Washington Watch: Reauthorizing PHMSA’s Pipeline Safety Program

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Congress is currently conducting hearings to reauthorize funding for the pipeline safety program overseen by the Pipeline and Hazardous Materials Safety Administration (PHMSA). Funding runs out at the end of the fiscal year, on Sept. 30, 2019. Among other things, the hearings provide Congress with an opportunity to review how PHMSA has followed up on certain statutory mandates included in prior reauthorizations. It also provides us an opportunity to appreciate more fully why some of those mandates may have been delayed — the need for PHMSA, before it can issue administrative rules or standards, to comply with an intricately formulated, congressionally required, cost-benefit analysis.

Background

PHMSA has primary responsibility for promulgating and enforcing federal pipeline safety standards. The Natural Gas Pipeline Safety Act of 1968 and the Hazardous Liquid Pipeline Act of 1979 established the federal role in pipeline safety. Each statute vests the Secretary of Transportation (read that PHMSA Administrator) with authority to regulate key aspects of interstate pipeline safety, including design, construction, operation and maintenance, and spill response planning. The pipeline safety program is funded primarily by user fees assessed on a per-mile basis on each regulated pipeline operator. But the federal government provides some funding in stand-alone legislation. But Congressional funding often comes with conditions, and the pipeline safety program reauthorizations are no exception. Consider the last two reauthorizations.

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The Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 authorized the federal pipeline safety program through the fiscal year ending September 30, 2015 (FY2015). The Act contained many provisions to improve pipeline safety, such as, increasing the number of federal pipeline safety inspectors. But the Act the act also imposed 42 mandates on PHMSA regarding studies, rules, maps, etc.

The most recent reauthorization legislation — Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2016 — authorizes the federal pipeline safety program through fiscal year 2019 and required PHMSA, among other things, to promulgate federal safety standards for underground natural gas storage facilities and grants PHMSA emergency order authority to address urgent “industry-wide safety conditions” without prior notice.

Together, the 2011 and 2016 laws imposed 61 mandates. This spring, PHMSA reported completion of 34 of 42 mandates under the 2011 law and 16 of 19 mandates under 2016 law. The combined completion rate is 81.96 percent. That’s enough to get a B- in most schools. And batting .819 over a career in the Majors will get you and a couple teammates into the Baseball Hall of Fame in Cooperstown, New York. But it doesn’t get you much, if you are Skip Elliot, PHMSA’s Administrator, appearing before a hearing called by House Energy and Commerce Chairman Frank Pallone, Jr. (D-NJ) on May 1, 2019. The Chairman described PHMSA as “notorious for its inability to meet Congressionally-mandated deadlines.” The Chairman criticized PHMSA for several uncompleted mandates in particular (e.g., finalizing an administrative rule to implement the 2011 law requiring operators to install leak detection systems on hazardous liquid pipelines). Chairman Pallone, albeit a bit reluctantly, noted: “It’s not all PHMSA’s fault. The prescriptive cost-benefit analysis required by the 1996 reauthorization hamstrings the agency. If we want PHMSA to finalize more rulemakings, we must remove or adjust this overly burdensome requirement.” The Chairman apparently wants to cut through or cease production of one of Washington’s finest examples of “red tape.”

Cost-Benefit Analysis

So what’s with this cost-benefit analysis, which rankled Chairman Pallone? The requirement, found in 49 U.S.C. § 60102, was inserted in the 1996 reauthorization, when Bill Clinton was president and Newt Gingrich was Speaker of the House. As a general matter, the statute requires that before issuing an administrative rule or pipeline safety, the Secretary of Transportation (read that PHMSA Administrator) must first make “a reasoned determination that the benefits of the intended standard justify its costs.” But there is nothing “general” about the required analysis.

To begin, the standard or rule must be “practicable” and designed to meet the need for pipeline safety and protecting the environment. The statute then enumerates various factors that must be considered: 1.) relevant and available information on gas pipeline safety, hazardous liquid pipeline safety, and the environment; 2.) the appropriateness of the standard for the particular type of pipeline; 3.) the reasonableness of the standard; 4.) reasonably identified benefits of compliance and estimated costs, based on a risk assessment; and 5.) comments from the public and two technical committees (which we will discuss later).

The statute also details how the risk assessment is to be conducted, requiring (a) the identification of the “the regulatory and nonregulatory options” considered and the costs and benefits, (b) an explanation of the reasons for selecting the standard (as opposed to other identified options); (c) an explanation why the other identified options were not selected; and (d) identification of technical data or other information upon which the risk assessment information and proposed standard is based.

Against this backdrop, PHMSA conducts its analysis, then provides “risk assessment information” to the general public and one or both of two technical committees that act as peer review panels — the Technical Pipeline Safety Standards Committee and Technical Hazardous Liquid Pipeline Safety Standards Committee. As expected, committee membership is prescribed by law. Each committee is comprised of 15 people, five from government, five from industry, and five members of the public. And it’s not just any five from government, two must be state commissioners. As for industry members, three must but active in pipeline operations and one must have “education, background, or experience in risk assessment and cost-benefit analysis.” Finally, the public members aren’t chosen picked randomly from people patiently waiting for help at the local Apple store on Saturday morning. Instead, two “must have education, background, or experience in environmental protection or public safety” and at least one must have education or experience with risk assessment and cost-benefit analysis.

After receiving PHMSA’s information, the peer review panels have 90 days to prepare a report, which PHMSA is required to review, then respond, in writing, to “all significant peer review comments and recommended alternatives.” Only when all this is done, can PHMSA can make “a reasoned determination that the benefits of the intended standard justify its costs.” There are, however, three limited exceptions to this cost-benefit analysis: 1.) negotiated rulemakings; 2.) technical committee recommendations; and 3.) instances where notice and comment procedures are not required. When viewed against this backdrop, some might argue PHMSA’s 81.96 percent mandate completion record deserves a grade “A.”

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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