Thought Leadership

Pennsylvania’s New Gas and Hazardous Liquids Pipeline Act

KL Gates LLP, January 3, 2012

Introduction

Reacting to the influx of new gathering pipeline, midstream and other facilities in Pennsylvania, the General Assembly passed and the Governor signed House Bill 344, creating the “Gas and Hazardous Liquids Pipelines Act” (the “Act”). The Act subjects pipeline operators who transport “gas” or “hazardous liquids” to existing federal safety regulations and impose additional administrative measures. These measures include registration and reporting requirements and the imposition of annual “assessments” on pipeline operators subject to the new legislation. In addition, the Act expands the jurisdiction of the Pennsylvania Public Utility Commission (“PUC”) to enforce pipeline safety regulations in Pennsylvania.

What Does the Act Do?

The PUC historically exercised its authority to enforce federal pipeline safety standards only on statutorily-defined “public utilities” that operate pipeline facilities in Pennsylvania. But, the agency otherwise lacked the authority to enforce those standards on unregulated pipeline entities. However, now, the Act authorizes the PUC to enforce federal pipeline safety regulations on all “pipeline operators”. These regulations comprise any person that “owns or operates equipment or facilities in this Commonwealth for the transportation of gas or hazardous liquids by pipeline or pipeline facility regulated under federal pipeline safety laws.”

The term “pipeline” is expansively defined to include not only the pipeline itself, but also compressor stations, metering stations and appurtenant facilities. The terms “gas” and “hazardous liquids” include not only natural gas, but also such materials as liquefied natural gas, landfill gas, petroleum etc. This also includes other materials classified as “hazardous” under the federal pipeline safety laws. Hence, most operators of pipelines and related facilities in Pennsylvania will be subject to the PUC’s safety regulation.

What Are Some of the Key Provisions of the Act?

The Act is fairly straightforward. The key provisions include:

Federal Standards

The Act incorporates federal pipeline safety standards and authorizes the PUC to enforce those standards on pipeline operators.

Investigation Authority

The Act gives the PUC authority to investigate and enforce federal pipeline safety standards. The PUC has announced plans to expand the pipeline safety team within the agency.

Registration Requirements

Pipeline operators subject to the Act must register with the PUC. The Act does not indicate when registrations are due or what information is required to be submitted with each registration. Nonetheless, the Act does give the PUC authority to develop an application for registration and charge registration fees.

Steel Products

The initial registration and each annual renewal require the operator to disclose the country of manufacture for all “tubular steel products” used in the exploration, gathering or transportation of natural gas or hazardous liquids within the Commonwealth. The Act does not provide an exemption to disclosure requirements for tubular steel products that were installed prior to the effective date of the Act. However, the Act does give the PUC authority to develop a disclosure form for this portion of the registration. In developing the forms, the PUC could presumably accommodate existing pipelines for which the pipes’ country of manufacture is unknown.

Annual Reports

On or before March 31 of each year, pipeline operators subject to the Act must file annual reports disclosing the pipeline operator’s total miles of regulated pipeline in the Commonwealth during the prior calendar year.

Assessments

The PUC is an independent agency that is generally self-funded. The PUC makes annual assessments on all entities subject to its jurisdiction and recovers from those entities their proportionate share of the costs of regulation.

The Act incorporates the assessment process of Section 510. This authorizes the PUC to determine by regulation or order annual assessments against pipeline operators to recover the cost of regulation based on the number of miles of regulated pipeline.

Civil Penalties

The Act authorizes the PUC to assess and recover civil penalties of the greater of: (1) $10,000 per violation for each day the violation persists; or (2) a penalty provided for under the federal pipeline safety laws.

No Ratemaking Authority; No Effect on Definition of “Public Utility”

The Act does not give the PUC any additional jurisdiction for purposes of establishing rates or any matters other than the safety and additional requirements created by the Act. Nor does the give the PUC the authority to determine the status of or regulate a pipeline operator as a public utility as defined in the Public Utility Code.

What Should Operators Do?

The Act takes effect 60 days from the date of the Governor’s signature and imposes requirements that require initial planning and preparation. For example:

Safety Standards

Pipeline facilities subject to the new legislation already meet or exceed federal safety standards. However, pipeline operators should assure that proposed facilities meet or exceed those standards to avoid administrative liability under the Act.

Work with the PUC on Regulations and Forms

Gathering system and other pipeline facility operators, as well as others in the industry, will want to engage actively with the PUC in the development of regulations and forms to implement the Act. Issues such as how to address steel product origin requirements, the format and content of reports, and other matters need to be fleshed-out with active input from industry stakeholders.

Gather Information to Comply with Administrative Measures

Pipeline operators should be sure that they have identified all the information required by the Act for registration and reporting. Thereafter, they need to be prepared to submit that information in the manner prescribed by the PUC for the purposes described in the Act. Furthermore they must bear in mind that the Act creates a March 31 deadline for annual reporting.

Prepare for Assessments

As noted, the Act incorporates the assessment procedures contained in Section 510 of the Public Utility Code. Pipeline operators must object to individual assessments issued by the PUC within 15 days of receiving the assessment. Within 30 days of receiving the assessment, the pipeline operator must submit payment. In the recent past, the PUC’s assessments frequently have been the subject of litigation before the agency and the Pennsylvania appellate courts. The issue in controversy has frequently involved the over-allocation of the agency’s total overhead costs on particular utility classes. Similar issues may arise in the agency’s calculation of the pipeline assessments. Pipeline operators should examine the assessment notice carefully. After which, they must be prepared to file objections if necessary. Objection can be filed with the assistance of experienced counsel, within 15 days of receiving the notice. Payment of the assessment would still be required within 30 days of receiving the assessment notice. However, the submittal of the objection preserves the opportunity to receive a refund of any overpayment of assessments.

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