Regulations - HMS Legal

PHMSA Proposes Significant New Regulations Regarding Transmission and Gathering Pipelines

Whitney Snyder on April 1, 2016

On March 17, 2016 Pipeline and Hazardous Materials Safety Administration (PHMSA) released a 549 page Notice of Proposed Rulemaking (NPRM) that significantly changes regulations for transmission lines and imposes regulations on previously unregulated gathering lines carrying, inter alia, natural gas and petroleum products.

Key changes for transmission pipelines include: establishing new materials verification requirements, modifying maximum allowable operating pressure requirements (MAOP), and imposing requirements for verifying MAOP. PHMSA is also proposing a new classification area, a Moderate Consequence area, which would impose corrosion control, integrity management and assessment, and repair requirements on pipelines outside of High Consequence Areas. The NPRM also subjects certain in-service natural gas pipelines built prior to 1970 to pressure testing.

All gathering pipelines (determined per a new definition that no longer references American Petroleum Institute Standards) will now face reporting requirements per 49 CFR Part 191 with certain limited reporting process exceptions. PHMSA has also significantly expanded “regulated gathering lines” to include lines with 8 inch or greater nominal diameter in Class 1 areas (areas with 10 or fewer buildings meant for human occupancy) that have an MAOP that produces a hoop stress of 20 percent or more of specified minimum yield strength (SMYS) for metallic lines, or more than 125 psig for non-metallic lines. These lines will be classified as Type A, Area 2 lines and regulations will include design and construction specifications for new lines and safety standards and emergency response requirements in Part 192, and drug and alcohol requirements in Part 199 for new and existing lines. To put the scope of this regulation in perspective, PHMSA officials have stated that an additional 68,749 miles of gathering lines would be “regulated gathering lines” per the new Type A, Area 2 classification, and an additional 275,337 miles of gathering lines would be subject to additional reporting requirements. See PHMSA Proposes Expanding Regulatory Scope of Gathering Lines, Natural Gas Intelligence, March 21, 2016.

The NPRM is in response to the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011. Section 21 of the Act requires PHMSA to conduct a study of the existing gathering line regulations, report to Congress, and recommend whether any additional laws are needed, analyzing economic impacts, risks, and whether the current exemption from regulation for certain gathering lines should be revoked. PHMSA completed this study in May of 2015.

In 2011 PHMSA issued an advanced notice of proposed rulemaking with many of the same features regarding regulation of transmission and gathering lines, which did not result in a final rule. PHMSA has responded to comments on the 2011 ANPRM in the NPRM. The increased regulation of the NPRM was spurred by the congressional mandates in the Act in response to the San Bruno pipeline explosion in 2011 and the increased use of higher pressure and size gathering lines due to hydraulic fracturing and increased shale production, especially in the Marcellus Shale region.

In Pennsylvania, the Pennsylvania Public Utility Commission regulates PHMSA regulated lines and has incorporated 49 CFR Parts 191-193 and 199, including any future amendments at 52 Pa. Code Chapter 59.

Once the NPRM is published in the Federal Register, interested parties will have 60 days to submit comments.

PA PUC Requested by Statutory Advocates and Two NGDCs to Examine The Practice of Natural Gas Flexible Pricing or Negotiated Discount Rates

Thomas Sniscak on July 6, 2012

Historically the Pennsylvania Public Utility Commission (PUC) has permitted natural gas distribution companies (NGDCs) to use flexible pricing or “flex” contract rates to attract or retain large customers who have other energy alternatives. The reasoning has been that “half a loaf is better than none,” and that such revenues, which cover and exceed marginal cost, contribute positively to overall cost of service. The result is a benefit to the large customer, the utility, and all customers generally. Moreover, in terms of retaining a customer, the argument in favor of the status quo is that other ratepayers benefit as they do not bear the revenue burden of stranded investment or a smaller revenue pot over which to apply costs. The NGDCs have generally been able to recover from other ratepayers the difference between the “flex” rate and what would have otherwise been charged under an ordinary general tariff rate.

Just as historically, the statutory advocates that represent residential ratepayers, small business ratepayers, and PUC prosecutorial rate staff, oppose the practice as uneconomical or inequitable. Specifically, they dislike the PUC’s allowing the NGDC to recover the flex discount from other customers. They are focused, at this point, on the use of flex contracts in portions of western Pennsylvania where NGDCs often have overlapping territories and compete for customers.

The statutory advocates have been able to convince two NGDCs, Peoples Natural Gas Co. and Columbia Gas of PA, as part of rate case settlements, to agree to be parties with them to ask the PUC to institute a generic proceeding to examine whether flex rates should continue in “gas on gas” competition instances. That joint petition has been submitted at PUC Docket No. P-2011-2277868.

While supporters of the request to investigate the practice maintain that it only applies to “gas on gas” competition, the proceeding may have, or at a minimum may lead, to broader implications as the arguments for and against flex rates for “gas on gas” competition could be used by those who oppose the practice to challenge any flex rate situation that was created to address competition by energy options other than from NGDCs. Clearly, this proceeding will impact large customers with energy alternatives, and presents important policy considerations involving Pennsylvania’s ability to attract or retain large customers and the many jobs and contributions to the economy they create.

One would expect any involved NGDC , particularly those who have “gas on gas” based flex agreements in place, and the large customers under those agreements, to defend and support the practice vigorously. It is important to large business and to NGDCs to keep rate flexibility to address competition and avoid loss of customers or to attract new customers or additional usage.

There is no deadline under the PUC’s regulations as to when it must decide if the subject should be examined. The firm’s contact on these issues is tjsniscak@hmslegal.com.

PHMSA Proposes Significant New Regulations Regarding Transmission and Gathering Pipelines

PA PUC Requested by Statutory Advocates and Two NGDCs to Examine The Practice of Natural Gas Flexible Pricing or Negotiated Discount Rates

Our Socials

Resources

Contact Us