With an increased interest in the resolving disputes efficiently and avoiding litigation where possible, the time may be right for the Pipeline and Hazardous Materials Safety Administration (PHMSA) to clarify the process for settlement of pipeline safety compliance issues, whether through new rules or a written settlement policy. On the hazardous materials regulatory front, PHMSA has historically engaged in settlements that are guided by an express allowance for settlement under the regulations. The Agency has also engaged in settlements in at least some pipeline safety cases over the years and more so in the last year. Without specific rules or a written settlement policy in place, however, settlements of pipeline safety matters in practice may not be consistently implemented.

Many federal agencies have settlement policies that encourage parties in enforcement actions to discuss issues before progressing to full administrative hearings. Such policies offer the possibility of narrowing, if not resolving, legal disputes, which can benefit all parties by realizing efficiencies and avoiding the cost of protracted disputes. These efforts are analogous to pre-trial conferences in federal courts, where a court may ask the parties to discuss whether issues can be narrowed or resolved without full adjudication, in order to ‘expedite disposition of the action’ and ‘facilitate settlement’ (see Fed.R.Civ.Proc. 16(a)).

PHMSA is charged with the implementation of two primary statutes: the Pipeline Safety Act (PSA) and the Hazardous Materials Transportation Act (HMTA). PHMSA is comprised of two sections: the Office of Pipeline Safety (OPS) and the Office of Hazardous Materials (HAZMAT). The Agency’s Chief Counsel is responsible for both the OPS and HAZMAT sections. Neither OPS nor HAZMAT currently have published settlement policies, but the HAZMAT regulations do address settlement in some detail. Since the 1980s, there has been a provision in the HAZMAT regulations titled “Compromise and Settlement” (see 49 C.F.R. Part 107.327). That provision allows either the Agency or a respondent to propose settlement of either or both a proposed penalty or a proposed compliance order. The Agency made clear in issuing the Final Rule containing this provision that a party could settle claims without admission. The provision was further defined by subsequent regulatory amendment to clarify its intent “to expedite and facilitate compromise and settlement of HMTA enforcement cases…”. Significantly, that amendment clarified that under Part 107.327 (“Settlement and Compromise”) either PHMSA or a respondent can seek to settle an enforcement case, without the approval of the Administrative Law Judge (ALJ), noting that option exists “even when the case is pending before an ALJ.

As noted in the preambles to the HAZMAT settlement and compromise regulations, the Agency has settled cases over the years through Consent Agreements or modifications of claims, without express reliance on settlement authority. That has also occurred in the OPS section of PHMSA. Without express provisions regarding settlement, however, either in regulations or in a written settlement policy, the availability of settlement negotiations has been unclear and not consistently applied on the OPS side of the Agency. This issue was presented to PHMSA over the past year, and the Chief Counsel welcomed the opportunity to have parties voluntarily engage in meetings that could narrow or resolve OPS issues as efficiently as possible. Among other things, settlements can result in much more effective and efficient resolution of enforcement matters, including the correction of facts, more efficiently than through administrative hearings; more contemporaneous exchanges of views on new or novel legal claims or defenses; more tailored proposed compliance orders aligned with the facts and issues; and offers of compromise on penalty amounts.

With the experience of the HAZMAT express allowance for settlement, and the benefit of years of OPS precedent in finding ground for settlement in at least some cases, the time may be ripe for PHMSA to either amend its Part 190 (OPS procedural) regulations, or issue a written settlement policy that could apply to both the OPS and HAZMAT sections. In either approach, the Agency should clarify a few issues that have arisen in recent years in the course of settlement discussions with OPS.

The first issue questions the procedural steps required if a settlement is reached after a Hearing Request has been filed. Can the Respondent simply withdraw its Hearing Request and enter into a Consent Agreement with the Region, or must the parties present their settlement agreement to the Hearing Officer, who will then prepare and recommend a Final Order to the Associate Administrator?  The second issue concerns civil administrative penalties. If the Region agrees through negotiation to withdraw some (but not all) allegations in a given claim, how is the proposed penalty adjusted?  In various instances it has been suggested that the Region could make such modifications, while in other cases the Agency representatives have preferred to let the Hearing Officer make adjustments in issuing a recommended Final Order. Further, the settlement process in different Regions and before different presiding officials has not been consistent due to the lack of a clear path towards settlement and specific procedural steps.

If PHMSA decides to promulgate ‘settlement and compromise’ regulations for OPS under Part 190, similar to the Part 107 regulations for HAZMAT, such procedural action would arguably not require prior notice, pursuant to 5 U.S.C. Section 553. Further, any rules could be deemed deregulatory since they are intended for the purpose of resolving disputes and increasing efficiencies. Settlements are subject to public inspection, however, whether accomplished through consent agreements or final orders.

Providing the regulated community with clear guidelines on the opportunities for settlement of enforcement actions would benefit all parties.

Congress recently convened its third Committee Hearing on reauthorization of the Pipeline Safety Act, before the House Energy and Commerce Committee.  Much of the discussion of focused on pipeline security, among other issues that have been discussed in prior hearings. Adding to the focus was the absence of an invited representative from the Transportation Security Administration (TSA), the agency who is tasked with sharing oversight of pipeline security with PHMSA. The TSA has come under criticism in light of a recent Government Accountability Office report that was critical of the agency’s Pipeline Security Division and its ability to ensure the safety and reliability of pipeline energy network from both cyber and physical security saboteurs. That report cited “significant weaknesses” in TSA’s program and pointed to, among other challenges, a shortage of qualified inspectors to address cyberattacks and other physical intrusions facing pipelines.

Days before the Hearing, several trade groups sent the House Committee on Appropriations Homeland Security Subcommittee a letter requesting additional appropriations for the Transportation Security Administration to carry out its responsibilities. Noted in that letter and at the Hearing was the fact that the TSA has only six full time employees tasked with its pipeline security oversight, which includes roughly 2.7 million miles of pipelines and associated facilities. Since the GAO report issued, the number of staff charged with oversight of pipelines has dropped to four.  Industry argued that adding resources within TSA to support the pipeline program would allow the agency to better succeed in its mission, by referencing a 2013 staff that was twice the current size as well as recent appropriation bills for TSA that do not provide for an increased focus on pipeline cybersecurity oversight.

Some representatives at the Hearing questioned whether TSA was the right agency for the job, particularly in the light of the fact that it did not send a representative to the hearing. In response to critiques of TSA, industry is quick to point to voluntary efforts and public-private partnerships to ensure the security and reliability of their pipeline assets. While both PHMSA and TSA (and DOE) share authority over different aspects of pipeline security, TSA standards specific to cybersecurity have been voluntary to date.

Other pipeline safety issues of discussion touched upon leak detection, new technology, state participation in pipeline safety, possible revisions to clarify the citizen suit provision of the statute, cost-benefit analysis, and outstanding rulemakings. While Congress has now convened three reauthorization Committee hearings on the PSA, there has been only one bill introduced in the Senate (S. 1097) and one in the House (HR 2139) both by DemocratsThe bills are identical and focus almost exclusively on distribution pipelines to address issues identified in the Merrimack Valley incident (with the exception of a proposal to increase civil penalty authority for all operators by a factor of 100). Ultimate reauthorization legislation, however, is sure to focus more broadly on other aspects of pipeline safety as indicated by the oral and written testimony submitted in conjunction with the hearings. In addition, several Senators and Representatives indicated they would be submitting follow up questions to the record to PHMSA, NTSB, and TSA, among others.

The White House issued a new Executive Order (EO) on April 10, 2019 intended to ‘revise the process for the development and issuance of Presidential Permits’ for certain cross border energy infrastructure.   The EO limits the opportunity and timeframe for federal agencies, states or Indian tribes to comment on Presidential Permit applications for oil, water or sewage pipelines and other border crossing infrastructure such as bridges, rail and surface roads.  The new EO clarifies that the ultimate decision to grant or deny such permits remains with the President (that authority was previously delegated to the State Department).

Continue Reading New Executive Order Attempts to Streamline Presidential Permits

The Executive Order (EO) “Promoting Energy Infrastructure and Economic Growth,” issued by the White House on April 10, 2019 has primarily been heralded as an effort to prevent states from blocking pipelines under their Clean Water Act Section 401 certification authority. President Trump addressed a number of other energy issues in the same Executive Order, however, all attempting to remove barriers to energy projects in the U.S. As summarized below, these include a call for updating regulations governing LNG facility safety regulations, addressing sunset provisions in agreements for energy infrastructure on federal lands, and requesting reports assessing impediments to fuel supply in New England and export efforts in West Coast, and ways to promote economic growth in Appalachia.

Continue Reading Recent Executive Order Extends Beyond Section 401 Water Quality Certifications

President Trump recently issued two much anticipated Executive Orders aimed to streamline the permitting of U.S. energy infrastructure. One Executive Order (EO) focuses primarily on Clean Water Act (CWA) state issued water quality certifications and associated EPA guidance and regulations. In “Executive Order on Promoting Energy Infrastructure and Economic Growth,” the Administration takes aim at “outdated Federal guidance and regulations” under Section 401 of the CWA that are “causing confusion and uncertainty and are hindering the development of energy infrastructure.” While states and environmental organizations are concerned that the EO will limit a state’s authority under the CWA, the impact of the EO at least initially appears to be limited, as the statute and the case law on point already establish certain limits regardless of the EO. What remains to be seen is the import of any proposed rulemakings issued as a result of this EO, or whether these issues prompt any legislation that proposes to amend Section 401 of the CWA.

Continue Reading Executive Order Impact on 401 Water Quality Certification Appears Limited

In advance of a Senate Commerce Committee Hearing on reauthorization of the Pipeline Safety Act, Senators Markey, Warren, and Blumenthal announced legislation to address distribution pipelines and risks associated with the September 2018 Merrimack Valley incident.  The Leonel Rondon Pipeline Safety Act of 2019, named after a man who died in the incident, would impact various aspects of distribution pipelines, including emergency response, integrity management, operation and maintenance, safety management systems, and recordkeeping.  Further, for all pipeline operators the bill would increase civil penalties under the statute by a factor of 100, from $200,000 per day to $2 million per day and for a maximum of $2 million to $200 million for a related series of events.  Even though the majority of the bill’s provisions are limited to distribution pipelines, certain of these proposals could be expanded more broadly during the reauthorization process to apply to gathering and transmission pipelines.

Continue Reading Distribution Pipelines and Increased Penalties Feature in Senate Pipeline Safety Bill

The first Congressional Hearing on Pipeline Safety Act Reauthorization for 2019 was held this week before the House Transportation and Infrastructure Committee.  The Hearing did not have as much drama as last summer’s Hearing before the same Committee, where PHMSA Administrator Skip Elliott was asked sharply to explain why the Agency had failed to fulfill so many Congressional mandates and National Transportation Safety Board (NTSB) Recommendations.  In his written testimony at this week’s Hearing, Administrator Elliott stated that “When I spoke [here] last year, I heard clearly from [Committee] members that finalizing outstanding Congressional mandates must be a top priority.”   The Committee staff report issued for the Hearing listed 12 “unmet mandates,” and Administrator Elliott’s written testimony conceded that PHMSA yet to address 8 mandates from the 2011 Pipeline Safety Act (PSA) reauthorization, and another 4 from the 2016 PSA reauthorization.  Of that dozen outstanding mandates, 4 relate to reports and 8 involve rulemaking.  Jennifer Homendy, a member of the NTSB, testified that the NTSB has 24 “open” recommendations to PHMSA, several on the Board’s “most wanted” list for completion.  Homendy previously served as the Democratic Staff Director of the Subcommittee on Railroads, Pipelines, and Hazardous Materials for the House Transportation and Infrastructure Committee.

Continue Reading Congress Turns its Attention to Pipeline Safety Act Reauthorization

For at least the past 35 years, federal courts have generally allowed an administrative agency’s interpretation of a regulation or statute that it administers to prevail when challenged by a member of the regulated community or any other interested party. The ‘agency deference’ doctrine has been questioned in recent years, however, and a new case pending review before the Supreme Court may reverse or revise the doctrine as it relates to an agency’s interpretation of its own regulation. Whether a court defers to an agency’s interpretation of a statute or regulation defines the standard of review with which it will review the Agency’s decision. For that reason, whether agency deference remains in place or not, regulated entities should focus on the importance of creating a record for judicial review of agency action. Continue Reading The Importance of Creating A Record for Judicial Review of Agency Action

The Federal Energy Regulatory Commission (FERC) issued a Certificate of Convenience and Public Necessity to the Mountain Valley pipeline project in 2017, authorizing new construction of a 300-mile natural gas pipeline through West Virginia and Virginia. Several environmental and citizen groups challenged the FERC decision in the D.C. Circuit Court of Appeals. Among many issues raised, the petitioners argued that FERC failed to properly consider downstream impacts on climate change resulting from the combustion of gas transported by the new pipeline, as required by the Court’s 2017 decision in Sierra Club v. FERC. On February 19, 2019, the D.C. Circuit issued a short (five page) decision in the Mountain Valley case, Appalachian Voices et al v. FERC . The decision summarily dismissed all sixteen of the petitioners’ challenges to FERC’s Order.

Continue Reading In an Unpublished Decision, D.C. Circuit Approves FERC Certificate for Mountain Valley Pipeline

DOT’s Pipeline and Hazardous Materials Safety Administration (PHMSA) issued a Final Rule titled “Oil Spill Response Plans and Information Sharing for High Hazard Flammable Trains.” Among other requirements, certain rail trains carrying petroleum oil will be required to prepare comprehensive oil spill response plans to address a worst case discharge.  Modifications to the existing rules become effective 180 days after publication in the Federal Register (including development of new spill response plans), but incorporation of certain publications by reference is approved within 30 days.  The rule is promulgated in coordination with the Federal Railroad Administration (FRA) and is intended to implement directives in the Fixing America’s Surface Transportation Act of 2015 (FAST Act) and other mandates.

Under the rule, Comprehensive Oil Spill Response Plans (COSRPs) must address a ‘worst case discharge’ (WCD) and will be required for any train that has more than 20 continuous cars carrying petroleum oil, or 35 cars spread throughout any one train.  A WCD is defined as an incident with potential to release 300,000 gallons or more of petroleum oil, or 15% of the amount of oil on the largest train consist carrying oil in a given response zone.  The COSRP requirement expands upon oil spill response requirements already established in both the Clean Water Act of 1972 and the Oil Pollution Act of 1990.  Since 1996, COSRPs have been applicable to railroads transporting oil greater than 1,000 barrels or 42,000 gallons per package, but because the typical rail tank car has a capacity around 30,000 gallons, no rail carriers currently transport petroleum oil subject to the 42,000 gallon packaging threshold.  In addition to expanding the COSRP requirement, the final rule also “modernizes” the COSRP requirements by requiring that plans establish geographic response zones and ensure that personnel and equipment are prepared to respond to an accident.  In addition, the Final Rule requires “high hazard flammable trains” (also called HHFTs and defined as more than 20 continuous cars carrying Class 3 Flammable liquids or 35 cars spread throughout any one train) to share COSRPs and related information with State Emergency Response Commissions, Tribal Emergency Response Commissions, or other appropriate State designated entities.

This rule was first proposed in a Notice of Proposed Rulemaking (NPRM) issued on July 29, 2016, proposing both additions and revisions to 49 CFR Part 130.  The NPRM was prompted both by the 2015 FAST Act and National Transportation Safety Board (NTSB) Recommendation R-14-005 following the Lac Megantic train derailment in Quebec.  Both the proposed and final rules cite to 13 derailment accidents involving trains carrying crude oil, between 2013 and 2016 (the most recent incident occurred on June 2016 in Mosier, Oregon).  Following the July 2013 multiple fatality crude oil train derailment and explosion in Lac Megantic, the NTSB and DOT issued Advisories.  The NTSB then issued its 2014 recommendation, with DOT issuing an Emergency Order on May 7, 2014, requiring trains carrying more than one million gallons of Bakken crude to notify local emergency planning entities along their route.  Then on August 1, 2014, PHMSA issued a NPRM (HM-251) to explicate and define the Emergency Rule, which was finalized in 2015 and added new design, speed restrictions, braking systems and routing requirements to HHFTs. Congress followed in 2015 with oil train response plan mandates in the FAST Act.  In addition, in March of 2018 (in the Consolidated Appropriations Act), Congress directed DOT to “issue a final rule to expand the applicability of comprehensive oil spill response plans.”

The final rule in large part tracks the NPRM, but adds some clarifications and increased flexibility to railroads that must submit COSRPs.  PHMSA rejected comments suggesting that COSRPs should be required for lower quantities of oil or fewer numbers of cars in trains, citing to a prior conclusion in a related rulemaking that at lower thresholds “relatively few tank cars would be breached on average in the event of an incident.’  The definition of ‘petroleum oil’ does not change from its current definition at 49 CFR Part 130.5, and the burden remains on the offeror of oil for transport to make that determination.  Under the current rule, ‘petroleum oil’ includes mixtures of at least 10% (so diluted wastewater would not meet the test, nor would E95 ethanol, although E85 ethanol would meet the test and require a COSRP if sufficient numbers of cars are in a train).

In terms of increased flexibility, the rule allows railroads to submit plans that meet State requirements under certain circumstances and implements a 12 hour response time in all areas (as opposed to a smaller timeframe).  Further, CORSP plans will be approved by PHMSA (not the FRA) and response and mitigation requirements align with PHMSA’s pipeline Facility Response Plan requirements under 49 C.F.R. Part 194.  A railroad must also certify in its plan that it has conducted training and that the plan includes requirements for equipment testing and exercises, with recordkeeping required for both (Parts 130.135 and 130.140).  Railroads must update and resubmit their plans every 5 years (Part 130.145), or within 90 days of implementing any significant changes or new routes.  Finally, the new Final Rule also provides for an alternative hazardous liquid classification testing method based on initial boiling point (per industry best practice ASTM D79000).

PHMSA estimates that the new rule will apply to 73 railroad operators at time of issuance, and that it should take roughly 180 hours to prepare an initial plan.  Although not noted in the Final Rule, the number of crude by rail incidents has declined significantly since 2016 (the last incident cited in the Final Rule).  The reason for that is that the amount of crude shipped by rail has also declined significantly since 2016.  When new sources of shale oil were developed a decade ago, pipeline proximity and capacity was limited, thus increasing amounts of crude were shipped by rail.  From 2012 to 2013, the amount of crude oil shipped by rail more than doubled, then continued to increase in 2014 and 2015.  In 2016, however, the amount of crude shipped by rail began to drop, and it has now fallen below the levels shipped in 2012.

Although the market need for use of transporting oil by rail has declined overall, to the extent an increase arises as a result of the Permian Basin activity and/or additional high profile rail incidents occur in the future, there may be an increased focus on rail shipments.