenting due to unaddressed concerns with climate change).

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For some time it’s been rumored that James Danly, FERC’s current general counsel, would be tapped for the Republican seat, and Allison Clements, a renewable energy lawyer, would be the Democratic nominee. Normally, when there are two open positions (one from each party), a pair of candidates is nominated for Senate approval. But our current political situation is anything but normal. On Oct. 15, President Donald Trump nominated Danly to fill McIntyre’s remaining term ending in 2023. Clements was not nominated. Democrats cried foul. Here’s the backstory.

If the administration had nominated a replacement for McIntyre last spring, there would be no controversy. It did not, and the delay resulted in a second open seat (LaFleur’s). So the administration was in a pickle: If both Danly and Clements were nominated, FERC would have five commissioners until McNamee’s term expires June 30, 2020 (or the end of the Congressional session at the latest). McNamee’s re-nomination and confirmation could stall during the presidential election year, producing an open seat, and if a Democrat wins the 2020 presidential election, he/she would be entitled to nominate a Democrat for McNamee’s vacated seat, giving Democrats a 3-2 margin.

Against this backdrop, Trump’s strategy started to take shape. Assuming Danly’s confirmation, FERC will likely be comprised of three Republicans and one Democrat until after the election. Some speculate that the president might offer to pair Clements with McNamee, but that might be a non-starter for Democrats. Assuming McNamee remains at FERC until after the election, some speculate that the president might re-nominate him and seek confirmation from a lame duck Senate. Another possible scenario involves the open seats of LaFleur and McNamee filled the by next president. As such, who nominates these two replacements and which party controls FERC could be decided by the 2020 election. At bottom, one thing is certain — the political tug-of-war at FERC is just beginning.

PHMSA Issues Three New Safety Rules

On Oct. 1, PHMSA issued three new rules to promote pipeline safety: (1) MAOP Reconfirmation Rule, (2) Hazardous Liquid Pipeline Safety Rule and (3) Enhanced Emergency Order Procedures Rule. The first two rules will take effect on July 1, 2020, while the latter will be effective on Dec. 2, 2019.

The MAOP Reconfirmation Rule addresses issues that contributed to the San Bruno, California natural gas pipeline explosion in 2010. A National Transportation Safety Board (NTSB) investigation found that the pipeline operator had an inadequate integrity management (IM) program that failed to detect a defective pipeline segment. In 2011, Congress enacted a pipeline safety act, which required gas pipelines to (1) perform periodic IM reassessments completed every seven years, (2) consider seismicity in evaluating potential threats and (3) report instances where a pipeline’s maximum allowable operating pressure (MAOP) is exceeded. Additionally, after a fire severely damaged a West Virginia interstate highway following a gas transmission line rupture in 2012, the NTSB recommended that PHMSA include interstate highways and freeways in the “identified sites” that establish a high consequence area (HCA) for an operator’s IM program.

The MAOP Reconfirmation Rule promulgates regulations that implement the 2011 act and responds to NTSB recommendations. For example, the rule requires operators of onshore natural gas pipelines to reconfirm the MAOP of their pipeline segments (including previously “grandfathered” lines) and gather the records to substantiate the MAOP; perform integrity assessments on certain pipelines outside HCAs; and use in-line inspection facilities (i.e., pig launchers and receivers) only when pressure is safely relieved in the barrel, thereby preventing operator injury. According to PHMSA, the estimated annual costs to comply with the rule is approximately $32 million.

The Hazardous Liquid Pipeline Safety Rule promulgates a number of new regulations for pipelines transporting crude oil or refined petroleum products, requiring:

  • Reporting requirements for certain hazardous liquid gravity and rural gathering lines;
  • Inspection of onshore and offshore pipelines affected by extreme weather and natural disasters;
  • Integrity assessments at least once every 10 years of “piggable” onshore pipelines outside HCAs;
  • Leak detection systems beyond HCAs to be used by all regulated, non-gathering pipelines; and
  • All pipelines in or affecting HCAs to be piggable within 20 years.

The rule also clarified other regulations to improve compliance and enforcement, in addition to incorporating several self-implementing provisions from a 2016 pipeline safety act. These new regulations are the result of lessons learned from pipeline accidents, such as the 2010 crude oil spill in the Kalamazoo River near Marshall, Michigan, as well as recommendations from the NTSB and Government Accounting Office. PHMSA estimates that the annual cost to comply with these new requirements will be approximately $20 million.

The 2016 act also required PHMSA to establish emergency order procedures to address unsafe conditions or practices posing an imminent hazard. As such, the Enhanced Emergency Order Procedures Rule augments PHMSA’s existing authority to protect life, property, and the environment. Pre-existing authority allows PHMSA to issue both a corrective action order to the owner or operator of a pipeline facility posing a hazard and notice of proposed safety order after finding a particular pipeline exhibits one or more conditions posing an integrity risk. Unlike the existing authority, the new procedures will allow PHMSA to address an imminent hazard by issuing an emergency order across a group of gas or hazardous liquid pipeline owners or operators and to do so without notice or hearing.

PHMSA Funding

Funding for PHMSA’s pipeline safety programs under the 2016 act expired on Sept. 30. When this column was submitted for publication, Congress had still not resolved funding for the next four years. To make matters worse, the competing House and Senate bills are quite different in terms of funding and substantive provisions; neither has had a floor vote, and it is unclear how they will be reconciled. The House bill (HR 3432) would increase the FY2020 budget authority for safety programs by approximately 18 percent over FY2019. In contrast, the Senate bill (S 2299) would provide a 9 percent increase budget authority for FY2020. More on this next year.

Washington Watch is a regular report on the oil and gas pipeline regulatory landscape. Steve Weiler is partner at Dorsey & Whitney LLC in Washington, D.C. Contact him at weiler.steve@dorsey.com.

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