PUC Launches New Authority to Inspect Gas Pipeline Facilities, Assess Industry for Regulatory Expenses

Beginning January 12, 2012, the Pennsylvania Public Utility Commission ("PUC") is expected to launch implementation of its new authority under Act 127 ("Act") to require the registration of gas pipeline operators transporting gas or hazardous liquids in Pennsylvania, and the submission of annual reports showing the mileage of Class 1 through Class 4 facilities. The Act authorizes the PUC staff to perform safety inspections, consistent with federal requirements, and to collect the total costs of the regulatory effort through annual assessments paid by pipeline operators. The PUC is expected to issue a Tentative Order describing its implementation timeline, as well as draft registration/reporting forms on January 12, 2012. A comment period on the PUC proposals will be set, after which a Final Order launching the new regulatory effort will be issued.

Background

Act 127 is intended to fill what is perceived as a current gap in the safety regulation of gas pipelines in Pennsylvania. In almost every state where natural gas pipelines are operated, federal pipeline safety regulations are implemented by state safety inspectors under state/federal partnerships and agreements. However, in Pennsylvania, the jurisdiction of state pipeline safety inspectors has been historically limited by state law to pipelines that are "public utilities." Act 127 removes the "public utility only" limitation on PUC safety inspections and authorizes PUC staff to apply federal PHMSA pipeline safety regulations to Pennsylvania lines that are not operated by public utilities. An important Act 127 limitation on that PUC safety inspection authority is that the pipelines can only be regulated by the PUC for safety to the extent they are covered by PHMSA regulations. The Act thus "flexes" the safety reach of the PUC as the parameters of federal safety inspection change.

Who is covered?

Gas pipeline operators transporting gas or hazardous liquids that have non-FERC regulated, non-public utility regulated Class 1 onshore conventional and unconventional well gathering facilities, and Class 2 through 4 gathering facilities, transmission facilities and storage facilities are required to register under the Act and submit annual forms. The PUC is specifically directed in the Act to collect data on Class 1 gathering pipes connected to unconventional (shale) wells. They are expected to propose submission of Class 1 conventional (non-shale) well gathering pipeline data, even though these facilities are not subject to inspection under current federal law or subject to assessments for the cost of regulation. The PUC is expected to hire additional staff to perform safety inspections required under the Act.

The following types of gas/hazardous liquid pipelines located in Pennsylvania are excluded from regulation under Act 127:

Lines that are subject to the jurisdiction of the FERC.
Public utility lines, although these will still be subject to PUC inspection under pre-existing law.
Gathering lines (of any location classification) that are used only in a production operation, as determined by technical parameters per 49 CFR 192.8(a).
Class 1 location gathering lines (not "regulated" under federal pipeline safety laws/regulations), unless the Class 1 line "collects or transports gas" from an "unconventional" (shale gas) well, in which case Act 127 requires registration and reporting, but not an inspection of or assessment for, the line.

Accelerated Timetable for Implementation

The PUC expects to be called back to report to the legislature in mid-April. The PUC expects to issue a Tentative Order of implementation on January 12, 2012, and meet with the industry later in January. Comments from the industry will be due approximately 20 days from the issuance of the Tentative Order. The PUC hopes to issue a Final Implementation Order in mid-February.

Assessment Costs

PUC assessment years run from and to mid-year. Given that the PUC needs to start implementing the Act in the first half of 2012, there is a need for an immediate influx of funds for the current 2011-2012 fiscal year. There will be an assessment for the period to mid-2012, and then a further assessment for mid-2012 to mid-2013. The PUC estimates that start-up costs will be about $350,000 and ongoing increased costs will be about $1.5 million.

Registration Fees

Act 127 allows the PUC to impose a registration fee and an annual renewal fee on pipeline operators. The Tentative Order is expected to propose the amount of these fees.

For questions or more information, contact one of the members of the firm's Energy Practice Group, including:

Brian J. Clark – 717 237 4823 :: brian.clark@bipc.com
W. Edwin Ogden – 717 237 4822 :: edwin.ogden@bipc.com
John F. Povilaitis – 717 237 4825 :: john.povilaitis@bipc.com
Kim Pizzingrilli – 717 237 4842 :: kim.pizzingrilli@bipc.com
Alan M. Seltzer – 610 372-4761 :: alan.seltzer@bipc.com