Pipeline Agency Issues
Largest Proposed Penalty of 2007
Against Alyeska Pipeline Service Co.
January 2007 Fire at Pump Station 9
By Richard A. Fineberg
Violations of federal requirements for safe pipeline operations and failure to follow company operating guidelines in December 2006 and January 2007 have earned the Alyeska Pipeline Service Company a proposed civil penalty of $817,000 from the federal Pipeline and Hazardous Materials Safety Administration (PHMSA). Alyeska is the operator of the 800-mile Trans-Alaska Pipeline System (TAPS). The proposed fine is more than twice the amount of the second largest proposed civil penalty the agency issued during 2007, according to agency records. (1)
The proposed penalties
levied by PHMSA, an agency of the U.S. Department of Transportation,
deal with a series of operational failures that occurred on TAPS shortly
before the first renovated pump station was placed into service early
last year under the pipeline's troubled Strategic Reconfiguration (SR)
project, the largest construction effort on TAPS since the pipeline
began pumping in 1977. The proposed sanction calls for payment of:
PHMSA also cites Alyeska for additional operational shortcomings associated with the destruction of a pipeline cleaning device known as a pig in December 2006. According to PHMSA, "[t]hese failures . . . are cause for concern regarding the operational integrity of TAPS." In addition, the Nov. 27 notice warns Alyeska to correct five other reported operating procedure deficiencies for which no penalties were issued. (3)
The PHMSA Notice
of Proposed Violation, Proposed Civil Penalty and Proposed Compliance
Order, issued Nov. 27, asks Alyeska to address each proposed penalty
issue within a specified time. A second notice issued the same date
describes the pig failure and lists 20 other procedural problems on
TAPS that PHMSA says it identified during a series of 2006 inspections.
No fines or penalties are associated with the second notice. (4)
If pipeline procedural breaches are associated with violation of criminal statutes,PHMSA may refer the violations to the Department of Justice for criminal action. For example, PHMSA assisted in the prosecution of BP's 2006 maintenance failures at Prudhoe Bay, where failure to prevent and detect corrosion on pipelines at Prudhoe Bay caused the largest oil spill in North Slope history and resulted in a $20 million criminal penalty package. Those payments, announced two days before PHMSA issued the proposed civil penalties against Alyeska, included a $12 million criminal fine, $4 million in criminal restitution to the State of Alaska and $4 million for additional North Slope research. (5)
BP, a major North Slope producer and the operator of the Prudhoe Bay field, is the major owner of TAPS, with a 46.93% interest. Other owners of TAPS are ConocoPhillips, 28.29%; ExxonMobil, 20.34%; Koch Industries, 3.08%; and Chevron, 1.36%; the three main owners of TAPS are also the largest North Slope producers.
Kevin Hostler recently called the January 2007 Pump Station 9 fire and
Brooks Range spill "unacceptable." But Hostler's clear repudiation
of his company's performance, nearly one year after the fact, came only
after PHMSA lowered the boom. In fact, Alyeska's early reaction to the
problems that precipitated the proposed PHMSA fines was equivocal. When
reports of that safety violations led to the fire at Pump Station 9
came to public attention, an Alyeska spokesman said that "we take
this (event) extremely seriously." But such statements were contradicted
by the fulsome praise of Hostler and other Alyeska executives for the
safety standards with which the pipeline company implemented the SR
Review of PHMSA's enforcement actions in 2007 indicates the depth of the agency's concerns about safety on TAPS. Forty-one of the 245 civil action notices PHMSA issued nationwide in 2007 call for penalty payments. The proposed Alyeska penalty of $817,000 is more than ten times the average of the remaining 40. Moreover, as noted above, the recent Alyeska sanction is also more than twice as large as PHMSA's second largest 2007 civil enforcement action. In keeping with pipeline safety procedures, Alyeska may contest the notice and request a hearing on all or part of the charges. According to PHMSA records, however, between 2002 and 2006, the Department of Transportation's pipeline safety unit collected 86% of its proposed penalty assessments. (7)
A Closer Look at TAPS
Since Alyeska has
the dubious distinction of topping PHMSA's civil enforcement chart for
2007, a closer look at the problems on TAPS that led to these proposed
penalties is warranted. Developments on TAPS in 2007 centered around
implementation of the SR project, under which the pipeline company is
replacing the pipeline's original jet-engine crude oil pumps with electrically
driven pumps at the four pump stations that remain in operation, combined
with increased automation and upgraded control systems. When Alyeska
formally announced the SR program early in 2004, the pipeline company
said the project would be completed by the end of 2005 and would cost
$250 million. Two years later, SR is far from completion, while project
expenditures have nearly tripled the 2004 estimate. (8)
From the outset, Alyeska said safety was a central consideration in undertaking SR. According to Alyeska, SR - the largest single project undertaken on TAPS since pipeline construction - is intended to enhance the safety of remote operations and replace old fire detection and response equipment whose maintenance, according to Alyeska, has become "particularly problematic in recent years." To mitigate risks associated with converting from existing pipeline systems to the new operating equipment, Alyeska said that a rigorous management of change (MOC) process had been developed. (9)
Review of the documentary record on the major operational failures later cited by PHMSA will delineate the sharp disconnect between Alyeska's rhetoric and reality - and the failure of the 12-agency state-federal Joint Pipeline Office (JPO) to force Alyeska to look beyond the specific violations of basic safety procedures to identify the conditions that led to those failures.
In September 2006, four months before the fire at Pump Station 9, Alyeska President Hostler emphasized safety's importance to Alyeska, telling a congressional committee, "I take seriously the responsibility I have to run a safe operation . . . . Safety is our first priority in resolving the issues we currently face." At that moment, Congress was not looking at TAPS; the hearings were about BP's North Slope problems.
Continued Below (Click Here)
At the September 2006 hearings, even then-PHMSA Administrator Thomas M. Barrett contrasted BP's failure to pig its pipelines at Prudhoe Bay to Alyeska's aggressive pigging program on the Alyeska's trans-Alaska system. Ironically, Hostler's September 2006 testimony celebrated the each of the non-fire-related aspects of his company's operations that caused PHMSA to issue its largest proposed penalties of 2007. (10)
One month after the fire and shortly after Pump Station 9 entered service in February 2007, Alyeska officials heaped lavish praise on the SR project - and the company's safety practices. Hostler stated in a press release that "[o]ur focus has been on the safe, quality startup of Pump Station 9." He continued, "[w]e have a lot of work to do before all upgrades at the pump stations are complete and I am extremely proud of the hard working men and women who have put in a lot of extra hours to upgrade this station." Alyeska Vice President Jim F. Johnson echoed Hostler's comments, stating that "[w]e are very satisfied with how the work has progressed at the site and we thank all involved for their commitment to deliver the project safely." (11)
The Alyeska executives' praise of SR's safety processes is called into question by an e-mail notice to all workers less than two weeks after the fire that summarized the company's preliminary accident investigation report and identified numerous safety violations. At that time, the pipeline company said, it was instituting measures to prevent similar problems from occurring in the future. (12) This statement confirms that from the outset it was evident that the brief fire that nearly destroyed Pump Station 9 occurred because procedures already in place were violated (e.g., lack of fire watch, placement of open flame in dangerous location), or were transparently inadequate (e.g., communication systems).
The Fire at Pump
Most of the proposed
penalty of $506,000 for the Pump Station 9 fire deals with the string
of violations of safe operating procedures described in the preceding
bullets. Two relatively minor reporting violations demonstrate institutional
insouciance. PHMSA's Nov. 27 notice states that Alyeska failed to comply
with federal regulations requiring telephone notice to the National
Response Center of any explosion or fire not intentionally set by the
operator at "the earliest practicable moment." Additionally,
a written report on a DOT form is required within 30 days. These two
reporting infractions account for $22,000 of the civil penalties proposed
by PHMSA. (14)
Surge and Oil Spill at RGV 32
Even after the January
2007 spill, Alyeska described the spill and the clean-up without any
hint that the company recognized the cause to be an operating deficiency;
nor did the article discuss Alyeska's failure to execute its plan for
preventing pressure surges. (19) Nine months later, in
its notice of probable violation, PHMSA wrote:
Deficient" Anti-Corrosion Measures and Lost Pigs
In the second Nov.
27 enforcement letter, PHMSA lists numerous other procedural problems
on TAPS and discusses another operational failure that occurred in the
final months before Alyeska completed the SR update at Pump Station
9. The operational failure involves the loss and destruction of an in-line
cleaning device known as a scraper pig on Dec. 12, 2006. The pig, inserted
in the pipeline to remove the buildup of deposits from the inside walls
of the pipeline, was destroyed at Pump Station 7. According to PHMSA,
the cleaning device was damaged when it passed through a pipeline valve
recently added to the pipeline at Pump Station 7; still in the pump
station, the pig went astray due to the absence of pig retaining bars.
Like the new valve, the absence of the pig retaining bars was not noted
in the Alyeska pigging procedures manual. In the Notice of Amendment
letter, PHMSA states its belief that "if the pig bars had been
properly installed in 2005 and the procedures for raising the clapper
on check valve and isolating the pumps had been in place for the pig
run the incident would not have occurred." (22)
monitoring officials and review of information obtained through a Freedom
of Information Act (FOIA) sheds additional light on these points and
provides additional information on JPO's performance. This analysis
suggests that things have not gone well for the coordinated Alaska petroleum
industry monitoring effort envisioned when JPO was established in 1990.
In fact, today the pipeline portion of that monitoring effort looks
a bit like Humpty-Dumpty.
The timing and the abstract nature of JPO's low-keyed discussion of the fire investigation is noteworthy. More than 10 weeks earlier, Alyeska had already circulated a company-wide notice that identified most of the procedural violations in its own preliminary report. Based on that report, completed two weeks after the fire, Alyeska announced its intention to beef up the procedures and practices whose deficiencies were revealed by the fire. And more than five weeks earlier, the Department of Labor's report on the fire had identified the pipeline grant and lease requirements, as well as federal regulations, violated by Alyeska. Moreover, JPO's brief summary report was devoid of substantive information about the fire at Pump Station 9. Instead, the brief public notice focused on abstractions - the name and numbers of obscure grant and lease requirements. (27) As noted above, later in 2007, similar violations of fire safety procedures were associated with fires on the North Slope; would more timely disclosure by JPO have alerted others to the possibility that TAPS and North Slope operators might be playing with fire in a more timely manner?
(2) JPO has recently produced a stack of seven Comprehensive Monitoring Program (CMP) reports - a document whose stated purpose is to inform stakeholders about its monitoring efforts on TAPS. But the fact remains: As reported on this web site July 14, between mid-2002 and mid-2007, JPO did not issue a single issue of this primary communications document. (28) The date shown on the cover of five of the seven new reports does not appear to be the actual report release date; moreover, even though CMP reports are supposed to be prepared primarily for the public, despite repeated requests JPO has not been able to provide any evidence that the new reports were ever formally released. (29) In this regard, it is interesting to note that the new CMP reports were issued under the stamp of BLM - not JPO. BLM officials say that's because other agencies are unwilling to sign onto BLM's reports. (30) In addition to these problems, the CMP reports bear the mark of careless editing. (31) light of problems such as these, can one depend on the contents of those reports? Particularly in view of the dubious history of JPO's past CMP reports, (32) this question deserves serious consideration. The remainder of this section will consider the references in these reports to the issues PHMSA subsequently included in the corrective action, penalty and compliance orders issued against Alyeska last Nov. 27.
June 2007 CMP report on the TAPS maintenance program contains discussion
of the special procedure to deal with vibrations at RGV 32 instituted
two years before violation of those procedures caused a spill. Here
is what BLM's June 2007 CMP report on maintenance had to say about that
The June 2007 CMP
maintenance report gave no indication that failure to follow the procedures
established for RGV 32 had caused the oil spill Jan. 9, 2007. In light
of that spill, BLM's up-tempo conclusion - that SR automation and new
control systems "have mitigated this condition" - appears
to be premature, if not invalid.
Another CMP report,
Performance of the Strategic Reconfiguration Project, is laced
with statements that condemn Alyeska's performance. For example:
appear to confirm the importance of the various SR problems discussed
in the July 13 article on this web site. One of the report's observations
speaks of the fire code at Pump Station 9:
From the foregoing,
it appears that in BLM's view, fire concerns are an important part of
SR - and have been largely satisfied.
As has been the case so often with past TAPS monitoring reports, it is difficult to reconcile the BLM report's carefully crafted endorsement with the fact that Alyeska nearly lost Pump Station 9 due to fire code violations while finishing the SR installations. One can only hope that Alyeska's - and Alaska's - future will not be disfigured by such unfortunate discrepancies between promise and practice.
(3) To ensure effective
oversight and good communications with stakeholders, the JPO Executive
Council was supposed to meet quarterly. But between 2002 and June 2007,
the Council did not meet. As discussed in the article posted here July
14, this fact demonstrates, at the broadest level, the failure of the
pipeline monitors to fulfill their promises on TAPS oversight, even
though TAPS is generally regarded as the most intensively monitored
pipeline in the country. BLM's Authorized Officer, Jerry Brossia, who
played a central role in establishing JPO as the State of Alaska's Pipeline
Coordinator in 1990 and became the federal Authorized Officer in 1997,
says that over the past five years it was the state that blocked JPO
Executive Council meetings. Brossia says he supported the efforts of
Admiral Thomas Barrett, then PHMSA's Administrator (now Deputy Secretary
of Transportation) to convene the JPO Executive Council meeting held
in Anchorage June 13. According to Brossia, in 2003 the state didn't
even want JPO to exercise oversight over the SR project and state unwillingness
to monitor aggressively sometimes hampers monitoring efforts today.
According to some
parties familiar with pipeline monitoring, the inter-agency picture
has reversed since 2003. The state, they say, is now exercising strong
oversight on TAPS, while BLM tends to acquiesce to the will of the pipeline
owners. Earlier this year, the governor of Alaska created a new agency
in the Department of Natural Resources to ensure petroleum system integrity,
in part to deal with what the governor called lax maintenance practices.
(38) Additionally, early in 2007 state records custodians
were quietly investigating JPO's questionable document handling practices.
Articles on this web site have frequently called attention to similarities between problems on TAPS and on the North Slope, noting that both TAPS and North Slope field operations have been marked by chronic failure to identify and remedy potential problems in a timely manner. Long before congressional investigators used their investigative powers to develop information showing that cost-cutting led to BP's North Slope corrosion problems, this writer has argued that cost-cutting pressures are a major causal factor in both TAPS and North Slope operations. (40)
Consider in this regard Alyeska's ambiguous posture on the Pump Station 9 fire, as depicted in the company's on-line journal, Alyeska Monthly. In an editorial in the February 2007 issue of the monthly company newsletter, Hostler called attention to deteriorating safety conditions on TAPS in 2006, commenting:
But in the same
issue of the company newsletter in which Hostler outlined his safety
concerns, another article discussed the spill at RGV 32 without any
hint that Alyeska recognized the cause to be an operating deficiency.
And it was in the following issue that Hostler and other Alyeska executives
issued their fulsome praised Alyeska's safety performance on SR, quoted
above. Another article in the latter issue described Alyeska's pigging
performance without mentioning the pig that Alyeska lost several months
earlier. The following month, Hostler remained on message, commenting
Nine months later - after PHMSA issued its Notice of Probable Violations, Proposed Civil Penalty and Proposed Compliance Order on Nov. 27 - Hostler revisited the Pump Station 9 fire and RGV 32 oil spill in another editorial in the company newsletter. Without mentioning the PHMSA sanctions, he wrote,
Optimists may choose
to take comfort in the hope that Alyeska has really changed. More realistic
observers may recall the pictures of pig damage from 2000 that appeared
on the back cover of this writer's 2002 status report on TAPS. As noted
with those photographs from the year 2000, three years earlier Bob Malone,
then President of Alyeska, had promised that the pipeline company would
achieve what he called operational excellence by the year 2000. (44)
While some may wish to call 2000 the year of The Year of Operational
Excellence, to others 2000 looked more like The Year of Lost Pigs. Six
years later, Alyeska was still losing pigs.
Hopefully, the state
and federal oversight agencies can resolve their differences. The record
indicates that Alyeska may not be able to correct its operational course
without firm guidance from government monitors. Coordinated, effective
oversight is therefore necessary, on TAPS and on the North Slope.
Endnotes to Largest Proposed Penalty of 2007
1. U.S. Department of Transportation, Pipeline and Hazardous Materials Safety Administration (PHMSA), Notice of Probable Violation, Proposed Civil Penalty and Proposed Compliance Order ("NOPV;" CPF 5-2007-5041), p. 12; and Notice of Amendment (CPF 5-2007-5042M), Nov. 27, 2007 (letters from Chris Hoidal [Director, Western Region, PHMSA] to Mr. Jim Johnson [Pipeline Vice President, Alyeska]). (To see PHMSA notices, click here.)
2. PHMSA, NOPV, pp. 2-8 and 12-13.
3. PHMSA, NOPV, pp. 1, 9-11 and 13.
4. PHMSA, NOPV, pp. 15-17 (Proposed Compliance Order); and NOA.
5. U.S. Department of Justice, "British Petroleum to Pay More Than $370 Million in Environmental Crimes, Fraud Cases: Charges Result from 2005 Texas Refinery Explosion, Alaska Pipeline Leaks and Attempt to Manipulate Markets" Oct. 25, 2007 (press release; accessed Dec. 31, 2007 at http://anchorage.fbi.gov/doj/pressrel/2007/environmentalcrimes102507.htm).
6. See: Alyeska Pipeline Service Co., "Alyeska Pipeline Service Company Starts Up New Pumps at Pump Station 9: First station switches to modular, scalable equipment" (Alyeska News Bulletin No. 1397), undated (circa Feb. 20, 2007); Alyeska Monthly, Feb./March 2007 ("First Pump Station Upgraded: Pump Station 9 switches to electrically driven pumps") and Nov./Dec. 2007; and Eric Lidji, " State scrutinizes Alyeska safety for pump station fire," Fairbanks Daily News-Miner, April 12, 2007.
7.From: PHMSA, "Summary
of Enforcement Case Status"
8. See: Alyeska Pipeline Service Company, Pipeline Reconfiguration Project Overview: Pump Stations and Control Systems Upgrade -- Project Completion by End of 2005, March 2004, pp. 2, 4; and "$250 Million TAPS Upgrade Approved: Alyeska starting biggest TAPS project since construction" (Alyeska Monthly, March 2004 ["Feature Story"]). The Alaska Department of Revenue reports that "[c]urrent [expenditure] estimates are closer to $750 million" (Alaska Department of Revenue, Fall 2007 Revenue Sources Book, p. 44).
9. See: "$250 Million TAPS Upgrade Approved: Alyeska starting biggest TAPS project since construction;" and Pipeline Reconfiguration Project Overview: Pump Stations and Control Systems Upgrade -- Project Completion by End of 2005, pp. 6, 11.
10. See: "Statement of Kevin Hostler," President and CEO, Alyeska Pipeline Service Company, before the U.S. House Subcommittee on Oversight and Investigations (Energy and Commerce Committee), Sept. 7, 2006 (Hostler's testimony featured corrosion control and integrity management on TAPS, operating TAPS at reduced throughput" and pigging issues); and "Written Statement of VADM Thomas J. Barrett, USCG (ret.)," Administrator, PHMSA, before the U.S. House Subcommittee on Oversight and Investigations (Energy and Commerce Committee), Sept. 7, 2006.
11. Alyeska Pipeline Service Co., "Alyeska Pipeline Service Company Starts Up New Pumps at Pump Station 9: First station switches to modular, scalable equipment" (Alyeska News Bulletin No. 1397 [undated; circa Feb. 20, 2007). A similar statement by Hostler also appeared in Alyeska Monthly, March 2007 ("First Pump Station Upgraded: Pump Station 9 switches to electrically driven pumps").
12. Alyeska Pipeline Service Co., "To: All TAPS Employees - Subject: KYP [Keeping You Posted] #07-010 - Pump Station 9 Fire Incident Investigation," Jan. 17, 2007 (e-mail notice from Kevin Hostler, President and CEO).
13. From: Ray Elleven (Alaska Department of Labor Safety Liaison, Joint Pipeline Office), "Investigation of the January 6, 2007 PS 9 Tank Farm Fire" (JPO Technical Report No. ANC-07-E-001), March 7, 2007; Alyeska Pipeline Service Co., "Pump Station 9 Tank Vent Fire Root Cause Incident Investigation & Executive Summary - Final Report," March 9, 2007; and PHMSA, NOPV.
14. PHMSA, NOPV, pp. 1-9, 13.
15. See: Associated Press, "BP Advised To Update Fire Equipment After North Slope Blazes," Wall Street Journal, Oct. 6, 2007 ("The state fire marshal's office has advised oil company BP PLC [BP] to update its fire suppression and detection equipment following a series of blazes in North Slope oil fields this summer, officials said Friday."); and Wesley Loy, "Fire marshal faults BP systems - NEED ATTENTION: Report calls for better fire detection, improved maintenance," Anchorage Daily News, Oct. 5, 2007.
16. PHMSA, NOPV, pp. 2 and 4-5.
17. See: Alyeska Pipeline Service Co., Status Update: TAPS Vibration at Low Throughput, August 2006 (briefing sheet); Rich Mauer, "Alaskan Oil Line Rattles Raise Fears: LOW FLOW: Dispute Exists on How Vibrations Affect Pipeline Integrity," Anchorage Daily News, Oct. 10, 2006; Bureau of Land Management, Selected Portions of TAPS Maintenance Program, June 2007 (Comprehensive Monitoring Program Report), p. 20. For additional background on this issue, see: Richard A. Fineberg, The Emperor's New Hose: How Big Oil Gets Rich Gambling with Alaska's Environment, June 2002 (Alaska Forum for Environmental Responsibility), pp. 1-6 and 35-36.
18. Alyeska Pipeline Service Co., "To: All TAPS Employees - Subject: KYP [Keeping You Posted] #06-090 - Vibrations at Lower Throughput," Oct. 10, 2006 (e-mail notice from Kevin Hostler, President and CEO).
19. Alyeska Pipeline
Service Co., "Pipeline Restarted after Leak on Bypass Piping Stopped,"
20. PHMSA, NOPV, pp. 4-5.
21. PHMSA, NOPV, p. 12.
22. PHMSA, NOA, pp. 9-10.
23. Letter from Chris Hoidal (Director, Western Region, PHMSA) to Jim Johnson (Vice President, Alyeska Pipeline Service Co.), Nov. 27, 2007, p. 2.
24. See: Felicity
Barringer, "Device Breaks Up in Pipeline, and Search Is on for
Lost Piece," New York Times, Feb. 3, 2007.
In response to repeated
requests to JPO staff in December 2007, JPO has been unable to provide
any information demonstrating that the seven recent CMP reports were
ever formally issued or distributed to stakeholders.
32. See: Office of the Inspector General, "Survey Report: Oversight Activities of the Trans-Alaska Pipeline System, Bureau of Land Management," U.S. Department of the Interior, February 2001, pp. 6-8 (Report No. 01-I-206); and discussion of CMP reports in The Emperor's New Hose, Ch. 3.
33. BLM, Selected Portions of TAPS Maintenance Program, p. 4 (Executive Summary); repeated at p. 25.
34. Joe Dygas, Performance of the Strategic Reconfiguration Project, pp. 4, 19, 24-27.
35. Performance of the Strategic Reconfiguration Project, p. 19.
36. Performance of the Strategic Reconfiguration Project, p. 4.
37. Personal interview, Dec. 27, 2007.
38. Personal interviews; see: Office of the Governor, "Governor Palin Signs Administrative Order" (Press Release No. 07-085), April 18, 2007.
39. In April 2007,
the State Records Manager wrote:
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