Spring is just around the corner. Spring represents a time for re-evaluation, reflection, and improvement. For many pipeline operators, this is a great time to reevaluate and improve on pipeline safety and regulatory programs to ensure compliance with state and federal pipeline safety requirements. Recent accidents involving gas pipelines, rail cars, and barges have forced state and federal regulatory agencies to focus their attention on the transportation of natural gas and other hazardous materials. In Pennsylvania, the Department of Environmental Protection (“DEP”) and the Pennsylvania Utility Commission (“PUC”) are already taking on a more antagonistic tone towards the oil and gas industry. With allocated budget increases for enforcement efforts, the Pennsylvania DEP and PUC will want to publicly demonstrate their “successes.” Accordingly, they will be looking for test cases and pipeline operators to showcase heightened enforcement. With the 2011 passing of the Pipeline Safety, Regulatory Certainty, and Job Creation Act (“H.R. 2845”) doubling the maximum civil fines for safety violations, an increase in the enforcement capabilities of state regulators, and the downward economic pressures in the oil and gas markets, your company cannot afford any type of violation.
PHMSA and H.R. 2845 “Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011”
H.R. 2845 created an immediate impact on pipeline safety and compliance recordkeeping for pipeline operators around the country. This legislation increased the pressure on many pipeline operators to ensure pipeline records were accessible, verifiable, and complete. Furthermore, these new regulations:
- Doubled the maximum civil fine for all safety violations;
- Required all operators to confirm, by testing or records, the Maximum Allowable Operating Pressure (“MAOP”) of certain pipelines located in High Consequence Areas (“HCAs”);
- Empowered the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) to set time limits for accident and incident notification;
- Required PHMSA to issue regulations requiring automatic shut-off valves on new or replaced pipelines; and
- Removed exemptions for pipelines installed before 1970, cast iron pipelines, and other older pipeline records.
Most significantly, this legislation now required all older pipelines to maintain records on the MAOP on older bare steel and cast iron pipelines. Since 2013, PHMSA has initiated 428 enforcement cases against pipeline operators for problems involving their integrity management programs, risk assessments, failure prevention and mitigation programs, and several other possible regulatory violations identified during failure investigations and routine inspections. (PHMSA, 2015). Many of these violations face fines ranging from $10,000 per day up to $2,000,000 for a related series of violations.
Are You Prepared for a Regulatory Audit or Inspection?
With budget increases in state and federal regulatory agencies, the question is not a matter of ‘if’ your pipeline will be inspected but ‘when’. Records that meet the bare minimum requirements of the Act will likely receive additional scrutiny. Pipeline operators should be prepared to demonstrate their commitment to safety and compliance. This not only extends to the records maintained by the operators, but also to its internal policies and culture of compliance. Operators who foster a culture of cover-up or minimum compliance with pipeline safety will attract heightened scrutiny, review, and run the risk of birthing true whistleblowers.”
It is critical that your organization develop the ability to adequately communicate to the auditor that your management of pipeline integrity meets and exceeds the state and federal minimum standards and that your records be accessible, verifiable, and complete. Doing so could potentially save your company a significant amount of time, money, and heartache. For example, MAOP compliance verification could cost around $1,500 per mile, if records are accessible, verifiable, and complete. Should these records be inadequate, those costs could jump to $8,000-$10,000 per mile to “pig” the line or perform hydrostatically a pressure test of the pipe. In a worst-case scenario, the cost could jump to $200,000 per segment where pipeline integrity tests have failed and pipeline segments must be excavated and replaced.
Next Steps
You should identify your risks by asking the following questions:
- Are you confident that when problems arise, your company is adequately prepared to successfully respond?
- Do you have a regulatory compliance program?
- What systems or programs are in place to respond to pipeline safety or environmental violations?
- How public is your company? Would misconduct or an investigation attract media attention?
While these questions provide a brief snapshot of your organization’s compliance readiness programs, identifying these risks can help develop a mitigation plan and, ultimately, a strategy for developing a strong reporting program.
The Crisis Readiness Assessment team at Leech Tishman has been providing the industry with regulatory compliance audits focusing on key areas where state and federal regulators are likely to find violations. Our process is simple: we develop a regulatory compliance audit plan with you, conduct the audit, and report our findings as a presentation or a written report. While there is never any guarantee of a risk-free existence, you have an opportunity right now to become better prepared to meet challenges from state and federal regulators.
If you would like more information on regulatory compliance audits, please contact Leech Tishman’s Energy Practice Group at 412.261.1600.
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Leech Tishman is a firm dedicated to providing full-service commercial legal services to individuals, businesses, and institutions. We combine a deep understanding of our clients and their businesses with skilled legal counsel to find solutions. Leech Tishman offers legal services in alternative dispute resolution, bankruptcy & creditors’ rights, construction, corporate, employment, energy, environmental, safety & toxic torts, estates & trusts, government relations, insurance coverage & corporate risk mitigation, intellectual property, internal investigations, international legal matters, litigation, real estate, and taxation. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in Chicago, Los Angeles, New York and Wilmington, DE. For more information call 412.261.1600 or visit us at www.leechtishman.com.