Navigating The Regulatory Landscape For Hydrogen Transportation In Texas

Federal and Texas Jurisdiction Over Hydrogen Pipeline Transportation: OCTOBER 2024
A Comprehensive Analysis and Pathways for Enhancement

Executive Summary

With massive greenhouse gas emission reduction goals looming, the race to develop large scale hydrogen operations is on. And with the Department of Energy's ("DOE") recent selection of the Gulf Coast Hydrogen Hub as a regional clean hydrogen hub, Texas finds itself in a position to play a substantial role in the scaling of hydrogen.

In an evolving energy landscape, it is imperative for prospective stakeholders in Texas to stay informed about the progression of both federal and state-level regulatory frameworks governing the transportation of hydrogen via pipeline. Not only is awareness of these developments crucial, but discerning which jurisdictional regime— federal or state—might offer superior advantages is equally vital to optimizing strategic planning and decision-making.

This White Paper summarizes the existing federal and Texas state regulatory regimes governing the transportation of hydrogen by pipeline. The paper explores potential changes to these regimes, including possible paths to regulation under existing statutory authority and identifies potential hurdles from both governmental and private actor perspectives. The discussion is specific to the transportation of pure hydrogen by pipeline unless otherwise stated. Specifically, this White Paper is divided into four key areas of potential regulation: (1) transportation rates; (2) hydrogen pipeline siting; (3) environmental externalities; and (4) pipeline safety and security. Each section examines the current state of federal and Texas state regulation, explores the potential for further federal and state government action, and discusses the possible need for legislative action. These sections collectively suggest that the existing hydrogen regulatory framework is underdeveloped and may require further development, particularly if the energy industry continues to scale hydrogen operations.

The energy industry's foremost question is who has the authority to regulate rates for the transportation of hydrogen interstate by pipeline. The White Paper first delves into the federal regulation of rates, identifying three existing federal regulatory regimes as possibly applying to rates for hydrogen transported interstate by pipeline: (1) the Natural Gas Act ("NGA"); (2) The Interstate Commerce Act ("ICA"); and (3) the Interstate Commerce Commission Termination Act ("ICCTA"). Whether hydrogen pipeline regulation falls under the NGA, the ICA, or the ICCTA remains unclear. It is likewise unclear what effect the recent decision overturning the Chevron doctrine may have on the hydrogen regulatory scheme. This section walks through the various arguments surrounding the regulation of hydrogen pipelines under each of these statutes and then examines what regulation of hydrogen pipeline transportation rates would look like under each statute, as well as the potential need for congressional action. FERC's regulation of natural gas pipelines under the NGA and of oil pipelines under the ICA, as well as the STB's regulation of pipelines under the ICCTA provides an instructive framework of how FERC or the STB could, but not necessarily will, regulate hydrogen pipelines. This section finally delves into the authority of the Texas Railroad Commission ("RRC") to regulate rates for intrastate hydrogen transportation, and possible avenues for the development of hydrogen specific regulations by the RRC and/or the Texas legislature. Because the regulatory regime for hydrogen has only begun to take shape, the center of interest has been the potential federal regime, but, for states like Texas that already have an established hydrogen market, state considerations are of equal import.

The White Paper then turns to the regulation of siting. The key question for determining whether hydrogen pipelines can seek federal siting approval and eminent domain authority is what statutory regime they fall under. This section discusses how the regulation of siting for a hydrogen pipeline may take shape under the three potential federal regimes previously identified (i.e., the NGA, ICA, and ICCTA). This section then addresses how siting for a hydrogen pipeline may be handled at the state level in Texas. At current, the RRC has no statutory authority to regulate the construction or siting of intrastate pipelines.

The industry has been focused on the potential regulatory scheme for hydrogen rates and siting, but it is also crucial that hydrogen pipeline developers and operators keep environmental regulations and requirements in mind. The White Paper highlights existing federal and Texas state environmental regulations that likely will require compliance from a hydrogen pipeline developer or operator. Environmental regulation is a collaborative effort across multiple agencies, and hydrogen pipeline developers and operators must align their practices in compliance with established regulations. The White Paper also highlights opportunities for the Department of Energy ("DOE"), Texas Commission on Environmental Quality ("TCEQ"), the RRC, Congress and the Texas legislature to take further action with respect to environmental regulations affecting the transportation of hydrogen by pipeline.

Although the future of hydrogen regulation is in many aspects uncertain, the regulation of hydrogen pipeline safety and security is not. The White Paper covers the authority of the Department of Transportation ("DOT") to regulate hydrogen pipeline safety through the Pipeline and Hazardous Materials Safety Administration ("PHMSA"), including PHMSA's delegation of its regulatory authority over intrastate hydrogen pipelines to the RRC. The White Paper also covers the authority of the Transportation Security Administration ("TSA") to regulate interstate and intrastate pipeline security. The section concludes with a discussion of opportunities for potential governmental and congressional action in the space of pipeline safety and security.

I. Introduction

The energy industry regards hydrogen as a potential solution for anticipated critical energy challenges. In late 2023, the DOE awarded funding, allocated through the Bipartisan Infrastructure Law, to seven regional clean hydrogen hubs, including the Gulf Coast Hydrogen Hub located in the Houston region. The DOE, in coordination with the Biden-Harris administration, hopes that the hydrogen hub grants will "accelerate the domestic market for low-cost, clean hydrogen."¹ Despite the increasing interest in hydrogen, the hydrogen regulatory scheme is underdeveloped.

This White Paper aims to identify gaps in the present legal framework governing the transportation of hydrogen via pipelines² and to identify potential areas for regulatory expansion. It provides a comprehensive analysis of the federal and Texas state laws applicable to hydrogen pipelines. Because Texas has the most hydrogen pipelines by far of any state, Texas-based stakeholders have strong incentive to play a key role in the developing regulatory landscape.³ In addition to identifying existing laws and regulations, this White Paper identifies potential improvements at both federal and Texas state levels from governmental and private actor perspectives. This White Paper covers four potential areas of regulation:

1. Rates – i.e., the terms of service for transportation by pipeline;
2. Siting – i.e., the permitted location of the pipeline;
3. Environmental – i.e., environmental externalities; and
4. Safety/Security – i.e., dangerous circumstances.

Many of the potential areas of regulation are unclear. For example, energy industry members have heavily debated what federal statute hydrogen pipelines fall under for rate and siting purposes. This uncertainty not only affects the scope of regulatory requirements but also determines which federal agency would regulate these pipelines. Other areas, like the regulation of hydrogen pipeline safety are less uncertain. The DOT's PHMSA has exercised the authority to regulate hydrogen pipeline safety, both for inter- and intra-state pipelines since 1970. Moreover, at the state level, Texas recently passed a bill clarifying the RRC's authority to regulate rates for transportation of hydrogen by pipeline. Accordingly, the existing regulatory regimes, identified below in Table 1 and summarized in this document, offer varying degrees of insight into the future regulation of hydrogen pipelines.

Table 1: Existing Regulatory Regimes

As set forth below, the White Paper assesses the current state of the law and what the future might hold with respect to hydrogen pipelines for each of the four regulatory areas noted above from a federal and Texas state standpoint. Notably, the future of hydrogen regulation has become even more uncertain as a result of the US Supreme Court's recent decision overturning the longstanding Chevron doctrine.⁴ The Chevron doctrine dictated that reviewing courts must sometimes defer to agency interpretation of their own statutes.⁵ Now "[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority."⁶ What impact this decision will have on the hydrogen regulatory scheme remains to be seen. But, the industry should expect there to be substantial litigation to determine what, if any, deference will be afforded to agencies' interpretation of their own statutes.⁷

II. Regulation of Rates

A. It Is Unclear What Federal Regulatory Regime Applies to Hydrogen Pipeline Rates

The energy industry's foremost question is who has the authority to regulate rates for the transportation of hydrogen interstate by pipeline. The energy industry has identified three existing federal regulatory regimes as possibly applying to rates for hydrogen transported interstate by pipeline: (1) the Natural Gas Act ("NGA"); (2) The Interstate Commerce Act ("ICA"); and (3) the Interstate Commerce Commission Termination Act ("ICCTA"). The NGA and the ICA, administered by the Federal Energy Regulatory Commission ("FERC") concerns "the transportation of natural gas in interstate commerce,"⁸ and "the transportation of oil by pipeline" respectively,⁹ whereas the "jurisdiction over transportation by pipeline [of] . . .commodit[ies] other than water, gas, or oil"¹⁰ lies with the Surface Transportation Board ("STB") under the ICCTA. Whether hydrogen pipelines are appropriately regulated by the federal government as a "natural gas" under the NGA, "oil" under the ICA, or "a commodity other than . . . gas, or oil" under the ICCTA without congressional action remains undecided.¹¹

As detailed below, the energy industry has debated whether hydrogen falls within the definition of "natural gas," "oil," or "a commodity other than . . . gas, or oil." FERC has held that "when a highly technical question is involved, the broader legislative goals of the governing statute should be used to resolve any ambiguity."¹² FERC and/ or the STB would likely consider: (1) whether hydrogen competes for the same pipeline capacity as products already regulated under the NGA, ICA, or ICCTA; and (2) whether hydrogen has a direct competitive impact on the sale and transportation costs of these commodities.¹³

However, FERC or the STB's interpretation that they have jurisdiction under existing statute to regulate the transportation of hydrogen by pipeline may not significantly influence the ultimate regulation of hydrogen pipelines. As noted above, in a recent landmark ruling,¹⁴ the Supreme Court voted to overturn the longstanding Chevron doctrine.¹⁵ Courts no longer will afford deference to an agency's interpretation of ambiguous statutory language. On the heels of this decision, asserting jurisdiction over the transportation of hydrogen by pipeline under existing statute may face an uphill battle. For example, if it is unclear under the relevant statute that FERC or STB has jurisdiction over hydrogen pipelines, it will now likely be easier for litigants to challenge the agency's statutory construction granting it jurisdiction. That being said, it is within Congress' authority to enact further legislation to remove ambiguity in current statutory language.

1. NGA's Regulatory Scheme

Given that hydrogen is traditionally produced, or in other words, manufactured, rather than extracted, FERC may be disinclined to categorize hydrogen within the commonplace understanding of natural gas. The NGA defines "Natural gas" as "natural gas unmixed, or any mixture of natural and artificial gas."¹⁶ Accordingly, to regulate pure hydrogen under the NGA, FERC must define hydrogen as a "natural gas" and not an "artificial gas."¹⁷ FERC has generally found gas to be outside of its jurisdiction under the NGA where it was "artificially created by the agency of man, and beyond the contemplation of what Congress intended to regulate."¹⁸ On the other hand, "geologic" hydrogen does occur naturally and one day may be extracted.¹⁹

In determining whether a gas falls under the FERC's NGA authority, the Commission has explained that "[r]ather than refining the term 'natural gas' to mean a certain chemical composition or mixture or as having a certain caloric content or vapor tension, [whether a gas falls under NGA regulation] should be determined primarily by reference to the goals and purposes of the NGA."²⁰ FERC has observed, through review of legislative history, that Congress's goal "was to protect the consumers of a salable commodity from exploitation at the hands of the natural gas companies" and that the NGA "was framed to afford consumers a bond of protection from excessive rates and charges."²¹ Due to hydrogen's versatile nature and its low or non-existent greenhouse gas emissions at its point of use, industry leaders are considering whether hydrogen could be scaled to serve load typically served by natural gas.²² Anticipating that the energy industry may replace a substantial amount of natural gas with hydrogen, advocates for regulation of hydrogen under the NGA argue that a failure to find that the NGA extends to hydrogen may undermine the NGA's purpose to protect customers from these natural gas companies.²³

Footnotes

1 Biden-Harris Admin. Announces Reg'l Clean Hydrogen Hubs to Drive Clean Mfg. & Jobs, White House (Oct. 13, 2023), https://www.whitehouse. gov/briefing-room/statements-releases/2023/10/13/biden-harris-administration-announces-regional-clean-hydrogen-hubs-to-drive-cleanmanufacturing-and-jobs/.

2 All references to "hydrogen" and "hydrogen pipelines" are to pure hydrogen unless otherwise stated. This White Paper does not address pipelines carrying a blended mix of hydrogen and other products such as methane.

3 Lulia Gheorghiu, Tex. hydrogen 'proto-hub' leads the US in tech. potential for DOE-funded regional hubs: GTI, Utility Dive (Apr. 25, 2022), https://www. utilitydive.com/news/texas-hydrogen-proto-hub-leads-the-us-in-technical-potential-for-doe-fund/622565/.

4 Courts have long applied the Chevron doctrine to resolve issues of statutory interpretation. Under the Chevron doctrine, a reviewing court would apply a two-step analysis to an agency's interpretation of a statutory provision. First, the reviewing court would determine whether a statute was ambiguous. If ambiguous, the reviewing court would next assess whether the agency's interpretation of the statute was reasonable. Courts deferred to the agency's interpretation of the statute if such interpretation was determined to be a "permissible construction of the statute." Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), overruled sub nom. by Loper Bright Enters., 144 S. Ct. at 2257-73.

5 See Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).

6 Loper Bright Enters., 144 S. Ct. at 2257-73.

7 See e.g., Shaun Boedicker & Shannon W. Coffin, Supreme Court Pulls Plug on Chevron, Creating Uncertainty for Energy Industry (July 3, 2024), https://www.steptoe.com/en/news-publications/supreme-court-pulls-plug-on-chevron-creating-uncertainty-for-energy-industry.html.

8 15 U.S.C. § 717(b).

9 49 U.S.C. § 60502.

10 Id. § 15301(a) (emphasis added).

11 Neither FERC nor the STB has sought to exercise authority over hydrogen pipelines or taken a position on the issue. See, e.g., William G. Bolgiano, FERC's Auth. to Regulate Hydrogen Pipelines Under the ICA, 43 Energy L.J. 1, 30 (2022) ("Bolgiano"); Michael Diamond, Jurisdiction Over Hydrogen Pipelines & Pathways to an Effective Regul. Regime, 3 EBA Brief (Nov. 10, 2022) ("Diamond").

12 Gulf Cent. Pipeline Co., 50 FERC ¶ 61,381, at 62,166 (1990), aff'd, CF Indus., Inc. v. FERC, 925 F. 2d 476 (D.C. Cir. 1991) (declining to exercise jurisdiction over anhydrous ammonia pipelines).

13 See, e.g., Id.

14 Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024).

15 Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), overruled sub nom. by Loper Bright Enters., 144 S. Ct. at 2257-73.

16 15 U.S.C. § 717a (5).

17 If blended with natural gas, gas typically characterized as artificial gas is considered natural gas. An intrastate gas pipeline may be able to avail itself of FERC jurisdiction by mixing hydrogen with small amounts of natural gas.

18 Natural Gas Pipeline Co. of America, 53 F.P.C. 802, 804 (1975).

19 See The Potential for Geologic Hydrogen For Next-Generation Energy, USGS (Apr. 13, 2023), https://www.usgs.gov/news/featured-story/potentialgeologic-hydrogen-next-generation-energy

20 Cortez Pipeline Co., 7 FERC P 61,024, at 61,041-42 (1979) (first citing FPC v. La. Power & Light Co., 406 U.S. 621, 631 (1972); and then citing Henry v. FPC, 513 F. 2d 395, 399-402 (D.C. Cir. 1975)).

21 Id. at 61,042 (first citing FPC, 406 U.S. at 63; then citing Sunray Mid-Continent Oil Co. v. FPC, 364 U.S. 137, 147 (1960); then citing Phillips Petrol. Co. v. Wis., 347 U.S. 672 (1954); and then citing FPC v. Hope Nat. Gas Co., 320 U.S. 591, 610 (1944)).

22 See, e.g., Zach Winn, MIT researchers outline a path for scaling clean hydrogen prod., MIT (Jan. 8, 2024), https://news.mit. edu/2024/mit-researchers-scaling-clean-hydrogen-production-0108; Climate Solutions: Hydrogen, ExxonMobil, https://corporate. exxonmobil.com/what-we-do/delivering-industrial-solutions/hydrogen?camp=PaidSearch_DR_1ECX_BING_TRAF_OT_Brand_ Hydrogen&gclid=f033569cb27812a167313008c225a6a7&gclsrc=3p.ds&msclkid=f033569cb27812a167313008c225a6a7&utm_source=bing&utm_ medium=cpc&utm_campaign=1ECX_BING_TRAF_OT_Brand_Hydrogen&utm_term=exxonmobil%20hydrogen&utm_content=OT_Brand_ Hydrogen (last visited June 7, 2024); Alternative fuels explainer: harnessing the power of hydrogen, Chevron (Sept. 7, 2023), https://www. chevron.com/newsroom/2023/q3/explainer-harnessing-the-power-of-hydrogen?gclid=e8714727cf7a1b9e60352144d1739191&gclsrc=3p. ds&msclkid=e8714727cf7a1b9e60352144d1739191&utm_source=bing&utm_medium=cpc&utm_campaign=BNG_Chevron_National_Nonbrand_ Explainers_Articles_Multiple&utm_term=Hydrogen%20Power&utm_content=Chevron_NonBrand_Explainers_Articles_Hydrogen_Phrase_3509467.

23 See, e.g., Diamond, supra note 7, at 6. Some commenters however suggest that expansion of the NGA's definition of "natural gas" would be anticompetitive, disadvantaging new entrants and giving incumbents "an outsized voice" that could impact approval of new hydrogen projects. They explain that under the NGA new entrants must seek FERC approval, whereas, in contrast, existing pipelines that transition to hydrogen transportation may not need to seek additional FERC approval. See e.g., Richard E. Powers, Jr.,== The Hydrogen Pipeline Debate Requires Candid & Serious Consideration of Existing Regul. Regimes, (Apr. 18, 2023), https://www.eba-net.org/the-hydrogen-pipeline-debate-requires-candid-andserious-consideration-of-existing-regulatory-regimes/.

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