Will Rover Construction Make it Harder for Other Pipeline Projects?

The pipeline industry is sensitive to being tainted as a bad actor in communities where they are looking to build new projects, and the fallout from Rover Pipeline LLC’s encounters at FERC and states where construction has been taking place is hurting the industry, several sources have told The Foster Report.

“Whether it is a safety or an environmental issue, the entire industry has to work harder to overcome the negative perception created by one high-profile incident,” a spokesman for The Williams Companies said.

More than one incident, however, has been documented by regulators as Rover and parent company Energy Transfer Partners LP (ETP) have seen FERC staff and three different states halt construction activities and/or issue orders finding numerous violations on two different projects.

“We expect other large projects will face scrutiny that could lead to delays,” said Lindsay Schneider, principal analyst for North America gas at consulting firm Wood Mackenzie. In that sense, the pipeline industry is being painted with the same brush that is creating a dark image of Rover, she said.

The fallout from Rover’s activities has reached Capitol Hill, where two lawmakers on July 27 sent a letter to FERC Acting Chairman Cheryl LaFleur seeking an expansion of FERC’s investigation into ETP and its subsidiaries. Rep. Frank Pallone (D-N.J.) and Sen. Maria Cantwell (D-Wash.) asked LaFleur to answer several questions about the Commission’s review of pipeline certificate applications, including whether FERC can revoke a certificate it approved under the Natural Gas Act (NGA).

The lawmakers commended FERC staff for launching an investigation of Rover and ETP to look into misstatements by the companies and falsely stating that they would avoid damage to a historic house in Ohio while they were planning to purchase and destroy the house. Providing false information to a regulatory agency “is one of many actions related to the project to raise serious concerns about Rover and ETP’s management of its holdings,” they said.

Pallone, who is the ranking minority member on the House Energy and Commerce Committee, and Cantwell, the ranking minority member on the Senate Energy and Natural Resources Committee, said the activities of Rover and ETP raise issues similar to those surrounding the construction of Iroquois Gas Transmission in New York in the 1990s, when there were questions about ex parte communication, information disclosure and compliance with environmental and safety regulations during construction. “We do not wish to see these failures repeated,” they told LaFleur.

The lawmakers said FERC should include a review of all ETP projects and assets subject to FERC jurisdiction, including projects by ETP subsidiaries, to determine if ETP provided false information for other projects.

Among the questions they asked LaFleur to address are what procedures FERC uses to ensure that its assessments of NGA certificate applications are based on complete and accurate information, how many NGA certificate applications did FERC receive from 2000-2017 and how many of those applications were denied, and what actions can the Commission take under the NGA or other authority to address violations of the NGA or FERC regulations.

“Does FERC have the authority to prevent an entity from receiving future such certificates, where the entity has demonstrated a pattern of willful or significant violations in the past?” Pallone and Cantwell asked.

Rover and ETP have encountered plenty of construction challenges with several projects, including the Mariner East 2 natural gas liquids (NGL) pipeline being built in Pennsylvania, where the state Department of Environmental Protection (DEP) on July 25 said it will enforce a consent order and agreement with the pipeline for violations in Chester County. The DEP halted horizontal directional drilling (HDD) activities on Mariner East 2 and launched an investigation after finding 14 homeowners experienced impacts to their water supplies following the inadvertent release of drilling fluids into state waters at HDD construction sites for the pipeline.

The Mariner 2 East NGL pipeline is owned by Sunoco Logistics, which combined with ETP earlier this year.

DEP will be meticulous in its oversight of the project and reserves the right to assess further enforcement actions beyond the steps outlined in the consent order and agreement, DEP Secretary Patrick McDonnell said in a statement. “To impact a person’s private drinking water is inexcusable, and we intend to hold this operator accountable to the fullest extent,” McDonnell said.

ETP, based in Dallas, has been used to having its way in Texas for years and is finding out that violating a FERC certificate and not following construction rules in states carry consequences, according to a consultant who asked not to be identified. A lot of pipelines have been extra diligent to follow regulations and build public trust when constructing new projects, and Rover is not doing that, which will be played into the hands of pipeline opponents and used to attack the industry as a whole, the consultant said.

Spokeswomen for ETP attributed some of the challenges Rover is facing in Ohio and West Virginia to heavy rain that led to erosion control problems and water making its way to where it is not allowed. “We trust the highly skilled contractors working on our projects. We have a long history with them and appreciate the work they are doing during the unprecedented rain in the areas of our construction, which have caused our construction workspace and pipeline trenches to fill with water,” a spokeswoman said.

Yet the list of violations cited by FERC staff, the Ohio Environmental Protection Agency and the West Virginia Department of Environmental Protection goes beyond erosion control problems. They include open burning of land-clearing waste in Ohio in violation of state rules, Clean Water Act violations, the release of drilling mud at HDD sites affecting wetlands, one of which included the presence of oil-based substances and the destruction of the historic Stoneman House in Ohio prior to Rover receiving its NGA Section 7 certificate (CP15-93) from FERC.

FERC staff has ordered Rover to stop HDD activities, disclosed a nonpublic investigation about alleged violations of NGA Section 7 and directed Rover to comply with numerous provisions before HDD activities can resume.[1] The Ohio EPA asked Ohio Attorney General Michael DeWine to initiate civil proceedings and pursue civil penalties against Rover for the violations listed in its July 7 order.

The $4.2 billion Rover project is designed to transport up to 3.25 Bcf/d of gas from the Marcellus and Utica Shales to markets in Ohio and Michigan, interconnecting with other pipelines to reach Dawn, Ontario, and other market hubs for deliveries in the U.S. and Canada. Rover consists of two 42-inch diameter mainline segments, running east-to-northwest across Ohio and turning north into Michigan, along with a network of several lesser-diameter laterals reaching into gas production areas of Ohio, Pennsylvania, and West Virginia, with associated compressor stations and ancillary facilities along the route.

Producers in the Appalachian region have been eager for the project to begin service to move their production to different markets.

Producers, marketers and others sign precedent agreements for pipeline capacity to support new pipeline construction and operation, and some of those agreements can contain financial penalties for the pipeline or termination provisions if pipelines are not in service by a certain date. Some of the larger capacity assignments for Rover are with Antero Resources, Ascent Resources, Southwestern Energy Services, Range Resources, Rice Energy Marketing and others.

ETP does not comment on commercial agreements, an ETP spokeswoman said when asked about Rover contracts with producers.

She emphasized that Rover is working with regulators to resolve the issues encountered during construction.

The scale of the roughly 700-mile project makes it one of the largest greenfield pipelines built in the U.S. in the last several years, which is much different than expansions of existing facilities, noted Schneider of Wood Mackenzie. Her firm is forecasting a start date of April 2018 for the full project, several months after what ETP is saying – November 2017. “We look at the scope of a project and build in some delays” from what the developer may say, and “we’re seeing that come to fruition” with the Rover project, Schneider said.

She believes that the scrutiny Rover is encountering does not reflect anything the company is doing in particular, but is illustrative of the current regulatory climate and public awareness that makes it more difficult to build new pipelines. With local communities and states taking more interest in such projects, “everyone is under more scrutiny,” she said.

Others had a different view, with assertions that ETP is known to try and cut corners, putting itself under a microscope and damaging the industry’s reputation. Construction contractors are human and things can happen that are out of a company’s control, but some of the incidents on Rover’s construction were clearly controllable and put ETP oversight in a negative light, said an industry source who asked not to be named.

Former FERC Commissioner Tony Clark also said Rover’s construction activities have not been helpful for the pipeline industry. For any company building a new pipeline, “you need to stay on top of the regulations and rules” because “things can snowball” and lead to more attention from regulators and the public, said Clark, a senior advisor at Washington D.C. law firm Wilkinson Barker Knauer LLP.

The Interstate Natural Gas Association of America (INGAA) on July 26 said its members endorsed a new set of core principles on pipeline construction. Those principles center around safe and responsible construction practices, caring for communities and landowners, preserving environmental and cultural resources and respecting regulations.

Speaking at the Natural Gas Roundtable on July 27, INGAA Chair Diane Leopold said the timing of INGAA’s release of the principles was “coincidence,” and not in direct response to the latest developments involving Rover. INGAA had been developing the principles for months as a way to make sure each member is accountable to doing what is right and following rules, said Leopold, president and CEO of Dominion Energy Gas Infrastructure Group.

The principles, which were approved by the INGAA board on July 18, include working collaboratively with landowners, employing qualified construction inspectors, constructing pipelines in environmentally responsible manner and avoiding, minimizing or mitigating impacts to environmental and cultural resources.

Neither Rover nor ETP is a member of INGAA, though ETP is a member of the Association of Oil Pipe Lines.

“INGAA’s 26 member companies felt it was extremely important to make these commitments because they believe in being good actors and holding each other to high standards,” an INGAA spokeswoman said.

INGAA President and CEO Don Santa said the group’s commitment “means ensuring that communities and landowners are always treated with respect, that our members use construction techniques that minimize environmental impacts, and we continue our Integrity Management Continuous Improvement efforts, with a goal of zero pipeline incidents.”

Dominion is one of the companies trying to build the $5 billion Atlantic Coast Pipeline (ACP) to move gas from West Virginia into Virginia and North Carolina, and it is following the thorough regulatory review at FERC and in the states, Leopold said in a brief interview after her remarks.

She declined to say whether she believes ACP will face a tougher road to completion because of the Rover incidents. “I’ll let them fight their compliance issues,” she said.

An ETP spokeswoman commented on the INGAA principles. “It is reassuring that we all share the same commitment to the safe construction and operation of our country’s oil and gas pipelines. We have consistently said that safety is our top priority: the safety of our employees, the safety of the environment and the safety of those who live and work in the communities in which we do businesses,” she told The Foster Report.

As Leopold did during her remarks, the Williams spokesman noted that for most people, pipelines are out of sight and out of mind.

The American Gas Association earlier this year launched a “Your Energy” campaign aimed at educating the public about the benefits of natural gas, with social media engagement, advertising and other advocacy efforts starting in Virginia and Connecticut.

For the pipeline sector, “there is a stakeholder expectation that pipelines operate reliably and safely, so when a high-profile incident occurs, it affects the perception of not just one operator, but the entire pipeline industry,” the Williams spokesman said.

By Tom Tiernan TTiernan@fosterreport.com

[1]   For past stories, see, FERC Staff Discloses Alleged Violations by Rover, Raising More Questions About Pipeline, FR No. 3157, pp. 14, Rover Delays In-Service Date; Sees FERC Launch Investigation of Drilling Fluid, FR No. 3151, pp. 17-20, Rover Sees More Opposition to Construction; Dispute Resolution Called For, FR No. 3149, pp. 12-15, and FERC Staff Halts Some Construction on Portions of Rover Pipeline, FR No. 3148, pp. 9-11.


This article appears as published in The Foster Report No. 3159, issued July 28, 2017

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