May 2018, Vo. 245, No. 5


Pipeline Construction, Environmental Compliance Can Co-Exist

By Martin R. Siegel and Sarah L. Doyle, Stock and Leader, York, Pa.

“It was the best of times, it was the worst of times. It was the age of opportunities, it was the age of carelessness. It was the epoch of market expansion, it was the season of public opposition. It was the spring of economic opportunity, it was the season of regulatory scrutiny. We had the best technology, we had regulators shutting down entire spreads. In short, it was like no time that preceded it. It is the present, with some of the noisiest authorities insisting on inserting themselves into our business.”

A Tale of Two Cities, creatively edited and updated (with apologies to Charles Dickens)

There is little doubt that factors point to a potential boom in pipeline construction. Production of crude oil and natural gas are expected to increase in 2018, along with prices. Industry experts predict that 2018 could be a banner year for pipeline construction. This year could certainly be the best of times for the pipeline industry.

Yet, the intensity of public opposition to fossil fuels in general, and specifically pipeline construction, has mounted. Groups attempting to shut down or delay pipeline construction have been buoyed by a number of victories, albeit most short term in nature. 

For example, in response to numerous violations of environmental requirements, regulators in Pennsylvania and West Virginia recently halted construction of specific natural gas pipeline projects in their states. Construction of the Mariner East 2 pipeline traversing Pennsylvania was resumed only after a six-week-plus shutdown and the payment of a $12.6 million penalty by Sunoco Pipeline. At least for the pipeline industry, the best of times could morph into the worst of times.

Obviously, time is money. Markets and investors expect projects to be completed on schedule. Therefore, any potential obstacles to meeting this goal merit the utmost attention. Failure to comply with environmental requirements could be such an obstacle. Accordingly, compliance with these requirements should not be treated as an afterthought. Compliance not only must be factored into project planning and implementation, it must be integrated in a company’s corporate culture. 

Typically, pipeline owners, as opposed to contractors, are accountable to environmental agencies for regulatory compliance. For example, pipeline owners are responsible for environmental violations directly associated with pipeline construction. When such violations occur, these parties are the immediate recipients of penalties and compliance orders. Pipeline contractors, however, are not immune from regulatory scrutiny. Non-compliance with environmental requirements could negatively impact contractors’ bottom line and tarnish their public image and reputation.

There are several ways that pipeline contractors could be on the hook for environmental compliance. First, under master agreements between contractors and pipeline owners, contractors are obligated to comply with all applicable environmental requirements. Second, under these master agreements, contractors may also be obligated to reimburse pipeline owners for all costs of violations associated with their work. These costs could include civil penalties assessed against the owner, their legal fees, and lost profits. Third, under certain circumstances, pipeline contractors could be directly liable to environmental agencies for violations, either because they are co-permittees on environmental permits or because violations were incurred as a result of the contractor’s work that is ancillary to pipeline construction, such as waste disposal or fuel storage. Finally, contractors, and their individual employees, could be liable for environmental crimes for repeated violations that are the result of conscious decisions to ignore environmental requirements or reckless or gross misconduct.

Pipeline contractors need to be cognizant of several factors, the most important of which is that specific environmental requirements vary from state to state. By nature, pipeline contractors generally work in multiple jurisdictions, often simultaneously. These companies should not assume there are universal, consistent environmental requirements. 

Practices that are acceptable in Texas could lead to violations in Pennsylvania, and vice a versa. For example, the same spent drilling mud might be considered “residual waste” in Pennsylvania as opposed to a “special waste” in Texas, subject to different approval processes before the material could be disposed of. Most importantly, contractors cannot forget the old legal adage that “ignorance of the law is no excuse.” Ignorance of each jurisdiction’s legal requirements, while perhaps understandable, is not a valid excuse for non-compliance. Such ignorance will potentially lead to enforcement actions by state regulatory agencies.

In addition, local opposition to pipelines could influence the degree of a state’s vigilance over pipeline construction. For example, opposition to pipeline construction in more densely populated, politically moderate suburban regions could create political pressure for increased enforcement, as opposed to pipelines running through less densely populated, politically conservative rural areas.

While specific regulatory requirements vary from state to state, these requirements generally fall into several well-recognized categories. First, National Pollution Discharge Elimination System (NPDES) permits need to be obtained to control storm water discharges from any large construction sites, such as pipelines. NPDES permits are federally mandated and generally state administered. States, such as Pennsylvania, will typically require that pipeline contractors and owners be co-permittees on these permits. This means that both parties are directly responsible for compliance, and liable for non-compliance, with the terms of the permits.

Second, encroachments into streams, wetlands and other waterways typically need approval and/or permits from state environmental agencies, and sometimes the U.S. Army Corps of Engineers. These approvals could mandate specific best management practices (BMPs) that need to be used, identify the drilling technology that can be employed at particular locations, and specify the time of year that the encroachments can occur. These approvals or permits are often obtained by pipelines owners, but contractors are nonetheless subject to their terms and restrictions and must be knowledgeable about their contents.

Third, states regulate the disposal and processing of solid waste, often in ways that may appear to be counterintuitive. For example, waste needs to be disposed of only at facilities permitted to accept the specific type of waste. Consolidation of waste at a location prior to disposal may run afoul of waste regulations. For example, the simple activity of transporting used wooden mats to a location outside of a pipeline right-of-way prior to disposal at a landfill may trigger state permit requirements. In addition, an activity, such as solidifying spent drilling mud prior to disposal, may be illegal at one location but be perfectly acceptable at another site.

Finally, water withdrawals from lakes and streams for testing completed pipelines could be subject to a variety of regulations, approvals and notice requirements, which could differ even within a state. For example, water withdrawals in various parts of states may be covered not only by state regulations but also potentially by requirements imposed by various interstate river compacts. In other words, one should not naively assume they can start pumping water out of a lake, and discharging that water back into the lake, without prior approvals.

Pipeline contractors may also be involved in a variety of other activities that are regulated by state or local environmental agencies. For example, it is not uncommon for contractors to have tanks to store fuel for their construction vehicles. Depending upon the size and contents of these tanks, it may be necessary to obtain a permit for their installation and operation. Even if the tanks do not require a permit, spills from the tanks may trigger a number of remediation and notification requirements.

With this potential myriad of environmental requirements affecting the work of pipeline contractors, what are the best strategies that can be employed to minimize or avoid environmental liability? Below are steps that should be considered:

Assess operations and identify the applicable regulatory requirements for those activities. This will require consultation with local environmental attorneys and/or consultants to identify jurisdiction-specific requirements. Do not assume that what worked in one state is acceptable in another. This analysis should be done well in advance of the initiation of pipeline construction.

Negotiate a construction schedule that is consistent with meeting regulatory requirements. Build into the pre-construction and construction schedules realistic time frames for obtaining any necessary permits. Agreeing to an expedited work schedule that does not factor in regulatory compliance is a recipe for future problems. Obtaining necessary permits, e.g., for waste processing and processing or tanks, could take months. 

Be aware of the environmental requirements and indemnification provisions included in the master agreements with the pipeline owners. Contractors may have limited ability to negotiate many provisions of master agreements, but nonetheless they should be well aware of what they are agreeing to. Contractors also need to be familiar with specific environmental responsibilities imposed by these agreements that are above and beyond those required by states, such as the duty to report to the pipeline owner releases, potential violations or interactions with regulatory agencies. 

Trust but verify. Front-line contractor employees must be well acquainted with all permit and regulatory requirements applicable to their work. While contractors should certainly encourage and foster a cooperative relationship with the pipeline owner’s environmental team, contractor employees should independently verify that they are complying with all requirements. For example, if the contractor intends to employ horizontal directional drilling (HDD) under a lake, its employees should not simply rely upon assurances by the pipeline owner’s employees that this is authorized under the permit. Permit conditions, such as authorized drilling techniques, can change. These changes are not always communicated fully down the chain of command. Be forewarned – regulators take dim views of the use of unauthorized drilling techniques.

Know the specific substantive regulatory and permit requirements. The need to know regulatory requirements may seem obvious, but it is amazing how frequently this is ignored. For example, typically there are requirements related to actions that must be taken to control spills related to inadvertent returns (IRs), specific BMPs that must be used, reporting spills to regulatory authorities, and providing and maintaining appropriate documentation. Spills into a waterway may also trigger requirements to notify downstream users in a timely manner. Mandates such as these must not be ignored.

Document, document, document. Environmental agencies often adhere to the philosophy of “If it isn’t written down, it didn’t happen.” Document interactions with regulators. Document steps taken in response to spills. Document guidance and instructions provided by regulators and pipeline owners. 

Document interactions with the public. In summary, keep very good records. These could prove to be invaluable in any potential disputes with regulators and pipeline owners. There is one caveat, however. Be careful what is reduced to writing. Assume anything that is written, including in emails, texts, tweets and Facebook entries by employees, will be read by regulators and future litigation adversaries.

More than ever before, contractors must recognize and accept that environmental compliance is synonymous with business success and must be incorporated into their corporate culture. Violation of environmental requirements is one of the few factors that can bring a pipeline project to a screeching halt, as well as expose contractors to significant penalties. Proactive knowledge of applicable environmental requirements is the best inoculation against these calamities. P&GJ


Martin Siegel leads Stock and Leader’s Environment, Energy and Environmental Mediation Group in York, Pa. Previously he worked for the Pennsylvania Department of Environmental Protection, the U.S. Centers for Disease Control and Prevention and the U.S. Department of Energy’s Pacific Northwest Laboratory. He earned a juris doctorate  from Temple University and a master’s of Public Health from the Johns Hopkins University.

Sarah Doyle is a member of Stock and Leader’s Agricultural Industry, Environmental, Municipal and Real Estate Law Groups, with a focus on litigation matters. She earned a juris doctorate  and a bachelor’s degree in Animal Sciences from Pennsylvania State University.

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