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PHMSA's foray into underground gas storage rules may strain all involved

The industry and regulators will be navigating complex new territory together as the first-ever federal rules governing underground gas storage go into effect.

The U.S. Pipeline and Hazardous Materials Safety Administration's detailed rules cover a host of inspection and integrity issues that can be applied to the diverse array of 400 facilities in depleted reservoirs and salt caverns across the country. The industry devised the standards and supported PHMSA's plan to use industry recommendations as a basis for formal regulations, but the mandatory nature of regulation may cut into the flexibility the standards were intended to allow, legal experts said.

PHMSA's decision to turn all the recommendations' "should" statements into "musts" may make compliance complicated, James Curry, an attorney with Babst Calland Clements and Zomnir PC, said in an interview. Not all the recommendations apply to all facilities, he noted.

PHMSA's interim final rule, released Dec. 14 in response to concerns and mandates in the wake of a multimonth gas leak at Southern California Gas Co.'s Aliso Canyon storage field in California, said operators would be allowed to deviate from the recommended practices if the companies can "provide a sufficient technical and safety justification." What constitutes "sufficient" will be up to PHMSA. Curry said the justification process for trying to deviate from the rules might be a challenging one, and companies would know going in that PHMSA could deny any request. He said this could create headaches and uncertainty for operators and regulators alike.

Eugene Elrod, partner at Sidley Austin LLP, noted that PHMSA is unlikely to waive safety requirements without solid justification. "My guess is there will be a pretty high bar to deviate from the [recommended practices]," Elrod said.

The Interstate Natural Gas Association of America immediately expressed concern at the tight turnaround time PHMSA proposed for implementation. The rules go into effect 30 days after Federal Register publication, and companies have only a year to get into compliance. Curry and Elrod both said the short compliance time could pose a challenge.

"I think it may be difficult for companies to comply. These aspects of their operations haven't been regulated in the past," he said. "These are big operations. They involve facilities below ground. They involve geologic formations."

The underground storage rules also call for regular reporting on infrastructure characteristics and safety concerns, which could bring to light issues that have not been publicly discussed. "Some of these facilities are very old. ... The reports are probably going to disclose some of that stuff," Elrod said. "The safety-related condition report ... will probably be the ones that get the most scrutiny."

PHMSA has no history of overseeing underground storage or other "down-hole" operations involving wells, so there will probably be a learning curve for the agency, Elrod added, noting that the area is "outside of their wheelhouse." Curry said PHMSA may need to lean on the expertise of sister agencies, such as the U.S. Department of Energy, and state regulators in the early days of implementation.

Relying on state partners may be a bit complex, though, Curry noted. The federal regulator has long had state partners in regulating the nation's pipelines, and PHMSA has programs established for certifying individual state agencies, usually public utilities commissions, to enforce federal rules on intrastate and sometimes interstate pipelines. PHMSA plans to use a similar setup for gas storage, but the state agencies with jurisdiction over underground facilities are not always the same as those with jurisdiction over pipelines.

This means PHMSA does not yet have established relationships with some of the state regulators that oversee underground storage. For instance, the California Public Utilities Commission is PHMSA's partner in regulating the state's gas pipelines, but the commission does not oversee down-hole operations.

Well-focused regulation resides with the state Department of Conservation's Division of Oil, Gas and Geothermal Resources, which PHMSA has not designated as a certified partner for regulation. Curry said these types of situations may create legal vacuums in oversight authority for a time.

Elrod said the single-year implementation time frame may add extra complications to the state certification process to get prospective PHMSA partners on board.