July 2018, Vol. 245, No. 7
Features
Lines Between Regulators Still Blurry for Midstream Processors
By Robert Nichols and Kevin Ewing, Bracewell LLP, Houston and Washington
The Pipeline and Hazardous Materials Safety Administration (PHMSA) began an effort in 2014 to help businesses engaged in midstream oil and gas processing operations determine where the lines fall between applicability of PHMSA safety rules and Occupational Safety and Health Administration (OSHA) regulation, particularly OSHA’s process safety management (PSM) standard.
As a result, a working group of PHMSA and industry representatives offered proposed guidance in August 2015 in the form of FAQs. Although PHMSA has never published the guidance as official agency policy, while cautioning it does not carry the force of law, its staff has confirmed that both of the agencies are referencing that working group’s guidance when questions of coverage arise.
Further, PHMSA is considering how to publicize that guidance to industry and others through its agency website. Accordingly, companies conducting midstream processing operations should regard that guidance as important to understanding when PSM applies, and does not apply, to their assets.
Background on Jurisdictional Scope
The Office of Pipeline Safety (OPS) was created by Congress in September 1968 and housed within the U.S. Department of Transportation (DOT), to administer the Natural Gas Pipeline Safety Act, which had been enacted that same year. Under that law, the agency was given authority to regulate pipeline transportation of natural (flammable, toxic, or corrosive) gas and other gases.
Nine years later, with the enactment of the Hazardous Liquid Pipeline Safety Act of 1979, Congress conferred jurisdiction on the OPS with regard to pipelines carrying hazardous liquids such as crude oil.
As part of a 2004 reorganization of pipeline safety regulation, PHMSA was created by Congress to regulate both pipeline safety and the safe transportation of hazardous materials by other modes. Importantly, PHMSA is not tasked generally with safeguarding occupational safety, but with public safety and health, as well as environmental concerns associated with transportation of hazardous materials.
Congress did not pass legislation intended to broadly regulate occupational safety and health until the enactment of the Occupational Safety and Health (OSH) Act of 1970. Along with that act, Congress also created OSHA to set standards and pursue enforcement. Unlike PHMSA’s narrower scope, OSHA has broad authority for safety and health in industry, construction and other sectors. It focuses primarily on safety measures related to activities, such as protective equipment for welding, rather than on business sectors.
Despite its broad mandate, Congress did not intend OSHA to supplant safety jurisdiction of other agencies with more specific authority over particular industries. Accordingly, Congress provided in Section 4(b)(1) of the OSH Act that nothing in that law would “apply to working conditions of employees with respect to which other Federal agencies . . . exercise statutory authority to prescribe or enforce standards or regulations affecting occupational safety or health.”
In the first years of case law development under the OSH Act, some federal courts suggested that the Section 4(b)(1) preemption provision meant that the pipeline industry and others enjoyed broad preemption of OSHA jurisdiction because of more specific safety regulation conferred on DOT agencies. In 2002, however, the U.S. Supreme Court in Chao v. Mallard Bay Drilling adopted a relatively narrow view of that provision, and there was no longer any argument to be made that oil and gas pipeline and related operations enjoyed any general preemption from OSHA jurisdiction.
The federal agencies involved had long been aware that Section 4(b)(1) would create questions about the delineation between OSHA and DOT jurisdictions. Soon after its creation in 1972, OSHA began communicating with the DOT about Section 4(b)(1) preemption issues and, since then, has sought to coordinate with other agencies about when particular OSHA regulations are preempted in the pipeline industry or other DOT-regulated businesses.
Midstream Issues
One particularly important jurisdictional question that arose in the 1990s was when (OSHA’s PSM standard) codified at 29 C.F.R. Section 1910.119 was applicable to midstream operations. PSM is a complex performance-based standard that generally applies to facilities conducting a process that uses a highly hazardous chemical in quantities over specified threshold amounts. PSM regulation is aimed at preventing releases of hazardous chemicals creating fire, explosion, toxicity or other hazards.
Regarding midstream oil and gas industry, OSHA concluded in 1992 after communications with DOT that PSM regulation was not applicable to “natural gas distribution and transportation facilities.” In that interpretation, OSHA explained that the inapplicability of PSM to those activities was justified because “OPS regulations address[ed] the hazards of fire and explosion in the gas distribution and transmission process.” This interpretation anticipated the ruling in Mallard Bay ten years later.
With respect to gas processing operations, as opposed to transportation, OSHA, with the agreement of PHMSA, adopted a different view as to PSM coverage. Specifically, in a February 2005 interpretation letter, OSHA rejected the view that “gas processing should be excluded from [PSM] coverage.” In the letter, OSHA instructed that the agency “believes that gas plants are appropriately covered by the process safety management standard.”
Despite this guidance, where the precise lines fall with regard to PSM applicability to midstream assets has remained a concern because the exact demarcation between processing and transportation operations is often unclear.
FAQ Guidelines
In August 2015, PHMSA’s working group proposed seven questions and answers intended to offer guidance on these coverage questions. The following excerpts provide a view of this guidance:
How does one delineate the boundary between pipeline transportation and a processing facility?
“PHMSA Policy indicates that it will not provide regulatory oversight under PHMSA Part 192 and 195 for pipelines downstream of the first pressure control device entering the processing facility, and upstream of the last pressure control device leaving the processing facility...”
How does PHMSA Policy apply regulatory oversight to piping that bypasses processing downstream of the first pressure control device?
“Piping that is downstream of the first pressure control device that is occasionally used to bypass processing is subject to regulatory oversight under OSHA PSM. Piping that is downstream of the first pressure control device that is predominantly used to bypass processing is subject to regulatory oversight under PHMSA Part 192 or 195.”
On the issue of regulatory coverage of a pipeline entering a processing facility that bypasses a pressure control device. With respect to that issue, the FAQ explained that:
“A pipeline that predominantly bypasses a pressure control device is subject to the regulatory oversight under PHMSA Part 192 or 195. Similarly, if a pipeline bypasses a facility that is no longer in service, the pipeline would be subject to regulatory oversight under PHMSA Part 192 or 195.”
Notably, the proposed guidance considered another difficult question related to midstream facilities—specifically, PSM coverage of underground storage and associated piping. With respect to that issue, the proposed guidance explains:
“Piping associated with underground storage used for the ‘purpose of managing processing facility inventory’ is subject to regulatory oversight under OSHA PSM. Piping associated with storage caverns used for transportation is subject to regulatory oversight under PHMSA Part 192 or 195. States with underground storage laws regulate the underground storage.”
As evidenced by the questions and answers considered above, this proposed 2015 FAQ included valuable information concerning delineation of PHMSA vs. OSHA/PSM coverage. However, the subcommittee was careful to frame this draft guidance as only a “proposal” to be submitted to the Joint Advisory Committees for consideration. It was further emphasized during a 2015 meeting of the PHMSA Joint Advisory Committee that this guidance, even if adopted, would not have the force of law.
Conclusion
The uncertainties as to when OSHA’s PSM standard, as opposed to PHMSA regulations, apply to midstream processing operations, has not been resolved through notice-and-comment regulations or other binding legal authority. Nonetheless, the policy guidance that PHMSA and OSHA are currently utilizing offers industry some meaningful, albeit nonbinding, instruction into where the lines fall. P&GJ
Authors:
Robert “Bob” Nichols is a partner in Bracewell’s Houston office, represents employers in litigation, administrative investigations and inspections, and other actions concerning alleged occupational safety and health violations, discrimination, retaliation, harassment, wrongful discharge, and other employment concerns.
Kevin Ewing is a partner in the Washington office of Bracewell. He advises energy and infrastructure companies pursuing development projects, federal authorizations, or changes in agency policy, or responding to Executive Branch inquiries and enforcement.
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