Power & Pipes

FERC, CFTC, and State Energy Law Developments

The Federal Energy Regulatory Commission issued show cause orders to two natural pipelines—Rover Pipeline and Midship Pipeline Company—following its December 2021 open meeting, and sent a related dispute involving Midship for an administrative hearing. Chairman Richard Glick has signaled in the last year his desire for a more active enforcement program.

Rover Pipeline LLC

During the construction of a 711-mile interstate gas pipeline in 2017, a large inadvertent release of two million gallons of drill mud flowed into a nearby wetland. Testing of the release by a state agency revealed the presence of diesel fuel and other chemicals that were not approved for use in drilling operations.

FERC’s Office of Enforcement commenced an investigation (Docket No. IN17-4). Based on interviews with witnesses and contractors, the office alleges that Rover Pipeline LLC intentionally employed or directed its contractors to employ these unapproved additives to maintain drilling progress in the face of difficult drilling conditions.

Based on the investigatory report, the Commission has ordered Rover to show cause as to why it has not violated the Natural Gas Act and the Commission’s regulations.

Specifically, FERC alleges that Rover

  • intentionally included diesel fuel and other toxic substances and unapproved additives in the drilling mud during its horizontal directional drilling (HDD) operations under the Tuscarawas River in Stark County, Ohio;
  • failed to adequately monitor the right-of-way at the site of the Tuscarawas River HDD operation; and
  • improperly disposed of inadvertently released drilling mud that was contaminated with diesel fuel and hydraulic oil.

FERC’s Office of Enforcement also recommended a $40 million civil penalty, and the Commission ordered Rover to show cause as to why it should not face that penalty.

Midship Pipeline Company LLC

Midship Pipeline Company constructed an approximately 200-mile interstate natural gas pipeline in Oklahoma in 2019–2020 under a certification issued in 2019 (Docket No. CP17-458). Midship placed the pipeline into service in April 2020.

During a subsequent review of Midship’s compliance with environmental conditions imposed on the project, FERC identified instances of noncompliance, namely instances of failing to remediate landowner properties—rocks and other construction debris had not been removed from landowner property, and had been buried on the property without landowner approval. Natural gas companies are required by their certificates of public convenience and necessity to return lands impacted by pipeline construction to their preconstruction condition.

The Commission ordered Midship to remediate the noncompliance in March 2021, but a June 2021 report identified the continued presence of rocks and other construction debris left in the right-of-way or improperly buried in the project workplace.

Further evaluation in September and October identified that construction debris remained improperly buried within the right-of-way, including on properties not originally identified by FERC. The Commission expressed concern that “buried rock and construction debris may be pervasive throughout the 200-mile-long pipeline.”

In response, FERC ordered several actions:

  1. The Commission ordered Midship to show cause as to why the Commission (a) should not find that Midship improperly disposed of rock and debris along the right-of-way and (b) should not require Midship to immediately remove this rock and debris.
  2. The show cause order also ordered Midship to file within 60 days a detailed plan to investigate the extent of the buried rock and debris along the pipeline. Midship must then present a remediation plan for Commission approval.
  3. The show cause order indicated that the Commission has referred this matter to the Office of Enforcement for investigation. Further investigation indicates future Commission action, such as an imposition of civil penalties, if warranted by the investigatory findings.
  4. In a separate order, the Commission noted that one affected landowner seeks to reach a settlement by which it can self-perform outstanding remedial activities. The landowner fears further property damage if Midship remobilizes to restore the property. Midship and the landowner are at an impasse. Accordingly, the Commission has set this matter for an administrative hearing to determine the remaining scope of work necessary for Midship to meet its certificate obligations and a reasonable cost to complete the activities. But although FERC can order remediation, it cannot order damages. Thus, it is not clear what FERC intends to do with the results of the hearing, or if the aim is instead to encourage settlement.
  5. The Commission ordered Midship to file a plan to remediate another landowner’s property within 120 days of the order and in consultation with the landowner. Midship must then allow 30 days for the landowner to comment and, if applicable, explain any decision not to adopt the landowner’s recommendations. Midship must then await FERC approval before undertaking mitigation. Alternatively, Midship and the landowner may reach a settlement for the landowner to self-perform remediation activities.

Next Steps

The orders to show cause are not findings of wrongdoing, but rather allegations that will be adjudicated either through an administrative or judicial hearing.

As provided by FERC’s Rules of Practice and Procedure, both parties have 30 days to file an answer. FERC’s Office of Enforcement may also respond to the answer. The Commission can then set the matter for hearing or decide the matter on the existing record, if the existing record allows. Alternatively, either pipeline can request that FERC immediately issue a penalty order, which FERC can then enforce through a de novo hearing in federal district court.

Both proceedings also highlight the importance of adhering to certificate conditions. Though the scope and liability for each pipeline is not yet determined, in general, any cost or time initially saved by noncompliance can be quickly overcome by the cost and time associated with subsequent enforcement and remediation activities.