Oil and Gas Update

Little Known Agency Assumes New Enforcement Powers

October 19, 2016

A little known federal agency in charge of pipeline safety has just issued a new regulation that represents a major change in its enforcement authority over regulated pipelines. The Pipeline and Hazardous Materials Safety Administration (PHMSA), an independent agency within the U.S. Department of Transportation, has announced an “Interim Final Rule” (IFR) on its website which will authorize it to issue “emergency orders” to the owners and operators of pipelines which move natural gas or hazardous substances. The IFR is intended to fill a gap in the enforcement powers that PHMSA historically has possessed.

Congress passed PL 114-183, the PIPES Act (‘‘Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2016’’) in June. The statue imposes a significant change in the federal regulation of pipeline safety since Congress first passed legislation over interstate gas transmission in 1968. The PIPES Act recognizes that much of the existing pipeline system is very old, and some pipelines are now utilized in ways not originally contemplated. Section 16 of PIPES amends 49 USC §60117 by adding a new subsection “o” which authorizes PHMSA to issue an “emergency order” whenever its finds that an “unsafe condition or practice, or a combination of unsafe conditions and practices, constitutes or is causing an imminent hazard[.]” Unlike its existing enforcement powers, the emergency order will have an immediate legal effect upon issuance although administrative review is authorized once it is in place.

Under its existing authority, PHMSA was authorized to issue “corrective action orders” which have an immediate enforcement effect and a “notice of proposed safety order”. Both orders could be issued to a single pipeline owner or operator, and both could be contested before have legal effect. PHMSA describes its new “emergency order” as one which could “affect multiple or all operators and/or pipeline systems that share a common characteristic or condition.” The agency provides examples such as “(1) where a natural disaster affects many pipelines in a specific geographic region; (2) where a serious flaw has been discovered in pipe, equipment manufacturing, or supplier materials; and (3) where an accident reveals a specific industry practice that is unsafe and needs immediate or temporary correction.” So instead of being limited to a single entity, PHMSA will be able to exercise enforcement against a class however it chooses to identify it.

In addition to serving the substantive purpose described, the IFR also has been promulgated with an unusual procedural effect. Normally, any federal regulation must be formally proposed and open for public comment before it can have legal effect. Because Congress required PHMSA to pass temporary regulations when it enacted PIPES, the “emergency order” IFR, however, will take effect immediately when it will be published in the Federal Register. PHMSA will receive comments on the IFR because by statute it is scheduled to expire by mid-March, 2017. Assuming that no gaps are identified between now and next March, the regulation announced is one that the mid-stream industry will likely have to live with for many years to come.

This article has been prepared by Blair M. Gardner of Jackson Kelly PLLC.