Federal court throws out parts of new pipeline safety rule because of faulty cost-benefit analyses

A federal appeals court told the Pipeline and Hazardous Materials Safety Administration (PHMSA) to rewrite several sections of a major pipeline safety rule in effect since May 2023.

The three-judge panel of the US Court of Appeals for the District of Columbia Circuit found that PHMSA, part of the Transportation Department, failed to follow the Administrative Procedures Act’s (APA) requirement regarding cost-benefit analyses in 4 of the 5 standards challenged by a natural gas pipeline trade association.

The Interstate Natural Gas Association of America (INGAA) challenged the 5 new safety standards, alleging flaws in the rulemaking process and inadequacies in PHMSA’s final justifications.

“We agree with INGAA that the agency failed to adequately explain why the benefits of the final standards outweigh their costs,” Judge Florence Pan wrote about one standard requiring an immediate repair if a pipeline operator finds metal loss along a seam created by either low-frequency or the newer, more effective, high-frequency electric resistance welding (ERW).

PHMSA had initially proposed that the standard only apply to low-frequency ERW but expanded it to include high-frequency ERW in the final rule, without adequate justification. “Because the agency imposed a new safety requirement without properly addressing the costs of doing so, the standard cannot stand,” Pan wrote in the Aug. 16 ruling. “We vacate the high-frequency-ERW standard because PHMSA’s analysis of its costs is unsupported by the record.”

The APA requires an agency to issue both a preliminary cost-benefit analysis and a final analysis. The latter must evaluate any changes from the proposed to final rule and comments received about its initial analysis.

The appeals court also tossed out a section of the rule instructing operators to make immediate repairs to cracks, corrosion, dents and other anomalies based on the pipeline’s “predicted failure pressure,” which it set at 1.25 times the line’s maximum allowable operating pressure (MAOP). Initially, PHMSA proposed a threshold of 1.1 times the MAOP.

“This time, the agency’s reasoning fails because it neglected to analyze the costs altogether,” Pan wrote. “The agency should have considered the costs of changing the predicted failure pressure at which operators would be required to repair cracks and crack-like anomalies.”

In another section, on the repairs and monitoring requirements of pipeline dents, the court blasted PHMSA for failing to conduct a cost-benefit analysis of new procedural requirements it added in the final rule that were not included in the proposed rulemaking.

“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…” Pan wrote.

The court also vacated a corrosive-constituent standard, finding the agency’s cost-benefit analysis was “inadequate because PHMSA’s description of the costs was internally inconsistent.”

The appeals court allowed one of the challenged sections—governing the monitoring of pipelines for certain types of stress damages—to stand.

“INGAA is pleased with the outcome of this case, said Ben Kochman, INGAA’s director of pipeline safety. “We look forward to working with PHMSA on continuing our efforts to improve pipeline safety, building upon the alternatives we proposed throughout the rulemaking process.”

PHMSA issued the sweeping pipeline safety rule in response to congressional mandates and recommendations from the National Transportation Safety Board (NTSB) after the 2010 San Bruno, Calif., natural gas pipeline explosion that killed 8, injured 58, and destroyed over 35 homes, and a 2010 oil pipeline rupture in Marshall, Mich., that spilled up to 1 million gal of crude oil into a tributary of the Kalamazoo River.

PHMSA did not respond to a request for comment.