Appeals Court Invalidates Key Parts of PHMSA’s 2022 Rulemaking on Natural Gas Safety

In a unanimous opinion, a panel of judges from the United States Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit”) vacated four key aspects from a 2022 rulemaking by the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) because PHMSA failed to comply with its own requirements for rulemakings.¹ A fifth rule was allowed to stand. The panel’s willingness to scrutinize PHMSA’s claims in light of its prior pronouncements should signal to all agencies that they must apply their rulemaking authority in a manner that is consistent with historical precedent or explain why a change is needed.

The four vacated requirements are:

• The high-frequency-electric resistance welding (“HF-ERW”) rule,
• The crack-MAOP rule,
• The corrosive-constituent rule, and
• The dent-safety-factor rule.

The court’s decision to vacate the HF-ERW rule and the crack-MAOP rule demonstrates just how far PHMSA’s rulemaking processes were disconnected from its own historical implementation of these pipeline safety programs. For instance, PHMSA disputed the need for an economic analysis for the HF-ERW rule, on the grounds that it “‘will not impose an additional cost burden on pipeline operators’ because the regulations already required immediate repairs . . .”² PHMSA’s claim rested on the applicable ANSI standard (ASME/ANSI B31.8S) that references pipes manufactured by “low-frequency ERW.”³ After noting that the proposed authority for PHMSA’s claims failed to reference pipes manufactured by high-frequency ERW, the court rejected this assertion, stating:

Contrary to the agency’s assurances, the challenged standard imposes a new repair requirement with respect to high-frequency-ERW pipes.⁴

PHMSA likewise defended the crack-MAOP rule on the grounds that it would “not impose an additional cost burden on pipeline operators since [the costs] are already required.”⁵ This rule required immediate repair of any “crack or crack-like anomaly” whenever its predicted failure pressure is less than 1.25 times the maximum allowable operating pressure (“MAOP”) of the pipe segment. The court again rejected PHMSA’s argument because its only support for this statement was a rule dealing with a single type of crack (stress corrosion cracking) which could not be relied on to support “the costs of the entire crack-MAOP standard, which applies to all cracks and crack-like anomalies.”⁶ Additionally, PHMSA increased the action threshold from the 1.1 in the existing standard to 1.25 without consideration of costs.⁷ The court thus rejected PHMSA’s claims that the “crack-MAOP standard did not adopt a mandate that was ‘already required.’”⁸

The corrosive-constituent rule failed for analogous reasons. This rule required pipeline operators to monitor “corrosive constituents” in addition to the existing requirement to monitor corrosive gas. PHMSA’s defense of this rule failed because it argued both that the standard “is not expected to add any incremental compliance activities or costs” and that “there may be compliance costs.”⁹ PHMSA further explained that it “was difficult to precisely predict or calculate those costs.”¹⁰ Finding these arguments to be “internally inconsistent,” the court vacated the corrosive-constituent rule for the lack of “a reasoned cost-benefit analysis.”¹¹

The court’s rejection of the dent-safety-factor rule reflects a complete failure by PHMSA to perform the requisite cost-benefit analysis:

We must vacate the dent-safety-factor standard because the agency failed to analyze its costs: There is simply no discussion of the costs of this standard in the final rule or RIA. Thus, it is not apparent just how the agency went about weighing the benefits against the costs, and the standard cannot stand.¹²

Unlike the other vacated rules, PHMSA simply ignored its obligations to prepare economic costs analyses to support its rulemaking decision regarding the dent-safety-factor rule. In its ruling, the court vacated 49 CFR § 192.712(c) in its entirety so that the requirements regarding “dents and other mechanical damage” set forth in that section of the regulations are no longer in effect.¹³ With this decision, four components of PHMSA’s rulemaking have been vacated.

This decision does not prevent PHMSA from expanding its regulatory program but sends a strong message that it must do so after properly assessing the impact of those regulations including weighing the costs and benefits of its policies. It remains to be seen whether PHMSA will seek further appellate review, prepare the statutorily required economic justifications, or instead pursue a more incrementalist approach whereby it seeks to require individual operators to revise their programs to implement these rejected interpretations as a part of an enforcement settlement agreement or in connection with special permit issuances. For now, however, natural gas pipeline operators are spared from complying with the vacated regulations.

Please reach out to our V&E Team with any questions.

¹ Interstate Nat. Gas Ass’n. of Am. v. PHMSA, No. 23-1173 (D.C. Cir. Aug. 16, 2024).

² Id. at 7.

³ Id.

⁴ Id. at 8.

⁵ Id. at 11.

⁶ Id.

⁷ Id.

⁸ Id. at 12.

⁹ Id. at 17.

¹⁰ Id.

¹¹ Id.

¹² Id. at 14 (internal citations and quotations omitted).

¹³ Id. at 14-15.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.