D.C. Circuit Curbs Department of Transportation’s Pipeline Rules, Further Signaling an Everchanging Approach to the Administrative State

By Ryan J. Regula, Charlene A. Warner, and Cole M. Craghan

Last week, the U.S. Court of Appeals for the District of Columbia Circuit vacated a series of regulations passed by the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA)¹. The challenge was brought by Interstate Natural Gas Association of America (INGAA), a trade organization representing the majority of interstate natural gas transmission pipeline companies in the U.S. and Canada². INGAA’s claims challenged five regulations passed as part of a larger list of new and revised standards concerning the safety of natural gas pipelines.

At the crux of the Court’s ruling was a discussion about how to properly interpret agency decisions. Although the Administrative Procedure Act typically requires applying the “arbitrary, capricious, and abuse of discretion standard,” the Court also looked to more stringent standards that would defer to the agency’s decision “only if it is ‘informed.’”³ In addition, the Court recognized that PHMSA was required to make a “reasoned determination that the benefits of the final standard justify the costs”⁴ in conducting its analyses, as well as “show that it reasonably considered the relevant issues and reasonably explained the decision.”⁵

Evaluating the regulations in turn, the Court conducted effectively a line-item analysis before vacating specific provisions that did not pass muster because they did not “adequately explain why the benefits of the final standards outweigh their costs.”⁶ These regulations included:

1) The high-frequency-ERW standard;
2) The crack-MOAP standard;
3) The dent-safety-factor standard; and
4) The corrosive-constituent standard.⁷

As part of its analysis, the Court specifically looked at factors such as industry standards to determine whether PHMSA had complied with the required procedures before posting the final rule. For instance, in one regulation, the Court based its decision on the fact that an industry standard for low frequency ERW pipes was applied to high frequency ERW pipes.⁸ Therefore, it concluded, PHMSA did not properly consider the costs imposed by the new rule.

This provision-by-provision analysis of regulations that took over 10 years to finalize, emphasizes the more hands-on approach courts have taken to agency decisions over the past year. In analogous contexts, Auer deference would normally require a court to defer to an agency’s interpretation of its own regulations.⁹ However, following this recent curtailment trend, even Auer was “cabined in its scope.”¹⁰ Taking a similar approach here, at least with respect to rulemaking procedures, the Court undertook a more technical evaluation to determine whether the regulations were properly administered.

Perhaps even more importantly, the PHMSA decision also continues a recent trend away from agency deference, and towards judicial review. The trend reached a high point this year when the U.S. Supreme Court struck down the longstanding Chevron deference that afforded agencies the ability to interpret statutes concerning the scope of their interpretive authority.¹¹ By adopting a more skeptical view of agency rulemaking procedures, the D.C. Circuit Court seems to have taken a similar approach in overriding PHSMA’s evaluations.

As courts begin to operate in this new administrative framework, agencies and regulators should continue to anticipate increased challenges to proposed rules. Likewise, entities and companies subject to new rulemaking decisions should carefully evaluate the agency’s rulemaking process—and if applicable, comment on proposed regulations early and often, to discern their legal veracity. To that end, Snell & Wilmer’s administrative law practice is ready to assist clients navigating this everchanging landscape.