May 2017, Vol. 244, No. 5
Legal Perspectives
Trump Effect: How the Administration Could Reshape Pipeline Regulation
A Conversation with Babst Calland Energy Attorney Keith Coyle
P&GJ: What are you hearing from the pipeline industry in terms of its expectations on anticipated federal regulatory reforms resulting from President Trump’s executive actions? What are the financial and safety stakes at hand?
Coyle: The pipeline industry has been largely supportive of the actions taken by the new administration. The temporary regulatory freeze the White House imposed on Inauguration Day deferred several significant regulations that President Obama tried to issue at the end of his administration. President Trump’s approval of the Dakota Access and Keystone XL pipelines also fulfilled a key campaign promise and represented a sharp break from the policies pursued by his predecessor.
The recent executive orders on regulatory reform should have a positive impact on federal oversight of the pipeline industry during his administration. If President Trump is able to implement these reforms, the pipeline industry will be operating in a more efficient and effective regulatory environment, which should reduce unnecessary costs and encourage additional investment and development.
P&GJ: How could the Trump administration’s energy regulatory policies affect pipeline safety at the state level?
Coyle: The state agencies that regulate pipeline safety must adopt the minimum federal safety standards established by the Pipeline and Hazardous Materials Safety Administration (PHMSA). PHMSA initiated two rulemaking proceedings during the Obama administration that proposed significant changes to the safety standards for hazardous liquid and natural gas pipelines.
The new administration is going to have a lot of influence in determining whether and to what extent these regulatory changes become law in the near future. PHMSA is also required, under President Trump’s executive orders on regulatory reform, to identify obsolete or unnecessary regulations for revision or repeal. Both of these initiatives will have an impact on the federal pipeline safety regulations that state agencies are required to adopt and enforce.
P&GJ: What kind of reaction might the energy industry expect from environmentalists or activists as the Trump administration pursues its new energy regulatory agenda?
Coyle: Environmental and pipeline advocacy groups have already expressed strong opposition to the new administration’s regulatory agenda, and the energy industry should expect these groups to remain very active throughout the Trump presidency. Coordinated efforts to delay or block new projects, a trend that spread in the Obama administration, will continue and litigation will be used as a tool for pursuing policy objectives. Expect legal challenges to President Trump’s regulatory reform initiatives as well as citizen suits targeting specific pipeline operators, facilities, or projects.
P&GJ: Do you think the Trump administration’s new energy regulatory policies are impacting pipeline projects? If so, is that impact positive or negative?
Coyle: President Trump’s new energy regulatory policies produced two key victories in the early days of his administration – federal approval of the Dakota Access and Keystone XL pipeline projects. The temporary regulatory freeze that the White House imposed on Inauguration Day also deferred implementation of several significant regulations that would have adversely affected the pipeline industry. The impact of President Trump’s executive orders on regulatory reform will need to be evaluated over the long term, but the expectation is that federal agencies will focus more directly on ensuring that regulations affecting the energy industry are necessary and cost-effective under the new administration.
P&GJ: When do you expect new leadership at PHMSA to be in place? What do you think should be the top priority of the new regime?
Coyle: The Senate confirmed President Obama’s first PHMSA administrator approximately 10 months after Inauguration Day. The Senate confirmed President George W. Bush’s first administrator of PHMSA’s predecessor agency, the Research and Special Programs Administration, eight months after Inauguration Day. While the Senate’s ability to act on nominees often depends on the press of other business, and there are a lot of items of important legislative items on President Trump’s agenda, I hope the new PHMSA administrator will be in place by the fall as in past administrations, if not sooner.
The top priority of the new PHMSA leadership should be implementing the regulatory reforms outlined in President Trump’s executive orders. PHMSA should focus on revising or repealing unnecessary or obsolete regulations that impose undue burdens on the pipeline industry. PHMSA should also carefully review the changes proposed in the outstanding rulemaking proceedings initiated during the Obama administration to ensure consistency with President Trump’s new policies.
P&GJ: What is the status of the hazardous liquid pipeline safety rule that the Obama administration tried to issue in the days before President Trump’s inauguration?
Coyle: The Obama administration released a pre-publication version of the hazardous liquid pipeline safety final rule in mid-January 2017. However, the rule was not published in the Federal Register by Inauguration Day and got returned to PHMSA for further review under the White House’s regulatory freeze memo to ensure consistency with President Trump’s new policies. PHMSA has not provided any additional public information on the status of the rule.
An important issue to watch will be how PHMSA addresses President’s Trump executive order on regulatory reform. The order requires federal agencies to identify two regulations that will be repealed for every new significant regulation that is issued and imposes strict cost limitations for all regulatory actions taken by federal agencies during the current fiscal year, and allows the Office of Management Budget to set similar cost limitations for future fiscal years.
P&GJ: Do you expect the Trump Administration to make significant changes to the proposed mega-rule for gas gathering and transmission lines?
Coyle: The version of the mega-rule the Obama administration released in April 2016 had some very significant flaws, and many of the proposed changes directly conflict with the energy regulatory policies of the new administration. President Trump and the new PHMSA leadership will need to address these concerns during the next phase of the rulemaking process.
PHMSA should revise the gas transmission line proposals to align more closely with the congressional mandates in the 2011 Pipeline Safety Act and eliminate any provisions that do not satisfy the requirements in President Trump’s executive order on regulatory reform. As comments submitted by the pipeline industry show, the Obama administration’s proposed regulations for pipeline materials and maximum allowable operating pressure verification go well beyond the applicable congressional mandates, are unnecessarily burdensome and complex, and cannot be practicably implemented.
PHMSA should also obtain and review additional data before taking any further action to advance the Obama administration’s proposed changes to the gas-gathering line regulations. PHMSA acknowledged during the public comment period that the changes proposed by the previous administration contained significant drafting errors, and an analysis prepared for a pipeline trade association showed that PHMSA underestimated the costs of the gathering line proposals by more than $25 billion over the initial 15-year compliance period.
P&GJ: Will the Trump Administration’s new energy regulatory policies affect federal oversight and enforcement of the pipeline industry?
Coyle: Recent history suggests that oversight and enforcement do not change dramatically from administration to administration. For example, PHMSA initiated nearly 300 pipeline safety enforcement actions in 2005 during the George W. Bush administration, but only initiated about 160 enforcement actions in 2016 during the Obama administration. PHMSA proposed approximately $8.8 million in administrative civil penalties in 2008 during the Bush administration, an amount exceeded during only one year of the Obama administration, when PHMSA proposed approximately $9.8 million in civil penalties in 2013.
Civil penalty amounts may increase due to recent changes in PHMSA’s statutory authority and the methodology used in calculating civil penalties, but I expect federal oversight and enforcement will remain a top priority of the Trump administration.
P&GJ: Do you think industry can comply with the president’s directive to the secretary of Commerce to develop a plan for using U.S. steel in all new, repaired, or replaced pipelines?
Coyle: A lot will depend on the details of the plan that the secretary of Commerce is developing for President Trump. The secretary asked for public comment in mid-March on a set of detailed questions related to domestic steel availability, pipe inventories and materials, and federal permitting requirements. The information provided in response to that request should influence the approach that the secretary takes in the plan, which must be submitted to President Trump by July 23, 2017. The recent announcement that the Keystone XL pipeline will not be subject to the U.S. steel requirement is a positive development, showing that the administration is aware of the potential adverse impacts that might arise if the plan is applied to operators who have already acquired materials for projects under development.
P&GJ: What is the biggest potential challenge for regulatory reform in the pipeline industry?
Coyle: Change is not something that comes easily to the federal government, and the pipeline industry is receiving intense (and in many respects unfair) scrutiny from environmental organizations and other advocacy groups. Accomplishing an ambitious regulatory reform agenda will be extremely difficult in these conditions and will require a sustained commitment from the new administration in the face of significant opposition, at least from certain interest groups. The good news is that the pipeline industry has a strong base of support throughout the public and private sectors and a track record of success that shows that the reforms sought by President Trump can be achieved during his administration.
Attorney Keith J. Coyle is a shareholder in the Energy and Natural Resources Group of law firm Babst Calland and is based in Washington, D.C. He can be reached at kcoyle@babstcalland.com
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