In October 2017, the National Academy of Sciences (NAS) issued a pre-publication report on “Designing Safety Standards for High Hazard Industries.” Sponsored by PHMSA (and many years in the making), the Report focuses on oil and gas pipelines and the regulatory scheme used by the Pipeline and Hazardous Materials Safety Administration (PHMSA). Noting the differences between prescriptive and performance based rulemakings, the Report observes that while most federal agencies use a combination of both, PHMSA is one of the few federal agencies that primarily relies on performance based standards. The rationale used by PHMSA, the Report notes, is that pipeline integrity management is best maintained by placing responsibility on individual operators to identify and manage risks that may not be known to the regulators or common to the industry. (Report, p. viii).
The 5th Circuit U.S. Court of Appeals reversed several key aspects of a PHMSA Final Order in a recent opinion issued on August 14, 2017. That decision is significant for the fact that few final actions by this agency have been presented for judicial review, and, of those, even fewer have been successful. The decision is based on a complex set of facts and legal issues that went through several years of administrative appeals before the agency. As with most complex cases, many of the factual issues were unique, and are not likely to be repeated. There are a few larger, procedural themes to be gleaned from the decision that apply more broadly, however, both to this agency and administrative law generally.
The 5th Circuit issued a lengthy opinion on August 14, 2017, reversing most of the violations of a PHMSA enforcement action that began in November 2013 in conjunction with investigation of a failure on the Pegasus Pipeline. In that matter, PHMSA alleged that the ExxonMobil Pipeline Company (EMPCo) failed to properly consider the risk of failure on a segment of pre-1970 low frequency electric resistance welded (LF-ERW) pipe. The Agency assessed a penalty of nearly $2.7 million for the various alleged violations. In a rare judicial decision regarding a PHMSA Final Order and Decision on Petition for Reconsideration, the Court reversed all but one of the items on appeal, and vacated the penalty associated with those alleged violations (dismissing over $1.6M of the total penalty). The Court remanded the one remaining item back to PHMSA for recalculation of the associated penalty.
The Pipeline Safety Management System (SMS) industry standard API RP 1173 was published in July 2015 and developed by API with input from NTSB, PHMSA, states, and industry representatives, following the 2010 oil pipeline accident in Marshall, Michigan. The standard’s purpose is to help pipeline operators create a framework for developing a comprehensive, process-oriented approach to safety, emphasizing continual assessment and improvement. As the industry and other stakeholders reflect on the almost 2 years since publication of the standard, there are several important takeaways.
Since the Trump Administration took office, oil and gas industry stakeholders have questioned whether pending PHMSA rulemakings will move forward, whether the rate of PHMSA enforcement will continue, and whether agency priorities will change. The API conference held in San Antonio last week provided a rare opportunity in recent months for the industry to hear from key PHMSA personnel and industry practitioners on the status of agency priorities, rulemakings, enforcement and leadership vacancies. As explained below, while the Agency currently lacks key leadership positions and is analyzing executive directives on rulemaking, it intends to move forward with proposed rules and continue enforcement.