The results of the November presidential and congressional elections portend “more of the same” with regard to issues of interest to the gas transmission industry. Current regulatory dockets already underway will continue along their current track. Those dockets concern greenhouse gas emissions, the integrity management program and fracking.
But the most significant result of the election may be legislative, meaning the retirement of Senate Energy and Natural Resources Chairman Sen. Jeff Bingaman (D-NM). Sen. Ron Wyden’s (D-OR) ascension to the chairmanship of that committee brings a legislator who has been sometimes critical of pipeline operations to a position where he can, to put it politely, cause trouble for the industry. But the biggest concern may be a person, not an issue.
Wyden has been an outspoken critic of some proposed Oregon pipeline projects, complaining about routes that would travel through sensitive areas, such as the Palomar project slated to run through Mt. Hood National Forest. That pipeline is now on hold in part because an LNG terminal linked to the project filed for bankruptcy. A few days before the November election, for example, Wyden voiced opposition to the export of liquefied natural gas (LNG) from the U.S. to countries with which America has a free trade agreement (FTA). That has been legal for years. The Department of Energy rubber stamps such applications so any restrictions would be a step backwards. In fact, in the last Congress, many legislators pushed for more liberal DOE exports of LNG — for which there have been many applications — to non-FTA countries. The DOE closely examines those, and almost all of them are under review.
Wyden also proposed amendments last summer that would have impeded construction of the Keystone XL Pipeline. Asked whether Wyden might pursue legislation giving the states more say in pipeline siting, Keith Chu, Wyden’s press secretary, says, “Senator Wyden has long said state and local governments should have a role in siting facilities that may impact local communities, but it’s too early to talk about what bills Senator Wyden may pursue next year.”
Wyden ascends to the chairmanship of the Energy Committee in a Senate that has a slightly larger Democratic majority than in the past Congress. The House remains in GOP hands and President Obama still occupies the oval office. Neither energy issues broadly nor pipeline issues specifically will be the first order of business in the Capital where legislators and the president try to fashion some sort of compromise on the “fiscal cliff” the country faces on Jan. 1, 2013. That is the $500 billion combination of tax increases and spending cuts that go into effect if the two parties don’t agree on some sort of deficit reduction plan.
The need to come up with additional revenue certainly raises the possibility of higher taxes for the energy industry, primarily the producers. Jack Gerard, president of the American Petroleum Institute, says oil and gas producers pay an effective 41 percent corporate income tax rate. He says that is higher than the effective rate of 26 percent paid on average by all S&P industrials. He argues the major tax benefit oil companies enjoy is a cost recovery deduction, which is available to all industries. “Our view is we should all be treated equal, so if there is a decision made that the U.S. should have cost recovery provisions, it ought to apply to all industries.”
Any elimination of current deductions would not affect pipelines. The threat to gas transmission companies comes more from the possibility of an increase in the individual tax rate on dividends, says Martin Edwards, vice president at the Interstate Natural Gas Association of America. Higher taxes on dividends would discourage some people from investing in pipeline companies, which are attractive investments because of their relatively high dividends. Similarly, any change in the tax status of master limited partnerships (MLPs), a category into which many pipeline companies fall, could also hurt the ability of MLPs to attract capital.
The next Congress is unlikely to revisit the issue of pipeline safety, having passed the Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011. That bill, signed by President Obama on Jan. 3, 2012, made no significant changes to the integrity management program, although it did provide the Pipeline and Hazardous Materials Safety Administration (PHMSA) with a list of studies to do, and pipelines with some new information to collect and report.
Unhappy With Expanded PHMSA Data Request
That new information collection requirement has been controversial. The INGAA and individual companies had tried to convince the PHMSA to change some of the data it wants to request in both the expanded annual and incident reports companies will have to fill out, in the former case by the end of 2012. The annual report is especially important because it will be used, based on a requirement in the 2012 pipeline safety bill, by the PHMSA and Congress to determine:
• Whether to expand the integrity management program beyond high consequence areas (HCAs);
• Whether to test previously untested gas transmission pipelines located in HCAs and operating at pressure greater than 30 percent of specified minimum yield strength; and
• Whether to require in-line inspection.
The annual report must be filed by March 15, 2013. Those reports will be based on data collected by Dec. 31, 2012. Then a second report must be completed by July 3, 2013, telling the PHMSA where verification records are insufficient to confirm the established MAOP of a given segment, and where MAOP “exceeds the build-up allowed for operation of pressure-limiting or control devices . . .” The INGAA and various pipeline companies asked the PHMSA to push back the due date of the annual report to July 3, 2013, so they would only have to collect data once, not up until Dec. 31, 2012, and then again up until July 3, 2013. PHMSA declined to push back the annual report deadline.
Moreover, numerous companies plus INGAA complained about the expanded data the PHMSA will ask for. The big changes to the annual report come in sections “Q” and “R” particularly Q which solicits information on the presence of verification records establishing MAOP. Jeff Maples, director, Gas Operations, Paiute Pipeline Company, explains, “The addition of Parts Q and R is significant. The amount of effort involved to collect and quantify the data in the manner requested by the annual transmission report is substantial.” He says the PHMSA report will require companies to report information beyond what is required by the 2012 Pipeline Act.
INGAA recommended replacing proposed parts Q and R with a substitute that would collect the information necessary to characterize the amount of pipe to be addressed through various Fitness for Service (FFS) methods. The PHMSA has made some changes in those two sections in the latest version it submitted to the White House Office of Management and Budget on Oct. 1. The industry had a chance to provide the OMB with comments during November. The OMB must approve the annual report before the PHMSA can order companies to complete it.