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.
The federal Clean Water Act (CWA) requires that states review all federal permits involving water discharges to certify that those permits do not conflict with state water quality standards (WQS). 33 U.S.C. § 1341. The statute further provides that if a State “fails or refuses to act on a request for certification, within a reasonable period of time (which shall not exceed one year) after receipt of such request, the certification requirements of this subsection shall be waived with respect to such Federal application.” Id. For pipeline projects, this ‘Section 401’ authority was not historically a significant issue, as most federal permits already anticipated and ensured compliance with state WQS. In recent years, however, opponents of new or expanded pipeline projects have sought to use Section 401 as an additional point of challenge, seeking to stop or delay pipeline project permitting. In a decision issued just last week – although not in a pipeline case – the D.C. Circuit provided the most recent clarification on the issue, admonishing states that the one year timeframe is “absolute.” Hoopa Valley Tribe v. FERC, No. 14-1271 (D.C. Cir., Jan. 25, 2019). Continue Reading D.C. Circuit Clarifies that States have Maximum of One Year to Decide on Water Quality Certification Applications
The federal Pipeline Safety Act (PSA or the Act) mandates minimum safety standards for pipelines and certain associated storage and facilities (including LNG and other terminals). Congress should take up legislation to reauthorize the Act this year. Since the last reauthorization in 2016, there have been several noteworthy developments that have affected the industry, the relevant politics and the public. These include a new Administration, new leadership in relevant administrative agencies (e.g., DOT, PHMSA, FERC), policy changes, continued opposition to new pipeline construction, a high-profile distribution incident in Merrimack Valley, Massachusetts, and, most recently, Democratic control of the House of Representatives. It remains to be seen whether Congress will impose new substantive amendments to the PSA, but it is likely that some significant changes will be proposed. While the reauthorization proposals could vary, we expect to see discussion related to distribution pipelines (aging infrastructure, replacement projects, overpressure protection); construction issues; valves, emergency response and pressure protection; outstanding rulemakings; and updates to PHMSA procedural rules. Other issues that could be part of the discussion include cybersecurity, state oversight of pipeline safety, and older proposals from prior reauthorizations.
Status of Outstanding Mandates
The 116th Congress, which convened in January, will be responsible for reauthorizing the PSA and PHMSA, the agency responsible for oversight of pipeline safety. The current reauthorization expires on September 30, 2019. Historically, pipeline safety has largely been a bipartisan issue. The most recent substantive changes to the PSA occurred in the 2012 reauthorization in response to the San Bruno, California and Marshall, Michigan incidents. Following that, PHMSA initiated the process for several expansive rulemakings, some of which still remain incomplete. In the 2016 reauthorization, Congress mandated updates for the Agency’s outstanding rulemakings and made other changes to require minimum federal standards for underground natural gas storage (in response to the Aliso Canyon incident). Sixty-one (61) legislative mandates were issued in the 2012 and 2016 reauthorizations, including rulemaking changes, studies, or other regulatory reviews. As of this summer, PHMSA had implemented only forty-seven (47) of these to date. Of the roughly fourteen (14) mandates that remain to be addressed, the issues include rules intended to address records and inspections issues highlighted by both the San Bruno and Marshall, Michigan incidents.
There are three committees that oversee PSA reauthorization and will be influential in drafting and finalizing reauthorization. These include: (1) House Transportation and Infrastructure (T&I) Committee; (2) House Energy and Commerce Committee; and (3) Senate Committee on Commerce, Science and Transportation. Of these three committees, thirteen (13) members have either retired or lost their primaries, thus the industry will be dealing with many new lawmakers and their unique perspectives. While the exact composition of the House committees is not yet known, Representative DeFazio (D-OR) has been elected as chairman of the T&I Committee and Senators Ed Markey (D-MA) and Jon Tester (D-MT) are members of the Senate Commerce, Science and Transportation Committee; all three have in the past been critical of PHMSA and existing pipeline safety protections. Meanwhile, Senator Manchin (D-WV), who has been sympathetic to pipeline infrastructure and industry issues in the past, is the ranking member of the Senate Energy and Natural Resources Committee, which has some oversight of pipelines and pipeline issues. In addition, Senators Warren (D-MA) and Booker (D-NJ), both of whom are expected to be candidates for President in 2020, have been active of late in demanding increased government control of pipeline safety issues.
In recent years, Congress has been critical of PHMSA in oversight hearings due to its delayed response to statutory mandates from prior reauthorizations, and delayed response to NTSB, GAO and DOT OIG recommendations. This year’s reauthorization will be no different, as evidenced by a June, 2018 hearing convened by the House T&I Committee, where representatives from both parties expressed sharp concern over PHMSA’s delay in addressing past legislative mandates. The House will certainly also raise the other as yet unaddressed mandates and recommendations from the NTSB and GAO. More recently, there was a November 2018 field hearing on the Merrimack Valley incident, that signaled open season on PSA reauthorization.
Potential Reauthorization Issues
Industry trade groups have already been preparing for and working on proposals associated with the PSA reauthorization, which are not likely to contain significant changes, but more minor proposed changes such as amendments to PHMSA procedural rules. PHMSA has likely prepared or is in the process of preparing its own list of issues. In light of the above, some issues that we anticipate could to be raised during the PSA reauthorization process include the following:
- Distribution Pipelines
If not more generally, we expect Congress to discuss the following issues specific to gas distribution pipelines:
Aging Infrastructure/Pipe Replacement
Aging infrastructure is an issue that has been raised for some time, but the recent Merrimack Valley incident, where the pipeline distribution operator was in the process of upgrading and retiring older infrastructure, has brought it back into focus particularly for distribution pipelines. Relevant proposals, which could apply more broadly, may relate to pipe replacement (which is currently voluntary for cast iron pipe although many states provide incentives), requirements specific to pipeline modernization projects and work packages, records, safety management systems, etc.
The NTSB investigation into the Merrimack Valley incident is ongoing, but among the preliminary issues identified by the NTSB is detection of abnormal system pressure. As a result, we expect discussion and debate regarding the sufficiency of overpressure protection for distribution pipeline systems as well as emergency response and monitoring of overpressure protection.
- Construction Issues
While PHMSA does not have express siting authority for the construction of new pipelines, it maintains construction and design regulations that would apply to those pipelines. Further, the industry has recently experienced some challenges associated with pipeline construction or infrastructure updates, and as a result there may be specific proposals along those lines. These may relate to work plans, subsidence, directional drills, oversight of contractors, management of change procedures, etc.
- Emergency Shutdown Valves, Communications and Overpressure Protection
PHMSA has been working on proposing an automatic shut-off or remote-controlled valve (ACV/RCV) rule regarding rupture detection since 2013 and expects to issue the proposal in 2019. If the proposed rule does not issue prior to PSA reauthorization legislation, we expect the topic to be included in legislation drafts. The Merrimack Valley incident also brought to light issues associated with the operator’s incident response and communications, which may be a topic of the discussions. Further, in light of the preliminary findings of the Merrimack Valley NTSB investigation, it is possible that pressure detection, monitoring, and overpressure protection will be discussed as they apply more broadly to pipeline systems.
- Outstanding Rules tied to Statutory Mandates
As noted above, numerous key mandates remain unaddressed from prior PSA reauthorizations, a number of which were intended to focus on records and inspection issues arising from high profile incidents. Most notably, these include finalizing the hazardous liquid rule (which was expected before the end of 2018) and the ‘gas mega rule;’ the latter has been split into three rulemakings and is still working its way through the pipeline advisory committee process under the PSA (now on hold because of the government shutdown). Because PHMSA has already failed to meet relevant deadlines, Congress may impose new deadlines with updates to Congress. Further, reauthorization discussion may analyze what some critics have cited as challenges under the PSA to PHMSA rulemaking, including balancing safety risks against the economic benefits.
- State Involvement
When certified by PHMSA (and at times even where they are not certified by PHMSA), states are increasingly active in pipeline safety through construction inspections, general oversight and enforcement authority, and incident response. Some states have broadly interpreted their jurisdiction under the PSA and authority under state statutes. Past reauthorization changes touched upon and expanded in part the ability of a state to participate in pipeline safety. In addition, a 2018 Government Accountability Office (GAO) report recommended that PHMSA develop an inspection workforce plan to ensure that it maintains an adequate mix of federal and state resources for interstate pipelines. Legislative proposals may be drafted in light of GAO’s recommendations and to ensure that state pipeline safety programs include adequate training and other measures to ensure consistency in application of PHMSA rules and enforcement.
There has been some debate recently regarding whether the pipeline industry has sufficient protections in place to ensure reliability. Targeting of pipeline infrastructure technology and operational monitoring programs (such as SCADA) by foreign nation states and other bad actors is not new, although intrusions continue. In addition, the GAO issued a report that determined that the Transportation Safety Administration charged with pipeline security oversight (in part and in coordination with PHMSA), is not doing enough to face future challenges. House Energy and Commerce Committee members reintroduced legislation intended to increase federal protections protecting pipelines from cyber threats that could disrupt operations and some have called for changes at the Department of Homeland Security (DHS). Ranking Senate Committee members Cantwell (D-WA) and Manchin (D-WV) with oversight of pipelines have called for a response from DHS. It is also possible that associated changes could be proposed since PHMSA participates in oversight of pipeline security, primarily as it relates to physical security (as opposed to cybersecurity), and since the subject of the cyber intrusions are operational programs required by PHMSA rules.
It is likely that some potentially significant changes to the pipeline safety rules could be proposed in the upcoming Pipeline Safety Act reauthorization (or other legislation coming out of the 116th Congress). This is particularly true considering the recent Merrimack Valley distribution pipeline incident, the newly divided Congress, and the country’s increased reliance on natural gas and oil over coal. While the PSA reauthorization proposals could vary, we expect discussion specific to distribution pipelines and issues highlighted by the Merrimack Valley incident, construction issues, valves/overpressure protection, outstanding rulemakings, as well as updates to PHMSA procedural rules. Other issues could include cybersecurity, state oversight of pipeline safety, and older proposals from prior reauthorizations. If not in the PSA reauthorization, some of these more general issues such pipeline construction and cybersecurity may get traction in an energy bill which is likely to include some form of infrastructure package.
The federal agency tasked with pipeline safety, PHMSA, has issued a long-awaited rule regarding plastic pipe. Plastic pipe is primarily used in distribution gas pipeline systems, as a corrosion resistant and cost effective alternative to steel pipelines. This rule provides some significant updates to existing 49 C.F.R. Part 192 rules applicable to plastic pipe and to expand its use in light of technological advances. The rule will be effective January 22, 2019, and has limited application to new, repaired, and replaced plastic pipelines.
Plastic pipe has been used in distribution pipeline systems and to a lesser extent in transmission and gathering pipelines since the 1970s. In particular, plastic pipe is frequently used by operators in replacing aging distribution infrastructure. While there have been some issues related to brittle fracture of plastic pipe manufactured in the 1960s-1980s, technological advances in the current design and manufacture of plastic pipe support its reliability and integrity. Since 2010 PHMSA has received numerous petitions for rulemaking to update its 49 C.F.R. Part 192 rules applicable to plastic piping from industry groups such as the American Gas Association and the Gas Piping Technology Committee. In particular, industry requested that PHMSA increase the design factor associated with plastic pipe and allowances for the use of certain nylon (polyamide) pipe and at higher pressures (which have been the subject of certain Special Permits). In addition, federal and state pipeline safety inspectors have observed compliance issues with plastic pipe, such as issues with the permanency of markings on plastic pipelines and fittings. In 2015, PHMSA issued a Notice of Proposed Rulemaking intended to address these issues.
In the Final Rule, PHMSA responds to the substantive comments and issues from industry stakeholders, state regulators, trade associations, and public citizens. Of the more significant changes, this rule does the following:
- Increases the design factor of polyethylene (PE) pipe (and adding small diameter pipe to the rule);
- Increases the use, maximum pressure, and diameter for Polyamide (PA)-11 pipe and PA-12 pipe as well as associated components (and adding small diameter pipe to the rule);
- Establishes new design and construction standards for risers and more stringent standards for plastic fittings and joints and mechanical fittings (including qualification of procedures and personnel for joining plastic pipe);
- Establishes new and expanded plastic pipe installation requirements aimed to mitigate contact with other underground utilities and structures;
- Incorporates by reference new or updated industry standards for pipe, fittings and components.
PHMSA tabled certain proposed changes to “a later date” for further evaluation of costs and benefits in a subsequent action or new rulemaking. These include, among others, proposed revisions regarding the traceability and tracking information applicable to plastic pipe and components (while flagging certain marking and DIMP requirements under existing rules) and the benefits of certain trenchless installation technology.
This is just one of numerous rulemakings that have been pending at PHMSA for years and one that has generally been supported by the gas industry. In announcing the final rule, PHMSA Administrator Skip Elliott declared that “these regulatory updates will significantly contribute to advancing public safety,” and the agency’s press release highlights the annual material cost savings to the industry. Along those lines, PHMSA explains in the preamble that the rule will result in net economic benefits to the public and it is considered a Department of Transportation “deregulatory action” under President Trump’s 2 for 1 Executive Order (EO) 13,771 which mandates that for every 1 new rule issued (a “regulatory action” in EO guidance), an agency must withdraw 2 rules (called a “deregulatory action”). As such, this rule potentially paves the way in part for the Department of Transportation to issue a regulatory action. In 2019, a new Congress will take up reauthorization of the Pipeline Safety Act and PHMSA and its remaining backlog of rulemaking mandates.
The Department of Transportation’s Office of Inspector General within the (DOT OIG) announced recently that it will audit oversight of liquefied natural gas (LNG) facilities by the Pipeline and Hazardous Materials Safety Administration (PHMSA). DOT OIG notes that the “self-initiated” audit will assess PHMSA’s oversight of LNG facility compliance with federal regulations. The OIG noted that it planned to begin the audit this month and that it will schedule an initial conference with PHMSA. The audit will be conducted at PHMSA headquarters, field offices and select LNG facilities.
The U.S. has become the world’s largest producer of natural gas, and natural gas has now surpassed coal as the primary fuel used to generate electricity. LNG is processed natural gas that has been condensed to a liquid form (through a process known as liquefaction). It takes up roughly 1/600th of the volume of natural gas and for that reason, it can be economically stored and transported in specialized equipment. LNG facilities provide a variety of natural gas services: (1) to the interstate gas pipeline system or local distribution systems (for vehicular fuel or industrial use); (2) storage for periods of increased (“peak”) demand; and (3) export of natural gas outside the U.S. Exports of natural gas in the form of LNG have quadrupled since 2016, and the U.S. is on track to become the largest natural gas exporter by 2020. The Energy Information Agency estimates that LNG exports by 2030 will be five times what they are in 2018 (and the DOT OIG’s audit announcement notes that the Agency’s oversight responsibilities for LNG facilities may increase accordingly). This is a dramatic contrast to a few years ago when the U.S. imported both gas and LNG.
LNG facilities in the U.S. may be regulated by several federal agencies, including the Federal Energy Regulatory Commission, the U.S. Coast Guard, and PHMSA (among others). PHMSA is responsible for oversight of the siting, design, construction, operation and security of LNG facilities. According to the Agency’s website, it currently regulates over 150 LNG plants across 38 states and territories and provides regulatory oversight along with associated state pipeline safety partners. PHMSA has been responsible for oversight of LNG transportation and storage since Congress passed the Natural Gas Pipeline Safety Act in 1968. PHMSA has not substantively updated its LNG regulations at 49 C.F.R. Part 193 since the dramatic shift in energy markets, and LNG in particular, brought on by the shale revolution. From the late 1960s to the mid-2000s, LNG facilities were focused on the import of natural gas and peak shaving. With the changes in energy markets, these import facilities are being converted to export and new facilities are planned for export, transportation fuel, and transport, including a focus on “small-scale” facilities. Small-scale LNG generally includes marine fuel (called bunkering), fuel for heavy road transport, and some power generation. With respect to LNG exports, the refrigeration process presents new technical and safety concerns as compared to the import of LNG (which requires regasification). For these reasons, among others, some have posited that PHMSA’s LNG rules may be out of date.
U.S. LNG, and export in particular, is slated to be an important piece of the world’s energy portfolio and the industry is working to commission facilities to get those supplies to market. Given FERC’s role in siting and certificating LNG facilities under Section 7 of the Natural Gas Act, PHMSA is coordinating with FERC to expedite the siting and design review of those facilities for permitting through a new memorandum of agreement. Once those permitted facilities are constructed and in operation, it will fall to PHMSA and states to oversee safety. In the 2016 reauthorization of the Pipeline Safety Act, Congress required PHMSA to update minimum safety standards for permanent small-scale LNG pipeline facilities (which is not defined). That review is ongoing and the Agency has various research and development projects in the works regarding LNG facilities. Further, PHMSA anticipates issuing a proposed rulemaking with the Federal Railroad Administration on the bulk transport of LNG in rail tank cars in early 2019. It is unclear, however, whether PHMSA has any further plans at present for purposes of updating its LNG regulations.
With its audit, we expect the DOT OIG to review and comment on the sufficiency of existing 49 C.F.R. Part 193 LNG regulations and agency safety inspections, with a focus on the current uses of LNG such as export, transportation fuel, and transport which were not anticipated when PHMSA’s predecessor agency began regulating these facilities. The inspections of select existing facilities could further include large-scale export facilities in operation, of which there are currently three.
EPA’s proposed replacement for the Clean Power Plan, dubbed the “Affordable Clean Energy” rule, or “ACE,” is now open for comment. In short, the rule requires states to develop efficiency standards for fossil fuel-fired power plants with the intent of reducing greenhouse gas emissions. Coal-fired power plants, and those involved in the production of coal, have a keen interest in the rule for obvious reasons—ACE targets them directly and could require capital projects costing millions.
Hurricane season is upon us, with Hurricane Florence making its way towards landfall in the Carolinas, currently expected to reach the coast by early Friday morning, September 14, 2018. Tropical storm force winds and heavy rain will reach the coastal areas even before that, and the storm is forecast to bring high winds, torrential rain, power outages and flooding over a multi-state area in the mid-Atlantic and Southeastern regions for several days. Many of these areas have experienced unseasonable amounts of rain this year, and that has already contributed to several pipeline incidents caused by earth movement. As pipeline operators prepare for potential impacts of this “monster storm,” operators should look to their own emergency response preparedness plans, known or suspected risks to their systems, as well as to PHMSA’s prior Advisories that provide guidance to the industry under these circumstances.
States of emergency have been declared for North Carolina, South Carolina and Virginia, with mass evacuations ordered on the coast. The wide swath and strength of the storm, however, will be of most concern as the storm comes inland and drops very large amounts of rain over the Southeast and Mid-Atlantic regions, which encompass considerable pipeline mileage. In anticipation of the impacts, PHMSA has already announced that it is “prepared to provide any necessary regulatory relief from the Hazardous Material regulations and waive certain pipeline Operator Qualifications/and pre-employment requirements in support of hurricane response and/or recovery.” And it is likely that the Agency will issue or reissue a version of its prior Advisories regarding potential impacts of hurricanes to oil and gas pipelines, as it did in the aftermaths of Harvey and Irma in 2017.
In advance of the storm’s arrival, PHMSA’s prior Advisories provide some interim guidance to pipeline operators. Past Advisories have addressed the potential for damage to pipeline facilities caused by hurricanes, warning of adverse effects on operations such as increased risks of earth movement (including landslides), exposed pipe, loss of electricity and access, disruption in service, etc. The Advisories remind operators that any of these developments may trigger obligations to take appropriate corrective measures, such as increased surveillance or repairs (49 C.F.R. Parts 192.613, 195.401(b)) and underwater inspections (49 C.F.R. Parts 192.613, 195.413). Further, while the most recently issued Advisories in 2017 largely focused on areas in the Gulf Coast, they also included guidance more generally applicable to pipelines on the East Coast, by encouraging pipeline operators to:
- Bring offshore and inland transmission facilities back online after a disruption, and check for structural damage to piping, valves, emergency shutdown systems, risers, and supporting systems.
- Aerial inspections of pipeline routes should also be conducted to check for leaks in transmission systems.
- Take action to minimize and mitigate damages caused by flooding to gas distribution systems, including the prevention of overpressure of low and high-pressure distribution systems.
Although Agency guidance such as this is not legally binding or enforceable, the Agency refers to the ‘general duty’ provisions in its regulations (such as 192.613 and 195.401). PHMSA could rely on those general provisions in future enforcement actions if operators fail to take the actions recommended in the Advisory. There have been instances in the past where the Agency has cited its general duty regulations as the basis for enforcement where operators failed to discover or correct conditions caused by natural forces that could potentially affect safe operations on their pipeline systems. See, e.g., In re Natural Gas Pipeline Company of America, CPF No. 3-2005-1011 (failure to address exposed pipeline at a river crossing); In re ANR Pipeline Company, CPF No. 2-2008-1005W (failure to address undercutting of concrete matting over a pipeline).
As pipeline operators prepare for the hurricane season, and Hurricane Florence in particular, operators should look to their emergency response plans, relevant system characteristics, and consider the recommendations in prior PHMSA Advisories.
As part of its integrity management regulatory scheme, the Pipeline and Hazardous Materials Safety Administration (PHMSA) is requesting comments on a draft risk modeling report. In certain densely populated or environmentally sensitive areas, PHMSA integrity management rules require the continual evaluation of ways to reduce pipeline threats to minimize the likelihood and consequences of an incident. Because these rules are performance based, the methodology for analyzing and assessing risk is not prescribed and the industry employs a variety of approaches. PHMSA’s draft report similarly does not dictate a particular methodology but clearly favors probabilistic and quantitative risk models that may not be practical or effective for many operators. Operators should take the opportunity to review and comment on the draft report to ensure that their experiences and insights with risk modeling are reflected prior to finalizing the document. Based on a request from industry trade groups, PHMSA recently extended the comment period an additional 30 days until October 17, 2018.
Global energy change through increased use of natural gas and liquefied natural gas (LNG) has been the focus of this week’s World Gas Conference (WGC). The WGC, sponsored by the International Gas Union, has convened these conferences once every three years since 1931. This year’s meeting is being held in the U.S. for the first time since the natural gas boom that has occurred over the past ten years. The U.S. is now the world’s largest producer of natural gas and has begun to export LNG (a dramatic change from only a few years ago, when the U.S. imported both gas and LNG).
Since 9/11, no new rules or regulations have been promulgated to address pipeline or LNG facility security or cybersecurity. Although the Transportation Security Administration (TSA) recently released an updated version of its “Pipeline Security Guidelines” (Guidelines) that were last issued in 2011, those Guidelines remain advisory. And both the Department of Homeland Security (DHS) and the Federal Bureau of Investigation (FBI) have made only informal outreach to pipeline and LNG industry as issues have arisen. As the threat of both cyber and physical attacks on critical energy infrastructure continues, however, some question whether minimal standards for prevention of threats should be in place. In particular, there has been recent attention by the U.S. Government Accountability Office (GAO), members of Congress, and at least one Federal Energy Regulatory Commission (FERC) commissioner. (See E&E News Article of May 29, 2018). These discussions, along with recent proposed legislation in the House and the fact that the Pipeline Safety Act is up for reauthorization later this year, are likely to bring these issues into sharper focus.