October 2017, Vol. 244, No. 10

Government

Government

ExxonMobil Earns Significant Legal Victory over PHMSA

ExxonMobil Pipeline won a key decision against the Pipeline and Hazardous Materials Safety Administration (PHMSA) when a federal appeals court threw out most of a PHMSA enforcement action and penalty related to a 2013 oil spill in Arkansas.

At issue was whether ExxonMobil should have known that a segment of low-frequency electric resistance welded (LF-ERW) pipe in the Pegasus Pipeline was susceptible to longitudinal seam failure under federal pipeline safety regulations, more specifically, oil pipeline integrity rules.

The 850-mile, 20-inch Pegasus system transports crude oil from Patoka, IL to Nederland, TX. The failure in a high-consequence area released product into the community’s storm drainage system.

Susan Olenchuk, partner, Van Ness Feldman LLP, said the 5th Circuit decision is significant because it is rare for a pipeline operator to challenge a PHMSA enforcement decision, let alone succeed.

“The case also is important because, even though agencies are usually given a high degree of deference in how they interpret their own regulations, the Court of Appeals refused to defer to PHMSA’s interpretation of its own safety regulations in a case that arose out of high-profile and damaging rupture of a crude oil pipeline,” she explains.

Integrity rules dictate that a company determine prior to using LF-ERW whether the pipe is susceptible to longitudinal seam failure by methods “capable of assessing seam integrity….” The law neither mandates how operators should determine whether a segment is seam failure, nor does it dictate a process for operators to follow, according to a legal brief ExxonMobil filed in 2015 disputing the $2.6 million penalty assessed by PHMSA.

The Fifth Circuit Court, headquartered in Atlanta, wrote: “The record demonstrates that ExxonMobil satisfied its obligation to ‘consider’ various risk factors when it conducted a lengthy, repeated, and in-depth analysis of those risk factors by utilizing the available industry-commissioned guidance of the Baker Report decision tree.”

The court said there is nothing in the regulations that compels an operator to conclude that a pipeline constructed of LF-ERW pipe is susceptible to longitudinal seam failure when the pipeline has experienced seam failures.

“If the agency wished to enforce outcome-based requirements instead of the process-based requirements that are currently in place with regards to seam failure susceptibility, the agency could have promulgated regulations to that effect,” said the decision released Aug. 14.

In 2015, partly in reaction to the Pegasus leak, PHMSA held a workshop previewing what was expected to be a rulemaking expanding the hazardous liquids Integrity Verification Process. The American Petroleum Institute and the Association of Oil Pipe Lines sent in comments urging PHMSA to consider whether its broad proposal, which included widespread spike hydrostatic pressure testing, metallurgical testing of cutouts, and other suggested verification methods, is “technically feasible, reasonable, cost-effective, and practicable.”

The two groups argued, “The proposed HL IVP does not appear to effectively further ‘integrity verification’ beyond what operators have already done or are doing for HCA could affect and non-HCA segments.” No rulemaking was ever established.

Pipeline Construction Projects Move Forward 

The Federal Energy Regulatory Commission (FERC) is off and running now that it has three commissioners to form a quorum, with two more likely to fill out the five total chairs once they are confirmed shortly by the Senate. The commission started to work through the backlog of pipeline construction projects by approving the Nexus pipeline on Aug. 28. Neil Chatterjee, new temporary chairman, Cheryl LaFleur, the one holdover commissioner, and Robert Powelson, the second new commissioner, said Nexus “… has taken sufficient steps to minimize adverse impacts on landowners and surrounding communities.”

The $2 billion, 255-mile pipeline will bring shale gas from Appalachia into Michigan and Ontario, Canada. Nexus is jointly owned by Spectra Energy Partners, LP  and DTE Energy Co. Spectra is a subsidiary of Enbridge.

Nexus obtained easements for over 93% of the project route without eminent domain. The FERC approval statement said the fact that such a large portion of the project route has been acquired without use of eminent domain strongly supports a finding that the applicants’ efforts have minimized the potential for adverse impacts on landowners and surrounding communities.

Among the next projects seemingly on track for approval is Dominion Energy’s  Atlantic Coast Project (ACP), the nearly 600-mile pipeline that the FERC staff blessed in a final environmental impact statement in July. Gas would come from Pennsylvania and be sent to West Virginia, Virginia and North Carolina.

The staff environmental impact statement (EIS) said the project would result in limited adverse environmental impacts, with some exceptions. One concern is that numerous segments of pipeline would be constructed on steep slopes and in areas of high landslide potential. Building on slopes adjacent to water bodies also has the potential to adversely effect water quality and stream channel geometry, and therefore, downstream aquatic biota.

Leslie Hartz, Dominion Energy’s vice president, Engineering & Construction, said, “We’ve made over 300 route adjustments to avoid environmentally sensitive areas and protect important features of individual properties. We’ve adjusted the route to avoid wetlands, public and private drinking water sources, wildlife habitats, sensitive karst terrain, and many other environmental resources. In many areas of the project, we’ve adopted some of the most protective construction methods that have ever been used by the industry.”

But environmental groups are working hard to short-circuit FERC’s expected approval. “Despite all its rhetoric, FERC continues to prove it’s nothing more than a rubber stamp for fracked gas pipelines that threaten our communities and our climate,” says Deb Self, a Sierra Club Beyond Dirty Fuels Campaign Representative.

Sierra and others hope to convince West Virginia, Virginia, and North Carolina to reject water-quality permits and persuade the Forest Service and Bureau of Land Management to nix the pipeline’s crossing of land in its jurisdictions.

Aaron Ruby, spokesman for Dominion, said, “We fully expect to receive all state and federal approvals this fall, including the Forest Service permit and the state water-quality certifications.”

He called press statements issued by the Sierra Club “just typical bluster.” He pointed out that on the day FERC issued its final EIS, the Forest Service issued a draft Record of Decision recommending approval of Atlantic’s special-use permit to cross Forest Service lands.

The 303-mile Mountain Valley Pipeline, which has raised hackles from some in Appalachia who are also protesting the Atlantic Coast Pipeline, is in front of the commissioners, given the final EIS issued in late June. This pipeline runs from northwestern West Virginia to southern Virginia and will be constructed and owned by Mountain Valley Pipeline, LLC, which is a joint venture which EQT Midstream Partners, LP leads.