In June 2016, President Obama signed into law new pipeline safety legislation that adds responsibility to the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA). The legislation, titled Protecting our Infrastructure of Pipelines and Enhancing Safety (PIPES) Act of 2016, extends PHMSA’s authorization through FY 2019, expands the agency’s oversight responsibilities, and requires new safety rules for underground natural gas storage facilities.

Several factors drove the enactment of this legislation. Scrutiny of pipeline safety has continued since the 2010 San Bruno pipeline explosion and the occurrence of other incidents. A major leak at Southern California Gas’s Alison Canyon storage facility in October 2015 increased industry focus on underground natural gas storage. Also, a number of mandates from the 2011 pipeline safety act have yet to be implemented.

Key Details

• The PIPES Act requires PHMSA to prioritize the completion of new minimum safety standards for underground natural gas storage facilities
  • Previously, regulation of underground natural gas storage was under state jurisdiction. With the Act, PHMSA will set the standards, and states have the ability to create more stringent regulations, provided they are compliant with federal standards
  • PHMSA plans to issue these rules by year-end
• The Act gives PHMSA the authority to issue an emergency order to pipeline operators without prior notice or opportunity for a hearing
  • Prior to the Act, PHMSA could only issue a corrective action or safety order after providing notice and an opportunity for hearing
  • This authority allows PHMSA to take action on an “imminent hazard” more quickly than the current rulemaking process, which can take a year or more to complete
• The Act mandates the completion of multiple studies and reports over the next two years; topics relevant to natural gas operators include:
  • Improving existing damage prevention programs with technology enhancements
  • Establishing a voluntary information-sharing working group comprised of industry stakeholders
  • Evaluating the feasibility of a national pipeline safety regulatory inspection database to improve communication and collaboration between PHMSA and state regulators
  • Determining the effectiveness of materials and technologies used to reduce pipeline corrosion
  • Measuring and reporting lost and unaccounted for natural gas from distribution pipelines and systems
  • Reviewing (state-by-state) policies regarding natural gas pipeline and distribution system leaks

Implications

The PIPES Act is a major rulemaking for the natural gas industry. It increases the scope of PHMSA’s oversight, enables the agency to respond more rapidly to pressing safety issues, and sets the stage for additional rulemakings in the future.

However, some industry stakeholders are concerned that the Act is too far-reaching, complex, and costly to implement. Pipeline operators and industry associations say that the Act will result in many new requirements that affect large portions of their systems. Each requirement will have to be evaluated, debated, and implemented—a time-consuming and laborious undertaking. Also, retroactive provisions, such as establishing updated maximum allowable operating pressures for older pipeline sections, could have major implications for distribution and transmission systems. Federal regulators and state commissions counter these arguments by stating that the Act is designed to address known safety threats emerging from incidents such as the San Bruno pipeline explosion.

The Act will likely have significant operational impacts, as inspection, monitoring, and repair requirements are expected to increase. Implementing the new rules will also create financial burdens; however, there is considerable disagreement to what extent. PHMSA estimated an industry-wide cost of about $600 million while a recent study commissioned by the American Petroleum Institute produced an estimate of more than $30 billion.

More Information

SNL Financial: Federal Pipe Safety Proposal Too Complex to Be Practicable, Industry Says
SNL Financial: Pipe Safety Rule Would Cost 56 Times the Federal Estimates, Industry Study Finds
SNL Financial: PHMSA Hoping to Issue Natural Gas Storage Rules by Year-End
K&L Gates: President Obama Signs Pipeline Safety Law