November 2012, Vol. 67, No. 11

Washington Watch

Industry Speaks Out On PHMSA’s Penalty Proposals, Other Actions

Pipeline groups are unhappy with the way the Pipeline and Hazardous Materials Safety Administration (PHMSA) is interpreting the new penalty authority Congress provided it under the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, which went into effect last January.

That law jacked up allowable civil penalties considerably, making PHMSA administration of the administrative legal process a much more significant issue. Civil penalties were doubled, to $200,000 per violation per day of violation, with a maximum of $2 million for a related series of violations. In addition to those increases, the 2011 pipeline law made numerous changes with regard to inspections, delivery of citations and the hearings which sometimes follow.

Dan Regan, regulatory attorney, Interstate Natural Gas Association of America (INGAA), says many of the proposed rule changes are positive steps forward. But they essentially “nibble around the edges,” in technical ways, of the current PHMSA enforcement processes, which he argues are “inadequate.” The INGAA wants the PHMSA to make broader changes in its legal processes.

Regan adds, “This relatively narrow focus overlooks broader, persistent concerns about the overall fairness and rigor of PHMSA’s enforcement processes. PHMSA should take this opportunity to reform its enforcement procedures and policies more broadly.”

A number of parties are arguing that the agency has made a major misinterpretation of congressional intent. The PHMSA says the new penalty authority applies to pipeline safety violations which are discovered after the date the new law went into effect, in other words, Jan. 3, 2012. Regan argues that the law says higher penalties can only be assessed on violations committed after the law went into effect.

Andy Black, president of the Association of Oil Pipe Lines (AOPL), says he is concerned that PHMSA did not, as requested to do by Congress, define what would constitute an expedited hearing after the PHMSA issues a Corrective Action Order (CAO) which a company then challenges. Black calls a CAO a “huge tool” for the agency. In the rare instances where a pipeline contests a CAO, it wants a quick hearing and a quick decision. Instead of defining “expedited,” the PHMSA in the proposed rule said it is its practice to have a hearing within 10 days of a company asking for a hearing. But it did not propose a deadline for the hearing. Nor did it propose a timeframe for making a decision after the hearing is held. Black says the AOPL want a 15-day maximum deadline for holding the hearing and then issuing a decision after the hearing.

The AOPL and the American Petroleum Institute (API) also raised questions about PHMSA’s plan to shorten to 30 days from the current 45 days the maximum time a company has to respond to information requests from the PHMSA after an inspection is conducted. “The notice of proposed rulemaking offers no explanation for shortening the response period deadline from 45 to 30 days, and given that the Associate Administrator can specify a period by which a response must be submitted, there is no apparent reason to shorten the deadline,” the two groups say in their comments. “Indeed, AOPL and API propose that, in addition to retaining the 45-day response deadline, a minimum 15-day response period should be provided.”

Many of the new administrative proceedings requirements could be considered technical in nature, although some may have a bearing on the outcome of individual penalty cases. These new requirements include such things as issuing new regulations defining who qualifies as a “presiding officer” of hearings conducted for the issuance of corrective action orders (CAOs), safety orders, compliance orders, and civil penalties to be convened before a presiding official. The Act requires that PHMSA issue regulations both defining the term “presiding official” and requiring the presiding official to be an attorney on the staff of the Deputy Chief Counsel who is not engaged in investigative or prosecutorial functions.

Other prospective changes may be viewed as a touch more substantive, such as time frames for PHMSA to conduct hearings after a penalty order is delivered to the company, to whom a notice of probable violation is delivered, etc.

Feds open door to regulatory oil & gas reform

A number of federal regulatory agencies with authority to impose safety rules on oil and gas companies have begun an inquiry into whether they ought to consider shifting their regulations to a more “performance-based” methodology. Typically, regulations imposed by the Environmental Protection Agency, Pipeline and Hazardous Materials Safety Administration, Occupational Safety and Health Administration and Department of Interior are prescriptive, mandating the actions companies must take to protect their workers and the environment. Performance-based regulations specify a result, and give companies leeway in terms of how they achieve those.

An OSHA official involved in the discussions explains that a pure, performance-based rule would simply tell companies “have no accidents.” The OSHA does have performance-based elements in its process safety management (PSM) rule established in 1992. It affects companies who have certain amounts of hazardous chemicals at their facilities. Energy refining and production companies are covered but not transmission pipelines, which are covered by other general industry and constructions rules issued by the OSHA.

The OSHA official said her agency has no plans to change any regulations at the moment and has no timeframe in place for making such a decision.

David Miller, director of standards for the American Petroleum Institute, who was at the workshop on Sept. 20-21 in Texas City, TX, says, “Anytime you get five top officials from five federal agencies together talking about safety-related issues, that is always a good thing.”

“We thought it was positive to have the discussion about the right mix of performance- and prescriptive-based regulation, which is to say a more balanced approach to regulation,” Miller continues. “At the end of the day, how much comes out of this is hard to say.” He says the typical regulatory model is that an accident happens and a regulatory agency reacts in its traditional manner, which is to say with a prescriptive rule. He calls the workshop an effort to have a “more nuanced discussion” and “look at the bigger picture.”

But many of the federal officials making presentations at Texas City sounded a bit dubious about changing their approach to regulation given the shortcomings they pointed to in some of current quasi “performance-based regulations.”

The PHMSA’s integrity management program for transmission pipelines has some performance-based elements, primarily the responsibility for companies to assess risks of pipelines in high-risk areas. At the Texas City meeting, Linda Daugherty, the Deputy Assistant Administrator at the PHMSA, said, “Recent events illustrate a weakness in managing risks.” She explained that those weaknesses include inadequate: 1) knowledge of risk characteristics including recordkeeping, 2) processes to analyze interactive threats, 3) evaluation of ways to reduce or mitigate consequences, 4) process to select risk control measures, 5) lack of objective, systematic approach.

She added, “Industry generally asks for performance-based regulatory approaches until you give it to them.”

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