[Senate Hearing 108-1013]
[From the U.S. Government Publishing Office]
S. Hrg. 108-1013
PIPELINE SAFETY AND THE IMPACT OF THE
KINDER MORGAN PIPELINE ACCIDENT ON
SAFETY, FUEL POWER, AND CONSUMER COST
=======================================================================
FIELD HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
OCTOBER 9, 2003
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South
CONRAD BURNS, Montana Carolina, Ranking
TRENT LOTT, Mississippi DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas JOHN D. ROCKEFELLER IV, West
OLYMPIA J. SNOWE, Maine Virginia
SAM BROWNBACK, Kansas JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada RON WYDEN, Oregon
GEORGE ALLEN, Virginia BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire BILL NELSON, Florida
MARIA CANTWELL, Washington
FRANK R. LAUTENBERG, New Jersey
Jeanne Bumpus, Republican Staff Director and General Counsel
Robert W. Chamberlin, Republican Chief Counsel
Kevin D. Kayes, Democratic Staff Director and Chief Counsel
Gregg Elias, Democratic General Counsel
C O N T E N T S
----------
Page
Hearing held on October 9, 2003.................................. 1
Statement of Senator McCain...................................... 1
Witnesses
Bannigan, Thomas A., President, Kinder Morgan Products Pipelines. 41
Prepared statement........................................... 43
Bonasso, Samuel, Acting Administrator, Research and Special
Programs Administration, Department of Transportation;
accompanied by Stacy Gerard, Associate Administrator for
Pipeline Safety................................................ 11
Prepared statement........................................... 13
Cowley, David, Director, Public Affairs, AAA Arizona............. 69
Prepared statement........................................... 70
Goddard, Terry, Attorney General, State of Arizona............... 19
Prepared statement........................................... 22
Grijalva, Hon. Raul, U.S. Representative from Arizona............ 5
Prepared statement........................................... 7
Napolitano, Janet, Governor, State of Arizona.................... 3
Olcott, Jonathan, Esq., Olcott & Shore, PLLC, on behalf of the
Silver Creek Homeowners Association............................ 84
Prepared statement........................................... 85
Spitzer, Marc, Commissioner, Arizona Corporation Commission...... 25
Prepared statement........................................... 28
Walkup, Hon. Bob, Mayor, City of Tucson.......................... 30
Prepared statement........................................... 32
Appendix
Cooper, Dr. Mark, Director of Research, Consumer Federation of
America, prepared statement.................................... 91
Response to written questions submitted by Hon. John McCain to:
Thomas A. Bannigan........................................... 150
Terry Goddard................................................ 149
Jonathan Olcott.............................................. 169
PIPELINE SAFETY AND THE IMPACT OF THE
KINDER MORGAN PIPELINE ACCIDENT ON
SAFETY, FUEL POWER, AND CONSUMER COST
----------
THURSDAY, OCTOBER 9, 2003
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Phoenix, AZ.
The Committee met, pursuant to notice, at 9:01 a.m. in City
Hall, City Council Chambers, 200 West Washington Street,
Phoenix, Arizona, Hon. John McCain, Chairman of the Committee,
presiding.
OPENING STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA
The Chairman. Good morning. I'd like to begin this field
hearing of the Senate Committee on Commerce, Science, and
Transportation. Today we meet to consider issues related to
pipeline safety, specifically the Kinder Morgan pipeline
rupture and its impact on public safety, fuel supply, and
gasoline prices.
During the past several years I've chaired a number of
hearings on pipeline safety. Last December, after three long
years of debate, Congress passed legislation to reauthorize and
strengthen Federal pipeline safety programs. While pipelines
have historically been the safest way to transport fuel,
serious and often preventable pipeline accidents with
devastating consequences make clear that more still needs to be
done to make them safer.
The law enacted last year imposed many new mandates
intended to improve pipeline safety and required every pipeline
operator to develop comprehensive integrity management plans,
imposed mandatory inspections and requirements, required
operators to help educate the public about pipeline safety, and
established whistleblower protections for pipeline employees.
Enacting laws, however, is not in and of itself a solution to
pipeline safety problems. Strong, swift, and consistent
enforcement is also essential. It's unfortunate but true that
it often takes a crisis to focus public interest on an issue.
While the Kinder Morgan rupture thankfully did not result
in any deaths or personal injuries, its economic consequences,
compounded by many factors, including an understandable public
run on gas stations and alleged price gouging, were dramatic.
The rupture and subsequent shutdown of the pipeline for 16 days
affected millions of Arizona residents and businesses, some of
whom if they could find a station with fuel and had hours to
spare waiting in line, paid over $4 for a gallon of gasoline.
The Kinder Morgan rupture has been a wake-up call for many,
including Kinder Morgan. The company's pipelines that run
through Arizona are nearly 50 years old and its line from El
Paso supplies about one-third of Phoenix's gasoline. The
rupture has raised serious questions about the condition of
Kinder Morgan's pipelines, our state's dependence on that
company to transport fuel, the adequacy of safety regulations
and their enforcement by Federal and State agencies, and the
extent to which these agencies do or do not work together.
Why, for example, did it take the Office of Pipeline Safety
nearly a year to issue a compliance action order after
receiving information from Kinder Morgan about serious external
corrosion on its 6-inch jet fuel pipeline? Why, despite
frequent inspections of Kinder Morgan's pipeline by the Arizona
Corporation Commission and the identification of various
``items of non-compliance'' does their seem to have been little
or no follow up in enforcement by OPS? Why is it that OPS'
orders following the July 30 rupture imposed less stringent
requirements on Kinder Morgan than the company ultimately took
itself? And why did it take a rupture and loss of 10,000
gallons of fuel for Kinder Morgan to inspect and replace the
pipeline instead of having taken action to identify the risks
associated with this aging pipeline before an accident
occurred?
The questions that have arisen from this incident suggest
that delayed, lax, or worse, non-existent oversight and
enforcement by OPS and a company that reacts to safety problems
after they occur instead of taking actions to prevent them. I
hope that at today's hearings we will get answers to these
questions that either correct this impression of real problems
with both the private and public sectors, or answers that
inform us about what more needs to be done to ensure that an
accident of this sort and consequence does not happen again.
Much of our Nation's energy infrastructure was built years
ago in remote areas away from our population centers. The fact
the Kinder Morgan rupture occurred in a housing development
provides a good example of how the population centers have
shifted, and highlights the problem of encroachment on pipeline
rights of way. Clearly, we must ensure that local planning and
zoning laws take into account public safety and the needs for
such rights of way.
I look forward to hearing from our witnesses, getting their
accounts of what went wrong and who was responsible, and
receiving their recommendations on what more can be done to
further strengthen pipeline safety and employment. Our first
witnesses today, we're glad to welcome Janet Napolitano,
Governor of the State of Arizona, and the Honorable Raul
Grijalva, who is a Congressman from Arizona. Would you please
both come forward? And we will begin with Governor Napolitano.
Welcome, Governor. Welcome, Congressman Grijalva.
STATEMENT OF JANET NAPOLITANO, GOVERNOR,
STATE OF ARIZONA
Governor Napolitano. Thank you, Senator, and thank you for
inviting me to testify today about pipeline safety and
reliability. I commend the Committee for its attention to this
important issue, and in particular I want to thank you,
Senator, for your leadership, including your role in the recent
passage of the Pipeline Safety Act for 2002.
Arizona has learned a lot about this issue since July 30
when the Kinder Morgan pipeline from Tucson to Phoenix
ruptured. That rupture would splash over 10,000 gallons of
gasoline on five newly constructed homes, exposed not only our
state's vulnerability arising from its reliance on just two
pipelines to supply gasoline for 5 million people, but also
serious weaknesses in the Federal Government's investigations
and enforcement of pipeline safety. My testimony today will
focus on the latter issue.
In my investigations to date into the cause of the rupture
and its effects of Arizona, I have been perhaps most disturbed
by the recent discovery that State regulators acting on behalf
of the Federal Office of Pipeline Safety discovered and
reported numerous instances of general corrosion problems on
Kinder Morgan's east line, but OPS took no effective action to
address it.
As you may know, OPS contracts with certain State bodies,
including the Arizona Corporation Commission, for inspections
of the portions of interstate pipelines that run within a
particular state. In the case of the Kinder Morgan east line,
the Corporation Commission had inspected it no fewer than six
times between 1996 and 2003. In every one of those inspections
the Corporation Commission reported concerns about general
corrosion along the line, including specific concerns about
Kinder Morgan's failure to take adequate preventative
maintenance measures.
In one October 2001 violation report, the inspector warned
that ``this pipeline has been in service for 50 years and has
no coating problems.'' The inspector went on to say that lack
of maintenance could ultimately result in ``pipeline failure,
resulting in a loss of product, possible injury, loss of life,
and severe damage to property and the environment.''
Unfortunately, although OPS contracts out its investigative
authority, it gives the Corporation Commission virtually no
enforcement authority, and as a result, despite its findings
and recommendations for compliance and corrective action, the
Corporation Commission was powerless to effectively correct the
situation.
The problem was exacerbated by the fact that OPS itself
brought only two enforcement actions in response to the
Corporation Commission's reports and never sought a penalty of
greater than $40,000 against the multi-million dollar carrier.
This, coupled with the fact that Kinder Morgan had not
inspected the portion of the line where the rupture occurred
since 1996, despite the pipeline's age, contributed to the
pipeline's failure.
Kinder Morgan asserts that the July 30 rupture was caused
by stress corrosion cracking as opposed to general corrosion
reported each year by the Corporation Commission. Nevertheless,
I can't help but think that at a minimum more aggressive
enforcement by OPS would have fostered a more vigilant pipeline
safety assessment by Kinder Morgan that could have averted the
July 30 rupture.
We must have more effective pipeline safety. If states are
to be given investigative authority over the portions of
interstate lines that cross their jurisdiction, they must also
be given both the authority and resources necessary to enforce
their findings and recommendations. In Arizona, we are willing
to take the responsibility of enforcing pipeline safety, but we
need the Federal funding and authority to do so effectively.
I urge the Committee to reform the Federal pipeline safety
laws in a manner that delegates both investigative and
enforcement authority to states that are willing to undertake
it and fully funds their ability to do so effectively. While
we're on the subject of reform, I offer another thought. Does
it still make sense to house the Office of Pipeline Safety
within the Department of Transportation? Today critical energy
infrastructure is a homeland security concern. Disruptions like
the one we had here can bring our economy to a standstill, but
more important, given the volume of fuel that flows through
these lines, such ruptures are probably a significant risk to
the safety of our citizens and environment. At a minimum, State
and Federal Homeland Security officials must be much more
knowledgeable about pipeline routes, security procedures, and
threats. Operators of these lines should know how to reach
relevant Homeland Security personnel 24 hours a day and should
be required to report all ruptures and known threats
immediately.
By way of example, on August 8, 2003, when Kinder Morgan
decided to shut down the east line completely, it notified only
our State's Corporation Commission and the Department of
Weights and Measures. They did not notify the Governor nor the
Office of Homeland Security. I have since given Kinder Morgan
numbers where they can reach my staff and our Director of
Homeland Security 7 days a week on a 24-hour basis. Ultimately,
I believe Congress should seriously consider moving OPS to the
Federal Department of Homeland Security so that pipeline safety
issues can be assessed at the outset from a public safety
perspective.
Finally, I'd like to address some actions that Arizona is
taking on this issue. In the aftermath of the Kinder Morgan
rupture, I have appointed a task force led by former Tosco CEO
Robert Lavinia to review the July 30 rupture, recommend
measures to prevent such occurrences in the future, and address
Arizona's vulnerability to similar supply disruptions. I look
forward to receiving the Lavinia Group's report and I am
pleased to make it available to this Committee upon its
completion.
Arizona was lucky no one was injured in the July 30
rupture. Nonetheless, the rupture justifiably alarmed a number
of homeowners who live near the pipeline or send their kids to
schools on the pipeline's right of way. In several instances,
these homeowners never knew their property abutted the
pipeline. For this reason, I have asked our Real Estate
Commission to investigate whether developers of property near
the pipeline had given adequate notice to purchasers of the
location of the pipeline.
Given the growth of communities, as you noted, through the
country since the date many active pipelines were first
installed, I would urge this committee to take similar reviews
of the requirements for and enforcement of notification
requirements to owners and new buyers of property located near
pipelines.
Last, the Arizona Department of Environmental Quality has
issued a notice of violation to Kinder Morgan arising out of
the rupture, including the proposed assessment of the maximum
civil environmental penalty allowed by Arizona law. The
Department's investigation of the July 30 rupture is continuing
and will proceed until the Department is satisfied with Kinder
Morgan that Kinder Morgan is in full compliance with the
State's environmental laws.
Again, we have learned a lot about this subject since July
30. I promise the people of Arizona that I will do all I can to
help prevent a repeat of what happened here this summer. I'm
grateful the Committee is taking up this issue and for the
opportunity to share with you my ideas for what the Federal
Government can do to improve pipeline safety. Thank you.
The Chairman. Thank you very much, Governor. Congressman
Grijalva, welcome.
STATEMENT OF HON. RAUL GRIJALVA,
U.S. REPRESENTATIVE FROM ARIZONA
Mr. Grijalva. Thank you, sir. Thank you, Senator McCain,
and the Committee for holding this very important hearing and
for the opportunity to provide some testimony to your
Committee. I think this hearing on Kinder Morgan is very
important.
The gasoline rupture occurred in Tucson on July 30, and one
of the things I'd like to do, Senator, is respectfully request
the Committee hold a hearing in Tucson where the pipeline
rupture occurred as soon as possible. While Phoenix-area
residents were inconvenienced, potentially gouged in terms of
the price of gas and the economic impact statewide, the
constituents that I represent in that area were subjected to
serious environmental health and safety dangers as a result of
the pipeline rupture, and now we face we must endure the
reconstruction and/or realignment of the pipeline.
And as you stated and as the Governor eloquently stated, I
also am extremely concerned with the lack of diligent oversight
by Federal agencies who are tasked with the monitoring, the
safety, and security of gasoline pipelines and all other energy
infrastructure in this country. These responsible agencies with
jurisdiction in this matter quite frankly have failed to ensure
the safety of citizens in the area, along with security of
gasoline supply.
Neither the public nor elected officials knew the extent of
safety risks associated with the pipeline. Our preliminary
information indicates the pipeline may have failed safety
inspections as far back as 1995 and then on. However, this
information was not made public nor made available to elected
officials or emergency personnel. Thankfully, no one was
injured during the rupture in July. However, many residents had
their lives serious disrupted. The consequences of this event
are still ripping through our community and will no doubt be an
issue of great concern for a long time to come.
Now that the current immediate danger has passed, plans for
reconstruction or realignment of the pipeline are beginning to
formulate. Recently the Tucson City Council was presented with
two options for the pipeline: allowing Kinder Morgan to repair
the line in its existing locale, or instead realign the
pipeline to another route. The Tucson city council voted to
allow reconstruction of the pipeline in the existing right of
way with slight modifications. While under some circumstances
this option may have seemed like the logical choice,
reconstruction along the existing right of way is far from a
positive solution to the problem.
The existing pipeline passes close to parks, residences,
hospitals, schools, and potentially endangering the safety of
citizens. All told, it runs through 60 residential
subdivisions, affecting 782 individual residences, eight parks,
four schools, and seven public facilities. In addition, the
right-of-way passes through the area of Tumamoc Hill. Tumamoc
Hill is a highly valued and extremely important research area
for the University of Arizona, who has conducted research on
the hill for over 100 years.
Using the existing right of way will perpetuate a dangerous
situation for area residents and visitors. It will cause new
disturbance on Tumamoc Hill because the old pipeline will have
to be abandoned and a new trench dug to accommodate a larger
pipe. The alternative for alignment, which was presented to the
Tucson city council is unfortunately not much of an improvement
to the existing route. The realignment proposal would also put
the gasoline pipeline in close proximity to schools, homes, and
public facilities.
Kinder Morgan and the agencies involved have indicated that
only two options are available for the location of the
pipeline, but I do not believe adequate effort have been
expended to determine a safe and environmentally responsible
location for the pipeline. The community is now faced with a
no-win situation, because both options have the adverse impacts
on the community and on the natural resources of the area.
Because neither of the proposed routes is a tenable solution,
the community must be given a broader range of options. Kinder
Morgan and the agencies involved in this issue should look
again and look more closely this time to determine the safest
location for both human health and the environment.
Senator, I would strongly urge the agencies to initiate a
broad public process that would take the community's interests
and concerns into account and would closely examine the
possible public health and environmental impacts on the
pipeline's reconstruction wherever it occurs. A variety of
alternatives should be proposed that would address the health
and safety and environmental concerns associated with this
project.
It is a difficult issue and I have tried to narrow my
testimony, sir, on the after-the-fact situation. As you stated
in your opening comments, it's only in a crisis that makes
people focus on the situation, and now I've narrowed the focus
in this testimony to look at the realignment and/or relocation
of this pipeline. It is of great concern to the people in
Tucson, those both directly affected by the present alignment
or any future alignments.
I want to thank you for holding this hearing. It's very
important to the people of the state and certainly to the
people of my district, and I offer the support and assistance
of myself and my staff, who is available to work with your
office and all affected and interested parties. And again, my
thanks for allowing me the time to present this testimony,
Senator. Thank you.
[The prepared statement of Hon. Grijalva follows:]
Prepared Statement of Hon. Raul M. Grijalva,
U.S. Representative from Arizona
Thank you for holding a hearing on the Kinder Morgan gasoline
pipeline rupture that occurred in Tucson on July 30. Thank you for
allowing me to speak at the hearing and I submit this written statement
on the record.
I request that the Senate Committee on Commerce, Science, and
Transportation hold a hearing in Tucson, where the pipeline rupture
occurred, as soon as possible. While Phoenix residents were
inconvenienced by long lines at gas stations, my constituents have been
subjected to serious environmental, health and safety dangers as a
result of the pipeline rupture, and now must endure reconstruction and/
or realignment.
I am extremely concerned with the lack of diligent oversight by
Federal agencies who are tasked with monitoring safety and security of
gasoline pipelines and other energy infrastructure in this country. I
admonish all responsible agencies with jurisdiction in this matter who
should have been examining the line to ensure the safety of the
citizens of the area, along with the security of the gasoline supply.
Neither the public nor elected officials knew the extent of the
safety risks associated with the pipeline. Our preliminary information
indicates that the pipeline may have failed safety inspections from
1995 on, however, this information was not made public, nor made
available to elected officials or emergency personnel.
Thankfully, no one was injured during the rupture in July; however,
many residents had their lives seriously disrupted. The consequences of
this event are still rippling through our community, and will no doubt
be an issue of grave concern for a long time to come.
Now that the current immediate danger has passed, plans for
reconstruction or realignment of the pipeline are beginning to
formulate. Recently, the Tucson City Council was presented with two
options for the pipeline: allowing Kinder Morgan to repair the line in
its existing locale, or instead realign the pipeline to another route.
The Tucson City Council voted to allow reconstruction of the pipeline
in the existing right of way with slight modifications. While under
some circumstances, this option may have seemed like a logical choice,
the reconstruction along the existing right of way is far from a
positive solution to the problem.
The existing pipeline route passes close to parks, residences,
hospitals and schools, endangering the safety of citizens. All told it
runs through 60 residential subdivisions, affecting 782 individual
residences, 8 parks, 4 schools, and 7 public buildings. In addition,
the right of way passes through the area known as Tumamoc Hill. Tumamoc
Hill is a highly valued and extremely important research area for the
University of Arizona, who has conducted research on the hill for over
a hundred years.
Using the existing right of way will perpetuate a dangerous
situation for area residents and visitors, and will cause new
disturbance on Tumamoc Hill because the old pipeline will have to be
abandoned and a new trench dug to accommodate a larger pipe.
The alternative for alignment which was presented to the Tucson
City Council is, unfortunately, not much of an improvement to the
existing route. The realignment proposal would also put the gasoline
pipeline in close proximity to schools, homes and public facilities.
Kinder Morgan and the agencies involved have indicated that only
these two options are available for location of the pipeline, but I do
not believe adequate effort has been expended to determine a safe and
environmentally responsible location for the pipeline. The community is
now faced with a no-win situation because both options will have the
adverse impacts on the community and on the natural resources of the
area.
Because neither of the two proposed routes is a tenable solution,
the community must be given a broader range of options. Kinder Morgan
and the agencies involved in this issue should look again, and look
more closely this time, to determine the safest location for both human
health and the environment.
I strongly urge the agencies to initiate a broad public process
that would take the community's interests and concerns into account,
and would closely examine the possible public health and environmental
impacts of the pipeline's reconstruction, wherever this occurs. A
variety of alternatives should be proposed that would address the
health, safety and environmental concerns associated with this project.
Thank you for holding this hearing. I offer the support and
assistance of myself and my staff who are available to work with the
Senator's office in order to address this complex issue.
______
Congress of the United States
House of Representatives
Washington, DC, October 8, 2003
Stacy Gerard,
Administrator,
Office of Pipeline Safety,
Department of Transportation,
Washington, DC.
Admiral James M. Loy,
Administrator,
Transportation Security Administration,
Department of Homeland Security,
Arlington, VA.
RE: Kinder Morgan Pipeline Rupture
Dear Ms. Gerard and Admiral Loy:
I am writing to you with regard to the Kinder Morgan gasoline
pipeline rupture that took place in Tucson, Arizona on July 30, 2003.
This disaster is of extremely grave concern to me and to the
constituents I represent in Arizona.
The pipeline rupture subjected my constituents to serious
environmental, health and safety risks. Thankfully, no one was injured
in the rupture. Now that the immediate danger of the rupture has
passed, however, residents will have to endure the impacts of the
pipeline's reconstruction and potential realignment.
Not only is this situation a danger to the health and safety of our
citizens, it is also a tremendous risk to our country's security. When
lines are not appropriately monitored for leaks, breakages, or
weaknesses, it puts our citizens' lives at risk from potential
accidents and from possible sabotage.
Neither the public nor elected officials knew the extent of the
safety risks associated with the pipeline. Our preliminary information
indicates that the pipeline may have failed safety inspections from
1995 on, however, this information was not made public, nor made
available to elected officials or emergency personnel.
I am dismayed that your agencies, who have jurisdiction over this
matter, did not ensure that monitoring was taking place, and that you
did not act upon reports of unsafe conditions on the pipeline.
Monitoring and reporting of any problems were absolutely crucial in
order to ensure the safety of the residents who live along the
pipeline's route, and the security of the pipeline itself. I believe
this incident could have been prevented had your agencies been more
diligent in their duties.
The two options that have been presented to the citizens and City
Council of Tucson for reconstruction and/or realignment of the pipeline
route are clearly inadequate. The existing route perpetuates a
dangerous situation for area residents and will cause new disturbance
on Tumamoc Hill, a unique and highly valued research area ofthe
University of Arizona, because the old pipeline will have to be
abandoned and a new trench dug to accommodate a larger pipe.
The alternative for alignment which was presented to, and
subsequently rejected by, the Tucson City Council is, unfortunately,
not much of an improvement to the existing route. The realignment
proposal would also put the pipeline in close proximity to schools,
homes and public facilities.
Kinder Morgan and your agencies have indicated that only these two
options are available for location of the pipeline, but I do not
believe adequate effort has been expended to determine a safe and
environmentally responsible location for the pipeline. The community is
now faced with a no-win situation because both options will have the
adverse impacts on the community and on the natural resources of the
area.
Because neither of the two proposed routes is a tenable solution,
the community must be given a broader range of options. Your agencies
have a responsibility to look again, and look more closely this time,
to determine the safest location for both human health and the
environment.
Your agencies must initiate a broad public process that would take
the community's interests and concerns into account, and would closely
examine the possible public health and environmental impacts of the
pipeline's reconstruction, wherever this occurs. A variety of
alternatives should be proposed that would address the health, safety
and environmental concerns associated with this project.
I look forward to working with you and your designees on finding
common ground on this issue.
Sincerely,
Raul M. Grijalva,
Member of Congress.
cc: Norman Y. Mineta, Secretary of Transportation
Tom Ridge, Secretary of Homeland Security
The Chairman. Thank you very much, Congressman Grijalva,
and we appreciate your input on this issue of location of the
pipelines, and maybe we could discuss that just for a second.
Governor, thank you for your recommendation of the shifting
of the responsibility from OPS to Homeland Security. I think
it's probably a very worthwhile consideration, not to mention
that many view these pipelines as vulnerable to attacks from
terrorists, and so perhaps it's something that should be given
serious consideration and we'd suggest it.
Could we discuss just for a minute, Governor and
Congressman, this issue of the location of pipelines? They've
got to go somewhere, right? They have to go somewhere. Where
should they go? Through the national forests, through the
wilderness areas? It seems to me we've got a classic nimbi
problem here, and it also seems to me then that the people who
would probably make those decisions or have a significant voice
in those decisions are the people who are directly responsible
in many respects, i.e., mayor and city council, county
supervisors. What's your thoughts on that, Governor?
Governor Napolitano. Senator McCain, two points. One is I
agree with you this should be a matter within local control in
terms of planning and zoning and also disclosure to property
owners. But I think that underlying your question is the point
that the pipelines have to go somewhere. They cross vast
expanses of territory.
Given particularly the Western States and the growth of
population, it is hard to conceive how they can get gasoline to
where it needs to go without going near a population center and
so forth, which it why it is so that then says why it is so
important that there be very strict maintenance schedules, that
there be very aggressive oversight, that there be back-up plans
should there be a rupture, that there be availability to keep
the community on notice at times when an accident does occur.
In other words, what I'm saying, Senator, is if the
pipeline is to go where it will go, it will go near population
centers, it will go near schools. If it is, that just increases
the importance of effective oversight.
Mr. Grijalva. Sir, I would associate myself with the
comments that the Governor just made. I think the issue is
appropriately a local control issue and elected representatives
of a community bear that responsibility and they should retain
that responsibility. But in terms of the local issue, the
request for all involved parties to fully involve the community
in the disclosure and the discussion I think would help take
and alleviate much of the concern and much of the doubt that
exists right now, in the sense that everybody is getting the
information and everybody feels that they're participating in
that information.
Down the road there are some tough choices, and those
choices are going to be made. Someone will be affected and
impacted negatively, but the process is of great concern to me,
and that is the more you leave people to advise their own
conclusions as to what going on without having the direct input
into it, the more this issue becomes divisive, and as it is now
a great concern to the whole community. Maintenance, oversight,
critical issues, and I would concur with the Governor that
those have to be part of any long-term reform to this whole
issue.
The Chairman. Thank you very much. Before you go, Governor,
I know we're going to hear more about this issue from the
Attorney General. Do you want to comment on the gas price
issue? And in those comments, do you think we ought to change
the definition of price gouging?
Governor Napolitano. I think you have to have an effective
definition of price gouging, and I draw a contrast between what
happened after 9/11 and what happened after the Kinder Morgan
shut-down. After 9/11, I was the Attorney General and there
were reports of gouging in other States, and we received
complaints in the Attorney General's office and we sent
investigators out, and in fact we didn't find any gouging going
on in Arizona, in contrast to what happened this summer. There
definitely was gouging. Even at the most intense point of the
crisis there was no economic justification for charging $3.50
and $4 a gallon for gasoline or requiring people in one
instance, a car wash, gasoline station owner was requiring
people to buy a $10 car wash in order to fill their tank when
it was raining, and taking advantage that the market was out of
whack.
The Chairman. Doesn't that fit the definition then of
gouging?
Governor Napolitano. Well, Arizona does not have a gouging
statute.
The Chairman. But, apparently it doesn't fit the FTC's
definition either because there has to be some proof of
collusion. Is that----
Governor Napolitano. That's the way I understand it,
Senator, and I think in Arizona, the Attorney General and I are
working so we would have a state gouging law, which would be
triggered by the Governor having to make certain findings, but
then would give you the opportunity to go after those who are
taking unfair advantage of a natural shortage of supply.
The Chairman. Well, again, I thank you. It just seems to me
when there was, the instance you talked about that, I don't
know why you would have to prove collusion. It just seems to me
if it's a unreasonable pricing and unreasonable requirement
such as getting a car wash that that in itself should be
grounds for some kind of violation, but apparently that's not
the case. And I'm sure we'll hear more from the Attorney
General on this issue, but perhaps there needs to be some kind
of change at the Federal level as well as at the State level.
Governor Napolitano. We'll be happy to share with you our
draft legislation.
The Chairman. Thank you very much. I thank you both for
coming today and I appreciate you being here.
Mr. Grijalva. Thank you.
Governor Napolitano. Thank you, Senator.
The Chairman. Our next panel is Mr. Samuel Bonasso, who is
the Acting Administrator, Research and Special Programs
Administration of the Department of Transportation. He'll be
accompanied by Ms. Stacy Gerard, who is the Associate
Administrator for pipeline safety; the Honorable Terry Goddard,
who is the Attorney General of the State of Arizona; Honorable
Marc Spitzer, the Chairman of the Arizona Corporation
Commission; and the Honorable Bob Walkup, the Mayor of the City
of Tucson. I welcome you here and may I be corrected on the
pronunciation of your name, sir?
Mr. Bonasso. You have pronounced it just right, sir.
The Chairman. Thank you. Please sit down and please
proceed. Welcome, Mr. Bonasso.
STATEMENT OF SAMUEL BONASSO, ACTING ADMINISTRATOR, RESEARCH AND
SPECIAL PROGRAMS ADMINISTRATION,
DEPARTMENT OF TRANSPORTATION; ACCOMPANIED BY
STACY GERARD, ASSOCIATE ADMINISTRATOR FOR PIPELINE SAFETY
Mr. Bonasso. Thank you, Mr. Chairman. I appreciate this
opportunity to inform you of our progress to improve the safety
of pipelines, to discuss our activities in connection with the
Kinder Morgan accident of July 30, and to review some of our
progress and plans for improving safety in the future.
Much of the public discussion since the Tucson incident
reflects confusion over: (A) what caused the pipeline failure,
and (B) what might have prevented it from happening. I hope
that this hearing will bring clarity to these questions and
other concerns that the public has.
Corrosion of the metal itself was not the cause of the
pipeline failure in Tucson. This pipeline failure resulted from
a cracking phenomenon that rarely occurs in liquid pipelines.
Regretfully, science does not know much about this phenomenon,
including how to detect it very well. The testimony I have
submitted for the record covers this in detail and I am
prepared to expand.
The Nation's pipelines are essential to our way of life.
The 2.3 million miles of natural gas and hazardous liquid
pipelines carry near two-thirds of the energy consumed by our
Nation. Pipelines are the safest way to support these enormous
quantities of natural gas and hazardous liquids. The increased
need for pipeline safety is rooted in demographic changes
taking place in our country. Suburban development in previously
rural areas has placed pipelines closer to people. This
increases the risk that pipeline accidents, although
infrequent, will have tragic consequences. The Tucson pipeline
incident demonstrates what can happen when communities encroach
on pipelines and a failure occurs. Expansion and development
also means more construction activity, which is the leading
cause of pipeline accidents.
Pipeline safety is more than inspecting pipelines. It
involves regulation, technology, information, State government
partnerships, damage prevention, communication, and public
education. We have strengthened all of these elements in just a
few years thank to the attention of the Congress to pipeline
safety, specifically by your Committee and the Administration.
We are growing. Ten years ago, the Office of Pipeline
Safety consisted of 70 employees with 28 inspectors. Today we
are 143 employees and 85 inspectors. Our partnerships with the
States, such as our agreement with the Arizona Corporation
Commission, provide several hundred more inspectors. The growth
of our program has enabled the Office of Pipeline Safety to
clean up most of the 12-year backlog of outstanding mandates
and recommendations from Congress, the National Transportation
Safety Board, the DOT Inspector General, and the General
Accounting Office.
At the same time, the Pipeline Safety Improvement Act of
2002, enacted just 10 months ago, has given us many new
mandates. RSPA has aggressively responded and we are also
addressing these new mandates. In addition, since 9/11, we have
devoted considerable attention to national pipeline security.
Mr. Chairman, following your lead with legislation 3 years ago,
we took a new, more comprehensive, informed approach to
identifying and managing risks that pipeline operators face and
pipelines pose to our communities.
Today we know more about pipelines, the worlds they
traverse, and the consequences of a pipeline failure. We
finalized 14 regulations and incorporated 30 international
consensus standards into our safety regulations. We have
awarded almost $8 million for three dozen research projects to
improve pipeline safety. We have adopted a tough but fair
approach to enforcement, making heavier use of large fines,
while guiding pipeline operators to meet higher safety
standards.
Our inspections are much more rigorous. In 1996, a standard
pipeline inspection took an inspector up to 3 days to perform.
Today we spend 20 times that amount on a comprehensive
inspection. We have strengthened our partnership with State
pipelines--State safety agencies such as the Arizona
Corporation Commission through increased training, information
technology communications, and policy collaboration.
We are achieving results. Comparing the last 5 years to the
previous 5, hazardous liquid incidents have decreased by 28
percent. Two years ago the volume of oil spilled decreased by
33 percent from a 10-year average. Excavation accidents have
decreased over the past 10 years by 59 percent. This is largely
the result of work with our State partners and the more than
900 members of the damage prevention organization we initiated
called the Common Ground Alliance.
Finally, helping communities to know how they can live
safely with pipelines is a very important goal. We are moving
on a number of fronts. Working with others, we created a new
standard for public education to ensure community officials and
citizens have essential safety information they need to make
informed decisions. We have commissioned a study by the
Transportation Research Board of the National Academy of
Sciences to study issues of encroachment and maintenance on
pipeline rights of way. We have enlisted the help of the
Nation's fire marshals to bring information and guidance to
communities to build understanding of pipeline safety and first
responder needs.
Similarly, to foster safety and environmental protection on
tribal lands, we're working toward a partnership with the
Council of Energy Resource Tribes. RSPA and the people of the
Office of Pipeline Safety have the strongest possible
commitment to improving safety, reliability, and public
confidence in our Nation's pipeline infrastructure. Thank you,
sir.
[The prepared statement of Mr. Bonasso follows:]
Prepared Statement of Samuel G. Bonasso, P.E., Acting Administrator,
Research and Special Programs Administration, U.S. Department of
Transportation
I would like to thank Chairman John McCain for the invitation to
speak to the Committee today.
My name is Samuel Bonasso and I am Acting Administrator of the
Research and Special Programs Administration (RSPA), of the U.S.
Department of Transportation. Accompanying me today is Stacey Gerard,
Associate Administrator for the Office of Pipeline Safety (OPS).
RSPA's Office of Pipeline Safety has been engaged in the past three
years to rebuild the Nation's pipeline safety program. Today, I will
speak to the considerable challenges to this effort, many of which we
have surmounted, others which remain ahead. I will also address our
oversight of the pipelines of Kinder Morgan Energy Partners, LLP,
operators of the pipeline that failed in Tucson. Finally, I will
discuss the pipeline failure that threatened a community in Tucson and
led to gasoline shortages in the Phoenix area.
The nation's pipelines are essential to our economy and our way of
life and are a significant part of our Nation's critical
infrastructure. The 2.3 million miles of natural gas and hazardous
liquid pipelines carry two-thirds of the energy consumed by our Nation.
As the people of Phoenix must understand, you cannot replace even an
eight-inch pipeline with gasoline tank trucks. Moreover, there is no
way to transport the enormous quantities of natural gas and hazardous
liquids that is safer than pipelines.
We are working aggressively to make pipelines safer, to attain a
fundamental goal: that is, to build public confidence in the safety of
the Nation's pipelines.
We are here today because that public confidence was shaken in
Tucson in the early afternoon of July 30. As you know, the pipeline
that ruptured sprayed thousands of gallons of gasoline on homes under
construction--some only 40 feet away. Fortunately, no one died; no one
was injured. Certainly lives were disrupted and property was badly
damaged, and we understand the fear that this incident has left in its
wake.
As many will learn today, pipeline safety is a very complex,
technical matter. Much of the discussion we have heard in the weeks
since the Tucson incident reflects confusion over what caused the
failure of the pipeline and what might have been done differently to
have prevented it from happening. I hope that the information presented
by all witnesses today will bring clarity to the questions and concerns
of the public.
Safety is the top priority of the U.S. Department of
Transportation. Secretary Norman Mineta has given us a simple but
profoundly important goal: to improve safety and save lives.
Safety is at the core of RSPA's mission. We are the Federal agency
that regulates the movement of hazardous materials by all modes of
transportation, including pipelines. RSPA also provides emergency
support for transportation during emergencies. Also, across all modes
of transportation, RSPA develops transportation technology and provides
training for transportation professionals.
To be clear, our pipeline mission is safety it does not encompass
the regulation of energy supplies delivered by pipelines. While we
consider the impacts safety activities can have on the supplies of
natural gas or liquids delivered by pipeline, our sole focus is safety.
That said, there is a direct correlation between pipeline safety and
pipeline reliability; pipelines that fail do not deliver fuel.
Pipeline safety is more than inspecting pipelines: it involves
regulation, technology, information, state government partnerships,
damage prevention, communication, and public education. All of these
elements have been strengthened in only a few years, thanks to the
attention that the Congress, specifically your committee and the
Administration have devoted to improving pipeline safety. We have
significantly improved our overall ability to oversee and enforce
pipeline safety.
The relatively new emphasis on pipeline safety has emerged from the
confluence of a number of trends. Transmission pipelines were once
found mostly in rural areas, away from population centers, people and
activity. Until 1970, pipeline safety was not a Federal responsibility.
However, as suburban sprawl has expanded, pipelines that were once
in rural areas now pass along the edges of communities, increasing the
risk that pipeline accidents, as infrequent as they are, will have
tragic consequences. The Tucson pipeline incident is a clear example of
what can happen when communities encroach on pipeline rights-of-way. We
have seen worse examples of encroachment, with buildings and
communities built right over pipelines. There are no Federal laws that
govern land use in the areas near pipelines.
The Chairman of the Federal Reserve Board noted earlier this year
that domestic natural gas supplies are not expected to keep up with
increases in demand and that the Nation will have to rely on increased
imports of natural gas. This demand, combined with the expansion of our
cities and suburban areas requires expansion of the pipeline
infrastructure, although the increased construction activity can lead
to pipeline accidents, as backhoes and other equipment dig into the
ground, and the pipelines. The economic boom of the nineties brought
greater risk of construction equipment striking pipelines. While the
damage to pipelines by construction equipment often results in instant
and deadly consequences, it is not always so. Damage to pipelines from
construction may remain undetected and leave the potential for a future
rupture.
Our national appetite for energy has increased, and will continue
to do so. There will be more pipelines.
Increased demands for energy, along with a consolidation of the
pipeline industry and increased competition over the past decade are
putting more strain on the pipeline infrastructure. For example:
changes in patterns of energy consumption of natural gas have led to
decreased pipeline down-time for the natural gas industry. Operators
once had six months a year of pipeline off-peak time to repair and
maintain pipelines and to refill storage capacity. Today, electric
power requirements for natural gas have reduced down-time to a maximum
of two months a year. Gas operators must balance the need to fill up
gas storage with time for testing and repair. Increased inspections and
testing of pipelines will take more pipelines out of service and could
impact the delivery of energy.
Congressional reauthorizations of the pipeline safety program in
the late eighties and nineties provided this very small agency with
many complex tasks. Further, the Oil Pollution Act of 1990 provided new
environmental responsibilities and in 1998, the One Call Notification
Act added damage prevention tasks that extended RSPA's sphere of
influence to the entire community of underground utilities. While RSPA
successfully completed the mandates of the latter two statutes in a
timely manner, a backlog of mandates from the reauthorizations of 1988
and 1992 had built up.
In March 2002, RSPA made a commitment to clean up our record. By
May 2002, our actions led to the NTSB removing the Office of Pipeline
Safety from its ``Most Wanted List of Safety Recommendations,'' for the
first time in a dozen years. Today we have reduced the backlog by 63
percent. As a result of recent emphasis on the need to improve pipeline
safety, RSPA's Office of Pipeline Safety (OPS) has expanded. In 1994,
the OPS consisted of 70 employees, including 28 inspectors; our budget
was $17 million. Today, OPS has 143 employees, with 85 inspectors and a
budget of $63 million. For 2004, we requested to increase the
inspectors to 109 and a budget of $67 million. Moreover, our
partnerships with states, such as our agreement with the Arizona
Corporation Commission, expand our capabilities by hundreds of
inspectors. In current day terms, we have better resources to address
our responsibilities, and appreciate the Congress allocating increased
funding.
In addition to completing the mandates and recommendations of the
past, RSPA is addressing the many new requirements and responsibilities
of the Pipeline Safety Improvement Act of 2002 (PSIA) enacted almost 10
months ago. We moved aggressively to respond to all the regulatory
requirements:
We completed operator qualification standards and expect to
meet the statutory deadline for completing inspections.
We defined alternative mitigation measures when operators
cannot complete repairs in time with regulatory requirements.
We presented a gas Integrity Management proposed rule to the
technical advisory committee in May, have acted on their
recommendations, and we expect to publish the final rule on
schedule.
We assisted operators with meeting public education
requirements by providing workshops on a newly developed
consensus standard and an approach to self assessment.
We enforced the mapping requirement and achieved 98 percent
compliance within 6 weeks of the statutory deadline.
As to longer term program development requirements, we have begun
all of the major studies and plans:
We are meeting with operators on our plan to implement the
controller study.
We drafted the required memorandum on research roles and a
five year plan, including the comments of many experts we
consulted.
We continue to implement the damage prevention requirements
associated with the one-call provisions and have a new
cooperative agreement with the Common Ground Alliance.
We petitioned the Federal Communications Commission to
establish 3-Digit dialing and the FCC is moving to the required
rulemaking.
We continue to work with the Council on Environmental
Quality to improve the coordination of permits needed to repair
pipelines in accordance with our new Integrity Management
standards, and
We have appointed an ombudsman as required by law.
The rupture of the pipeline in Tucson was all the more dangerous
because development had encroached so close to the pipeline right of
way that houses were only about 40 feet away. One of the most
significant aspects of the new law is the requirement to study land use
practices, zoning ordinances and preservation of environmental
resources.
In conjunction with the Federal Energy Regulatory Commission, we
have asked the Transportation Research Board of the National Academy of
Sciences to begin a study to address issues of encroachment and
maintenance on pipeline rights-of-way. Our goal is to identify
promising approaches for local government for managing land use near
pipeline rights-of-way-guidelines on what development is compatible
with pipelines, and what development to avoid. The study we have
commissioned brings together all key stakeholders--including
representatives from local government, developers, pipeline companies,
environmental groups and others.
RSPA and our Office of Pipeline Safety are working diligently to
improve pipeline safety, as societal and economic changes make the
challenge more complex.
To manage the risks inherent in pipeline transportation, we have
been building a new, more comprehensive and informed approach to
pipeline safety. Ours is a multi-phase strategy which leaves no stone
unturned in identifying and addressing pipeline risks. Our efforts are
consistent with legislation you proposed in 1999 and the Pipeline
Safety Improvement Act of 2002.
We believe this approach is working.
Comparing the last five years to the previous five years, hazardous
liquid incidents have decreased by 28 percent. Two years ago, the
volume of oil spilled decreased by 33 percent from a ten-year average.
Last year, saw a 57 percent decrease.
Excavation accidents have decreased over the past ten years by 59
percent, even while housing starts, which bring construction risk near
pipelines, were on the rise.
Over the past three years, we have built a more comprehensive
approach to identifying and managing the risks that pipeline operators
face and that pipelines pose to communities. Basing our efforts on the
solid foundation of pipeline regulation:
We revitalized our approach to oversight of compliance by
operators and Integrity Management efforts.
We required better data about pipelines, the world they
traverse and consequences in the event of a pipeline failure.
We raised the standards for safety in the testing and repair
of pipelines, corrosion control, operator qualification, public
education and damage prevention, both through promulgation of
regulations and adoption of national consensus standards.
In three years:
We finalized 14 regulations
We incorporated about 30 new national consensus standards in
our regulations (and will shortly be finalizing six more
regulations); these join 80 national consensus standards
embodied in our regulations.
We started a research program to improve technology for the
detection, diagnosis and remediation of safety problems;
RSPA awarded more than $7.8 million for approximately
36 research projects.
The General Accounting Office recently gave a
favorable review of our approach to research program
management.
Central to RSPA's more comprehensive safety strategy is a more
systemic management of risk: Integrity Management. In past regulatory
and oversight practices, we prescribed specific measures for specific
modes of pipeline failure. Today, we add another level of protection by
requiring operators to address every way a pipeline could fail using
the best tools and practices that apply.
In our enforcement orders, we require operators to provide a plan
of response that we evaluate for adequacy. In Integrity Management
planning, we require operators to set priorities based on the
consequences of failure. Operators must identify areas along their
pipelines where consequences of a failure would be severe. In these
areas, they must provide even further protection.
Under Integrity Management, pipeline operators must make better use
of new and existing information on pipeline operation, history, and
potential failure. Higher standards for testing and repair are key
components for Integrity Management.
Integrity Management provides a sound scientific and technical
basis for strengthening the pipeline system segment by segment, where
people and important environmental resources cohabit with pipelines.
Overseeing and enforcing Integrity Management poses a challenge to
regulators to develop a much better understanding of the condition of a
pipeline and the technologies and tools that are best suited to address
conditions that may be unique to a pipeline system.
Our new regulations have both prescriptive and performance aspects,
so Federal and state regulators will need detailed training and
inspection protocols. GAO gave RSPA a favorable review for our
preparation to oversee the Integrity Management Program.
Integrity Management is a concept that has evolved as the Office of
Pipeline Safety has revamped enforcement policy over the past 13 years
(1990-2003), through three major phases. Each phase corresponded with
major program developments and built upon the lessons learned of the
previous years. From 1990-1995, OPS focused on standard inspections
that addressed compliance with the then prescriptive pipeline safety
regulations. From 1995-2000, risk management principles were
incorporated in the regulatory programs; oversight relied on more
informal written communication about safety improvements.
Following the Bellingham, Washington and Carlsbad, New Mexico
accidents in 1999 and 2000, OPS returned to more traditional and formal
enforcement tools, such as corrective action orders. Our current focus
is system-wide improvement, evolving from risk management principles
and emergence of new Integrity Management standards. OPS now makes
heavier use of large fines as appropriate. Average penalties since 2000
were ten times higher than the previous ten years.
For example, within 100 days of the liquid Integrity Management
regulation becoming effective, OPS inspected all66 major interstate
operators for compliance with the initial regulatory requirements. We
took enforcement actions on approximately 80 percent of the operators.
Of these, Kinder Morgan was one in which OPS took a more serious
enforcement action.
OPS inspected Kinder Morgan in mid-January 2002. On May 2, 2002, we
issued a Warning Letter and Notice of Amendment about deficiencies in
their identification of High Consequence Areas. We received a response
from the company within one month, in June 2002 that was satisfactory.
In February 2003, we followed through with a site visit to the company,
and in April conducted two weeks of comprehensive Integrity Management
inspection. We conducted further follow-through Integrity Management
review in June 2003. We issued a final order on the Notice of Amendment
in August 2003. These actions were ongoing at the same time as OPS
addressed enforcement in a separate matter with Kinder Morgan.
When we are concerned about the potential for hazardous conditions
discovered by tests or following pipeline accidents, we use formal and
enforceable Corrective Action Orders (CAOs). Through CAOs, we can
compel operators to reduce operating pressure in order to prevent
additional failure, to determine the cause of an accident, to assess
where similar conditions exist across the pipeline system and to
develop and implement a plan for remediation. These actions often cost
pipeline operators many million of dollars in assessment, testing,
repair and replacement expenses. Since the Carlsbad accident in August
2000, we have issued 29 CAOs as compared to 21 in the prior 11 years, a
500 percent increase in the use of a formal enforcement tool.
As another point of comparison, in 1996, a standard inspection took
an inspector two and half to three days to perform. Today, a
comprehensive inspection takes a team of four OPS staff and two
contract experts two weeks each to execute, in addition to weeks of
prior preparations and weeks of follow-on analysis-a twenty-fold
increase in the resources applied. Extensive resources go into training
our inspectors and provide the information support systems needed to
track inspection and enforcement. For Integrity Management inspections,
our enforcement tracking system, readily available through the Internet
to and state regulators, captures all relevant information on an
operator and our oversight process, critical to gauging progress during
future inspections.
A significant influence on our enforcement program has been the
necessary focus on pipeline security that emerged quickly after the
terrorist attacks of 9/11. We assessed the readiness of the most
critical pipeline systems to withstand attack, prioritized the
criticality of the individual pipeline systems, and then worked with
industry and state agencies to develop security standards. We have
developed a system that enables pipeline operators to increase their
security in synchronization with the Homeland Security Advisory System.
We executed our security measures jointly with the Department of
Homeland Security.
To more thoroughly understand and address pipeline integrity issues
and regional concerns, we improved partnerships with state and local
agencies. Through increased training, information technology,
communications, and policy collaboration, we have strengthened our
partnership with state pipelines safety agencies. They share oversight
responsibilities with us and inspect over 90 percent of the pipeline
infrastructure. By way of example, the Arizona Corporation Commission
(ACC) has been in the pipeline safety program since 1983. ACC became an
interstate agent in 1987, taking responsibility for inspecting
interstate gas pipelines and interstate hazardous liquid lines in 1988.
Our distribution of state grant funds is based on performance and
Arizona has consistently received the highest possible rating--100
percent. The ACC has always been in the forefront of pipeline safety
policymaking, participating in the Local Distribution Company Risk
Assessment Feasibility team, the System Integrity Inspection Program
(the sole state participant) and as faculty to our training programs.
RSPA added to this already good pipeline safety corps the more than
900 members of the Common Ground Alliance (CGA), a voluntary damage
prevention organization we initiated in 1999. With our state partners
and the CGA, we share responsibility for preventing damage to pipelines
and other utilities by advocating and adopting practices of the Common
Ground Report, required by the Transportation Equity Act. This alliance
provides the synergy of common safety actions in the ``underground'' by
other utilities, railroads, insurance companies, public works and other
municipal organizations. Through a new program with the National
Association of State Fire Marshals, we add the capability of first
responders to the ranks of allies helping us with damage prevention and
community education. We are also working to establish a partnership
with the Council of Energy Resource Tribes to foster safety and
environmental protection on Tribal Lands, as well as improved
communications between each of the tribes, OPS, the National
Association of Pipeline Safety Representatives and the pipeline
industry. This effort will help to identify high consequence areas on
Tribal Lands and provide pipeline emergency response and inspection
awareness training.
We have energized our efforts to reach the public with messages
about how citizens can protect themselves and the pipelines. Working
with the pipeline industry and state agencies, we created a new public
education standard for operators to acquaint citizens and public
officials with the essential safety information and to make informed
decisions about living safety with and minimizing damage to pipelines.
This year alone, we have solicited public involvement in 15 public
meetings addressing Integrity Management, operator qualification,
public education, research, and mapping.
The mapping of the Nation's pipelines has been a major endeavor of
the Office of Pipeline Safety for several years. While submission of
data by operators for the National Pipeline Mapping System (NPMS) had
been voluntary, the PSIA made it mandatory. The NPMS, a multi-layered
Geographic Information System (GIS), contains information about the
pipelines as well as the locations of populated areas and unusually
sensitive areas, such as sources of municipal drinking water. OPS
collected these data over a period of years and created a unique
national database. OPS launched the NPMS on the World Wide Web in April
of 2001, offering a sophisticated resource to enable Federal, state,
and local officials industry and others to understand the extent of the
pipeline infrastructure and its relationship to environments.
The terrorist attacks of 9/11 made clear that access to this
database, which contains information that could facilitate terrorists'
plans, could no longer be completely available to the public.
We have now restructured the NPMS to make the information again
available to officials with a need to know. Today, Federal, state and
local officials can register to have access to pipeline data within
their realm of responsibility. The public may also use a tool on the
NPMS to obtain information on operators with pipelines in their
vicinity. By searching within a county or Zip code, an individual is
provided with contact information for the pipeline operator, so that
information may be obtained, for example, on the proximity of a
pipeline to a community. The NPMS is at http://www.npms.rspa.dot.gov/
I will now discuss our enforcement of the pipelines of Kinder
Morgan Energy Partners, LLP, operators of the pipeline that failed in
Tucson.
Kinder Morgan's 10,000 miles of pipelines transport more than two
million barrels per day of gasoline and other petroleum products. We
inspect Kinder Morgan's facilities on a rotational basis usually in a
three-year cycle. The Arizona Corporation Commission and the California
State Fire Marshall, our hazardous liquid interstate agents, assist in
our inspection of Kinder Morgan's vast hazardous liquid pipeline
infrastructure.
OPS records show that Kinder Morgan has managed its hazardous
liquid pipeline infrastructure as well as other companies with similar
pipeline mileage. Besides Corrective Action Orders in 2001 and 2003,
OPS has issued five enforcement letters to Kinder Morgan since 1996.
Most of the problems on Kinder Morgan's hazardous liquid pipeline
facilities in Arizona have been due to external corrosion. The 2001
Corrective Action Order directed Kinder Morgan to manage the external
corrosion on the 6-inch Phoenix to Tucson refined products pipeline.
The 2003 Corrective Action Order, issued following the July 30
accident, addressed stress corrosion cracking (SCC) on the Tucson to
Phoenix refined products pipeline.
There has been much public discussion and often-misleading
speculation about corrosion following the July 30 accident. This has
contributed to some concluding that external corrosion found on the
pipeline was responsible for the rupture. It was not. Based on
metallurgical analysis, the cause of the rupture was stress corrosion
cracking.
SCC on pipelines is a lesser-known phenomenon that is vastly
different from galvanic corrosion and rarely found to cause failure in
hazardous liquid pipelines. There have been only five reported sec
failures on hazardous liquid pipelines since 1985.
Galvanic corrosion, also known as pitting corrosion or general
corrosion, is very easily distinguished from SCC. In galvanic corrosion
there is metal loss in the form of small pits, much like rust.
Traditional corrosion is very easily controlled with the application of
cathodic protection, which applies electric current to the pipeline
surface.
Today, technologies enable discovery of pipeline sections that are
not adequately protected, and our statistics have shown a gradual
decrease in pitting corrosion. Most pipeline companies are now also
using in-line inspection devices to assess the integrity of their
pipelines to understand the nature of the resident and long-term
corrosion threats on the infrastructure. Over the last decade, in-line
inspection devices have proven their ability to recognize and measure
pitting corrosion on the inside and outside surfaces of pipelines.
Thus, it is now very easy to discover, control and manage general
corrosion.
SCC, also known as environmentally assisted cracking, is a
relatively new phenomenon. Instead of pits, SCC manifests itself as
cracks that are minute in length and depth. Over time, individual
cracks coalesce with other cracks and become longer. The rate of growth
of these cracks is very slow; in the neighborhood of one one-hundred-
thousandth (1x10-6) of an inch per year.
SCC is caused by the union of three factors: stress regime,
pipeline metallurgy and coating, and environment. Thus, SCC is cracking
induced from the combined influence of tensile stress and a corrosive
medium.
In the pipeline industry, SCC first revealed itself in natural gas
pipelines. In Canada, for example, the ratio of failures on natural gas
pipelines versus failures on hazardous liquid pipelines is 4:1. The
failures in hazardous liquid pipelines can be more random and more
catastrophic because of the phenomenon known as cycling, pressure
surges that cause cracks to grow.
Currently, there are no tools or mechanisms available to
confidently identify the susceptibility of pipeline sections to SCC.
Science has not yet discovered the boundary conditions, or the
intersection, at which the three factors interact to cause SCC.
Questions have been raised about inspections of the six-inch
pipeline now operated by Kinder Morgan. This pipeline has not ruptured,
and is now being used to supplement the delivery of gasoline to
Phoenix. Kinder Morgan started operating the six-inch Santa Fe Pacific
Pipeline refined products pipeline that extends from Phoenix to Tucson
in 1998.
The ACC conducted inspections in 1996 and 1997. After another
inspection in 1998, OPS directed Kinder Morgan to conduct a close-
interval survey on about 30 miles of pipeline. Because of persistent
external corrosion problems, in 1999 Kinder Morgan launched an in-line
inspection tool to understand the extent of external galvanic corrosion
on the pipeline. In 2000 as a result of this inspection, Kinder Morgan
decreased the operating pressure to about one-half of regular pressure.
In 2001, Kinder Morgan also repaired about 52 locations and
replaced about one-half mile of pipeline where the corrosion was
extensive. During the repair and replacement process, OPS conducted
inspections to review data from the internal inspection to assure that
repairs were taking place at all the sites of major corrosion. We
determined that Kinder Morgan was taking proper action. Following this
remedial work, ACC's standard inspection revealed that this Kinder
Morgan pipeline needed continued monitoring for galvanic corrosion.
Immediately thereafter, OPS issued Kinder Morgan a Corrective
Action Order (CPF No. 4-2001-5010H) to address the long-term integrity
of the six-inch refined products pipeline. The hearing on this CAO was
conducted in August 2001 and the Order was amended in March 2003. The
delay in amending the Order never compromised public and environmental
safety because the immediate threats on the six-inch pipeline were
remedied by the close-interval survey and the repairs before the Order
was issued. As well, the standards that Kinder Morgan used to repair
the pitting anomalies exceeded requirements in the regulations at that
time and subsequent regulations now in effect.
OPS's interest was in the long-term health of the pipeline and our
strategy was to maintain Kinder Morgan's attention on this facility. We
intentionally keep orders open to continuously evaluate pipeline
conditions until we are satisfied that the pipeline does not merit
special attention.
Regarding the Kinder Morgan refined products pipelines extending
from Tucson to Phoenix (the pipeline that ruptured): we have revised
the August 6, 2003 Corrective Action Order. We are now directing Kinder
Morgan to conduct systemic tests on the extent of SCC on the 8-inch and
12-inch pipeline using the most current knowledge and evaluation
techniques. We are also broadening this evaluation include the six-inch
pipeline, to ensure that sec has not migrated on to the six-inch
pipeline in areas where it shares the same subsurface environment as
the 8/12-inch pipeline. We have issued an industry-wide advisory on
this matter. We will be conducting a public workshop on these
techniques in December to assure broad dissemination and discussion of
these issues.
The RSPA effort to rebuild the pipeline safety program is well
under way and the results of our strategy are evident in data and
organizational improvements in the companies we regulate. Through
expanded partnerships with state and local officials, we expect to
strengthen the effectiveness of our safety and prevention efforts. We
have requested additional resources to help enable us to execute our
strategy and we are appreciative of the priority that Congress has
placed on pipeline safety.
RSPA continues to have the strongest possible commitment to
addressing outstanding mandates and recommendations to us, and we
believe that the record of our recent performance should serve as an
indication of our resolve to improve the safety, reliability, and
public confidence in our Nation's essential pipeline infrastructure.
The Chairman. Thank you very much. Attorney General
Goddard, welcome.
STATEMENT OF TERRY GODDARD, ATTORNEY GENERAL, STATE OF ARIZONA
Mr. Goddard. Mr. Chairman, thank you very much. It's a
pleasure to be here and to speak about the disruption inflicted
in our state just a very short while ago. I would like to
concentrate on the part of your invitation to speak which
emphasized, as you've already alluded to, the effect on
consumers, the effect on prices, the effect on supply. The
Governor has already spoken, I think, very eloquently about the
safety aspects. I have a little bit to add but I'll leave those
in my final comments.
I think the disruption that we suffered showed a number of
things about Arizona, many of which were disturbing, not only
the danger posed by the oil pipeline, but the fragile nature of
our economy, and how vulnerable we could be to this kind of a
disruption. The future depends upon affordable, reliable, and
safe supplies of both energy, fuel, electricity, and water.
Those are our two critical elements and they're both in short
supply. Arizona is in a particularly delicate position due to
the scarcity of water and the lack of crude oil production in
the gasoline refining in our State.
Our gasoline supply in particular in Arizona depends, as
has already been noted, on two pipelines, one through the west
and one through the east, and I think it's the vulnerability
that our economy in our state has that came into very sharp
focus during this crisis. We didn't have adequate back-ups, we
didn't have alternatives, we didn't have a competitive market
in this State, and as a result we found when the pipeline broke
and we suddenly had disruption that there wasn't, for example,
storage in Maricopa County we can fall back on. There aren't
tank farms except very short supply ones in this county. It
appears that we have no refineries, that we have no alternative
supply.
The other thing that came in sharp relief was how hard it
was to replace the pipeline and efforts were made gallant
efforts were made to bring trucking supplies into Maricopa
County, but it simply was inadequate as a result of the time
limitations the truck drivers have to adhere to under Federal
standards. Those were waived to a slight degree as a result of
the crisis, but nonetheless, many trucks were left idle when
they could have been producing gasoline for our central part of
the state.
There was talk about bringing the railroad into production,
but that ultimately proved far too difficult with regulator
barriers and in getting a supply of tank cars mobilized in
time. And even the National Guard, our biggest tankers were in
Iraq and the smaller ones turned out to not have qualified
drivers for doing commercial deliveries and the nozzles used by
commercial gasoline distributors would not work on our military
trucks. So a lot was learned in that process and I think we'll
be in better shape in the future, but still the vulnerability
of the whole system was brought into sharp focus. And all that
is in the context of the fact that our whole gasoline delivery
is facing a major shift here in Arizona.
California has provided approximately 70 percent of the
gasoline supplies and we know that picture is changing. It's
down to about 50 percent today and we believe in the next 4 or
5 years it will go to almost 0. California's production is
going to be used in California or we're going to have to pay
incredible prices to get it back from them. So we see major
changes coming in our market and we need to be better prepared
for them.
As Attorney General in charge of enforcing existing laws
and representing State agencies, many of whom have been working
tirelessly to ease the damage caused by the Kinder Morgan
pipeline shutdown, Kinder Morgan has recently turned over
voluminous documents relating to the spill clean-up to my
office, and we're in the process of evaluating and studying
those documents. Our antitrust principle of legal authority in
this area is under the antitrust laws and Senator, as you've
already described, it requires a conspiracy in restraint to
trade or conspiracy to fix prices to bring an antitrust
violation in cases like this, and we felt that at least so far
our investigation has not shown such a conspiracy. However, we
definitely
The Chairman. Why do you think you should have to prove a
conspiracy?
Mr. Goddard. Because that's the only statutory authority we
have, sir.
The Chairman. But I mean, it doesn't make sense, does it?
Mr. Goddard. Well, I believe given what happened in this
case, where about a dozen stations out of 1,200 in Maricopa
County took this opportunity to raise prices, as you and the
Governor have noted, to exceptional levels $4, in one instance
$4.96 was the highest recorded price that we have we've
investigated our of our office, although we didn't have a
legal--we didn't have a price gouging statute.
Nonetheless, we investigated for the record incidents that
had been complained of. We verified that it was a very small
number of stations, rogue stations, who took advantage of this
situation and took their prices to the highest possible level.
Most stations did not. Most applied a modest surcharge over
wholesale prices because we were monitoring the wholesale
during this problem as well. And as I said, only about a dozen
truly gouged the public.
I am working very hard with legislators to try to have a
gouging statute an anti-gouging statute in the next session,
because I think that's a critical weapon, as the Governor has
described, in times of emergency when we don't have a
competitive market, when basically the public is the victim of
whatever price is charged because they can not competitively
shop, I believe some protections are in order.
Now we also had, as you know, major supply interruptions. I
did want to speak to prices though before I go on. We have a
chart here, I hope you can see it, Senator, it's the one on the
far right, which shows as the lower line national gas prices,
and as the upper line central Arizona gas prices, reaching a
high of $1 excuse me, $2.14 for a gallon of regular, clean-
burning fuel on August 26. Obviously we went from right about
the national average just a few days before the disruption to
an extraordinary peak, which we are still in an area which is
above the national average. Our prices obviously have come down
faster than the national, but what you see, I think, in stark
relief from that particular diagram, is just how quickly and
how severely Arizona consumers, and Arizona law enforcement, I
would like to note, were affected by this shortage. Bay
stations, in fact, ran out of gasoline during this problem and
for approximately a week we had shortages within the market,
and that is detailed in my filed remarks.
I'm afraid that the August supply destruction could recur,
absent improvements in our gasoline supply alternatives in
Arizona. Additional gasoline supply may come from another
pipeline, which is nearly complete in Texas. While this new
pipeline might help bring additional product into Arizona and
reduce our dependence on California gasoline, the physical
capacity of limitations with the existing pipeline in Arizona,
by that I mean the one from El Paso to Tucson, reduces the
usefulness of this option. Furthermore, FERC has a pro-rata
policy, which appears to suppress the opportunities for new
entrance into this market.
There's also a possibility of a new refinery here in
Arizona, it has been widely discussed. Again, although this may
appear to be a positive solution, I have serious concerns about
the physical practicality, the time to completion, pollution
controls, and environmental justice issues. My office will
continue to assess and evaluate potential market manipulation
in gasoline supply. If I discover illegal conduct, I will
vigorously prosecute.
I'd like to thank the Committee, Senator McCain, for the
opportunity to speak here today.
[The prepared statement of Mr. Goddard follows:]
Prepared Statement of Terry Goddard, Attorney General, State of Arizona
I. Introduction
Thank you for the opportunity to present testimony on the important
issues relating to gasoline in Arizona. I intend to focus my remarks on
fuel supply and consumer costs, with a brief note about pipeline-
related public safety.
Arizona's bright economic future depends on affordable, reliable
and safe supplies of both energy (fuel and electricity) and water.
Arizona is in a delicate position due to the scarcity of water and the
lack of crude oil production or gasoline refining in our state. For
gasoline supply in particular, Arizona depends on two pipelines, one
from the West and one from the East. Affordability of gasoline is
crucial for many Arizonans on fixed incomes and those workers with
incomes lower than the national average who are hardest hit by rising
gasoline prices. A reliable fuel supply is essential for maintaining a
stable economy. Safety in supply is of the utmost importance for
Arizonans' health and our environment. Fuel spills and other gasoline-
related pollution affect the air, water, and land.
We have seen that increased fuel costs can also affect public
safety. During the price spike of Spring 2003, several Arizona law
enforcement agencies faced curtailing patrols and other activities
because of budgetary constraints combined with gasoline price
increases.
Arizona is facing a major shift in gasoline supply. Where Arizona
traditionally received seventy percent of its gasoline from California
and thirty percent from Texas, in recent years the trend is towards an
even fifty-fifty split.\1\ In the future, California's demand for
gasoline will likely exceed its production capacity.\2\ Not only will
Arizona no longer be able to receive gasoline from California, but
California may begin to compete with Arizona for gasoline from
Texas.\3\
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\1\ Source: Arizona Departments of Commerce Energy Office and
Weights and Measures.
\2\ Some estimates show California's demand for gasoline exceeding
production by 2007. Source: Stillwater Associates, April 2002,
presented by AZ Dept. of Commerce Energy Office in May, 2003 report.
\3\ See, e.g., ``Gulf Coast to California Pipeline Feasibility
Study,'' California Energy Commission Committee Report, August 2003.
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Even while Arizona, and Phoenix in particular, move towards
improved mass-transit, energy conservation, and other fuel sources,
Arizona's dependence on gasoline increases daily due to enormous
population growth. Both government and industry must continue to
address and plan for this growth.
As Attorney General, I am charged with enforcing existing laws and
representing state agencies, many of which have been working tirelessly
to ease the damage caused by the recent Kinder Morgan pipeline
shutdown. My office continues to work closely with the Governor's
Office, the Governor's Gasoline Working Group, and other state agencies
to evaluate what led to the gasoline shortage, and to develop long-term
policy solutions.
The Arizona Department of Environmental Quality (ADEQ) is
investigating the July 30, 2003 gasoline spill in northwest Tucson.
Kinder Morgan has recently turned over voluminous documents relating to
the spill and clean-up. The Attorney General's Office and ADEQ's
investigation into this matter is ongoing. ADEQ also worked with the
Governor and the Environmental Protection Agency (EPA) to obtain a
waiver allowing conventional fuel to be used in Maricopa County during
the shortages.
The Department of Weights and Measures has been instrumental in
monitoring supply and fuel quality, with particular attention to the
time period during the gasoline shortage.
The Department of Commerce, Energy Office is working on long-term
gasoline supply policy issues facing Arizona.
The Department of Real Estate is investigating whether residential
subdivision developers properly disclosed the location of the
pipeline.\4\ If violations are found, these developers could face civil
penalties and future difficulties in obtaining licenses to sell
property. Further, home buyers who were not informed of pipeline
proximity may have recourse either through private legal action or
through the Department.
---------------------------------------------------------------------------
\4\ Pursuant to Commissioner's Rule R4-28-Al203-4 and Arizona
Revised Statutes (A.R.S.) Sec. 32-218l(A)(4).
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The Attorney General's Antitrust Unit continually monitors the
market for evidence of anticompetitive behavior, including price
fixing, supply manipulation, and other antitrust violations.
I am also working with legislators on proposed price gouging
legislation to deter and punish those who would take advantage of
consumers during a state of emergency. Prices as high as $4.96 per
gallon of regular CBG were reported to and investigated by my office.
Consumer feedback from about 1,000 complaints and inquiries
demonstrated overwhelming popular support for price gouging
legislation.
Background
As the pipeline enters South Tucson, it carries fuel to
Phoenix through residential areas, past Mission View Elementary
School and within feet of the Salvation Army Adult
Rehabilitation Center on South Sixth Avenue.\5\ A smoking area
at the Salvation Army is located directly above the
pipeline.\6\ The pipeline travels along Starr Pass Boulevard
behind residential areas and angles to the north near Cholla
High School, the west side of Tumamoc Hill and ``A'' Mountain.
The pipeline passes within a quarter-mile of buildings on Pima
Community College's West Campus and residential areas along
North La Cholla Boulevard. As the pipeline heads north toward
Interstate 10, it runs along a wash that splits the Silver
Creek subdivisions, the site of the July 30 rupture.\7\
---------------------------------------------------------------------------
\5\ Abayta, Oscar and Eric Sagara, ``Ruptured Confidence.'' Tucson
Citizen. Sept. 4, 2003.
\6\ Id.
\7\ Id.
July 30, 2003: The Kinder Morgan (KM) gasoline pipeline
between Tucson and Phoenix ruptured, and KM reported spilling
approximately 10,000 gallons of fuel in northwest Tucson over a
residential construction site. After an initial repair,
subsequent testing by KM revealed stress corrosion cracking,
leading KM to shut down the entire Tucson-Phoenix line on
---------------------------------------------------------------------------
August 8, 2003.
Mid-August: Severe gasoline shortages developed in Maricopa
County as a direct result of the pipeline shutdown. Gasoline
prices skyrocketed. Independent dealers lobbied the Governor,
the EPA and ADEQ to waive the Clean Air Act requirements,
allowing the use of conventional gasoline in Maricopa County,
which normally requires Cleaner Burning Gasoline (CBG).
From 1988 to 2001: The Arizona gasoline pipeline \8\ had
forty-six probable non compliance violations noted by the
Arizona Corporation Commission, including failures to comply
with rules concerning corrosion control (1991, 1992, 1995).
Since 1993, the Office of Pipeline Safety issued two non-
compliance letters and one corrective action. The corrective
action was in response to the July 30, 2003, pipeline rupture.
---------------------------------------------------------------------------
\8\ Formerly the Santa Fe Pipeline, bought by Kinder Morgan in
1998.
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II. Affordability of Fuel
Gasoline (Cleaner Burning Gasoline, or ``CBG'' \9\ prices in
Phoenix skyrocketed from an average of $1.54 \10\ per gallon of CBG
regular on July 30, before the pipeline rupture, to a record-breaking
average high of $2.14 per gallon on August 26. Phoenix prices are now
at an average of $1.77 per gallon.
---------------------------------------------------------------------------
\9\ Cleaner Burning Gasoline (CBG) is the fuel blend used in ``Area
A'' to comply with Federal air quality requirements. Area A includes
Maricopa County and a small section of Northern Pinal County.
\10\ Average retail gasoline prices. Source: AAA Fuel Gauge Report.
---------------------------------------------------------------------------
These dramatic price increases caused lost income to businesses and
consumers. Hardest hit were the working poor, those on fixed incomes,
and gasoline-dependant businesses.
To address rising gasoline prices and severe price spikes, I
recently sent surveys to every retail gasoline station in Arizona,
requesting information on supply and pricing. As a result, we have a
better understanding of the Arizona gasoline market structure and
possible areas of further inquiry.
My office continually monitors and maintains a database of Arizona
gasoline prices \11\ as does the Department of Cornmerce \12\ I am
working with other state Attorneys General, the Federal Trade
Commission, and Arizona state agencies to deter and investigate market
manipulation and to promote policies to ensure safe, reliable and
affordable gasoline for Arizona's future.
---------------------------------------------------------------------------
\11\ Pursuant to A.R.S. Sec. 41-191.02(0).
\12\ Pursuant to A.R.S. Sec. 44-1561.
---------------------------------------------------------------------------
As I discussed earlier, I also support a Price Gouging statute to
protect consumers from exploitative pricing of gasoline (and other
products) during a declared state of emergency.
III Reliability of Fuel Supply
As a result of the July 30, 2003 Kinder Morgan pipeline shutdown,
many gasoline stations ran out of gasoline. On August 19, sixty five
percent of Maricopa County retail gasoline stations were without
gasoline.\13\ These shortages began on August 17 and ended on August
27.\14\
---------------------------------------------------------------------------
\13\ Source: Arizona Department of Weights and Measures. August 19,
2003 was the first day this survey was conducted.
\14\ Id. August 27, 2003 was the first date reflecting 100 percent
of surveyed gas stations open and supplied with gasoline. By August 24,
though, 98 percent of stations were open with gasoline.
---------------------------------------------------------------------------
The gasoline shortages resulted in lost revenues due in part to
transportation difficulties. Working Arizonans could not get to work.
Others did not drive for recreational purposes. Although difficult to
quantify, Arizona likely experienced significant losses from tourism
declines and event cancellations due to the instability the fuel
shortage caused.
The August supply disruption could reoccur absent improvements in
gasoline supply alternatives to Arizona. Additional gasoline supply may
come from another pipeline, which is nearly completed, from Texas.
While this new pipeline may help bring additional product into Arizona,
and reduce our dependence on California gasoline, the physical capacity
limitations of the existing pipeline in Arizona reduces the usefulness
of this option. Further, FERC pro-ration policy needs to be reviewed as
it applies to new entrants.
There is also the possibility of a new refinery here in Arizona.
Again, although this may appear to be a positive solution, I have
serious concerns about fiscal practicality, time to completion,
pollution controls and environmental justice issues.
I am investigating issues surrounding the gasoline supply shortage.
My office is obtaining supply volumes from Kinder Morgan through a
Civil Investigative Demand.\15\ That information is currently being
evaluated. The confidential nature of the documents I am receiving
precludes me from discussing this in detail.
---------------------------------------------------------------------------
\15\ Pursuant to A.R.S. Sec. 44-1406.
---------------------------------------------------------------------------
My office will continue to assess and evaluate potential market
manipulation in gasoline supply. If I discover illegal conduct, I will
vigorously prosecute, as in the El Paso Natural Gas case.
IV Pipeline Safety
The Corporation Commission and the Federal Department of
Transportation, Office of Pipeline Safety (OPS) share the
responsibility of inspecting the pipeline and enforcing proper
maintenance and repairs.
Some sections of Arizona's KM pipeline are fifty-five years old
\16\ and have numerous leaks and safety violations. I am concerned that
improper inspection of this aging pipeline, coupled with lax to non-
existent enforcement put Arizonans at risk of serious injury.
---------------------------------------------------------------------------
\16\ Kinder Morgan's Tucson-Phoenix 8" pipeline is 55 years old,
while the El Paso-Tucson 8" and 12" lines were built starting in the
1950s, and ``West Line'' from California, a 20" line, was constructed
in the mid-1980s.
---------------------------------------------------------------------------
As Arizonans have recently learned, the KM pipeline traverses
highly populated areas, running near schools and homes. In addition to
areas I previously outlined in the Tucson area, the pipeline runs close
to two schools in Maricopa County. I am concerned about the loss of
life, injuries, and severe damage experienced in Washington and New
Mexico. I want to see that property owners near the pipeline are
properly informed, and all feasible and reasonable steps are taken to
minimize risk to our citizens.
I am also concerned that there is inadequate pipeline security,
including lack of physical barriers to protect the pipeline from
inadvertent and intentional damage.
My recommendations for the future include increased frequency and
thoroughness of inspections, stronger enforcement of violations,
increased Federal financial support for interstate pipeline
inspections, increased authority for state inspectors, and a more
aggressive approach to pipeline security.
V Conclusion
My office continues to work with other state and Federal agencies
to ensure pipeline safety, reliable gasoline supply and affordable
pricing. I am optimistic that increased partnerships between the
Federal and state pipeline enforcement authorities will aid in more
effective inspections and corrective actions, as necessary. My office
will continue to monitor and prosecute any illegal, anti-competitive
behavior in the gasoline industry. I will continue to support price
gouging legislation to protect Arizona's consumers. Thank you for the
opportunity to testify about this important, far-reaching matter.
The Chairman. Thank you very much. Commissioner Spitzer.
STATEMENT OF MARC SPITZER, COMMISSIONER,
ARIZONA CORPORATION COMMISSION
Mr. Spitzer. Thank you, Mr. Chairman. I appreciate being
here. As a preparatory remark, I would be in complete agreement
with the comments of the Governor and the Attorney General, and
what I think should be very clear for this hearing is that we
are all working together as a team to protect Arizona
interests, and again, I would indicate agreement with both the
Governor's remarks and those of the Attorney General.
I've divided my remarks into four separate areas. In a
transmittal letter I have made eight specific proposals that I
think would provide some solutions to this problem. The first
item is, respect the Federal role for improved pipeline safety
through State resources. When I teach government classes, I
refer to the healthy tension created by our founding fathers
between the branches of government as well as between the State
and the national government. When this tension becomes
unhealthy, government becomes dysfunctional.
As a four-term State legislator and now as a State
regulator, I have occasionally chafed under unfunded Federal
mandates. However, as an elected official asserting State
prerogatives, my efforts must be productive rather than
destructive. Mindless rants against Washington, whether from
the left or the right, and feigned ignorance of Article VI of
the Constitution serve no purpose. One of our tasks today is to
contribute in a meaningful way. The people whose homes were
doused with gasoline do not care to hear us shout accusation.
The mother who waited in a gas line does not want to hear us
blame each other like children. The public expects solutions
from us. I will offer my suggestions to that end in the hopes
that they add to the discussion and perhaps help us all find
resolution.
The transportation of hazardous liquids through interstate
pipelines is unquestionably interstate commerce. In the United
States there is asserted jurisdiction within United States code
Title 49. That does not mean that the exercise of Federal
authority of interstate gasoline pipeline has always been wise.
It has not. However, I will offer herein suggestions for the
Federal Office of Pipeline Safety to work more openly and
collaboratively with our commission's pipeline safety
inspectors and other State agencies, but we must recognize
Federal statutory authority and the chaos that would ensue if
the states enacted 50 different interstate pipeline codes.
For example, were California to mandate annual hydrostatic
testing of all interstate pipelines, Arizona's perilous supply
of vital commodities would be shut down. Such caprice is
neither sound or necessary for the production for the
protection of public safety. My proposals reflect the healthy
tension between the Federal OPS and the State of Arizona to
accommodate all interests, the most important being public
safety and the free flow of goods in commerce.
Next section is infrastructure challenges and systemic
improvement, and both the Governor and the Attorney General
have already alluded to the challenges our state faces. Arizona
has virtually no crude oil production and refines no gasoline.
Similarly, Arizona has no known deposits of natural gas and as
of this date, no natural gas storage facilities. Arizona is
dependent on two pipeline systems for natural gas and but one
pipeline system for gasoline. These circumstances are
unacceptable and all parties, State and Federal, public and
private, and the people of Arizona must collectively resolve
this problem.
The Corporation Commission convened a series of workshops
and public meetings to deal with our natural gas
infrastructure, or more precisely, our lack thereof. For
several years now, the Commission has spent time and resources
seeking additional natural gas pipeline capacity. Arizona's
Congressional delegation and you, Senator, have been extremely
helpful in dealing with this capacity issue and with the FERC,
including the pending litigated case over Arizona's allocation
from the El Paso pipeline system.
However, our Commission has zero regulatory authority with
regard to gasoline prices and supply. Much more must be done to
ensure redundancy of energy capacity and proper repair and
maintenance of existing pipelines. The Federal Government,
through its agencies, must recognize the need to enhance
Arizona's energy infrastructure. Arizona's utter dependence on
gasoline and natural gas pipelines and the imperative of public
safety require that the commission's pipeline safety inspectors
be allowed to participate more openly in the oversight and
inspection of pipelines.
The integrity management program, IMP, is an example where
more could be done. Under IMP, states are permitted to observe
the Federal OPS and the pipeline operator. Observation is not
participation, as Teddy Roosevelt once famously pointed out.
Each state has a cadre of trained experts at the ready prepared
to assist and support the Federal OPS in its task of ensuring
pipeline safety. The Federal OPS should integrate the states
into the IMP. States submit detailed work plans to the Federal
OPS every year, in which they propose a plan of action for the
review and inspection of interstate pipelines within Arizona.
More often than not, what is received back from the Federal OPS
is an entirely different plan. This is not consultation, it is
not cooperative to ask for a plan and respond with an entirely
different proposal. Each state has a unique understanding of
its geography, climate, soil, and development. The Federal OPS
should base its work plans on the proposals submitted by the
States, not adopting them blindly, but recognizing the merits
therein and incorporating them into the Federal vision.
Arizona's pipeline inspectors have acknowledged experience
and expertise. I've attached to my remarks a summary of the
intrastate and interstate pipeline inspections performed by
commission employees. Between December 27, 1999, and August 31,
2000, the Federal OPS revoked the Arizona Corporation
Commission's agent status and undermined our inspection of
interstate pipelines. I thank the Senator for his efforts at
reinstating our commission status. The Federal OPS should
enhance rather than undermine the agent status of State
pipeline inspectors.
Next issue, information sharing. The keeping of confidences
is appropriate for doctors, lawyers, and priests, but there
should be no secrets with pipeline safety. We can not ensure
the safety of the public and protect the integrity of our
Nation's pipelines if State and local officials are not
provided timely information. Critical facts are too voluminous,
the risks too great, and the potential impacts of terror too
substantial not to insist on cooperation and a sharing of
information. The Federal OPS and pipeline operators must share
operational data with State officials and immediately notify
those officials of any potential danger to public health and
safety for pipeline operations.
In two recent cases, Southwest Gas Corporation requested
opinions from the United States Department of Transportation on
interstate operations with Arizona. In neither case did the
Federal agency notify or communicate with the Commission. The
Federal OPS should timely notify the states when requests for
opinions concerning pipelines within their boundaries are
received. States must be allowed to submit their comments on
those requests before the OPS renders its opinion.
In the case of Kinder Morgan in 1996, the 8-inch and 12-
inch pipelines were inspected with what is known as a smart pig
device that is run through the pipeline inspecting for cracks,
obstructions, and evidence of corrosion. The Arizona
Corporation Commission was never informed of that inspection
and never received a copy of the results, solely because the
pipelines were interstate. A Kinder Morgan 6-inch interstate
pipeline was ``pigged'' at the same time and over 5,000
anomalies were found in a 117-mile section. There is no
justifiable reason for failing to share the results of
inspections within a state. The Federal OPS should provide
timely copies of all inspection reports to the states.
Final issue is encroachment. Entitlements relative to real
estate construction in the vicinity of intrastate and
interstate pipelines are governed by county and local zoning
authorities. However, public safety demands that we address
this issue and not simply pass the buck to cities, towns, and
counties. No residences should be built within 200 feet of a
high-pressure 8-inch or 12-inch gasoline pipeline. In Tucson,
the homes were 37 feet from the pipeline. Within minutes, over
6,000 gallons of gasoline had soaked several residences. We can
only thank God that the homes were unoccupied, but we must
recognize the danger.
Real estate construction involves the use of heavy
machinery and excavation. Back hoes have been known to rupture
or demolish even the sturdiest pipe. Heavy construction
produces intense vibration and impacts soil composition, both
of which jeopardize underground pipe. I understand that some
real estate developers seek to squeeze every nickel out of
entitled land, but residential development within 37 feet of a
50-year-old gasoline pipeline is intolerable.
The Federal and State governments must step forward with
appropriate restrictions where counties and cities do not act.
Federal OPS should work with the cities to develop excuse me--
work with the states to develop clear guidance for counties and
cities on the dangers and locations of pipelines to preclude
residential zoning within 200 feet thereof.
In conclusion, Mr. Chairman, on behalf of the Commission
and its very experienced and aggressive pipeline safety
inspectors, I am grateful to the Senate for convening this
hearing. The many public recriminations and press releases
since August have not done much to protect public safety nor
improve Arizona's energy infrastructure. Beginning with this
hearing, Senator, the stakeholder process for solving these
problems commences. My recommendations today are designed to
address those solutions in collaboration with Federal, State,
and local governments and the private sector. The needs are
great and this moment is the time to act. Senator, thank you
very much.
[The prepared statement of Mr. Spitzer follows:]
Prepared Statement of Marc Spitzer, Chairman,
Arizona Corporation Commission
Respect the Federal Role but Improve Pipeline Safety through State
Resources
When I teach government classes I refer to the ``healthy tension''
created by our Founding Fathers between the branches of government as
well as between the States and the National Government. When this
tension becomes unhealthy, government becomes dysfunctional. As a four-
term state legislator and now as a state regulator, I have occasionally
chafed under unfunded Federal mandates. However, as an elected official
asserting state prerogatives my efforts must be productive rather than
destructive. Mindless rants against Washington, whether from the left
or the right, and feigned ignorance of Article VI of the Constitution
serve no purpose.
One of our tasks today is to contribute in a meaningful way. The
people whose homes were doused with gasoline do not care to hear us
shout accusations. The mother who waited in a gas line does not want to
hear us blaming each other like children. The public expects solutions
from us. I will offer my suggestions to that end, in the hopes that
they add to the discussion and perhaps help us all to find a
resolution.
The transportation of hazardous liquids through interstate
pipelines is unquestionably interstate commerce, and the United States
has asserted jurisdiction within United States Code Title 49. That does
not mean that the exercise of Federal authority over interstate
gasoline pipeline has always been wise-it has not. I offer herein
suggestions for the Federal Office of Pipeline Safety to work more
openly and collaboratively with our Commission's pipeline safety
inspectors and other state agencies. But we must recognize Federal
statutory authority and the chaos that would ensue if the states
enacted fifty different interstate pipeline codes. For example, were
California to mandate annual hydrostatic testing of all interstate
pipelines, Arizona's perilous supply of vital commodities would be shut
down. Such caprice is neither sound nor necessary for the protection of
public safety. My proposals reflect the healthy tension between the
Federal OPS and the State of Arizona to accommodate all interests, the
most important being public safety and the free flow of goods in
commerce.
Infrastructure Challenges and Systemmic Improvement
Arizona has virtually no crude oil production and refines no
gasoline. Similarly, Arizona has no known deposits of natural gas and,
as of this date, no natural gas storage facilities. Arizona is
dependent on two pipeline systems for natural gas and but one pipeline
system for gasoline. These circumstances are unacceptable and all
parties, state and federal, public and private, and the people of
Arizona must collectively resolve this problem.
The Corporation Commission convened a series of workshops and
public meetings to deal with our natural gas infrastructure, or more
precisely our lack thereof. For several years now the Commission has
spent time and resources seeking additional natural gas pipeline
capacity. Arizona's Congressional delegation has been extremely helpful
in dealing with the FERC, including the pending litigated case over
Arizona's allocation from the El Paso pipeline system. However, the
Commission has zero regulatory authority with regard to gasoline prices
and supply. Much more must be done to ensure redundancy of energy
capacity and proper repair and maintenance of existing pipelines. The
Federal Government through its agencies must recognize the need to
enhance Arizona's energy infrastructure.
Arizona's utter dependence on gasoline and natural gas pipelines,
and the imperative of public safety, require that the Commission's
pipeline safety inspectors be allowed to participate more openly in the
oversight and inspection of pipelines. The Integrity Management Program
(``IMP'') is an example where more could be done. Under IMP, states are
permitted to observe the Federal OPS and the pipeline operator.
Observation is not participation--as Teddy Roosevelt once famously
pointed out. Each state has a cadre of trained experts at the ready,
prepared to assist and support the Federal OPS in its task of ensuring
interstate pipeline safety--The Federal OPS should integrate the states
into the IMP.
States submit detailed ``Work Plans'' to the Federal OPS every
year, in which they propose a plan of action for the review and
inspection of interstate pipelines in the state. More often than not,
what is received back from the Federal OPS is an entirely different
plan. This is not consultation--it is not cooperative to ask for a plan
and respond with an entirely different proposal. Each state has a
unique understanding of its geography, climate, soil and development--
The Federal OPS should base its work plans on the proposals submitted
by the states, not adopting them blindly, but recognizing the merits
therein and incorporating them into the Federal vision.
Arizona's pipeline inspectors have acknowledged experience and
expertise. Attached as Exhibit A is a summary of the intrastate and
interstate pipeline inspections performed by Commission employees.
Between December 27, 1999 and August 31, 2000 the Federal OPS
``revoked'' the Arizona Corporation Commission's ``agent status'' and
undermined our inspection of interstate pipelines. I thank the Senator
for his efforts reinstating our Commission's status. The Federal OPS
should enhance rather than undermine the agent status of state pipeline
inspectors.
Information Sharing
The keeping of confidences is appropriate for doctors, lawyers and
priests, but there should be no secrets with pipeline safety. We cannot
ensure the safety of the public and protect the integrity of our
Nation's pipelines if state and local officials are not provided timely
information. Critical facts are too voluminous, risks too great and
potential impacts of terror too substantial not to insist on
cooperation and a sharing of information. The Federal OPS and pipeline
operators must share operational data with State officials, and
immediately notify those officials of any potential danger to public
health and safety from pipeline operations.
In two recent cases, Southwest Gas Corporation and the City of Mesa
requested opinions from the U.S. Department of Transportation on
intrastate operations occurring in Arizona. In neither case did the
Federal agency notify or communicate with the Commission. The Federal
OPS should timely notify the states when requests for opinions
concerning pipelines within their boundaries are received--states must
be allowed to submit their comments on those requests before the OPS
renders its opinion.
In the case of Kinder Morgan, in 1996 the 8-inch and 12-inch
pipelines were inspected with a ``smart pig'' device that is run
through the pipeline inspecting for cracks, obstructions and evidence
of corrosion. The Arizona Corporation Commission was never informed of
that inspection and never received a copy of the results-solely because
the pipelines were interstate. A Kinder Morgan 6-inch intrastate
pipeline was 'pigged' in 1999--over 5,000 anomalies were found in a
139-mile section. There is no justifiable reason for failing to share
the results of inspections within a state--The Federal OPS should
provide timely copies of all inspection reports to the states.
Encroachment
Entitlements relative to real estate construction in the vicinity
of intrastate and interstate pipelines are governed by county and local
zoning authorities. However, public safety demands that we address this
issue and not simply ``pass the buck'' to cities, towns and counties.
No residences should be built within 200 feet of a high pressure 8-inch
or 12-inch gasoline pipeline. In Tucson, the homes were 37 feet from
the pipeline. Within minutes over 6,000 gallons of gasoline had soaked
several residences. We can only thank God that the homes were
unoccupied--but we must recognize the danger.
Real estate construction involves the use of heavy machinery and
excavation. Backhoes have been known to rupture or demolish even the
sturdiest pipe. Heavy construction produces intense vibration and
impacts soil composition, both of which jeopardize underground pipe. I
understand some real estate developers seek to squeeze every nickel out
of entitled land, but residential development within 37 feet of a
fifty-year old gasoline pipeline is intolerable. The Federal and state
governments must step forward with appropriate restrictions where
counties and cities act irresponsibly. The Federal OPS should work with
states to develop clear guidance for counties and cities on the dangers
and locations of pipelines to preclude residential zoning within 200
feet thereof
Conclusion
On behalf of the Commission and its pipeline safety inspectors I am
grateful to the Senator for convening this hearing. The many public
recriminations and press releases since August have done nothing to
protect public safety nor improve Arizona's energy infrastructure.
Beginning with this hearing, Senator, the stakeholder process for
solving these problems commences. My recommendations today are designed
to address those solutions in collaboration with federal, state and
local governments and the private sector. The needs are great, and this
moment is the time to act.
The Chairman. Thank you very much, Commissioner. Mayor
Walkup, welcome.
STATEMENT OF HON. BOB WALKUP, MAYOR, CITY OF TUCSON
Mr. Walkup. Thank you. Mr. Chairman, thank you very much
for the opportunity to testify on behalf of the City of Tucson
and our over 500,000 city residents and some 900,000 residents
of the greater Tucson area. The rupture of the Kinder Morgan
pipeline on July 30, 2003, exposed a number of shortcomings in
Arizona's fuel delivery system, regulatory system, and disaster
preparedness system. The rupture itself placed adjacent
residents in physical danger. We were very, very lucky that the
escaping fuel did not ignite and no one was injured. A number
of homes were doused with fuel and had to be demolished.
I want to recognize the professionalism and dedication of
the Tucson Fire Department, led by Chief Dan Newburn, who is
here today with us. They helped avert a major catastrophe for
the City of Tucson. Many residents in the vicinity of the
pipeline were not aware of the pipeline's existence. There is
no consistent or adequate form of disclosure that informed
residents or homeowners in the proximity to the pipeline. Now
some of these residents are demanding that Kinder Morgan build
a new pipeline around the developed cities. The City of Tucson
lacks the authority to require of Kinder Morgan a new pipeline
in a remote location, so we request that our State and Federal
governments work on our behalf.
The inability of the Tucson Fire Department officials to
have access to Federal or State inspection results prior to the
pipeline rupture compromised public safety. The sudden and
dramatic increase in gasoline prices in Tucson was caused in
part by the traffic at the Tucson terminal. Both Phoenix and
Tucson delivery trucks had to wait long periods of time to
receive fuel. Therefore, the supply problem in Phoenix caused a
supply problem in Tucson and a steep increase in prices.
The realization of Tucsonans and many Arizonans that the
state is mostly served by one major pipeline was and still is a
cause of great concern. We now see that accidental or
intentional shutdown of this one pipeline can disable our
State.
With these situations in mind, the following courses of
action should be pursued. First, more disclosure of pipeline
integrity test results between government agencies is needed.
At the very least, local public safety agencies must be
notified if Federal or State regulators discover anomalies in
the condition of the pipeline. Disaster readiness plans that
account for a variety of potential situations must be developed
in partnership with regulatory agencies at various levels and
with pipeline companies.
Second, the relationship between Arizona Corporation
Commission and the U.S. Department of Transportation should be
clarified. Both entities should have access to test results and
maintenance schedules regardless of which agency is doing the
actual testing of the pipelines. The State Department of Real
Estate should develop consistent and clear disclosure
requirements of real estate transactions in proximity to the
line.
Fourth, local government must do more to impose land use
restrictions that provide reasonable security to the area homes
and businesses. In Tucson's case, the 8-inch pipeline was
placed in 1955 in an area that was mostly undeveloped at the
time. Since then, previous mayors and city councils allowed
development in those area. Tucson's city council has now voted
to look at land use restrictions for future development near
pipelines, and the city council has expressed interest in the
possibility of Kinder Morgan or other pipeline companies
constructing new pipelines outside the city limits. We realize
that this wasn't a reasonable, safe, or timely option with the
existence pipeline in light of the crisis faced in the state
and the immediate need to replace the deficient pipeline.
However, the people of Tucson would like the State and
Federal assistance in this matter. We understand that the
existing pipeline must be replaced in its current location if
the deficient pipeline is to be replaced at all. However, we
hope that future pipelines will be constructed through
undeveloped areas of our State. This may allow us to
decommission existing pipelines through residential
neighborhoods.
And finally, and perhaps the most importantly, the
construction and operation of more pipelines across the state
is critical. Arizona can not be solely dependent on a single
line. This is an economic reality and public safety reality and
even a national security reality. Successful construction of
new lines designed with sufficient security measures would
provide more total fuel for the state and less dependency on
one pipeline. In addition, we would hope and expect that new
pipelines outside developed areas built with the sufficient
capacity could make existing pipelines through the city
neighborhoods obsolete.
And in closing I would like to thank you, Senator, and the
Members of this Committee again for this hearing. I want to
also commend the work of Governor Napolitano and her staff in
addressing the crisis as soon as it happened. Her quick and
appropriate response to the crisis made a very difficult
situation better for all Arizonans. The Governor's southern
Arizona staff led by Jan Lesher, was always ready with
information and assistance. I would also like to thank Tucson
area State Representative Phil Lopez and Ted Downing and
Councilman Steve Leal and other members of the Tucson city
council. Together we have taken an active role in examining
relevant issues. I also want to thank the Arizona Corporation
Commission for its participation in a recent City of Tucson
council meeting. Their staff did a good job in explaining the
complexities of this issue.
And last, I would like to thank Kinder Morgan for working
closely with Tucson city staff and Fire Department officials.
Now there will be more commissions and time between us to
really improve this situation in Tucson and in the State of
Arizona. This has been a very difficult situation for all of us
that have been involved. However, everyone I have worked with
on this issue has been forthright and determined to fix what
needs to be fixed. Thank you very much.
[The prepared statement of Hon. Walkup follows:]
Prepared Statement of Hon. Bob Walkup, Mayor, City of Tucson
Dear Senator McCain and Committee Members:
Thank you for the opportunity to testify on behalf of the City of
Tucson, our over 500,000 city residents and the 900,000 residents of
the Greater Tucson area.
The rupture of the Kinder Morgan pipeline on July 30, 2003 exposed
a number of shortcomings in Arizona's fuel delivery systems, regulatory
systems and disaster preparedness systems:
The rupture itself placed adjacent residents in physical
danger. We were very, very lucky that the escaped fuel did not
ignite and no one was hurt. A number of homes were doused with
fuel and had to be demolished. I want to recognize the
professionalism and dedication of the Tucson Fire Department,
led by Chief Dan Newburn. They helped avert a major
catastrophe.
Many residents in the vicinity of the pipeline were not
aware of the pipeline's existence. There was no consistent or
adequate form of disclosure that informed residents and
homeowners of their proximity to the pipeline. Now some of
these residents are demanding that Kinder Morgan build a new
pipeline around the developed city.
The inability of Tucson Fire Department officials to have
access to Federal or state inspection results prior to the
pipeline rupture compromised public safety.
The sudden, dramatic increase in gasoline prices in Tucson
was caused in part by the traffic at the Tucson terminal. Both
Phoenix and Tucson delivery trucks had to wait long periods of
time to receive their supply. Therefore, the supply problem in
Phoenix caused a supply problem--and steep price increase--in
Tucson.
The realization for Tucsonans and many Arizonans that the
state is mostly served by one major pipeline was--and still
is--a cause of great concern. We now see that accidental or
intentional shutdown of this one pipeline can disable our
state.
With these situations in mind, the following courses of action
should be pursued:
More disclosure of pipeline integrity test results between
government agencies is needed. At the very least, local public
safety agencies must be notified if Federal or state regulators
discover abnormalities in the condition of a pipeline.
Disaster-readiness plans that account for a variety of
potential situations must be developed in partnership with
regulatory agencies at various levels and pipeline companies.
The relationship between the Arizona Corporation Commission
and the U.S. Department of Transportation should be clarified.
Both entities should have access to test results and
maintenance schedules regardless of which agency is doing the
actual testing of the pipelines.
The State Department of Real Estate should develop
consistent and clear disclosure requirements on real estate
transactions in proximity to the line.
Local governments must do more to impose land use
restrictions that provide reasonable security to area homes and
businesses. In Tucson's case, the 8-inch pipeline was placed in
1955 in an area that was mostly undeveloped at the time. Since
then, previous mayors and city councils allowed development in
the area. The Tucson City Council has now voted to look at
land-use restrictions for future development near pipelines.
And the entire City Council has expressed interest in the
possibility of placing new pipelines outside the city limits,
even though we realize that this wasn't a reasonable, safe or
timely option in light of the crisis facing the state.
Finally, and perhaps most importantly, the construction and
operation of more pipelines across the state is critical.
Arizona cannot be solely dependent upon a single line. This is
an economic reality, a public safety reality and even a
national security reality. These new pipelines should be
constructed outside populated urban areas and should be
designed with sufficient security measures. Successful
construction of new lines would provide more total fuel for the
state and less dependence on any one pipeline. In addition, we
would hope and expect that new pipelines outside developed
areas could make existing lines through city neighborhoods
obsolete.
In closing, I want to thank Senator McCain and the members of the
Committee again for this hearing.
I want to commend the work of Governor Napolitano and her staff in
addressing the crisis as soon as it happened. Her quick and appropriate
response to the crisis made a very difficult situation better for all
Arizonans. And Governor Napolitano's Southern Arizona staff, led by Jan
Lesher, was always ready with information and assistance throughout the
most difficult periods.
I want to thank Tucson area state representatives Phil Lopes and
Ted Downing, Councilmember Steve Leal and all the members of the Tucson
City Council. Together, we have taken an active role in discovering and
examining the relevant issues.
I also want to thank the Arizona Corporation Commission for their
participation at recent Tucson City Council meetings. Their staff did a
good job explaining the complexities of these issues to our governing
body.
And I would like to thank Kinder Morgan for working closely with
Tucson city staff and Fire Department officials. Now there will be more
communication between us, in addition to an improved pipeline.
This has been a difficult situation for all involved. However,
everyone I have worked with on this issue has been forthright and
determined to fix what needs fixing. I would be happy to answer
questions from the Committee at this time.
The Chairman. Thank you very much, Mayor. Maybe we can
start from the macro aspect of the issue, and maybe
Commissioner Spitzer and Attorney General Goddard can enlighten
us here. Is it obvious that Arizona needs a refinery?
Mr. Goddard. Senator, I think it's obvious that we need, as
many speakers have pointed out, some alternatives, some
competition, some different ways to get gasoline supply into
Arizona. A refinery is one of those answers. I think that would
take some time to come online and the problem that I have, just
off the top, is that if you're going to build a pipeline to
Arizona, it seems to me you'd want to put refined gasoline in
it, not crude oil, and the refinery would need the crude oil.
But that's simply a personal opinion, I've not had a chance to
run it by all of the various energy analysts, but I do believe
it's absolutely necessary that the pipeline or some other--I
know there's talk about bringing refined fuel from Mexico--the
bottom line is that we have to have other ways to get critical
energy resources into our State.
Mr. Spitzer. Senator, for a politician redundancy is a bad
thing, but in energy I've learned on the Commission redundancy
is a good thing, and I think the analogy would be----
The Chairman. I've never known a politician to practice
redundancy.
[Laughter.]
Mr. Spitzer. Some of us, present company excluded. The way
the Commission has worked on electricity in creating
partnerships of all the stakeholders as well as consumer groups
to ensure that the blackout that happened on the East Coast
would not happen--we had an episode in August 1996, as you
recall, and we created both within Arizona and outside entities
to oversee reliability, and the key is redundancy, redundancy
in production with power plants, redundancy in transmission,
and we've done a good job in electricity. If one plant goes
down or one transmission line goes down, we have back-ups. And
we've sited power plants and high-voltage transmission lines,
none of which anybody wants in their backyard, and there has
been some controversy over some of those decisions, but
ultimately the public interest was served.
We have not had that discussion on redundancy that we've
had in electricity in the area of natural gas, nor have we had
it in the area of gasoline. We need to have that discussion and
whether it's a--I think the Attorney General's right--it will
be a collective decision.
The Chairman. Do you agree?
Mr. Spitzer. Whether it's a refinery or----
The Chairman. Do you agree with his assessment that there
will be less and less oil coming over from California?
Mr. Spitzer. That is clear. There is no question that the--
--
The Chairman. Well, our options then are more pipelines
coming from the East or constructing our own facilities?
Mr. Spitzer. That would be the choice.
The Chairman. Those are our choice?
Mr. Spitzer. In my judgment, yes.
The Chairman. Do you agree, Mr. Goddard?
Mr. Goddard. Mr. Chairman, yes sir.
The Chairman. I mean, it just seems to me we ought to be
aware of what our choices here are because I think we need to
take a number of measures to prevent a recurrence of this
problem, and I intend to get this catastrophe and I intend to
get into that, but it seems to me we ought to look at the
overall problem and that seems to be that we have some tough
choices to make especially if--and I agree with the Attorney
General that there are going to be scarcer supplies coming from
the West. I don't know from the East, Commissioner Spitzer, but
we've got some pretty high growth areas to the east of us as
well, so I just thought we ought to lay that out, because I
think our constituents deserve to know that we have some pretty
tough choices to make.
Mr. Goddard. And Senator, if you look at that chart, we
have global problems nationally with regard to the supply of
gasoline. Refineries have not been built anywhere, as I
understand, in the last 20 years, and so it's a serious supply
problem with increasing demand, and that when supply is flat
and demand increases, we know what happens.
The Chairman. Well, I'm straying from the subject of the
hearing, but it also seems to me that then we ought to have
another look at nuclear power, Palo Verde. I think you would
agree, Commissioner, and I would be glad to hear your
assessment, it seems to me it's been a resounding success. We
still have the waste problem, but we've also developed
technology that reduces that problem significantly, and I think
that's one of the options that we ought to look at and I know
that scares the daylights out of everybody, but the technology
is there, and I wonder what your view is on that.
Mr. Spitzer. Well, one of the aspects that we look at in
electricity supply and generation is what they call a balance
portfolio, so we're not dependent, if natural gas is curtailed,
we have not put all our eggs in one basket. And I think you
pointed out we have the nuclear, we have coal facilities in
eastern Arizona, we have new gas-fired plants. That is this
redundancy that we've been talking about, so you're not captive
to one break, and I think the message from all speakers has
been infrastructure, information, and somehow how to deal with
this very difficult, challenging problem of siting pipelines.
The Chairman. Well, hopefully--I receive a lot of
suggestions and I appreciate all of them and maybe I could make
a suggestion for this task force that the Governor has
appointed that maybe they should look at the long-term energy
requirements and challenges we face as well as the short-term.
Mr. Bonasso--and I know Ms. Gerard may want to respond to
some of these questions--how do you respond to the specifics
that Commissioner Spitzer made, particularly sharing
information and consultation and encroachment?
Mr. Bonasso. We fully considered the views of the Arizona
Corporation Commission. There's no question that they are our
people on the ground in Arizona. We have delegated full
responsibility to them for doing the inspections of pipelines,
interstate pipelines in Arizona. We don't--I'm sort of--since
we don't agree with what Mr. Spitzer said, we obviously have a
breakdown in communication, so----
The Chairman. What do you disagree with?
Mr. Bonasso. Well, we are sharing information. Our people
make contact. Our regional inspectors coordinate and
communicate with the inspectors at the Arizona Corporation
Commission. They've shared information extensively about this
accident. The information--they have full authority to do
inspections. Now, the question about enforcement and the
levying of fines, that is something that OPS does.
So I feel that we need to do a little better communicating
here, and I would like to ask Ms. Gerard to add whatever she
would like to that.
Ms. Gerard. We certainly agree with the principles of
everything that Commissioner Spitzer put forward, and there are
certainly opportunities to improve communication. I think that
there is a particular point as it regards the interpretation
changes where we needed to make an improvement, we took action
on that today to be able to immediately notify the state when
there has been an interpretation made, and certainly there
needed to be an improvement made in that area and that was
correct.
The Chairman. But up until today you never even would tell
the Corporation Commission how you acted after violations are
noted. Is that communications?
Ms. Gerard. I'd have to disagree that that was totally
correct. I think that there has been considerable information
sharing and I think that we do act together and I think that we
do----
The Chairman. Well let me ask, let me ask Commissioner
Spitzer if you've been told how OPS has acted after violations
are noted?
Mr. Spitzer. Senator, let me say that in fairness we've had
some ups and downs between the Commission and OPS and you're
aware of that period between 1999 and 2000 where it was a down
period, it was prior to my tenure on the Commission. But in
review of the record, there were serious problems. I think the
OPS has improved since that time. They're not at the level that
we would like, and there will be disagreements, there will be
legitimate disagreements between our inspectors and OPS from
time to time. I think our frustration was that we did not feel
that our views were being it's one thing to, the difference
between hearing and listening, and I guess that was our
concern.
The Chairman. Mr. Bonasso, in 1997, as a result of a
standard inspection performed by the Arizona Corporation
Commission, OPS issued a corrective order to Kinder Morgan for
five items of regulatory noncompliance. Based on the
information that you provided this Committee, it took over 5
years for this order to finally be closed. Why? Ms. Gerard, if
you feel more qualified to answer----
Mr. Bonasso. Well, I'm going to incorporate her as well,
but I also want to say that a--there are a number of corrective
action orders out now that remain open and it's the policy of
OPS to keep those orders open even though the specific issues
that are identified in those orders are taken care of very
early on. It's mainly a process that we use to monitor. Now,
about the specific item I will ask Ms. Gerard to comment.
Ms. Gerard. In this particular case there was 52 incidents
of corrosion that were corrected by the company in the 1996/
1997 timeframe, and in the 5 years that followed our completing
the writing of the amendment, at no time was the pipeline
unsafe. We were fully aware of what the condition of the
pipeline was and that the repairs that were needed to be made
were done. We had at the same time 11 other corrective action
orders that we were working on with other pipeline companies
where there was a much more immediate hazard to the population
than there was in this case. The immediate hazard had been
remedied long before the amendment was formalized.
In addition to that we were enforcing the integrity
management regulations and had been inspecting Kinder Morgan
under the new integrity management regulations and making
enforcement actions in that case. It also was the time of 9/11.
The hearing in question was the month before 9/11 and we had an
enormous task to evaluate the protection of the critical
infrastructure in all the other pipelines at the same time, so
our point is that the immediate hazard was already remediated
long before the amendment was written.
The Chairman. Was Kinder Morgan's voluntary shutdown of the
line solely due to safety concerns?
Mr. Bonasso. It appears to us that it was. I know of no
other reason why they would shut it down.
The Chairman. If so, why did Kinder Morgan know--what did
they know that the Office of Pipeline Safety didn't, since OPS
only required the operator to reduce its operating pressure to
80 percent?
Mr. Bonasso. The requirement to reduce the operating
pressure to 80 percent was when the initial concept of the
failure was that it was a seam failure on the pipe. When it was
discovered that the failure was not a seam failure due to
corrosion, Kinder Morgan immediately decided to hydro-test
pipe. Once they hydro-tested the pipe, they determined that
there were other problems that were similar to this stress
corrosion cracking that had occurred, and at that point is when
the decision to shut down the pipeline and replace those
sections took place. So they actually did some field testing of
the equipment to determine whether or not it should be shut
down.
The Chairman. Thank you. Attorney General Goddard, I
understand you have to leave to track down some criminals and
we appreciate you being here.
Mr. Goddard. Thank you very much, Mr. Chairman. I'll get
right on it.
The Chairman. Thank you very much for your participation
and we appreciate very much all the work you've done. Mr.
Bonasso, did Kinder Morgan meet the 30-day deadline for
submitting a written plan with corrective measures as required
by OPS' corrective action order?
Ms. Gerard. No, they did not, but at the time the order was
written, we did not know that stress corrosion was the
phenomenon that caused the accident, and we contacted the
president of the company orally and began to give him by phone
the guidance that we wanted him to use to begin evaluation for
stress corrosion cracking. At that time incidents of stress
corrosion cracking were so rare on a pipeline of this type that
we really had to consider what protocol should be used very
thoroughly, because it is a relatively unknown phenomenon on
hazardous liquid pipelines.
The Chairman. Have they submitted it yet?
Ms. Gerard. Yes, they have submitted it in pieces and we're
still working to make sure the plan meets our standards.
The Chairman. Has the plan been completed in its entirety?
Ms. Gerard. Not entirely to our satisfaction.
The Chairman. How can you decide whether it meets your
standards if it hasn't been submitted?
Ms. Gerard. They've submitted it. We find that it needs
some adjustments still. They have submitted the plan.
The Chairman. In reports issued in 2000 and 2001, the
General Accounting Office criticized OPS' practice in the 1980s
of issuing warning letters and letters of concern rather than
issuing fines. In 1998, OPS decreased the proportion of
enforcement action in which it proposed fines from 49 percent
to 4 percent. What fines has Kinder Morgan been assessed by
OPS?
Ms. Gerard. I know that there have been four cases
following Arizona inspections.
The Chairman. Are there any fines been imposed on Kinder
Morgan?
Mr. Bonasso. There had been one $3,000 fine imposed in
1998.
The Chairman. Is the division of duties between OPS and the
Arizona Corporation Commission identical to OPS' relationship
with all states or do you have different arrangements with
other States?
Ms. Gerard. We have interstate agent states. There are 15
of them. All of them have identical relationships with us, and
the balance of the states have authority for inspecting the
intrastate. They also the states that are in the intrastate
program, which is the vast majority of them, also do the
enforcement on the intrastate cases.
The Chairman. Is it true that you have not issued an order
required the dates certain replied and Kinder Morgan had not
replied by the deadline and OPS didn't issue any further
official document or impose a fine or anything? Is that true?
Mr. Bonasso. Relative to this incident?
The Chairman. Yes.
Ms. Gerard. We amended we amended the corrective action
order on the 6th to put in the guidance that we thought was
necessary for the stress corrosion cracking evaluation.
The Chairman. And no fine has been levied?
Ms. Gerard. And we've given them a new deadline. No, no
fine has been levied.
The Chairman. Mayor, I want to thank you. I just want to
mention just one other aspect of this problem though. I'm sure
you have the same thing that I've seen here in the valley and
that is the growth of the valley as it's going to take place
similarly, it's going to happen in Tucson and Pima County. And
you mentioned that a pipeline was laid in 1995, I believe.
Mr. Walkup. 1955.
The Chairman. 1955, excuse me, 1955, and it was in a remote
area. How do you if you lay a pipeline now someplace in a
remote area, 50 years from now it's not going to be in a remote
area. How do you do this? Isn't it a little more reasonable to
talk about Commissioner Spitzer's proposal that a 200-foot,
400-foot, or whatever it is, boundary should be imposed as
opposed to trying to find a remote area? Out of the pictures
I've seen of this valley you're going to have to go a long,
long way before you're in a remote area and that remote area is
probably Federal land or a wilderness area.
Mr. Walkup. There's kind of two emerging issues, that we
have about 12 to 13 miles that are currently in the city. The
vast majority of the pipeline runs through commercial areas
along have sufficient right of ways to keep it away from
residential areas. It's only as it gets over into the western
side of our community does it really start bumping up against
residents that are within 30 to 50 feet of it. I think----
The Chairman. With all due respect, we used to have all the
growth to the east too.
Mr. Walkup.--I understand. But clearly to me and to the
majority of the council, the first order of business is get the
pipe repaired that is in the ground and you do that by hastily
putting in the new pipe that is up to modern standards,
adjusting the testing and maintenance procedure. At that point,
that's why I say I think that it's important that we work with
Kinder Morgan, we work with the State to see if there's an
alternate location that is away from residential areas, not
necessarily, Senator, in the Western desert. Maybe there's the
possibility of running it along I-10. Rather than bringing it
over west, maybe we can take it down I-10. So I haven't
excluded personally the opportunity to look at a further
location that keeps it out of the way of schools and
residential areas, and in the process we also need to know what
is the safe distance that any new construction that is going to
be done in and around the existing pipeline is kept safe.
So I think we've got a number of options, but the first and
foremost is get the current 8-inch repaired either through
repair of the pipe or the replacement of the pipe with the 12-
inch.
The Chairman. Commissioner Spitzer, I know it's not it's
out of the area of your present expertise----
Mr. Spitzer. Lots of things are, Senator.
The Chairman. Do you want to comment on that issue again?
Mr. Spitzer. Well, our process for siting high-voltage
transmission lines and power plants is one of attempting to
provide as much notice in advance to the people where and we
have this growth issue, so we have power lines that are needed
in the north part of Phoenix and in the west part, and we mark
those lines and give notice to the citizens as much as
affordable.
But in that context we still must make tough choices, and
in those tough choices there--I think the folks that have lived
in a community for 50 years are entitled to a little bit more
respect in terms of their property rights and their aesthetic,
even if it's not a health and safety issue, it's aesthetics,
due matter. They're entitled to more protection of the law
than, let's say, a real estate speculator who just wants to
build the next Taj Mahal somewhere in the west valley and
objects to a very necessary power line.
This is a debate that's gone on for a long time, but the
statutes in Arizona I think are instructive. We have a line
siting committee, the Chair of which is the designee of the
Attorney General of Arizona. There are a number of lay people
as well as folks from State agencies that are in that panel,
and the Commission reviews the deliberations of that Committee
and we've been able to achieve our objectives. It requires some
tough decisions, but notice in advance and participation from a
wide universe of people has been able we've been able to get
the necessary infrastructure in place, and that may be the
model that we'd adopt.
I'd also point out that my proposal is a balance. I'm not
proposing that the Federal Government usurp the local zoning
authority from the City of Tucson or from Pima County in this
particular case. I'm suggesting that we establish baseline
standards, and it doesn't have to be a formal regulation, it
could be a notice that would be published that puts the zoning
authorities and the developers on notice that building a house
37 feet from a pipeline is not a good practice and if something
goes wrong there is serious liability. That's the best
deterrent I see.
The Chairman. Mr. Bonasso and Ms. Gerard, what is your
confidence that we will not see a repeat of this catastrophe
here in the State of Arizona?
Mr. Bonasso. Senator, we're learning more every day about
what it takes to keep a pipeline safe. We're sharing that
information. We're doing a study that will offer some guidance
to public officials like Mr. Spitzer and the mayor on the
issues that they're dealing with. I think that the enhanced
level of inspection, the greater cooperation we have with
Arizona, I believe that the inspection levels that we're--and
the IMP, certainly the integrity management process that you
acknowledged and pioneered I think is a very, very important
tool in doing this. And I think that this is like any other
aging piece of infrastructure: the more we know about, the more
we're able to make sure that accidents don't occur with it.
The Chairman. Is the pipeline--do you want to comment, Ms.
Gerard?
Ms. Gerard. Yes, I wanted to say that all the inspections
in the world wouldn't have helped to stop this particular
accident because the phenomenon is not one that we currently
have a technology to be able to find. But as a result of the
Pipeline Safety Act and the research program which is provided
we are funding studies into this phenomenon already, and with a
better ability to detect and a better ability to have criteria
to be able to identify this in a risk study we'll be ahead of
the game soon. The technology has to be there, it isn't just an
inspection function.
The Chairman. You're saying that the reason why all the
inspections wouldn't have handled it is because the cause was a
stress--was stress crack corrosion?
Ms. Gerard. Yes.
The Chairman. So what are we doing to make sure that we can
detect?
Ms. Gerard. We have three different projects underway prior
to the accident--excuse me two prior to the accident to begin
to look at modifying internal inspection devices to be able to
find this kind of a phenomenon. So it's going to take us a
little bit of time to get there but that research is necessary
in order to improve the technology. A few years ago we couldn't
accurately find the external corrosion that we can find today,
so the technology is making a big difference and it's very
important that it be funded and supported.
The Chairman. Well, I did note we have dramatically
increased the amount of Federal funding, maybe you might want
to mention that, Mr. Bonasso.
Mr. Bonasso. Well, I have in my testimony indicated that
there has been a truly significant increase in funding for the
Office of Pipeline Safety. It went from $60 million or $47
million to $63 million in the last 5 years and there is an
increase to $73 million in the 2004 budget. So the Office of
Pipeline Safety is the fastest growing department in the
Department of Transportation. It's--one of the things that
we're challenged by is finding enough people to do the work
that we've been funded to do.
The Chairman. What's the average age of liquid pipelines in
the United States?
Ms. Gerard. Off the top of my head I'm going to say the
majority of them are about the same age as Kinder Morgan, in
that they were built in the 1950s to 1970s timeframe.
The Chairman. Regulations for integrity management require
that after completion of the initial baseline inspection liquid
pipelines be internally inspected every 5 years. It seems to me
that the intervals between integrity management inspections
should be based on risk, including the age of the pipeline and
other factors.
Ms. Gerard. That's exactly what we think and that is how
the regulation is written. The 5-year is a minimum threshold.
The Chairman. All right. I want to thank the witnesses.
Thank you for being here. Thank you. Please extend our
condolences to the citizens of Tucson that experienced this
catastrophe and our relief that it wasn't worse, Mayor Walkup.
Mr. Walkup. I will certainly do that.
The Chairman. Thank you all, thank you very much. Our last
panel is Mr. Thomas Bannigan, President of Kinder Morgan
Product Pipelines; Mr. David Cowley, the Director of Public
Affairs, AAA Arizona; and Mr. Jonathan Olcott, Attorney at Law,
Olcott and Shore, on behalf of the Silver Creek Homeowners
Association. Welcome to the witnesses. We'll begin with you,
Mr. Bannigan.
STATEMENT OF THOMAS A. BANNIGAN, PRESIDENT,
KINDER MORGAN PRODUCTS PIPELINES
Mr. Bannigan. Thank you, Mr. Chairman. I appreciate the
opportunity to appear before the Committee today and address
issues involving Kinder Morgan's pipeline operations in
Arizona, including the July 30 release from our 8-inch Tucson-
Phoenix pipeline. I would also like to address our safety
record and interaction with the Office of Pipeline Safety and
the Arizona Corporation Commission. With your permission, Mr.
Chairman, I will summarize my written testimony, which has been
submitted for the record.
Kinder Morgan owns and operates nearly 10,000 miles of
products pipelines transporting 2 million barrels per day of
refined petroleum products, including gasoline, diesel, and jet
fuel, both commercial and military grades. We own or operate
products pipelines in 21 states. Kinder Morgan is headquartered
in Houston, Texas. We acquired the pipelines that serve Arizona
markets in March 1998 as part of our acquisition of Santa Fe
Pacific Pipelines Inc.
Pipelines are the safest and most efficient means of
delivering petroleum products from refineries to end users. The
experience of Kinder Morgan and the companies which preceded it
in the State of Arizona reinforces that fact. In the 48-year
history of product pipelines serving Arizona, there have been
no reported deaths or injuries to the public. In the 5 years
and 6 months during which Kinder Morgan has owned and operated
these pipelines, we have transported over 440 million barrels
of petroleum products to Arizonans.
During this period there have been three releases from our
pipelines. Two were due to damage caused by third parties
striking the pipelines, and the third the high pH stress
corrosion cracking incident on July 30. With respect to that
incident, the released was identified by our controller in
Orange, California. The line was shut down within 3 minutes of
receiving an indication of abnormal condition through our SCADA
system. The volumes not recovered from the July 30 release
represent one-ten-thousandth of 1 percent of the volumes Kinder
Morgan has transported over these lines since acquiring them in
1998. Nonetheless, one gallon out of our pipelines is one
gallon too many. We take seriously our commitment to operate a
safe and reliable pipeline system and we strive for operational
excellence and incident-free operations.
Protection of our employees, the public, and the
environment in which we operate creates this drive. Moreover,
our financial interests are best served by operating safely.
Service disruptions cost our business, for we only make money
if we can move products from point A to point B. Releases bring
with them a host of unacceptable consequences, from response
cost and environmental remediation expenditures to litigation,
which more frequently these days can have both civil and
criminal components. Injuries or death arising from an incident
can undermine a company's reputation, its franchise to do
business, as well as impede its ability to grow its business in
states within which it operates.
The decision to temporarily shut down the 8-inch pipeline
on August 8 was the safe and prudent course of action. A
fundamental principle that we constantly emphasize to our
operations personnel is as follows: if in doubt, shut the
pipeline down and restart the line only after the doubts have
been eliminated. High pH stress corrosion cracking has never
been experienced on a Kinder Morgan refined products pipeline
and in our judgment the line had to be hydrostatically tested
to ensure that it could be operated safely. Although the
resultant service disruption inconvenienced consumers, far
greater would have been the criticisms and consequences of
continuing to operate the line and having another release such
as the one on July 30.
Kinder Morgan demonstrated its flexibility and
responsiveness to the temporary shutdown of its 8-inch Tucson
to Phoenix pipeline. During the weekend following the shutdown,
we had modified terminal facilities in Tucson to allow Arizona
CBG gasoline to be trucked to the Phoenix market. That same
weekend our shippers were notified of the service disruption
and we worked with them to reschedule additional products into
Phoenix over the west line, which originates in California.
In the week following the shutdown, Kinder Morgan's efforts
allowed over 92 percent of the average daily demand in Phoenix
to be met. Demand, however, had spiked during the service
disruption and exacerbated the supply shortfall. Nonetheless,
despite the service disruptions in August, Kinder Morgan
actually transported 13 million more gallons of gasoline into
the Phoenix market than it had transported the preceding
August.
Our commitment to safety is highlighted by our integrity
management plan. This plan, which involves the assessment of
pipeline integrity through internal inspection devices known as
smart pigs was begun by Kinder Morgan's predecessor and
continued by us. These pigs are very effective in detecting
pipeline defects such as external corrosion and dents and
gouges on a pipeline.
Approximately 95 percent of Kinder Morgan's 3,325 miles of
active pipelines in our Pacific operations have been internally
inspected to date. Almost 94 percent of these miles were
internally inspected before the effective date of DOT's
integrity management program rules became effective in March
2001.
We were internally inspecting pipelines in Arizona before
such actions were ever required by the Government. In fact, all
Kinder Morgan pipelines in Arizona have been smart-pigged at
least once before the effective date of the IMP rule and most
have been smart-pigged at least twice. The 8-inch Tucson to
Phoenix pipeline was inspected in 1996 and 1999 and the 6-inch
Phoenix to Tucson pipeline in 1999 and again in 2003.
It is important to note that while internal inspection
tools used by Kinder Morgan can detect wall loss due to
generalized corrosion, these tools are not yet capable of
identifying high-pH stress corrosion cracking in small-
diameter pipelines. The technology to detect SCC phenomenon
exists for large-diameter pipelines, but it has not yet been
miniaturized to accommodate smart pigs in pipelines with
diameters as small as 6-inch as 8-inch.
There has been testimony about the existence of generalized
corrosion on pipelines and the responses of Federal and State
agencies. Several facts bear noting. First, the evidence of
generalized corrosion was identified by Kinder Morgan as part
of its voluntary integrity management program just referenced.
Operating pressures on the lines were reduced by the decision
of the company until repairs were made.
Second, the generalized corrosion identified was not the
result of active ongoing corrosion, but rather the result of
corrosion occurring in a 2-year period after construction in
1956 and before appropriate cathodic protections were installed
in that pipeline. Third, the absence of active corrosion was
demonstrated in over 50 tests in research that was submitted to
the Department of Transportation and the Office of Pipeline
Safety.
Fourth and finally, the history of corrosion releases on
pipelines in Arizona provides compelling evidence of the
effectiveness of the cathodic protection of our pipelines.
There has not been a corrosion-related release on the 8-inch
Tucson to Phoenix pipeline since 1980, on the 6-inch Phoenix to
Tucson pipeline since 1988. There have been no reported
corrosion releases in the history of the El Paso to Tucson 12-
inch and 8-inch pipelines, nor the Colton, California to
Phoenix 20-inch pipeline.
Although Kinder Morgan believes and understands the
respective roles and responsibilities of the Office of Pipeline
Safety and the Arizona Corporation Commission in regulating our
interstate pipeline facilities, the company has been caught at
times between the competing positions of staff members of ACC
and the OPS. OPS clearly has primacy with respect to interstate
pipelines and ensuring that a common nationwide framework of
safety regulation exists. We encourage ACC's involvement with
inspections, public education, siting, and notice requirements
involving utilities, as well as promoting the excellent blue
state damage prevention program in Arizona.
All parties have a role to play in ensuring public safety.
We believe we have an excellent safety record in the State of
Arizona and we look forward to providing the citizens of
Arizona with safe and efficient pipeline operations for many
years to come. Thank you, Mr. Chairman.
[The prepared statement of Mr. Bannigan follows:]
Prepared Statement of Thomas A. Bannigan, President, Kinder Morgan
Energy Partners L.P. Products Pipelines
Introduction
Mr. Chairman, members of the Committee, my name is Tom Bannigan. I
am President of Kinder Morgan Energy Partners Products Pipelines.
Kinder Morgan owns and operates nearly 10,000 miles of products
pipelines transporting 2,000,000 barrels per day (b/d) of refined
petroleum products including gasoline, diesel and jet fuel (commercial
and military). We own or operate products pipelines in 21 states.
Kinder Morgan is headquartered in Houston, Texas.
I appreciate the opportunity to appear before the Committee and
address issues involving Kinder Morgan's pipeline operations in
Arizona, including a July 30, 2003 release from our 8" Tucson to
Phoenix pipeline, our safety record and interactions with the Office of
Pipeline Safety (OPS) and the Arizona Corporation Commission (ACC).
Kinder Morgan Energy Partners, L.P.'s Assets in Arizona
Kinder Morgan owns and operates interstate common carrier pipelines
that serve the Arizona market. These assets were acquired from Santa Fe
Pacific Pipeline, Inc. in March 1998. A map of our Pacific operations
is included as Exhibit 1 of this testimony. Phoenix and Tucson are
served by pipelines that originate at refining/import centers in the
Los Angeles basin and West Texas and New Mexico. The West Line is a 20"
diameter pipeline constructed in 1985, 1988 and 1989 which transports
products from Kinder Morgan's Colton, CA tank farm to Phoenix, AZ. It
has an average daily capacity of 204,000 b/d. A 6" pipeline begins in
Phoenix and transports products originating in Southern California to
the Tucson market. This line was constructed in 1956 and has an average
daily capacity of 14,000 b/d. Two pipelines, 12" and 8" in diameter,
originate in El Paso, Texas and deliver product to Tucson, AZ. The 8"
line was constructed in 1955 and the 12" line in 1964. The lines have
an average daily capacity of 94,000 b/d.
The 8" line extends from Tucson to Phoenix and it was ``looped''
(expanded) in several segments so that it is comprised of both 8" and
12" segments. The 12" segments were installed in 1992. Kinder Morgan
also owns and operates pipelines that deliver military jet fuel to Yuma
Marine Corps Air Station, Luke AFB and Davis-Monthan AFB.
Kinder Morgan also owns and operates a petroleum terminal and truck
rack at Phoenix and Tucson. Our market share in Phoenix (based on a
percentage of products transported through the pipeline) is 28 percent.
Five other oil companies own terminals in the Phoenix market. Our
market share in Tucson is approximately 37 percent. Two other oil
companies own terminals in the Tucson market.* \1\ Kinder Morgan only
provides transportation and storage services. We do not market or sell
petroleum products.
---------------------------------------------------------------------------
\1\ On October 1, 2003, Kinder Morgan acquired the former Shell Oil
Products U.S. terminals at Phoenix and Tucson.
---------------------------------------------------------------------------
Kinder Morgan charges a tariff for transporting each barrel (42
gallons) of petroleum products through its pipelines. The tariffs are
subject to economic regulation by the Federal Energy Regulatory
Commission. It costs a shipper approximately 2 cents per gallon to
transport a gallon of gasoline from El Paso to Phoenix and
approximately 3 cents from Los Angeles to Phoenix. The tariff charged
is not linked to the price of gasoline. If retail prices are $1.50 per
gallon or $2.25 per gallon, Kinder Morgan receives no more than the 2
cents or 3 cents FERC tariff for each barrel transported. Kinder Morgan
does not own the products it transports; it merely assumes custody of
the refined product during its transportation. Each month, our shippers
nominate volumes of product to be transported the following month
through our various pipelines. In the case of the Arizona markets,
shippers can nominate products from either, or both, California and
West Texas/New Mexico sources. It is their choice.
The average daily demand for all refined products in the Phoenix
market is approximately 175,000 b/d. The average daily demand for the
Tucson market is approximately 45,000 b/d. Because Phoenix is a non-
attainment area under the Clean Air Act, boutique gasoline fuels are
used in the summer (March-October) and winter (October-March) to reduce
ozone precursors. The summer grade gasoline is referred to as Arizona
CBG (Clean Burning Gasoline) and the winter grade is called AZRBOB
(Arizona reformulated blendstock for oxygenate blending). Ethanol is
the oxygenate used in the Phoenix market in the winter. It is
transported by rail or truck to the terminals and blended into the
gasoline at the local terminals. Tucson is not a non-attainment area
under the Clean Air Act, so this market uses conventional gasolines.
(Conventional gasoline is also delivered to the Phoenix market for use
outside of Maricopa County.)
Approximately 70 percent of all products delivered into Phoenix are
transported through the West Line. The remainder (30 percent) is
transported through the East Line. Exhibit 2 provides the percentages
of boutique gasolines (CBG and AZRBOB) and conventional gasolines
transported to Phoenix from the West Line and East Lines. As the table
illustrates, refineries in both California and West Texas/New Mexico
have produced boutique and conventional fuels for Phoenix.
Safety Regulation and Safety Record
Kinder Morgan is proud of our safety and compliance record. Safety
and compliance are integral to every decision we make. We take
seriously our commitment to operate a safe and reliable pipeline
system, and we strive for operational excellence and incident-free
operations.
Kinder Morgan's track record in Arizona has been outstanding since
we acquired these pipelines in March 1998. During this time, we have
transported more than 440 million barrels of fuel into the state, and
the recent product release in Tucson was the first time we have
experienced an incident with one of our Arizona pipelines that was not
a result of third party damage. We have had two releases due to third
party damage and the July 30 release, which was due to high pH stress
corrosion cracking (SCC). There were no injuries or fatalities as a
result of any of these incidents.
Research conducted by Allegro Energy Partners and sponsored by the
American Petroleum Institute and Association of Oil Pipe Lines (Exhibit
9) demonstrates that pipelines are the safest and most efficient form
of transportation for refined products. Experience in Arizona reflects
these national statistics. For example, for the five year period 1996-
2000, there were 1104 highway hazardous material incidents, 102 rail
hazardous material incidents, and 2 hazardous liquid pipeline related
releases in Arizona. (Source: Bureau of Transportation Statistic;
Arizona Transportation Profile; http://www.bts.gov/publications/
transportation_profile/arizona/). In the last year of this period 2000,
there were two fatalities and four injuries from non-pipeline
transportation modes. There has never been a death or injury to a
member of the public as a result of a release from a pipeline owned or
operated by Kinder Morgan's products pipeline group. Moreover, to our
knowledge, there has never been a fatality or injury to the public as a
result of pipeline operations in the state of Arizona since such
accident records have been kept.
Our safety track record in Arizona is exemplary. Following the July
30 release we acted decisively in the interests of pipeline safety as
demonstrated by our decision to temporarily shutdown service on the 8"
Tucson to Phoenix pipeline after we became aware of the high pH SCC, a
phenomenon never previously experienced on our refined products
pipelines.
Our commitment to regulatory compliance is equally as strong.
Kinder Morgan has a pipeline safety staff that actively participates in
regulatory rulemaking, tracks all new regulations and ensures that our
plans and procedures comply with pipeline safety regulations. We have a
management of change process that ensures that changes are communicated
to operations personnel. We have a separate internal auditing division
that conducts audits of our field operations to ensure that we are
complying with all applicable safety regulations.
We are routinely inspected by the U.S. DOT Office of Pipeline
Safety (OPS) and State Pipeline Safety Agencies, such as the Arizona
Corporation Commission (ACC) and the California State Fire Marshall's
office. In Arizona, alone, we have been inspected four times by the ACC
since 1998 (1998, 1999, 2001 and 2003; in 1999 the OPS participated in
the Arizona Audit). The Southwest Region has also audited the pipeline
section between New Mexico and Texas twice. In addition, we have been
subject to audits of our Procedural Manuals, Integrity Management Plan
and Operator Qualification Program by OPS. These audits have not
uncovered any major compliance issues.
A specific example of our commitment to safety and compliance is
one of the elements of our preventive maintenance program--our
Integrity Management Program (IMP). Kinder Morgan Energy Partners (and
its predecessor SFPP) have been inspecting pipelines with Magnetic Flux
Leakage (MFL) in-line inspection tools (``smart pigs'') since the early
1970s. Approximately 95 percent of Kinder Morgan's 3,325 miles of
active pipelines in our Pacific operations have been internally
inspected to date; almost 94 percent of these miles were internally
inspected prior to the effective date of DOT's IMP rule (March 2001).
As part of our ongoing preventive maintenance programs, we were
internally inspecting pipelines in Arizona before such actions were
ever required by the Federal or state government. In fact, all Kinder
Morgan pipelines in Arizona had been smart pigged at least once before
the effective date of the IMP rule and most had been smart pigged at
least twice. The 8" Tucson-Phoenix pipeline was inspected in 1996 and
1999 and the 6" Phoenix to Tucson pipeline in 1999 and 2003.
Our overall philosophy is that internal inspection is very
effective in detecting pipeline defects, such as external and internal
metal loss, dents, and gouges, allowing us to repair potentially
detrimental defects before they result in a release. By combining
information found during the in-line inspections, cathodic protection
surveys and coating surveys, we can identify areas along the pipeline
where recoating may be necessary and where more cathodic protection
rectifiers might be needed. We are then able to focus our resources and
take the appropriate remedial measures. We believe the existence of
such a proactive program is why there has not been a leak due to
generalized metal loss corrosion on these pipelines in Arizona in the
last 15 years.
It is important to note that while internal inspection tools used
by Kinder Morgan can detect wall loss due to generalized corrosion,
these tools are not yet capable of identifying high-pH stress corrosion
cracking in small diameter pipelines. The technology to detect SCC
exists for larger diameter pipelines, but it has not yet been
miniaturized to accommodate smart pigs in pipelines with diameters as
small as 6" and 8".
Our current IMP has been updated to incorporate DOT's 2001
regulations. Our response, repair and mitigation strategies did not
require any major revisions as a result of the 2001 DOT regulations;
however, as most of the new regulatory requirements were already a part
of our previous IMP program.
July 30 Incident
On July 30, 2003, Kinder Morgan's 8" pipeline from Tucson to
Phoenix failed during normal pipeline operations. The shutdown of the
pipeline followed our emergency response procedures. The controller at
our Orange, California control center initiated the line shut down
within three minutes of receiving first indication of an abnormal
condition from our SCADA system. We contacted the National Response
Center, Arizona Corporation Commission, Arizona Department of Public
Services, Arizona Department of Environmental Quality and The Tucson
Fire Department. (In a post-response debriefing held with state and
local agencies on October 2, Kinder Morgan received high marks for its
response.)
Kinder Morgan and OPS originally believed the cause of the release
was an ERW pipe seam failure. Based on the March 8, 1989, Pipeline
Safety Alert Notice (ALN-89-01) and discussion with the Department of
Transportation Office of Pipeline Safety Southwest Region (DOT), the
pipeline was repaired and restarted on August 1, 2003, based on the
following operating parameters:
Operate the pipeline at 50 percent maximum operating
pressure (MOP) for five (5) days
Operate the pipeline at 60 percent MOP for one (1) day
Operate the pipeline at 70 percent MOP for one (1) day
Operate the Pipeline at 80 percent MOP until further notice.
As part of Kinder Morgan's on-going integrity program, the joint of
pipe from the July 30, 2003, incident was sent to an independent lab
for metallurgical analysis. On August 8, 2003, Kinder Morgan received
the metallurgical report. The report concluded that the cause of the
rupture was high pH SCC. Kinder Morgan had never experienced SCC before
on one of its refined petroleum pipelines. Given this information and
the pipeline's location near populated areas in the City of Tucson,
Kinder Morgan determined that the only safe option was to shut down the
pipeline (which was still operating at 50 percent MOP) and conduct
further testing. When the line was shut down on August 8, we advised
the DOT/OPS--Southwest Region, the ACC and the Arizona Department of
Weights and Measures. Additionally, on August 9, we left messages for a
contact person within the Arizona Department of Commerce.
Kinder Morgan immediately began developing hydrostatic test
procedures for a pipeline that experienced an SCC failure. We used both
internal engineering support and consultants with SCC and hydrostatic
testing expertise to develop the plan. On August 13, 2003, this plan
was submitted to OPS. We received initial approval of our plan from the
DOT on August 14. We immediately began work to prepare the testing of
approximately 12 miles of 8-inch line pipe. Testing would be done in
two pipe segments--an 8-mile and 4-mile segment respectively. We
received final approval of our test plan on August 19. The time between
the initial and final DOT approvals was fully utilized to prepare this
pipeline for hydrostatic testing. On August 20, the 8-mile segment was
successfully tested. However, that same day the 4-mile segment failed
the hydrostatic test. During the hydrostatic test, we experienced an
SCC failure approximately 40 feet from the original release on July 30.
Based on the second SCC failure, Kinder Morgan decided to bypass this
section of pipe by temporarily using a portion of its Phoenix to Tucson
6" pipeline. This plan was the fastest way to return gasoline
deliveries to normal levels in the Phoenix market.
After successfully putting the 8" Tucson to Phoenix line back in
service through the 6" bypass on August 24, we continued our efforts to
restore normal pipeline services. This was accomplished on September
12, by installing 4,600 feet of new 12-inch pipe through the area where
the 8" pipe originally failed. Additionally, all of the 8-inch pipe
through Tucson has been successfully hydrostatically tested. Our
current plan is to replace all the 8-inch pipe through Tucson with new
12-inch pipe by February 2004.
Responses to Market Disruption
Immediately after we decided to temporarily take the 8" Tucson to
Phoenix line out of service because of the SCC failure mode, we
initiated steps to mitigate the impact of the shutdown. Throughout the
weekend of August 9-10, modifications were made to our Tucson terminal.
These modifications involved converting several tanks from conventional
service to CBG service and connecting a truck rack lane to these tanks.
These modifications allowed our shippers to transport by truck volumes
of CBG gasoline from the East that otherwise would have moved over the
closed 8" pipeline. Approximately 12,000 b/d were trucked to the
Phoenix market as a result of these facility modifications while the 8"
pipeline was out of service.
Kinder Morgan schedulers were also called to work the weekend of
August 9-10 to contact our shippers and initiate the process of
nominating additional volumes over the West Line to make up for volume
shortfalls on the temporarily closed line between Tucson and Phoenix.
During the week following the shutdown of the 8" pipeline, Kinder
Morgan's West Line and barrels trucked from Phoenix, were meeting over
92 percent of the average daily demand (175,000 b/d) in the Phoenix
market. (See Exhibit 3 which shows total products delivered by day to
the Phoenix market in August.) For just over half the days in the month
of August, deliveries to Phoenix exceeded the average daily demand in
Phoenix.
Kinder Morgan's deliveries, however, do not tell the entire story.
We do not know the inventory levels at the five other Phoenix terminals
at the start of the month of August or for any day thereafter. That
information is not in our possession and can only be obtained from the
owners of those terminals. We do know, however, that nationally the
trend is to maintain inventories at levels only necessary to meet
anticipated demand and avoid the holding costs of excess inventory.
When you combine the temporary shutdown of the 8" pipeline with current
inventory management practices and the spike in demand triggered by
panic buying and ``topping-off'' of tanks, there were resultant
shortages of gasoline. Further complicating the supply/demand picture
were logistical difficulties in accommodating increased trucking of
products from Tucson terminals and outside of the state. (This problem
in turn was exacerbated by weekly driving hour limits on truck drivers
in Arizona. These restrictions were later relaxed.)
It should be reiterated, however, that the flexibility and
responsiveness of Kinder Morgan's employees to the service disruption
and the round-the-clock efforts to restore service on the 8" pipeline,
allowed us to cover over 92 percent of the average daily demand in
Phoenix. Two facts have special note: Kinder Morgan's West and East
Lines delivered 8.4 million more gallons of total products into Phoenix
in August of 2003 than it did in August of 2002. Looking solely at
gasoline volumes in 2003 over 2002 for the month of August, Kinder
Morgan actually transported 13 million more gallons of gasoline. Again,
a reflection both of the flexibility of our pipeline operations in
Arizona and the extraordinary demand conditions in the Phoenix market.
Kinder Morgan is not a marketer or retailer of gasoline.
Consequently, the Committee should seek guidance from economists or
experts from within those industry segments on the pricing consequences
of the temporary supply/demand imbalance.
Stress Corrosion Cracking
The July 30, 2003, failure was not the result of generalized metal
loss corrosion. Kinder Morgan has not had a metal loss corrosion
release on an Arizona pipeline since 1988 and on the 8-inch pipeline
since 1980. The July 30 failure was caused by high pH SCC, a phenomenon
that is new to the refined products pipeline industry and involves
cracking and not wall loss due to corrosion.
SCC must be distinguished from generalized petroleum corrosion.
Generalized corrosion is the progressive conversion of steel to iron
oxide (i.e., rust). This metal loss can either be localized pitting or
a more widespread uniform corrosion. The rate of general corrosion is
independent of the pressure (i.e., stress) in the pipe. Generalized
corrosion can be controlled and eliminated through the application of
cathodic protection currents.
In contrast, SCC is dependent on the pressure in the pipe. If the
stress is too low, SCC will not occur. Similarly, the presence of
cathodic protection does not control the rate of SCC damage. SCC does
not involve metal loss corrosion. SCC is a cracking phenomenon. The
damage involves cracks that propagate at the microstructure level
between and through the grains in the steel.
The high pH SCC identified with the July 30 failure is also
different from near neutral pH SCC in several ways. Foremost is that
high pH SCC does not occur in the presence of metal loss corrosion. In
most cases of high pH SCC, very little to no surface corrosion can be
observed. For high pH SCC to occur, a very specific set of conditions
must coexist. For pipeline steels, a specific stress state in a
specific environment must be present. Our research indicates that prior
to our July 30, 2003, high pH SCC failure, there were no published
failures related to high pH SCC in hazardous liquid pipelines. Our
integrity and maintenance activities will now include plans and
procedures for investigating both near neutral pH and high pH SCC.
A comprehensive stress corrosion cracking evaluation was conducted
including 100 percent non-destructive examination by magnetic particle
inspection of over 5,400 feet of pipeline removed from the immediate
area of the release. Only two areas exhibited surface SCC indications.
The first was in the pipe joint immediately downstream of the initial
release. The other was a few thousand feet upstream. All of the initial
investigation data from the removed pipe is currently being analyzed by
the SCC contractor and we expect results in a few weeks. Identifying
only two sites in almost 5,400 ft of pipe support the belief that the
SCC issues are a localized phenomena related to specific environmental
conditions. Based on the data gathered to date, we do not suspect SCC
to be a widespread issue.
Kinder Morgan submitted its Stress Corrosion Cracking (SCC) Field
Investigation Protocol to DOT on September 29, 2003. This document
outlined an analytical method for identifying areas along the pipeline
system with the potential for SCC. Plans for a field inspection program
were presented in which direct knowledge from the 1-mile area
encompassing the July 30, 2003, release site will be used to delineate
the severity of SCC and establish the contributing characteristics to
locate other areas along the pipeline system with the potential for
SCC.
Kinder Morgan will use a predictive modeling process to enable the
integration of physical characteristics and operating history of a
pipeline segment with the results of inspection, examination and
evaluation in order to determine the integrity of the pipeline
regarding SCC.
The key steps in this process are as follows:
Gather and integrate pipeline data such as pipe
characteristics, construction practices, soils/environmental
characteristics, corrosion protection, pipeline operations, and
historical data. Specialized investigations include a series of
cathodic protection surveys, soil characterization activities
using specialized terrain classifications and extensive data
integration, as well as the non-destructive examination of the
5,400 feet of removed pipe discussed above.
Develop an algorithm to predict SCC likelihood in this
system.
Complete the case study on the removed pipe to delineate the
severity of damage and provide a reference for refining the SCC
predictability model.
Predict terrain conditions conducive to SCC on this
pipeline.
Conduct the geotechnical survey of the entire Tucson to
Phoenix system identifying locations containing SCC susceptible
zones. Follow-up with supplemental close interval surveys and
potential current mapping in these newly identified areas.
Conduct field excavations using industry proven SCC
investigation methods.
Reintegrate the excavation findings and calculate the
validity of the SCC prediction model. Prepare a report
summarizing the findings.
The key to the success of this approach will be the collection,
alignment, and integration of all necessary data into a database such
that common characteristics can be accurately observed. Using the
series of data techniques we propose in the immediate vicinity of the
known release, together with the identification of other regions
meeting similar criteria elsewhere along the Tucson--Phoenix pipeline,
we believe we will be able to establish the safe operating parameters
for this system. In the meantime, we are operating the Tucson to
Phoenix 8" pipeline system at 50 percent maximum operating pressure and
below 40 percent specified minimum yield strength (SMYS) of the pipe.
The plan we submitted to the DOT/OPS makes use of known experts in
the field of pipeline SCC. Mr. Jim Marr of Marr Associates has been
selected to conduct our SCC field investigation. Mr. Marr is the
Chairman of the National Association of Corrosion Engineers (NACE)
committee drafting the recommended practice on SCC. The proposed plan
exceeds the minimum requirements for field inspection and data
integration identified in the ASME B31.8S standard. We are testing pipe
operating at stress levels as low as 40 percent SMYS, whereas the
Advisory and B31.8S suggest 60 percent SMYS. In addition, we are
testing pipe operating with product whose temperatures are much below
100F+.
The protocol involves a complete surface environmental
characterization in which we will identify the soil type, resistivity,
pH, drainage potential, slope instability and other geotechnical
features. We will follow this examination with a close interval survey
in which we are measuring the effectiveness of cathodic protection
system and the condition of the external coating system. In parallel,
we will integrate all of our integrity management data into a
specialized SCC predictive model that, together with our specific field
results, will identify the combinations of stress, materials and
environment that could contribute to SCC.
Department of Transportation/Arizona Corporation Commission/Kinder
Morgan's 6" Pipeline Phoenix to Tucson
Testimony has been presented about regulatory actions surrounding
generalized corrosion on the 6" Phoenix to Tucson pipeline and a
Correction Action Order (CAO) issued by OPS. Kinder Morgan requested a
hearing to contest some of DOT's initial requirements of the CAO.
Nonetheless, Kinder Morgan took all appropriate steps to operate and
maintain a safe pipeline, prior to the CAO, during the CAO review
process, following the CAO hearing and after the issuance of the
amended CAO.
This is evident by Kinder Morgan taking the initiative to have an
Integrity Management Program in place prior to DOT's implementation of
its Integrity Management Program. This program led to the November 1999
smart pig run. Kinder Morgan had completed repairs of all anomalies
that required a pressure reduction by February 16, 2001, before DOT/OPS
issued its initial CAO. Kinder Morgan followed all the DOT reporting
requirements for a Safety Related Condition, and during the repairs,
Kinder Morgan was in contact with both OPS-Southwest Region and ACC,
keeping them abreast of progress. We implemented an active corrosion
testing procedure. During the repairs of the 1999 pig run, Kinder
Morgan performed specialized active corrosion tests and not a single
test indicated that active corrosion was present on LS 53/54. Kinder
Morgan also contracted two third-party consultants to review Kinder
Morgan findings based on the gathered data from anomaly repairs and
active corrosion tests. Dr. John Kiefner of Kiefner and Associates Inc.
and Mr. Kevin Garrity of CC Technologies Inc. reviewed Kinder Morgan
data and provided testimony at Kinder Morgan's CAO hearing. Mr. Garrity
testified that he believed that the corrosion on LS-53/54 occurred
within the first two years after its initial construction and before
its then owner applied cathodic protection to the system. Dr. Kiefner
validated the accuracy of the ILI tool such that the anomalies
identified by the tool were within 95 percent accuracy of those
identified in the field. Further, even before receiving the amended CAO
dated March 17, 2003, Kinder Morgan ran another smart pig through this
line. Kinder Morgan had already done so by March 1 2003. Throughout the
adjudication process at DOT/OPS, Kinder Morgan continued to conduct
cathodic protection tests and its weekly rectifier aerial surveys and
quarterly physical inspections.
In November 1999 Kinder Morgan conducted an in-line inspection of
the 6" pipeline between Phoenix and Tucson, Line Section 53/54 as part
of its preventive maintenance and integrity management program. This
in-line inspection predates the Federal pipeline safety regulation's
integrity management requirements. This was the first time that an in-
line inspection was conducted on LS 53/54, however; it was not the
first time in-line inspections had been conducted on pipelines in
Arizona. The preliminary report received from the in-line inspection
vendor was received by Kinder Morgan on February 28, 2000, and
indicated several anomalous conditions that had the potential to affect
the safe operation of the pipeline. Kinder Morgan engineers reviewed
and analyzed the report data and the safe working pressure of the
pipeline was calculated based on the indicated anomalies. When these
calculations were completed the next day, February 29, 2000, the
pressure was immediately reduced. (See Exhibit 8 for chronological
sequence of events of LS 53/54.)
We took appropriate action in the interest of public safety.
Maintenance crews were dispatched to begin excavating and investigating
the anomalies. On March 2, 2000, maintenance crews discovered a segment
of pipeline that had three corroded areas close to each other and as
such was classified as generalized corrosion. The pipeline was repaired
and on March 8, a Safety Related Condition report was submitted via fax
to the OPS and the ACC. A duplicate was filed with the ACC because
Kinder Morgan was unaware that the ACC was no longer an interstate
agent of the Office of Pipeline Safety. (LS 53/54 are part of the
interstate pipeline that transports refined products from California to
Phoenix and Tucson.) Kinder Morgan would later learn that OPS had not
renewed the interstate agent agreement with ACC. ACC responded to the
Safety Related Condition and began a special investigation of the
event.
On March 28, 2000, another area of generalized metal loss corrosion
was found and Kinder Morgan's maintenance manager on-site requested
that the pipeline be shut down while the pipe was inspected and
repaired as a precautionary safety measure. This was done. Meanwhile,
ACC notified Kinder Morgan that they considered LS 53/54 ``intrastate''
and based on its state authority dictated that the pipeline could not
be restarted without its approval. Although Kinder Morgan did not
accept ACC's position regarding the intrastate classification of the
pipeline, we received concurrence from ACC to restart the pipeline at a
reduced pressure of 52 percent of the MOP. The ACC would later attempt
to cite Kinder Morgan for violations of the Arizona pipeline safety
regulations and, under its state authority, conduct a routine safety
evaluation of this pipeline. The ACC subsequently dropped both of these
endeavors. Subsequently OPS wrote an opinion letter clearly identifying
these pipelines as interstate.
During this time, Kinder Morgan understood that OPS granted the ACC
temporary interstate agency status and requested that it investigate
the Safety Related Condition. OPS personnel also participated in the
investigation. We cooperated completely with this investigation and
complied with every request made by the ACC or the OPS.
By September 15, 2000, Kinder Morgan had addressed all anomalies
that required a reduction in operating pressure and which were
discovered during its November 1999 in-line inspection of LS 53/54. The
only outstanding anomaly after this date was one that was located under
a concrete embankment under Interstate 10 and adjacent to a railroad
right of way. This anomaly did not require a reduction in operating
pressure, but because of its location, Kinder Morgan decided to replace
it with new pipe. The delay in making this repair was due to delays in
obtaining permits from the Arizona Department of Transportation. The
replacement of this pipe was completed on February 16, 2001.
On March 14, 2001, OPS issued a Corrective Action Order (CAO)
requiring Kinder Morgan to:
1. Maintain the pressure on the line that is less than or equal to
80 percent of the MOP (Maximum Operating Pressure).
2. Get OPS approval before increasing the operating pressure on the
line above 80 percent.
3. Develop and implement a work plan and schedule for performing
coating evaluation on line LS 53/54.
4. Develop and implement a work plan and schedule for re-coating,
repairing or replacing sections of LS 53/54 that are determined
by the coating evaluation to require remedial measures.
5. Develop a work plan and schedule for conducting internal
inspection tests using the same or similar technology which
identified the extensive metal loss referred to in the
preliminary finding.
6. Submit a report to OPS on all internal inspections that had been
conducted on pipeline systems within the states of Arizona, New
Mexico, and Texas since January 1997.
The basis for these corrective actions were the preliminary
findings of OPS and the conclusions it drew relative to the role the
pipeline coating played in the corrosion indicated on the in-line
inspection report. Kinder Morgan disagreed with the technical basis of
the preliminary finding, the proposed corrective action and thus
requested a hearing. A hearing was granted and held on August 14, 2001.
Our disagreement primarily focused on two issues; first, the
corrosion discovered by the in-line inspection and second, the effect
of the coating on the adequacy of the cathodic protection. As stated
earlier, this was the first in-line inspection conducted on this
pipeline. This pipeline was constructed in 1956 without cathodic
protection. It was approximately two years later before cathodic
protection was applied. Based on cathodic protection surveys, more
anode ground beds and rectifiers--the current source for cathodic
protection, were installed along the pipeline. This is important
because, although the in-line inspection indicated a number of
locations of corrosion, there was no way to identify from the report
when the corrosion took place. In an effort to determine if the
corrosion was active or on-going corrosion, electrical and chemical
test were conducted at each location excavated. These tests
demonstrated that the line was receiving adequate cathodic protection
and that there was no active corrosion taking place at the anomaly
locations. These tests demonstrated that the corrosion that was
indicated on the in-line inspection report was probably corrosion that
occurred in the years prior to cathodic protection being installed.
OPS's preliminary findings addressed coating, current density
requirements and rectifier spacing. It concluded that coating
degradation was a ``major contributing factor in the development of
corrosion and external metal loss''. As demonstrated by the electrical/
chemical tests, however, there was no evidence of active on-going
corrosion on this line. The annual monitoring of the cathodic
protection system indicated that the pipeline was adequately
cathodically protected. While the condition of the coating increases
the current requirements and impacts rectifier spacing, tests
demonstrated that the cathodic protection was effective. More pertinent
to the adequacy of the cathodic protection is the fact that a corrosion
leak has not occurred on this pipeline since 1988.
Kinder Morgan retained the services of Kevin C. Garrity, PE of CC
Technologies Service Inc and Dr. John Keifner of Keifner and Associates
Inc., two leading experts in their respective fields, to assist us in
the review and analysis of the tests.
Specifically, Kinder Morgan retained CC Technologies Services, Inc.
(CC Technologies) to conduct an integrity and corrosion control review
of LS 53/54 and provide a critical assessment of the practices and
procedures that Kinder Morgan has employed to establish the integrity
of this section of 6" diameter pipeline. Specific emphasis was placed
on the analysis of in-line inspection anomaly data; analysis of
corrosion digs inspection data; and analysis of cathodic protection
practices.
CC Technologies analysis concluded that we could continue to safely
manage the integrity of the LS53/54 piping through the existing
procedures included in the Kinder Morgan integrity plan and that we
should not proceed with costly and ill advised procedures to satisfy a
corrective action order that failed to acknowledge the preponderance of
evidence demonstrating that LS53/54 have been safely managed against
corrosion integrity threats.
Dr. John Keifner was retained to review the analysis of the anomaly
data, perform a probability analysis of the pipeline corrosion data and
a review of the proposed plan of remedial action. Dr. Kiefner concluded
that the metal loss anomalies that were tested did not appear to be
actively corroding and did not appear to be associated with MIC.
Further, his analysis indicated that effective cathodic protection was
being achieved and that the majority of the metal loss on this pipeline
occurred during the first few years after construction prior to the
establishment of effective cathodic protection. He further concluded
that the review of the analysis of anomaly data indicated that the
anomalies that met the conservative dig criteria chosen by Kinder
Morgan were repaired or replaced, the remedial actions taken to address
the anomalies that were detected were conservative and adequate to
reduce the potential for a pipeline failure due to a detected metal
loss or deformation anomaly and that future in-line inspections should
be scheduled in accordance with the Kinder Morgan IMP.
The above information was presented at the DOT hearing on August
14, 2001. On March 17, 2003, Kinder Morgan received an amended CAO that
indicates that the Hearing Examiner agreed with our position relative
to the need for coating evaluation. The amended order removed the
requirements for performing the coating evaluation; the requirement to
re-coat, repair or replace coating based on the coating evaluation and
the requirement to submit a report to OPS on all internal inspections
that had been conducted on pipeline systems within the states of
Arizona, New Mexico, and Texas since January 1997.
The only requirements in the amended CAO were to limit the
operating pressure to 80 percent of MOP, develop a work plan and
schedule for conducting an internal inspection test using the same or
similar technology used previously; and submit the findings of the in-
line inspection to OPS.
By the time Kinder Morgan received the amended order on March 17,
2003, we had already completed the subsequent run of the in-line
inspection and were waiting on the inspection report. We received the
report in May 2003 and began to take the appropriate remedial measures.
We furnished a report of the findings to OPS. In fact, during the 2003
ACC audit of the Arizona pipelines, ACC visited one of the repair
sites.
The 2003 in-line inspection report indicated that:
There were no ``Immediate'' repairs as defined by DOT's IMP
regulation.
There were two ``60-day'' repair conditions. The first was a
3.5 percent dent at 1:10 o'clock position. The second was a 4.7
percent dent at 11:51 o'clock position. Repairs were made.
There were no ``180-day'' repair conditions reported in the
Final report.
We believe that we have fully complied with the amended CAO and are
operating this pipeline and our other pipelines in Arizona in a safe
and reliable manner.
Conclusion
Pipelines are the safest and most efficient means of delivering
petroleum products from refiners to end-users. The experience of Kinder
Morgan and the companies which preceded it in Arizona is no exception.
In the 48-year history of products pipelines serving Arizona, there
have been no deaths or injuries to the public. In the five years and
six months during which Kinder Morgan has owned and operated these
pipelines, we have transported over 440 million barrels of petroleum
product to Arizonans. During that period there have been 3 releases
from our pipelines. Two were due to damage caused by third parties
striking the pipeline and the third was the high-pH SCC-incident on
July 30.
The volumes released from the July 30 incident represented 1/
10,000th of 1 percent of the volumes Kinder Morgan has transported over
these lines since acquiring them in March 1998. Nonetheless, one barrel
out of our pipelines is one barrel too many. The simple fact is that
Federal or state regulations do not animate our interest in safety.
Protection of our employees, the public upon whose lands we operate and
the environment creates the drive for operational excellence and
incident-free operations. Moreover, our financial interests are best
served by operating safely. Service disruptions cost us business, for
we only make money if we can move products from origin to destination.
Releases also bring with them a host of unacceptable consequences from
cleanup costs and environmental remediation expenditures to litigation,
which, more frequently these days, can have both civil and criminal
components. Injuries or death arising from an incident can undermine a
company's reputation and its franchise to do business or grow its
business in those states in which it operates. These are all compelling
reasons for operating our pipelines safely.
The decision to temporarily shut down the 8" pipeline on August 8
was the safe and prudent course of action. A fundamental principle that
we constantly emphasize to our operations personnel is: ``If in doubt,
shut the pipeline down and restart the line only after the doubts have
been eliminated.'' High pH SCC has never been experienced on a Kinder
Morgan refined products pipeline and we believed the line had to be
hydrostatically tested to ensure it could be operated safely. Although
the resultant service disruption inconvenienced consumers, far greater
would have been the criticisms and consequences of continuing to
operate the line and having another release. Moreover, our flexibility
and responsiveness were key to providing petroleum products to Phoenix
during the service disruption, a task complicated by the surge in
demand as ``panic buying'' set in.
Testimony has been entered about generalized corrosion issues on
the 6" pipeline between Phoenix and Tucson. The OPS/ACC relationship
and the length of time OPS took to issue its amended corrective action
order cannot obscure several fundamental facts: First, the internal
inspection Kinder Morgan ran on the 6" pipeline was part of a voluntary
program began in the early 1970s by SFPP and carried on by Kinder
Morgan to assess the integrity of its pipelines. This program predated
the mandatory OPS management plan program by approximately 30 years.
Operating pressures on the 6" line were reduced first to a level
acceptable to OPS and again to a lower level requested by the ACC
despite the lack of authority for ACC to order the reduction. Kinder
Morgan contested the OPS order because it disagreed with the assessment
that the pipeline was not adequately protected from generalized
corrosion. Nationally renowned experts, who provide their expertise to
government and industry alike, demonstrated the pipeline was adequately
protected from generalized corrosion. Moreover, the March 17, 2003,
amended corrective action order implicitly recognizes the effectiveness
of the cathodic protection on the 6" pipeline when it removed the
requirement to recoat the pipeline. Additionally, the primary action
which OPS requested be taken in its amended corrective action order
(e.g., another internal inspection of the 6" line), was completed by
Kinder Morgan prior to the order being issued. Here too, it was
undertaken because it was the prudent and sensible course of action.
Although Kinder Morgan believes it understands the respective roles
and responsibilities of OPS and the ACC in regulating our interstate
pipeline facilities, the company has been caught between the competing
positions of certain staff members at ACC and the OPS. OPS clearly has
primacy with respect to interstate pipelines and ensuring that a common
nationwide framework of safety regulations exists. We encourage ACC's
involvement with public education, siting and notice requirements
involving utilities as well as promoting the excellent ``blue stake''
damage prevention program in Arizona. All parties have a role to play
in ensuring public safety.
Kinder Morgan has built an excellent safety record in the state of
Arizona. We look forward to providing the citizens of Arizona with safe
and efficient pipeline operations for many years to come.
______
Exhibit 1--Pacific Region System Map
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Exhibit 2--Phoenix Gasoline Distribution (East/West Line)
2003 January-July
Phoenix Total Gasoline Volumes
East Line 11,020,535 47.3%
West Line 12,279,044 52.7%
-------------------------
Total 23,299,579 100.0%
2003 January-July
Phoenix Conventional Gasoline Volumes
East Line 2,154,359 60.8%
West Line 1,387,466 39.2%
-------------------------
Total 3,541,825 100.0%
2003 January-July
Phoenix CBG/AZBOB Gasoline Volumes
East Line 8,866,176 44.9%
West Line 10,891,578 55.1%
-------------------------
Total 19,757,754 100.0%
Exhibit 3--Phoenix Barrels Delivered in August
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Exhibit 4--Tucson to Phoenix Temporary Bypass Line
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Exhibit 5--East Line Expansion/Maximum East Line Capacities
East Line Expansion
SFPP is considering installing approximately 160 miles of 16" pipe
between El Paso and Tucson and replacing the remaining 84 miles of 8"
pipe between Tucson and Phoenix with 12" pipe. Sixty miles of 16" pipe
would be installed downstream of El Paso and 100 miles downstream of
Deming. This would result in one 16"/l2" line at El Paso and one 12"/8"
line between El Paso and Tucson and pump stations--with new pumps--at
El Paso and Deming on both lines. New pumps would also be required at
Tucson but initially it would not be necessary to run Toltec.
Phase I would increase the current East Line capacity by about 56
percent (from 94,000 BPD to 147,000 BPD). If the 16" line were
eventually completed all the way from El Paso to Phoenix (Phase II),
the capacity of the 12" line to Tucson would be 77,000 BPD and the
capacity in the 16" line feeding the 12" TU-PX line would be 120,600
BPD. With Toltec Booster (Phase III) this capacity would increase to
155,600 BPD.
This proposal would include a break-out facility west of El Paso to
gather product from various shippers and pump to Tucson and Phoenix.
Several operational and design issues have to be resolved to finalize
the cost estimate and evaluate the feasibility of the break-out
facility. Because of the level of detail required to prepare an
accurate scope of work, these issues will not be finalized in time to
include in the feasibility study. Estimated budget for the break-out
facility is $30,000,000.
A cost estimate for this proposal (Phase I only) is $180MM.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
Tucson to Phoenix 8" Timeline
July 30, 2003--Initial Release
August 1, 2003--Pipeline Repaired and Line Restarted
August 6, 2003--DOT Corrective Action Order Issued on Initial Release
August 8, 2003--Received Metallurgical Report and Shutdown Pipeline--
DOT/ACC Notified
August 9, 2003--Additional Discussions with DOT/ACC re Line Shutdown
August 9, 2003--Initiated discussions with Shippers on nominating
additional Phoenix grade gasoline from the LA Refineries
August 11, 2003--First discussions with Governor's Office regarding
Line Shutdown
August 12, 2003--Completed Tucson Terminal tank and loading rack
modifications for loading of Phoenix grade gasoline
August 13, 2003--Submission of Hydrostatic Test/SCC Investigation Plan
August 14, 2003--Received Initial Approval from DOT on Hydrostatic
Test/SCC Investigation Plan
August 15-19, 2003--Prepare line for hydrostatic test in advance of DOT
Final Approval
August 19, 2003--Received Final Approval from DOT on Hydrostatics Test
Plan
August 20, 2003--Section 1 Hydrotest Complete
August 20, 2003--Section 2 Hydrotest Unsuccessful
August 24, 2003--Start-up of Tucson to Phoenix Pipeline with Bypass
September 12, 2003--Completed installation of 4,600 feet of new 12"
pipeline. Tucson to Phoenix line operating normally at 50 percent
maximum operating condition. Phoenix to Tucson 6" pipeline
operating normally.
______
Exhibit 7
LS 53/54 Phoenix to Tucson 6"
1999 Internal Inspection and Repairs
November 24, 1999--Ran a high resolution smart pig through
LS 53/54. This was the first in line inspection for LS 53/54.
February 28, 2000--Received ``Preliminary Report'' listing
anomalies having an indicated maximum pit depth greater than or
equal to 50 percent of wall thickness.
February 29, 2000--After analysis on the preliminary report,
operating pressure was lowered to 1735 psi from 2000 psi.
March 2, 2000--Anomaly at MP 71.52 was excavated and
evaluated. No additional pressure reduction was required at
this time.
March 3, 2000--Installed three full encirclement split steel
reinforcement sleeves over areas of general corrosion.
March 28, 2000--LS 53/54 was shutdown to replace 120-feet of
pipe at MP 47.06 in which generalized corrosion was identified.
April 3, 2000--Further reduced operating pressure to 1050
psig, 52.5 percent of MOP in order to restart pipeline.
September 15, 2000--All pressure affecting anomalies found
by the November 1999 In Line Inspection of LS 53/54 are
repaired.
February 16, 2001--The last outstanding anomaly (not
pressure affecting) was replaced with new pipe. The delay in
making this repair was due to delays in obtaining permits from
the Arizona Department of Transportation.
______
Exhibit 8--LS 53/54 CAO, History & Timeline from 1999-May 29, 2003
1) On November 24, 1999, as part of KM's Integrity Management
Program, KM ran a high-resolution smart pig through LS-53/54.
This was the first In Line Inspection (ILI) for LS-53/54.
2) On February 28, 2000, KM's ILI vendor submitted a ``Preliminary
Report'' to KM.
3) After doing an analysis on the preliminary report for Safe
Operating Pressure, it was determined that the pressure should
be lowered to 1735 psi from its original operating pressure of
2000 psi. The pressure was lowered on February 29, 2000.
4) On March 2, 2000, an anomaly at MP 71.52 was excavated and
evaluated. No additional pressure reduction were required.
5) On March 8, 2000, KM submitted a Safety Related Condition (SRC)
report to DOT per the requirements of 49 CFR 195.56. A copy of
this report was also faxed to the ACC. The SRC was submitted
because KM classified one of the anomaly areas as general
corrosion. This classification along with the pressure
reduction met the definition of a SRC under 49 CFR 195.55(a)(1)
which states: ``General corrosion that has reduced the wall
thickness to less than that required for the maximum operating
pressure''. It was determined ``general'' because 3 different
in areas in close proximity were affected.
a) KM indicated on their SRC that the discovery date was March
2, 2000, and the repair completion date was March 3, 2000.
KM installed 3 full encirclement split steel reinforcement
Sleeves (26", 21" and 12") over areas of general corrosion.
6) On March 28, 2000, KM shutdown LS-53/54 at the request of the
Maintenance Manager in order to safely replace 120-feet of pipe
at MP 47.06 in which generalized corrosion was identified.
7) By letter dated March 29, 2000, ACC informed KM that LS-53/54
was an intrastate pipeline and that KM could not restart the
line without first obtaining ACC's approval.
8) On March 31, 2000, KM responded to ACC's Letter dated March 29,
2000 informing the ACC of KM's belief that all their pipeline
operations within the state of Arizona are interstate as none
of the commodity is transported through these lines originates
in Arizona. KM also stated ``. . . in an effort to work
cooperatively with Arizona, we have agreed to take certain
steps to ensure the safety of the line in exchange for
Arizona's concurrence that we may restart and continue to
operate the line. In addition, ACC was informed that the line
pressure on LS-53/54 would be maintained at 1500 psi, which
would produce an additional safety factor above the original
1735 psi.
9) On April 3, 2000, KM further reduced it operating pressure to
1050 psig (52.5 percent of MOP).
10) On April 7, 2000, Kinder Morgan (KM) submitted a letter to DOT
requesting their assistance in clarifying with ACC the
interstate/intrastate delineation for LS-53/54.
11) By letter dated April 11, 2000, ACC informed KM that they would
be inspecting KM facilities on May 15, 2000. ACC wanted to
conduct this audit under their intrastate authority.
12) By letter dated May 4, 2000, the ACC informed KM that during a
``Specialized audit of a Safety Related Condition on the six
inch (6") hazardous liquid pipeline from Phoenix to Tucson''
the ACC noted seven (7) probable non-compliances during the
audit.
a) 195.214(b) Each welding procedure must be recorded in detail
including the results of the qualified tests. Finding: ACC
indicated that ``The specifics for rods or rod size to be
used to make the weld are not correct. Procedures use two
(2) different schedules''. Their note was that this
probable noncompliance is common throughout the welding
procedures submitted.
b) 195.222: Each welder must be qualified in accordance with
section 3 of API Standard 1104. Finding: ACC indicated that
``The welder using KM welding procedures are not qualified.
All welders must be re-qualified because the welding
procedures are not qualified. All welders must be qualified
after procedures have been qualified. All new welders must
be qualified under the 18th edition of API 1104.
c) 195.244: Test leads used for corrosion control or
electrolysis testing must be installed at intervals
frequent enough to obtain measurements indicating adequacy
of cathodic protection. ``Findings: The potentials measured
on the pipeline exposed on March 29, 2000 do not meet the
requirements of the -850 mV criteria. The current applied
potential was -1.184 volts and -0.750 volts (current off).
Potential measured at MP 60.63 were -.634 volt current
applied and -.608 volt current off. KM failed to confirm
the adequacy of CP.
d) 195.402: A manual of written procedures shall be developed
for conducting normal operations and maintenance. Findings:
The KM procedure titled: Administrative Policy for CP
Rectifier Quarterly Maintenance located in the KM Corrosion
Manual fails to instruct employees to inspect rectifiers
six times each calendar year not to exceed two and one half
months. The current KM procedure requires that the
rectifiers be inspected at least four times a year at
intervals not to exceed four months (see exhibit No. 2).
e) 195.416(c): Each rectifier must be inspected at least six
time each calendar year at intervals not to exceed two and
one half months. Findings: Records indicate that rectifiers
were not inspected six times a year at intervals not
exceeding two and one half months.
f) Arizona Administrative Code R-14-5-202(J): Cathodic
protection systems must meet -850 mV criteria. Findings: KM
is currently utilizing an alternative criteria and must
apply for a waiver to continue to use any criteria other
that the -850 mV criteria.
g) Arizona Administrative Code R-14-5-202(Q): All welding
procedures and welder qualifications will be in accordance
with API 1104. Findings: KM is using API 1107 when making
repairs to the pipeline. State code does not allow any
other standard then API 1104 with out a waiver authorizing
the use.
13) By letter dated May 19, 2000, ACC informed Mr. Jay Shapiro of
Fennemore Craig, Phoenix, AZ, outside legal counsel for KM,
that the intrastate code compliance audit scheduled for June
15, 2000 was indefinitely postponed. In addition, the request
for response to the non-compliance items listed in their May 4,
2000 letter was rescinded. However, KM is put on notice that
these non-compliances have been identified.
14) KM received a carbon copy letter, dated June 1, 2000, of an
inspection report from the ACC addressed to Mr. Rod Seeley with
the U.S. Department of Transportation, Houston, TX. Within this
letter, ACC indicated that KM violated the following
regulations: (NOTE: the following violation are the same as
cited in the May 4, 2000 letter excluding the Arizona
Administrative Code violations)
a) 195.222 Welder Qualifications: ACC indicated that welder were
qualified to a procedure that was not qualified. ACC
position is that procedures need to be qualified in
accordance with API 1104. 49 CFR 195.214 Welding General
does not require welding procedures to be qualified in
accordance with API 1104. This section just requires that
the procedures must be qualified. ACC intrastate regulation
do stipulate that welding procedures need to be qualified
in accordance with API 1104 but since KM in an interstate
operator, this restriction does not apply. KM believes that
all its welding procedure, which were previously qualified
under the supervision of an ACC inspector, continue to meet
the Federal requirements.
b) 195.244 Test Leads: ACC indicated that corrosion control test
leads must be installed at intervals frequent enough to
obtain electrical measurements indicating the adequacy of
the cathodic protection. KM could not achieve adequate
cathodic protection between test stations. ACC related the
low potentials list below as the cause of ``The thousands
of anomalies identified by the pipeline inspection tool
clearly indicate a lack of cathodic protection test
stations used to determine the adequacy of cathodic
protection on the pipeline. ACC indicated that on March 29,
2000, the pipe to soil potentials at
i) MP 71.52 were -1.184 volts, current applied
and -0.740 volts current off.
ii) MP 60.63 were -0.634 volts current applied
and -0.608 volts current off.
c) 195.402 Procedural Manual for Operations, Maintenance and
Emergencies: ACC indicated KM rectifier inspection
procedure fails to instruct employees to inspect rectifiers
six times each calendar year not to exceed two and one half
months. KM procedure requires that the rectifiers be
inspected at least four times a year not to exceed four
months. The ACC did not take into account KM's practice of
evaluating rectifiers on a weekly bases based on utilizing
aerial patrols that observe aerial indicators that KM has
installed on its rectifiers. These aerial indicators
monitor the output of the rectifier. When the output of the
rectifier drops a certain predetermined percentage, the
aerial indicator stops operating. This in turn is observed
by our aerial pilots which fly KM pipelines on a weekly
bases. These pilots then inform ground personnel to go and
inspect the rectifier in question. KM believes that this
practice far exceeds the minimum requirement of six
inspection. Under the Federal requirement, a rectifier can
stop operating the day after one of our inspection and
would not be aware of this situation until the next
inspection two and one half months later. Under KM's
current practice, the longest time period a rectifier can
go with out operator is approximately one week. The four
inspections that ACC referenced are KM physical inspections
of the rectifier and the calibration inspections of the
aerial indicators.
d) 195.416(c) External Corrosion Control: ACC indicated that KM
records indicated that rectifiers were not inspected six
times. Based on item c) above, this is correct since our
physical inspections are conducted quarterly and our aerial
inspections are conducted weekly. We believe this practice
goes above and beyond the six inspection requirement of the
Federal regulation.
15) By letter dated, June 9, 2000, OPS responded to KM request for
interpretation of jurisdictional delineation. OPS concurred
with KM position that LS-53 should be considered interstate.
The following people were sent a carbon copy of this letter:
a) ACC Robert J. Metli and Terry Fonterhouse and
b) OPS-SW, Rod Seeley.
16) By September 15, 2000, KM had addressed all anomalies requiring
pressure reduction found by its November 1999 In Line
Inspection of LS-53/54. The only outstanding anomaly after this
date was one that was located under a concrete embankment under
Interstate 10 and adjacent to a railroad right of way. This
anomaly was not pressure related but because of its location,
KM decided to replace it with new pipe. The delay in making
this repair was due to delays in obtaining permits from the
Arizona Department of Transportation. The replacement of this
pipe was completed on February 16, 2001.
17) By letter dated March 14, 2001, OPS issued KM a Corrective
Action Order, CPF 4-2000-5010-H.
a) The Order placed a 80 percent of MOP pressure restriction on
two line segments (LS-53 & LS-54) of Phoenix-Tucson
pipeline, and
b) The Order proposed additional corrective measures with
respect to the Phoenix to Tucson line, and required
additional information about the condition of KM's entire
pipeline system in Arizona, New Mexico, and Texas. On LS-53
and LS 54, KM was required to:
i) Develop and implement a work plan and
schedule for performing coating evaluations on the line
using Coating Mapper or Direct Current Voltage
Gradient. The plan was to be submitted to OPS within 15
days of receipt of the amended CAO. KM was also
required to submit a report of the data collected and
findings made as a result of the work plan within 15
days of the completion date established by the approved
work plan.
ii) Develop and implement a work plan and
schedule for re-coating, repairing or replacing
sections of the line that are determined by the coating
evaluation to require remedial measures. The work plan
and schedule was to be submitted to OPS within 15 days
of submission of the report required by (b)(i) above.
KM was to submit a progress report of all remedial
actions taken 120 days after approval of the work plan
and then every 120 days thereafter until the work plan
was completed. KM was to submit a final report on all
remedial actions taken under the plan within 30 days of
completion of the final action required by the work
plan.
iii) Develop a work plan and schedule for
conducting internal inspection tests of the line using
the same or similar technology used in the 1999
internal inspection. KM was to submit the work plan to
the OPS within 30 days of receipt of the amended CAO.
KM was to implement the work plan upon completion of
the final action described in item (b)(ii) above, and
submit a report on the results of the internal
inspection tests within 30 days of completion of the
testing.
c) With respect to lines in Arizona, New Mexico, and Texas, KM
was required to submit a report to the OPS on all internal
inspection tests that had been performed on lines in
Arizona, New Mexico, and Texas since January 1, 1997 within
60 days of receipt of the amended CAO. The report was to
include the final results of all internal inspection tests,
the repair criteria established for each internal
inspection test conducted, and all other information
relevant to repairs made including a complete description
of the repair criteria and repair methods.
18) By letter dated March 28, 2001, KM clarified the receipt date of
the Corrective Action Order CPF 4-2000-5010-H as being March
26, 2001. There were some mail routing problems in getting the
CAO to Bill White. DOT's original letter went to Orange, CA
when Bill White was in Houston. KM wanted to clarify this
because of response time constraints that were stated in the
CAO.
19) By letter dated April 3, 2001, KM requested a hearing with DOT
to discuss CAO for LS-53/54.
20) By letter dated April 26, 2001, OPS informed KM that CPF 4-2000-
5010-H was renumbered to CPF 4-2001-5010-H.
21) By letter dated August 9, 2001, KM provided OPS an advance copy
of our written response to the CAO.
22) On August 14, 2001, the CAO hearing was held in the OPS-SW
Region Office in Houston, Texas. By revised letter dated August
14, 2001 and hand carried to the hearing, KM responded to OPS
Corrective Action Order, CPF 4-2000-5010-H. KM requested DOT to
rescind the Corrective Action Order. KM believed that it was in
full compliance with all DOT regulations and that the proposed
requirements of the CAO were not supported by relevant facts or
applicable regulations. KM was represented by outside counsel
from Bracewell & Patterson.
23) By letter dated August 27, 2001, KM outside counsel, Bracewell &
Patterson, relayed information to DOT's Hearing Examiner
addressing the request for additional information made during
the hearing.
24) By letter dated September 7, 2001, DOT's Presiding Officer
submitted a request for additional information.
25) By letter dated September 28, 2001, KM outside counsel responded
to DOT's September 7, 2001 request for more information. The
information was submitted to DOT through our outside counsel,
Bracewell & Patterson, LLP.
26) By letter dated March 17, 2003, DOT issued KM an Amended CAO.
The amended CAO requires the following from KM:
a) Maintain reduced operating pressure on its Phoenix--Tucson -
Davis Monthan AFB line
b) Develop a work plan and schedule for conducting internal
inspection tests using the same or similar technology which
identified the extensive metal loss instances referred to
in preliminary Finding 2
i) Submit the work plan described in this action
item to the Director, Southwest Region, for approval
within 30 days of receipt of an amendment to this
Order.
ii) Submit a report on the results and findings
of the internal inspection tests to the Director,
Southwest Region, within 30 days of completion of the
testing.
27) By letter dated April 14, 2003, KM acknowledges to DOT the
receipt of their Amended CAO:
a) KM makes some information corrections such as Davis Monthan
AFB pipeline is a separate line and is not directly
connected to LS-53/54..
b) KM informs DOT that LS-53/54 had been subsequently internally
inspected utilizing a Electronic Geometry Pig (EGP) and a
Corrosion Detection Pig (CDP). These runs were completed on
March 1, 2003, and that the final report was to be received
around May 2003 and that a report would be submitted to DOT
within 30 days of receiving the final report. KM believed
this met the requirements of the Amended Corrective Action
Order, dated March 17, 2003 to internally inspect this
line.
28) By letter dated May 29, 2003 (date error on letter), KM informed
OPS-SW that is was complying with the requirement of the
Amended CAO dated March 17, 2003 and informs DOT that KM
received a Final report on April 29, 2003, KM informs DOT of
the Following findings:
a) There were no ``Immediate'' repairs as defined by DOT's IMP
regulation.
b) There were two ``60-day'' repair conditions. The first was a
3.5 percent dent at 1:10 o'clock position. The second was a
4.7 percent dent at 11''51 o'clock position. KM projects to
have both anomalies investigated and necessary repairs
before the end of June 2003.
c) There were no ``180-day'' repair conditions reported in the
Final report
d) KM continues to review the Final Report to determine if
additional excavations are warranted.
e) KM addressed ``two corrosion anomalies from the Final report.
f) This update met the requirements of the Amended CAO.
______
Exhibit 9--Safety Record Statistics
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you, Mr. Bannigan. Mr. Cowley.
STATEMENT OF DAVID COWLEY, DIRECTOR, PUBLIC AFFAIRS,
AAA ARIZONA
Mr. Cowley. Thank you, Senator. Thank you for the
opportunity to testify. AAA Arizona's role in the automotive
and transportation arena is familiar to most people. We have
over 600,000 members in Arizona alone. AAA advocates with the
Government and the automotive industry on behalf of the
motoring public. We also strive to educate motorists about the
transportation, automotive, and oil industries. Our goal is to
provide clarity, common sense, and balance to these issues.
For many years, AAA has tracked and reported gasoline
supplies and prices. The media and public turn quickly to AAA
for explanations whenever gasoline issues arise as with the
August pipeline closure. We've learned that Americans react
strongly to bad news about gas prices and availability. What's
more, the public is quick to assume that price hikes are the
result at the greed at the supplier or retail level and are
skeptical about the legitimacy of external pressures forcing
gas prices up. Communicating promptly and clearly about unusual
supply or pricing issues is critical.
We learned of the pipeline's situation from a media contact
on August 11, 3 days after the actual closure, hardly an
example of prompt communication from the pipeline industry.
There was some initial confusion about the nature of the
disruption, again due to an absence of information, but once
that was cleared up we issued our first press release
explaining the closure. We stated that gas supplies were
plentiful, it would take just a little longer to get gasoline
into the valley by truck. That was on a Monday.
We issued press releases on Tuesday, August 12, and
Wednesday, August 13, each time reporting the price of gas and
assuring the public that supplies were plentiful, it was a
transportation disruption. Parenthetically, Senator, let me say
that the difference between a gasoline shortage and a
transportation disruption was more than merely semantics. We
felt it was very important to assure the public that gasoline
inventories were normal, this was not another 1973. On
Thursday, August 14, we issued our weekly fuel gauge report,
again calling on motorists to conserve fuel and offering tips
on doing so. During this time, my staff and I had held many
interviews with the television, radio, and print media, always
with that same message.
The panic buying that led to long lines and station
closures began Sunday afternoon, August 18, as motorists
attempted to refuel after their weekend activities. Stations
began running out of gas. Panicked motorists searched for open
stations and eventually even motorists who didn't need to fill
up joined lines to top off their tanks. Why did it happen? Why,
when the disruption had been no more than an inconvenience for
almost a week did it suddenly escalate into panic buying? In
AAA's view there are two reasons. First, we, and by that I mean
those in the oil industry, AAA, and the Government, should have
cautioned the public to curtail their weekend activities in
order to accommodate the gasoline supply problem. In my
recollection, no one specifically said that.
Second, we who had been in the media all week explaining
the situation took the weekend off. Although my staff held half
a dozen interviews on Saturday and Sunday that was not close to
the number we had been doing and we had not issued a press
release since our Thursday fuel gauge report. Now could we have
prevented a run on gas stations had we been out there in the
media more heavily? I can't say. But I can say that
communication, the lack thereof, contributed to the severity of
this gas crisis.
What have we learned? First, it's time to acknowledge that
gasoline is an essential commodity similar to utilities. The
principles of free enterprise and competition should be allowed
to establish gas pricing, but we also believe the refining
industry has an obligation to practice restraint in pricing,
especially during emergencies.
Third, as has been said before, we need to take steps to
ensure adequate supplies of gasoline to our state with
redundancy built into the system. Third, the industry should
have practical, practical back-up plans in the event of
infrastructure problems. Fourth, if the industry won't speak to
the public about supply or pricing issues as seems to be the
case, they should at least speak candidly to AAA and the
Government. We can then inform the public.
That said, I must point out that AAA will not act as a
public relations firm for the oil or any other industry. We
value our reputation as a balanced source of information for
motorists, and if we think it is necessary we won't hesitate to
point out inconsistencies.
Finally, AAA believes all Americans should recognize that
fossil fuels are a finite energy resource. We should practice
conservation, including the use of carpooling and mass
transportation, and we should buy the most energy efficient
vehicles that are practical for our needs.
Senator, hearings such as these are an important means of
assessing the pipeline closure and subsequent events and
preventing a recurrence. AAA hopes there will be a
communications component in your recommendations, encouraging
managers of essential infrastructure to speak candidly about
disruption.
Thank you, Senator McCain. That concludes my statement.
[The prepared statement of Mr. Cowley follows:]
Prepared Statement of David Cowley, Public Affairs Manager, AAA Arizona
Senator McCain. Members of the Committee.
I am David Cowley, Public Affairs Manager at AAA Arizona. Thank you
for the opportunity to testify.
AAA Arizona's role in the automotive and transportation arena is
familiar to most people--we have 600,000 members in Arizona alone. AAA
advocates with the government and the automotive industry on behalf of
the motoring public. We also strive to educate motorists about the
transportation, automotive and oil industries. Our goal is to provide
clarity, common sense and balance to these issues.
For many years, Triple A has tracked and reported gasoline supplies
and prices. The media and public turn quickly to AAA for explanations
whenever gasoline issues arise, as with the August pipeline closure.
We've learned that Americans react strongly to bad news about gas
prices and availability. What's more, the public is quick to assume
that price hikes are the result of greed at the supplier or retail
level, and are skeptical about the legitimacy of external pressures
forcing gas prices up. Communicating promptly and clearly about unusual
supply or pricing issues is critical.
We learned of the pipeline situation from a media contact on August
11, three days after the actual closure--hardly an example of prompt
communication from the pipeline industry. There was some initial
confusion about the nature of the disruption--again due to an absence
of information--but once that was cleared up, we issued our first press
release explaining the closure. We stated that gas supplies were
plentiful--it would just take a little longer to get gasoline into the
Valley by truck. That was on a Monday.
We issued press releases on Tuesday, August 12, and Wednesday,
August 13, each time reporting the price of gas and assuring the public
that supplies were plentiful--it was a transportation disruption.
(Parenthetically, let me say that the difference between a gasoline
shortage and a transportation disruption was more than merely
semantics--we felt it important to assure the public that gasoline
inventories were normal--this was not another 1973.) On Thursday,
August 14, we issued our weekly Fuel Gauge Report, again calling on
motorists to conserve fuel and offering tips on doing so. During this
time, my staff and I held many interviews with the television, radio
and print media . . . always with that same message.
The panic-buying that led to long lines and station closures began
Sunday afternoon, August 18. As motorists attempted to refuel after
their weekend activities, stations began running out of gas, panicked
motorists searched for open stations, and eventually, even motorists
who didn't need to fill up joined the lines to top off their tanks.
Why did it happen? Why, when the disruption had been no more than
an inconvenience for almost a week, did it suddenly escalate into
panic-buying?
In AAA's view, there are two reasons:
1. First, we--by that I mean those in the oil industry, Triple A,
and the government--should have cautioned the public to curtail
their weekend activities in order to accommodate the gasoline
supply problem. In my recollection, no one specifically said
that.
2. Secondly, we who had been in the media all week explaining the
situation, took the weekend off. Although my staff held half-a-
dozen interviews on Saturday and Sunday, that was not even
close to the number we had been doing. And, we had not issued a
press release since our Thursday Fuel Gauge report.
Could we have prevented the run on gas stations had we been `out
there' in the media more heavily? I can't say. But, I can say
communication--the lack thereof--contributed to the severity of the gas
crisis.
What have we learned?
First, it is time to acknowledge that gasoline is an
essential commodity, similar to utilities. The principles of
free enterprise and competition should be allowed to establish
gasoline pricing, but we also believe the refining industry has
an obligation to practice restraint in pricing, especially
during emergencies.
Secondly, we need to take steps to insure adequate supplies
of gasoline to our state, with redundancy built into the
system.
Third, the industry should have practical--practical--backup
plans in place in the event of infrastructure problems.
Fourth, if the industry won't speak to the public about
supply or pricing issues--as seems to be the case--they should,
at least, speak candidly to Triple A and the government. We can
then inform the public. (That said, I must point out that
Triple A will NOT act as a Public Relations firm for the oil,
or any other, industry. We value our reputation as a balanced
source of information for motorists. And, if we think it is
necessary, we won't hesitate to point out inconsistencies.)
Finally, AAA believes all Americans should recognize that
fossil fuels are a finite energy resource. We should practice
conservation, including the use of carpooling and mass
transportation. And, we should buy the most energy efficient
vehicles that are practical for our needs.
Senator; Members of the Committee; hearings such as this are an
important means of assessing the pipeline closure and subsequent events
. . . and preventing a recurrence. AAA hopes there will be a
communication component in your recommendations encouraging managers of
essential infrastructure to speak candidly about disruptions.
That concludes my statement. I'll be happy to answer your
questions.
______
Pipeline Closure Timeline
July 31, 2003--Kinder Morgan pipeline ruptures. Line is closed, Federal
authorities and the Arizona Corp. Commission is notified. Phoenix
unleaded: $1.541
August 1, 2003--Kinder Morgan reopens the pipeline and runs it at
reduced capacity.
August 6, 2003--Federal Office of Pipeline Safety determines the
pipeline can be run safely at 80 percent capacity. A failed seam
thought to be the origin of the problem.
August 8, 2003--Kinder Morgan decides the problem is more serious and
shuts the line down completely. Phoenix unleaded: $1.536
August 11, 2003--AAA Arizona learns of closure from a media contact.
AAA issues first press release explaining the closure. AAA stated that
gas supplies were plentiful, transportation issues were holding up
supplies, motorists should conserve gas. Phoenix unleaded: $1.558
August 12, 2003--Extensive media interviews. AAA Arizona sends an
update on the closure to the media. Phoenix unleaded: $1.613
August 13, 2003--Napolitano holds a news conference and predicts no
widespread outages based on information from Kinder Morgan. AAA attends
this news conference by invitation from the governor's office. AAA
Arizona sends another press release update to the media. Phoenix
unleaded: $1.639
August 14, 2003--Kinder Morgan delivers testing plan to the Office of
Pipeline Safety. AAA sends pipeline update press release. Phoenix
unleaded: $1.684
Sunday, August 17, 2003--Gas lines form at stations in afternoon. AAA
Emergency Road Service reports a spike in members asking for fuel
service. Flurry of media interviews in afternoon and early evening.
Phoenix unleaded: $1.767
Monday, August, 18, 2003--Gov. Napolitano meets with Valley mayors and
other public officials. AAA issues press release calling for calm and
advising motorists not to buy gas unless it is needed. Phoenix
unleaded: $1.767
Tuesday, August 19, 2003--Government approves Kinder Morgan's plan to
start testing. Napolitano asks for, receives a temporary waiver to the
Valley's CBG requirement. AAA sends an update press release. Phoenix
unleaded: $1.866
Wednesday, August 20, 2003--Pipeline fails hydrostatic test. Lines at
gas stations start to subside. Fuel is being delivered to the Valley by
truck. Phoenix unleaded: $1.926
Thursday, August 21, 2003--Kinder Morgan announces plans to bypass
section of pipeline that failed test, gas should be flowing to Phoenix
by the weekend. Unleaded gas in Phoenix: $2.038
Sunday, August 24, 2003--Kinder Morgan completes bypass of the closed
section of pipeline. Gas begins flowing toward Phoenix. Phoenix
unleaded: $2.098
Thursday, August 28, 2003--AAA issues Fuel Gauge Report, noting that
high gas prices are not expected to deter motorists from traveling over
Labor Day. Phoenix unleaded: $2.125
August 2003 Gas Prices During Pipeline Closure
AAA Arizona, 2003
AAA's Fuel Gauge reports are usually done weekly, on Thursdays.
When we became aware of the pipeline situation, webegan keeping a daily
report. The green rows are weekly reports done before and after the
pipeline was closed.Where prices for a particular grade are missing, it
is because we generally base our discussions with the press on regular
unleaded.Thus, we often skip other grades in our notes. For purposes of
discussion during the crisis, we used Phoenix as the benchmarkprice,
rather than going into all the different prices around the Valley.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Statewide East Valley Phoenix
--------------------------------------------------------------------------------------------------------------------------
Regular Mid-Grade Premium Diesel Regular Mid-Grade Premium Diesel Regular Mid-Grade Premium Diesel
--------------------------------------------------------------------------------------------------------------------------------------------------------
8/7/03 1.570 1.636 1.731 1.625 1.513 1.578 1.670 1.622 1.536 1.602 1.694 1.638
8/11/03 1.550 1.546 1.612 1.705 1.617 1.558 1.625 1.718 1.636
8/12/03 1.550 1.591 1.659 1.755 1.621 1.613 1.682 1.779 1.643
8/13/03 1.640 1.633 1.704 1.802 1.635 1.639 1.709 1.808 1.654
8/14/03 1.650 1.679 1.751 1.852 1.643 1.684 1.756 1.857 1.662
8/15/03 1.709 1.708 1.781 1.884 1.668 1.726 1.801 1.904 1.681
weekend
8/18/03 1.741 1.754 1.830 1.935 1.687 1.767 1.843 1.949 1.698
8/19/03 1.813 1.843 1.922 2.033 1.715 1.866 1.946 2.058 1.709
8/20/03 1.855 1.906 1.988 2.103 1.736 1.926 2.009 2.125 1.728
8/21/03 1.885 1.961 2.045 2.163 1.778 1.981 2.066 2.185 1.747
8/22/03 1.928 2.041 2.129 2.252 1.781 2.038 2.125 2.248 1.762
weekend
8/25/03 1.966 2.117 2.208 2.335 1.787 2.098 2.188 2.314 1.770
8/26/03 2.008 2.120 2.211 2.339 1.783 2.146 2.238 2.367 1.782
8/27/03 2.005 2.130 2.221 2.349 1.779 2.131 2.222 2.350 1.797
8/28/03 1.998 2.124 2.215 2.342 1.775 2.125 2.216 2.344 1.793
8/29/03 1.994 2.118 2.209 2.337 1.785 2.111 2.202 2.329 1.788
weekend
9/3/03 1.980 2.076 2.165 2.289 1.759 2.070 2.159 2.284 1.734
9/4/03 1.980 2.065 2.184 1.757 2.080 2.170 2.295 1.760 2.081 2.170 2.295 1.769
9/11/03 1.927 2.010 2.125 1.730 2.008 2.094 2.214 1.713 2.012 2.098 2.219 1.745
9/18/03 1.882 1.963 2.076 1.69 1.956 2.040 2.157 1.665 1.96 2.043 2.161 1.723
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Scottsdale Tucson Flagstaff
--------------------------------------------------------------------------------------------------------------------------------------------------------
Regular Mid-Grade Premium Diesel Regular Mid-Grade Premium Diesel Regular Mid-Grade Premium Diesel
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.582 1.650 1.745 1.675 1.513 1.578 1.670 1.651
1.610 1.679 1.776 1.666 1.549 1.616 1.709 1.694 1.691 1.768 1.864 1.622
1.660 1.731 1.831 1.695 1.563 1.630 1.724 1.685 1.690 1.763 1.863 1.644
1.673 1.745 1.845 1.651 1.572 1.640 1.734 1.682 1.722 1.797 1.899 1.668
1.709 1.782 1.885 1.688 1.608 1.677 1.773 1.699 1.728 1.805 1.906 1.658
1.774 1.851 1.957 1.691 1.630 1.700 1.798 1.703 1.736 1.813 1.914 1.668
1.814 1.892 2.001 1.703 1.648 1.718 1.817 1.710 1.760 1.838 1.941 1.701
1.887 1.968 2.081 1.695 1.710 1.783 1.886 1.749 1.783 1.863 1.966 1.735
1.952 2.036 2.154 1.703 1.722 1.795 1.899 1.723 1.856 1.937 2.047 1.739
1.994 2.079 2.199 1.761 1.728 1.802 1.906 1.732 1.863 1.945 2.055 1.780
2.069 2.158 2.282 1.800 1.750 1.825 1.930 1.731 1.862 1.946 2.054 1.773
2.134 2.226 2.354 1.797 1.766 1.842 1.948 1.733 1.889 1.973 2.082 1.776
2.165 2.258 2.388 1.838 1.809 1.887 1.995 1.757 1.919 2.005 2.117 1.807
2.187 2.281 2.412 1.820 1.824 1.902 2.011 1.746 1.949 2.035 2.149 1.800
2.173 2.267 2.397 1.785 1.826 1.904 2.014 1.732 1.938 2.024 2.137 1.786
2.147 2.239 2.368 1.786 1.819 1.897 2.006 1.735 1.927 2.013 2.124 1.802
2.137 2.228 2.357 1.751 1.821 1.899 2.008 1.739 1.880 1.960 2.073 1.839
2.127 2.218 2.346 1.784 1.819 1.897 2.006 1.738 1.901 1.985 2.096 1.822
2.047 2.135 2.258 1.813 1.794 1.871 1.979 1.729 1.865 1.947 2.057 1.764
1.981 2.066 2.185 1.700 1.763 1.838 1.944 1.687 1.807 1.887 1.993 1.741
--------------------------------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Yuma National
----------------------------------------------------------------------------------------------------------------
Regular Mid-Grade Premium Diesel Regular Mid-Grade Premium Diesel
----------------------------------------------------------------------------------------------------------------
1.528 1.594 1.686 1.578 1.542 1.637 1.697 1.533
1.583 1.651 1.746 1.569
1.605 1.674 1.771 1.565
1.607 1.676 1.773 1.589
1.668 1.739 1.840 1.600 1.571 1.667 1.728 1.556
1.708 1.781 1.884 1.638
1.758 1.834 1.939 1.654
1.812 1.890 1.999 1.649
1.820 1.898 2.008 1.659
1.835 1.914 2.024 1.666 1.635
1.883 1.963 2.077 1.666 1.648
1.903 1.985 2.100 1.680 1.664
1.988 2.073 2.192 1.667 1.718
1.993 2.079 2.199 1.670 1.733
1.964 2.049 2.167 1.670 1.735
1.944 2.028 2.144 1.683 1.736
1.945 2.028 2.145 1.661 1.731
1.947 2.031 2.148 1.689 1.730 1.837 1.903 1.580
1.929 2.012 2.128 1.657 1.693 1.797 1.862 1.566
1.870 1.951 2.063 1.630 1.673 1.775 1.840 1.554
----------------------------------------------------------------------------------------------------------------
______
AAA Arizona
Phoenix, AZ
For Immediate Release
AAA Reports: Fuel Prices Holding Steady at the Midpoint of the Summer
Driving Season
Phoenix, AZ--July 31, 2003--Gasoline prices have held steady as the
summer driving season continues. The statewide average price for self-
serve unleaded gasoline inched 1.3 cents lower from last week to $1.570
per gallon, according to AAA Arizona's Weekly Fuel Survey. The current
average price is 11.8 cents higher than a year ago when the average was
$1.452 per gallon. However, this week's average is 9 cents cheaper than
last month's average of $1.660 per gallon.
The national average for gasoline remained unchanged at $1.523 per
gallon. OPEC's meeting earlier today helped pin crude oil prices to
$28.43 per barrel, following their decision to maintain current
production levels. OPEC's decision will help keep gasoline prices
stable unless major refinery or pipeline problems occur in the U.S.
Meanwhile, U.S. gasoline inventories are returning to normal levels
following the aftermath of Hurricane Claudette.
AAA found the most expensive average price in California at $1.747,
followed by Nevada, $1.684 and Montana: at $1.662 per gallon. The least
expensive states to fill up are: South Carolina: $ 1.386, Georgia:
$1.401 and New Jersey: $1.413 per gallon.
Arizona pump prices are in concert with the rest of the Nation and
are holding ground. Gasoline prices in the southwest region of the
state held steady with the exception of Yuma where the average pump
price plunged 2.3 cents to $1.552 per gallon. Prices in the Valley
experienced the highest decreases than the rest of the state. Gasoline
prices in the West Valley and Scottsdale edged 2.5 cents lower to
$1.525 and $1.578 per gallon, respectively. This week's survey shows
the East Valley's average fuel price as the cheapest in the state at
$1.508 per gallon. Other Arizona prices are shown below. Motorists can
visit AAA's website at www.aaa.com, then click on News for the latest
fuel price information.
------------------------------------------------------------------------
Unleaded Mid-Grade Premium Diesel
------------------------------------------------------------------------
Phoenix (city) 1.541 1.607 1.700 1.632
------------------------------------------------------------------------
East Valley 1.508 1.572 1.663 1.616
(Mesa,Gilbert, Chandler,
Tempe, Ahwatukee, Apache
Queen Crk.)
------------------------------------------------------------------------
West Valley 1.525 1.591 1.682 1.637
(Peoria, Glendale, Sun City)
------------------------------------------------------------------------
Scottsdale 1.578 1.646 1.741 1.663
(Scottsdale, Fountain Hills)
------------------------------------------------------------------------
Tucson (city) 1.523 1.588 1.680 1.650
------------------------------------------------------------------------
Pima County 1.530 1.595 1.687 1.656
------------------------------------------------------------------------
Flagstaff 1.685 1.760 1.858 1.626
------------------------------------------------------------------------
Yuma 1.552 1.618 1.711 1.541
------------------------------------------------------------------------
Statewide 1.570 1.637 1.731 1.618
------------------------------------------------------------------------
National 1.523 1.617 1.675 1.520
------------------------------------------------------------------------
AAA continues to advise motorists to practice fuel conservation and
continue to maintain their normal fuel purchasing patterns. AAA Arizona
recommends the following fuel conservation tips to motorists:
If you own more than one car--especially if one of your
vehicles is a less fuel-efficient truck or SUV--use the more
energy-conserving vehicle as often as possible.
Car pools, van pools and public transit are other potential
ways to cut driving expenses and fuel consumption.
Consolidate trips and errands.
Find one location where you can take care of all banking,
grocery shopping and other chores.
Slow down. The faster a vehicle travels, the more gas it
burns.
Avoid quick starts and sudden stops, this wastes fuel.
Routinely maintain your vehicle.
Lighten the load. A heavier vehicle uses more gasoline, so
when packing for a road trip--pack light--and try to pack
everything inside the vehicle if possible. Strapping items to
the top of a vehicle can create wind resistance.
Check your vehicle owner's manual. If your vehicle does not
require premium or mid-grade fuel, then buy regular unleaded
gasoline.
These and other fuel conservation tips and information can be found
in AAA's Gas Watcher's Guide. These guides are free to the public and
can be picked up at any AAA Arizona office throughout the state.
______
AAA Arizona
Phoenix, AZ
For Immediate Release
AAA Reports: Gasoline Retail Prices Unsettled
Phoenix, AZ--August 7, 2003--Gasoline prices inched upward in many
regions of the state this week, sliding downward in others, and ending
with the statewide average price for self-serve unleaded gasoline
unchanged from last week at $1.570 per gallon, according to AAA
Arizona's Weekly Fuel Survey. This week's average price is 12.9 cents
higher than a year ago when the average was $1.440 per gallon.
The national average cost for gasoline rose to $1.542 per gallon,
1.9 cents higher than last week. Crude oil prices moved above $32 per
barrel earlier this week due to recent terrorist attacks that bolstered
worries among the oil industry. This recent turn of events has created
a run-up in wholesale gasoline prices, which will eventually lead to
higher retail prices. There are several theories behind the sudden
price hike including recent terror attacks in Indonesia and the
cancellation of a summit meeting between Israeli and Palestinian
leaders.
AAA found the most expensive average price in California at $1.743,
followed by Nevada, $1.690 and Montana: at $1.674 per gallon. The least
expensive states to fill up are: South Carolina: $1.395, Georgia:
$1.404 and New Jersey: $1.418 per gallon.
Locally, pump prices in Southern Arizona inched downward
marginally. Tucson's average price dropped by a penny to $1.513 per
gallon, from last week. Prices in the Valley climbed upward with the
exception of Phoenix where the average price barely budged by dropping
.5 cents to $1.536 per gallon. Other Arizona prices are shown below.
Motorists can visit AAA's website at www.aaa.com, then click on News
for the latest fuel price information.
------------------------------------------------------------------------
Unleaded Mid-Grade Premium Diesel
------------------------------------------------------------------------
Phoenix (city) 1.536 1.602 1.694 1.638
------------------------------------------------------------------------
East Valley 1.513 1.578 1.670 1.622
(Mesa,Gilbert, Chandler,
Tempe, Ahwatukee, Apache
Queen Crk.)
------------------------------------------------------------------------
West Valley 1.528 1.593 1.685 1.642
(Peoria, Glendale, Sun City)
------------------------------------------------------------------------
Scottsdale 1.582 1.650 1.745 1.675
(Scottsdale, Fountain Hills)
------------------------------------------------------------------------
Tucson (city) 1.513 1.578 1.670 1.651
------------------------------------------------------------------------
Pima County 1.522 1.587 1.678 1.660
------------------------------------------------------------------------
Flagstaff 1.713 1.790 1.890 1.630
------------------------------------------------------------------------
Yuma 1.528 1.594 1.686 1.578
------------------------------------------------------------------------
Statewide 1.570 1.636 1.731 1.625
------------------------------------------------------------------------
National 1.542 1.637 1.697 1.533
------------------------------------------------------------------------
AAA continues to advise motorists to practice fuel conservation and
continue to maintain their normal fuel purchasing patterns. AAA Arizona
recommends the following fuel conservation tips to motorists:
If you own more than one car--especially if one of your
vehicles is a less fuel-efficient truck or SUV--use the more
energy-conserving vehicle as often as possible.
Car pools, van pools and public transit are other potential
ways to cut driving expenses and fuel consumption.
Consolidate trips and errands.
Find one location where you can take care of all banking,
grocery shopping and other chores.
Slow down. The faster a vehicle travels, the more gas it
burns.
Avoid quick starts and sudden stops, this wastes fuel.
Routinely maintain your vehicle.
Lighten the load. A heavier vehicle uses more gasoline, so
when packing for a road trip--pack light--and try to pack
everything inside the vehicle if possible. Strapping items to
the top of a vehicle can create wind resistance.
Check your vehicle owner's manual. If your vehicle does not
require premium or mid-grade fuel, then buy regular unleaded
gasoline.
These and other fuel conservation tips and information can be found
in AAA's Gas Watcher's Guide. These guides are free to the public and
can be picked up at any AAA Arizona office throughout the state.
______
AAA Arizona
Phoenix, AZ
For Immediate Release
AAA Advises Motorists on Temporary Disruptions
to the Phoenix Gasoline Supply
Phoenix, AZ.--August 11, 2003--Today, Kinder Morgan, the company
operating an 8-inch pipeline between Tucson and Phoenix, temporarily
shut down the pipeline as a precautionary measure in connection with an
ongoing investigation into a recent rupture. The company is working to
get the line back up and running as quickly as possible.
There will be adequate supplies of fuel to meet demand in the
Tucson area. In Phoenix, supplies of regular unleaded gasoline will not
be impacted in the short term, but there may be temporary shortages of
premium gasoline. Motorists are advised not to panic--gasoline is in
plentiful supply at the company's Tucson terminal and can be trucked
into Phoenix. It is also important to note that the pipeline from
Tucson only carries about 30 percent of the Valley's gas. Seventy
percent of Kinder Morgan's gasoline volume to Phoenix will continue
normally.
AAA says, don't rush out to buy gas. The surest way to shortages is
panic buying. The disruption may well be over before many Phoenicians
need to fill up.
Here are some tips on fuel conservation:
If you own more than one car--especially if one of your
vehicles is a less fuel-efficient truck or SUV--use the more
energy-conserving vehicle as often as possible.
Consolidate trips and errands.
Find one location where you can take care of all banking,
grocery shopping and other chores.
Slow down. The faster a vehicle travels, the more gas it
burns
Avoid quick starts and sudden stops--this wastes fuel.
Routinely maintain your vehicle.
Lighten the load. A heavier vehicle uses more gasoline.
Check your vehicle owner's manual. If your vehicle does not
require premium or mid-grade fuel, then buy regular unleaded
gasoline.
Remember, gas conservation should be practiced even when there is
no disruption in gasoline supplies.
______
AAA Arizona
Phoenix, AZ
For Immediate Release
Update from AAA On Pipeline Closure
Phoenix, AZ.--August 12, 2003--The Kinder Morgan pipeline that runs
between Tucson and Phoenix is still shut down. 30 percent of the fuel
that comes into Phoenix every day is transported through this pipeline.
Despite the closure, gasoline is still being distributed to Valley gas
stations by fuel trucks. David Cowley, director of AAA Public Affairs
says, ``A slow down in distribution does not mean we are facing a
gasoline shortage. It's just taking longer to get here.''
Because of the closure, consumers are seeing price increases at the
pump. AAA Arizona reports an average price hike of 5 to 6 cents at
Valley gas stations. In the Phoenix metro area, the average price of
regular unleaded is $1.61 compared to $1.55 yesterday. East Valley gas
prices shot up 5 cents from $1.54 to $1.59. Scottsdale gas prices
jumped 5 cents from $1.61 to $1.66 compared to yesterday. Flagstaff gas
prices remain unaffected by the pipeline close because gasoline has
always been trucked into this area.
Gasoline is now being trucked into Phoenix from Tucson. However
this is slower and more expensive. More trucks are being devoted to the
transportation of regular unleaded fuel because it is more widely used.
If there is a `shortage', premium fuel will be harder to find because
it is used less than regular.
Kinder Morgan has not been able to determine when the pipeline from
Tucson to Phoenix will be operational again but AAA predicts gas prices
will continue to increase the longer it is down. Here are some fuel
saving tips for motorists:
If you own more than one car--especially if one of your
vehicles is a less fuel-efficient truck or SUV--use the more
energy-conserving vehicle as often as possible.
Consolidate trips and errands.
Find one location where you can take care of all banking,
grocery shopping and other chores.
Slow down. The faster a vehicle travels, the more gas it
burns
Avoid quick starts and sudden stops--this wastes fuel.
Routinely maintain your vehicle.
Lighten the load. A heavier vehicle uses more gasoline.
Check your vehicle owner's manual. If your vehicle does not
require premium or mid-grade fuel, then buy regular unleaded
gasoline.
______
AAA Arizona
Phoenix, AZ
For Immediate Release
Pipeline Closure Fuels Pump Price Increase
Phoenix, AZ. August 13, 2003--The pipeline between Tucson and
Phoenix remains closed with no indication from Kinder Morgan as to when
it will be repaired. AAA Arizona has received numerous calls from angry
motorists about the price of gas, but AAA predicts pump prices will
continue to climb the longer the pipeline is down.
Gas prices have skyrocketed since last week. Since last week, the
average price increase rose 9 to 12 cents in the Phoenix area. However
some gas station's prices have gone beyond that, increasing the price
per gallon as much as 20 cents since last week. Since yesterday, gas
prices have jumped 3--9 cents around Phoenix. Today, AAA reports that
Phoenix and the East Valley have an average price of $1.63 per gallon.
Scottsdale drivers are paying about $1.67 a gallon and Tucson is up to
$1.57 a gallon.
Flagstaff and other parts of northern Arizona may also see their
prices start to rise. Yesterday the average price in Flagstaff was
$1.69 a gallon. However it's jumped three cents to $1.72. With the
pipeline closed, gasoline distribution is slower throughout the state
and some gas stations are raising prices. Although there is NO gasoline
shortage, transporting fuel by truck is slower and more expensive. This
is one of the contributing factors to the price increase around the
state. To meet demand, the amount of fuel being pumped into Arizona has
increased by 15 percent since Tuesday.
Kinder Morgan, owner of the closed pipeline, is meeting with
regulators this week to present a plan to fix the pipeline. Until the
pipeline is repaired, AAA advises drivers to practice fuel conservation
and give suppliers time to work out these transportation problems.
______
AAA Arizona
Phoenix, AZ
For Immediate Release
AAA Weekly Fuel Gauge Report: Fuel Prices Soar After 6 Weeks of Price
Stability
Phoenix, AZ--August 14, 2003--Gasoline prices skyrocketed this
week, ending a six-week honeymoon of downward trickling gas prices.
This week's statewide average for regular unleaded gasoline hit $1.646
per gallon, 7.6 cents higher than last week. This is the highest price
in the last six weeks since July 2nd when prices were $1.650 per
gallon. Prices a year ago this month averaged $1.434 per gallon, 21.2
cents lower than the current price.
The temporary shutdown of an 8-inch pipeline between Tucson and
Phoenix by Kinder Morgan Partners is partially to blame for the recent
rise in prices. The pipeline was closed after a rupture on July 30th
spewed 10,000 gallons of gasoline near a new housing development in
Tucson. The shutdown has forced KMP to distribute gasoline by truck,
which is slower and more expensive. KMP officials are scheduled to meet
today with the Office of Pipeline Safety and the Arizona Corporation
Commission to present a plan to fix the pipeline.
Prices have also been influenced by recent events on the national
front. The national average price for gasoline rose to $1.571 per
gallon, 2.9 cents higher than last week. The recent surge in retail
prices reflect crude oil prices that have remained above $31 per
barrel, some refinery problems in the mid-west, and a drop in European
gas exports to the U.S.
Gas prices have risen in other parts of the country. AAA found the
most expensive average price in California at $1.808, followed by
Nevada, $1.729 and Washington: at $1.696 per gallon. The least
expensive states to fill up are: South Carolina: $ 1.420, Georgia:
$1.445 and New Jersey: $1.446 per gallon.
Locally, average prices in the state shot up 1.5 to 16.7 cents.
Average prices in the East Valley jumped to $1.680 per gallon, up 16.7
cents from last week. Pump prices in Phoenix rose by 14.8 cents to
$1.684 per gallon. Tucson's average price is $1.608 per gallon, 9.5
cents higher than last week. Other Arizona prices are shown below.
Motorists can visit AAA's website at www.aaa.com, then click on News
for the latest fuel price information.
------------------------------------------------------------------------
Unleaded Mid-Grade Premium Diesel
------------------------------------------------------------------------
Phoenix (city) 1.684 1.756 1.857 1.662
------------------------------------------------------------------------
East Valley 1.680 1.751 1.852 1.643
(Mesa,Gilbert, Chandler,
Tempe, Ahwatukee,Apache
Queen Crk.)
------------------------------------------------------------------------
West Valley 1.680 1.752 1.853 1.664
(Peoria, Glendale, Sun City)
------------------------------------------------------------------------
Scottsdale 1.709 1.782 1.885 1.688
(Scottsdale, Fountain Hills)
------------------------------------------------------------------------
Tucson (city) 1.608 1.677 1.773 1.700
------------------------------------------------------------------------
Pima County 1.611 1.681 1.777 1.700
------------------------------------------------------------------------
Flagstaff 1.728 1.805 1.906 1.658
------------------------------------------------------------------------
Yuma 1.668 1.740 1.840 1.600
------------------------------------------------------------------------
Statewide 1.646 1.717 1.816 1.641
------------------------------------------------------------------------
National 1.571 1.667 1.728 1.556
------------------------------------------------------------------------
AAA continues to advise motorists to practice fuel conservation and
continue to maintain their normal fuel purchasing patterns. AAA Arizona
recommends the following fuel conservation tips to motorists:
If you own more than one car--especially if one of your
vehicles is a less fuel-efficient truck or SUV--use the more
energy-conserving vehicle as often as possible.
Car pools, van pools and public transit are other potential
ways to cut driving expenses and fuel consumption.
Consolidate trips and errands.
Find one location where you can take care of all banking,
grocery shopping and other chores.
Slow down. The faster a vehicle travels, the more gas it
burns.
Avoid quick starts and sudden stops, this wastes fuel.
Routinely maintain your vehicle.
Lighten the load. A heavier vehicle uses more gasoline, so
when packing for a road trip--pack light--and try to pack
everything inside the vehicle if possible. Strapping items to
the top of a vehicle can create wind resistance.
Check your vehicle owner's manual. If your vehicle does not
require premium or mid-grade fuel, then buy regular unleaded
gasoline.
These and other fuel conservation tips and information can be found
in AAA's Gas Watcher's Guide. These guides are free to the public and
can be picked up at any AAA Arizona office throughout the state.
______
AAA Arizona
Phoenix, AZ
For Immediate Release
AAA Advises Motorists to Conserve Fuel as Gasoline Shortages Leave
Phoenix Motorists in Disarray
Phoenix, AZ--August 18, 2003--The recent pipeline closure has led
to temporary disruptions in gasoline supplies to the Phoenix area
causing many gas stations to temporarily run out of fuel. There is an
adequate supply of gasoline being delivered into the state, but it must
be trucked from a Tucson terminal into Phoenix. Trucking gas is slower
and more expensive.
Kinder Morgan, the owners of the pipeline, presented a plan for
testing it to the Office of Pipeline Safety. They estimate that testing
will take 7-10 days from the time they get approval on their plan. The
pipeline that runs between Tucson and Phoenix supplies about 30 percent
of the fuel used in Phoenix.
Gasoline prices have pushed upward by the closure. The statewide
average has jumped nearly ten cents within the last week to $1.741 per
gallon. Average prices in the Valley have soared between 7 to 10 cents
higher than last week. Some gasoline stations in Phoenix have reported
prices above $2.00 per gallon. Flagstaff gas prices have risen slightly
to $1.760 per gallon as tank trucks are redirected from there to the
Phoenix area. The average price in Tucson rose 4 cents from $1.608 to
$1.648 per gallon.
``This situation has prompted motorists to hurry to their local gas
station in fear that supplies are dwindling,'' said David Cowley, AAA
Public Affairs Manager. ``But, that's not what is happening. We have
plenty of gas. Trucking into Phoenix is the bottleneck.''
AAA's advice:
If you have more than half a tank, don't buy gas. Panic
buying or constantly topping off your tank puts undue stress on
gasoline supplies and makes the supply problem worse.
Conserve fuel and stay calm.
Don't drive unless you absolutely must.
Carpool with neighbors (do your grocery shopping together,
start a carpool to get the kids to school. . .or walk them to
school, etc.)
Combine errands. Run as many errands as possible in one
trip.
Drive the most fuel-efficient car you have.
``We are not running out of gas,'' said Cowley. ``Such fears are
unjustified. If folks will calmly go about their business, conserve
fuel, and buy gas only when they need it, we'll get through this
situation without serious problems. But, folks have got to calm down.''
______
AAA Arizona
Phoenix, AZ
For Immediate Release
AAA Arizona Reports: Gas Shortages Continue to Plague Valley But Not
Statewide
Phoenix, AZ--August 19, 2003--Gasoline shortages are plaguing
motorists in Phoenix, largely due to an unpredicted upsurge in gas
buying that began last Sunday night. Today, motorists are lining up at
gasoline stations as soon as a tank truck delivers gas.
``We are not running out of gas,'' said David Cowley, Public
Affairs Manager at AAA Arizona. ``Such fears are unjustified. If folks
will calmly go about their business, conserve fuel, and buy gas only
when they need it, we'll get through this situation.''
Motorists in other parts of the state should not experience gas
shortages in their area, although they will see higher gas prices. Gas
supplies are plentiful in rural Arizona and there is no reason not to
travel there. Sedona, Flagstaff, and the White Mountains all report
adequate gas supplies.
The pipeline closure has sent the statewide price of regular
unleaded soaring up 7 cents since the weekend with Arizona's average
hitting $1.813 per gallon. The average price in Tucson jumped 6 cents
from yesterday to $1.710 per gallon. Average prices in Flagstaff
climbed 2.3 cents at $1.783 per gallon from yesterday. Fuel prices in
Nogales and Sierra Vista remained stable at $1.732 and $1.789 per
gallon, respectively. Gas prices in Phoenix have surged 9.9 cents to
$1.866 per gallon from yesterday.
Price hikes are partially blamed on the shutdown of the pipeline
that has created distribution bottlenecks throughout the state. The
pipeline has been temporarily down since August 8th and normally
supplies 30 percent of fuel shipped into Phoenix. Kinder Morgan
officials reported they will begin testing the pipeline tonight with
hopes to restart the line as early as this weekend, pending government
approval. Testing involves pumping pressurized water through the
pipeline and checking for leaks.
AAA's advice:
If you have more than half a tank, don't buy gas. Panic
buying or constantly topping off your tank puts undue stress on
gasoline supplies and makes the supply problem worse.
Conserve fuel and stay calm.
Don't drive unless you absolutely must.
Carpool with neighbors (do your grocery shopping together,
start a carpool to get the kids to school. . .or walk them to
school, etc.). Check out Valley Metro's Ride Matching site:
www.ShareTheRide.com
Combine errands. Run as many errands as possible in one
trip.
Drive the most fuel-efficient car you have.
______
AAA Arizona
Phoenix, AZ
For Immediate Release
AAA Arizona: More Gas Headed for Arizona as Motorists Reduce
Consumption
Phoenix, AZ--August 20, 2003--Lines are easing at Phoenix area gas
stations upon news from Governor Napolitano that additional gasoline is
now reaching the Valley. The Governor also announced yesterday that the
EPA has granted a 30-day waiver allowing Phoenicians to use ordinary
unleaded gas until the supply crunch ends. That, plus additional
gasoline arriving in the pipeline from Southern California, means the
supplies expected to reach Phoenix in the next few days are much closer
to normal.
Kinder Morgan officials are optimistic that gas will begin to flow
in their shut-down pipeline by the weekend--this in spite of a failed
test yesterday. A 4-mile section of the pipeline suffered a leak during
yesterday's testing, but it is expected that the additional repairs
will be completed quickly. There was also news of damage to the Western
Pipeline when a truck fell on it. That pipeline, which delivers gas to
Arizona from Southern California, has been closed but is expected to
re-open later tonight. No disruptions are expected from this minor
closure.
``The best news is that motorists are taking the gas conservation
message seriously,'' said David Cowley, Public Affairs Manager at AAA.
''Governmental agencies and businesses, including AAA, have employees
telecommuting. Traffic is reduced on city streets and, while there are
gas lines, they are shorter and fewer. We are getting a handle on
this.''
The supply slow-down has affected prices statewide, however. Here
are the latest average prices for regular unleaded gasoline throughout
the state:
Arizona Phoenix East Sierra Vista
Statewide $1.85 Valley $1.90 $1.81
Tucson $1.72 Flagstaff Scottsdale
Phoenix $1.92 $1.85 $1.95
Nogales $1.76 Yuma $1.82
AAA is continuing to ask motorists to conserve gas by following
these basic tips:
If you have more than half a tank, don't buy gas. Panic
buying or constantly topping off your tank puts undue stress on
gasoline supplies and makes the supply problem worse.
Don't drive unless you absolutely must.
Carpool with neighbors (do your grocery shopping together,
start a carpool to get the kids to school. . .or walk them to
school, etc.). Check out Valley Metro's Ride Matching site:
www.ShareTheRide.com
Combine errands. Run as many errands as possible in one
trip.
Drive the most fuel-efficient car you have.
______
AAA Arizona
Phoenix, AZ
For Immediate Release
AAA Says Conservation Key to Gas Crunch
Phoenix, AZ. August 21, 2003--AAA notes that gas prices continue to
rise as the state ends week two of the pipeline closure. Arizona had
the third highest gas prices in the Nation this week, with an average
of $1.885 for regular unleaded. The increase, just over 31 cents in two
weeks is largely due to the pipeline problem. At a news conference on
Wednesday, Governor Napolitano said Kinder Morgan, the pipeline's
owners, assured her they would ``move heaven and earth'' to get the
pipeline up and running by Sunday night. Furthermore, additional gas
supplies are being brought to the Valley by Kinder Morgan's second
pipeline and by truck.
Even so, AAA Arizona strongly urges motorists to practice fuel
conservation throughout the weekend.
``This might be a good weekend to stay home by the pool,'' said
David Cowley, Public Affairs Manager at AAA Arizona. ``We all need to
save gas any way we can to let distributors build gas inventories back
up.''
Gas prices have risen in other parts of the country, as well. AAA
found the most expensive average price in California at $2.022, where
prices were driven upward by Arizona's problems. In Oregon, regular
unleaded was selling for $1.889. Prices rose slightly in the Eastern
U.S. as well, in part due to refinery outages caused by the Northeast's
power blackout.
------------------------------------------------------------------------
A. Unleaded B. Mid-Grade C. Premium D. Diesel
------------------------------------------------------------------------
Phoenix (city) 1.981 2.066 2.185 1.747
------------------------------------------------------------------------
East Valley 1.961 2.045 2.163 1.778
(Mesa,Gilbert,
Chandler, Tempe,
Ahwatukee,Apache
Queen Crk.)
------------------------------------------------------------------------
West Valley 1.970 2.055 2.174 1.718
(Peoria, Glendale,
Sun City)
------------------------------------------------------------------------
Scottsdale 1.994 2.079 2.199 1.761
(Scottsdale, Fountain
Hills)
------------------------------------------------------------------------
Tucson (city) 1.728 1.802 1.906 1.732
------------------------------------------------------------------------
Pima County 1.732 1.806 1.910 1.742
------------------------------------------------------------------------
Flagstaff 1.863 1.945 2.055 1.780
------------------------------------------------------------------------
Yuma 1.835 1.914 2.024 1.666
------------------------------------------------------------------------
Statewide 1.885 1.966 2.079 1.739
------------------------------------------------------------------------
National 1.635 1.736 1.799 1.569
------------------------------------------------------------------------
It is difficult to predict when Arizona's gas supply will
stabilize, so it is essential that drivers continue to conserve fuel:
If you have more than half a tank, don't buy gas. Panic
buying or constantly topping off your tank puts undue stress on
gasoline supplies and makes the supply problem worse.
Don't drive unless you absolutely must.
Combine errands. Run as many errands as possible in one
trip.
Drive the most fuel-efficient car you have.
______
AAA Arizona
Phoenix, AZ
For Immediate Release
Gas Prices Expected to Hold Steady for Labor Day Weekend
Phoenix, AZ. August 28, 2003--Gasoline prices around the state are
holding steady, as motorists prepare for the Labor Day weekend.
Although the pipeline was reopened Sunday, Arizona continues to have
the third highest gas prices in the Nation this week, with an average
of $1.998 for regular unleaded. Arizona hit record highs earlier this
week when the average price hit $2.008 per gallon, according to AAA
Arizona.
Prices are rising rapidly all throughout the country due to ongoing
refinery outages caused by the electrical blackout two weeks ago. AAA's
weekly report shows a nationwide average price of $1.735 per gallon,
the highest recorded price in AAA history. Refineries serving Chicago,
Detroit and San Francisco were reported shutdown. AAA believes that if
the United States would address the insufficient domestic gasoline
refining capacity and the need for gasoline companies to maintain
higher reserve inventories then it would be able to minimize the
exorbitant price spikes that have adversely affected consumers and the
economy for several years.
But high prices are not expected to deter motorists from traveling
during the Labor Day Holiday. In fact, AAA projects 33.4 million
Americans to travel this weekend with 84 percent traveling by car. AAA
Arizona urges motorists to drive carefully and remember these tips in
case of a breakdown:
Carry extra water for your radiator and drinking water for
passengers.
Bring a light blanket and jacket -the desert is cold after
the sun goes down.
Carry a first aid kit, flashlight, flares, jumper cables,
duct tape for short-term repairs and a cell phone.
Motorists preparing for a Labor Day trip can expect these prices
across the country; Las Vegas: $1.962, Denver: $1.653, San Diego:
$2.177, Los Angeles: $2.137, Dallas: $1.605 and Santa Fe: $1.762 per
gallon.
Other regional prices are shown below.
------------------------------------------------------------------------
Unleaded Mid-Grade Premium Diesel
------------------------------------------------------------------------
Phoenix (city) 2.125 2.216 2.344 1.793
------------------------------------------------------------------------
East Valley 2.124 2.215 2.342 1.775
(Mesa,Gilbert, Chandler,
Tempe, Ahwatukee,Apache
Queen Crk.)
------------------------------------------------------------------------
West Valley 2.124 2.215 2.343 1.758
(Peoria, Glendale, Sun City)
------------------------------------------------------------------------
Scottsdale 2.173 2.267 2.397 1.785
(Scottsdale, Fountain Hills)
------------------------------------------------------------------------
Tucson (city) 1.826 1.904 2.014 1.732
------------------------------------------------------------------------
Pima County 1.836 1.915 2.025 1.740
------------------------------------------------------------------------
Flagstaff 1.938 2.024 2.137 1.786
------------------------------------------------------------------------
Yuma 1.964 2.050 2.167 1.670
------------------------------------------------------------------------
Statewide 1.998 2.084 2.204 1.763
------------------------------------------------------------------------
National 1.735 1.842 1.910 1.582
------------------------------------------------------------------------
The Chairman. Thank you very much. Mr. Olcott, welcome.
STATEMENT OF JONATHAN OLCOTT, ESQ., OLCOTT & SHORE, PLLC, ON
BEHALF OF THE SILVER CREEK HOMEOWNERS
ASSOCIATION
Mr. Olcott. Thank you, Senator. I am a homeowner
association attorney and I represent the Silver Creek
community. It's a community of approximately 288 homes. There
are 240-some in the phase one, which has been completed. The
closest home in phase one is about 300 feet from the pipeline.
Phase two is not yet completed and not yet occupied, especially
the homes that are adjacent to the pipeline. Mr. Spitzer
testified that the homes were 37 feet, and that's approximately
correct for the building envelope for the actual structures on
the lot, but the block wall, the back yard of those homes, is
only about 10 feet from that pipeline.
The builder is Monterey Homes, and there has been a lot of
discussion today about disclosure and the pipeline was not
disclosed in the subdivision public report for phase one. It
was disclosed in the subdivision public report for phase two.
Who can guess how many people read them? It's a thick document
but it is required by the Department of Real Estate.
Shortly after the rupture occurred we had a board meeting
and invited the residents to come and discuss the rupture. I
met with Kinder Morgan representatives on the site before that
meeting and they were frankly rather candid about what had
occurred. They didn't try to blame Monterey's grading or any of
the dirt movement that had occurred shortly before the rupture.
It was interesting at the first meeting that no homeowners in
phase one came to discuss the rupture. There was press at this
meeting, but no homeowners came. We had a later meeting in
September and Kinder Morgan attended this meeting and also
representatives from ADEQ. We hand-delivered invitation cards
to all of the homeowners and only 35 to 40 chose to come, and
Kinder Morgan at this second meeting explained pipeline safety
and disclosures. ADEQ talked about the contamination reporting
and remediation plans.
So I can--I can say in my opinion I was quite surprised at
the reaction of the residents. I can divide them into two
categories. The majority is not overly concerned, and it may be
the proximity of these people to the pipeline. Let's keep in
mind that the area of phase two is completely unoccupied and
those homes that were sprayed with the gasoline have been
demolished but no one lived in them. The minority is concerned.
They're concerned about property values. There was no
disclosure again in phase one. They're concerned about safety
and the overall feeling I would say is relief that nobody was
in the homes that were doused and having a barbeque when it
occurred.
There is an ingress and egress issue at Silver Creek.
There's only one means of getting in and out of the community
and if there were a calamity and emergency vehicles were coming
into the community, it may be difficult for people in the
community to leave, and there is a concern and we're working
with the board and with Monterey in trying to address that.
I've talked about the disclosure. I'm not aware of any
regulations relating to the proximity of structures to gasoline
pipelines. Here the block walls are only 10 feet. There were
obviously large grading construction equipment right next to
the pipeline and in one of the written comments that's been
submitted and I also have anecdotal corroboration that there
are structures built right over pipelines in certain instances
and some in Tucson, so the encroachment issue as a homeowner
association attorney representing all these homeowner
associations all over the state is something I think that
absolutely should be addressed. Thank you, Senator.
[The prepared statement of Mr. Olcott follows:]
Prepared Statement of Jonathan Olcott, Esq., Olcott & Shore, PLLC; on
behalf of the Silver Creek Homeowners Association
My law firm is known as Olcott & Shore, PLLC. We are located in
four cities in Arizona: Tucson, Oro Valley, Phoenix and Goodyear. We
represent the Silvercreek Homeowners Association (``Silvercreek'').
That is the community in which the rupture of Kinder Morgan's pipeline
occurred.
A contractor quickly began removing the contaminated dirt. Some of
the dirt was piled on the Association's common area. Kinder Morgan is
working with us to ensure the soil is remediated. Silvercreek does not
own the tract in which the pipeline is located.
The reaction by the community has been surprising. I can divide the
community into two classes: (1) the majority is not overly concerned
about the rupture and the fact they live near a gasoline pipeline; and
(2) the minority are concerned about safety, and a decline in property
values.
1. Majority
On August 19, the Board of Directors of Silvercreek (``Board'')
held a Board meeting. In the notice of the meeting to the community,
the Board indicated that a topic of deliberation would be the rupture.
The media attended the meeting, but the only homeowners who attended
did not comment on the rupture.
I met with Kinder, Morgan personnel before the meeting. The Kinder,
Morgan representatives invited themselves to the impending Board
meeting. We declined the invitation as premature. They were open and
cooperative. They accepted full responsibility for the rupture. They
did not blame any other entity for the rupture. They promised to
cooperate with Silvercreek to ensure the remediation would be
effective. I requested Kinder Morgan to forward to me a copy of the
contamination report. I have yet to receive it. Kinder, Morgan has
otherwise been cooperative in providing literature on the pipeline
location, testing procedures and hazards of living near a gasoline
pipeline.
Later we invited Kinder, Morgan to attend another community meeting
to update the community on Kinder, Morgan's activities. It occurred in
September. Invitation cards were hand-delivered to each household.
Silvercreek has 288 households. Approximately 35 to 40 homeowners chose
to attend. Many were husband and wife; so less than 35-40 households
were represented.
Kinder, Morgan continues to stay in contact with Silvercreek.
The President of Silvercreek is Ramie Fisher. She indicated that
the majority of the community appears to accept the rupture of, and
proximity to, the pipeline as an acceptable hazard of modern living.
Many have indicated to me that they understand that there are hazards
involved with the proximity of natural gas and electrical utilities
throughout the community. They have seen the signs that disclose the
presence of the gasoline pipeline.
2. Minority
Silvercreek is a relatively new community. Most homeowners are
original owners. The minority has expressed frustration with the lack
of disclosure of the pipeline in the Subdivision Public Report. The
second phase of Silvercreek is adjacent to the pipeline, and closer to
the pipeline than Phase I. The homes in Phase II are still under
construction. The Developer did disclose the pipeline in the public
report for Phase II.
The Committee should know that the homes that are immediately
adjacent to the pipeline are in Phase II and are not occupied. Were
they occupied, I suggest the homeowners would have substantial concerns
about the pipeline.
It is possible that the minority are those who live closest to the
pipeline in Phase I.
The minority has expressed concern about safety. Silvercreek has
only one roadway access. The Board is crafting an evacuation plan in
the event of a calamity. The minority has also expressed concern that
their property values have declined. They are probably correct. I have
not confirmed this proposition with an appraiser.
Additional Observations
I maintain households in both Tempe and Oro Valley. I was traveling
back and forth frequently after the rupture. When the shortage and gas
lines occurred in Phoenix, I filled my tank in Tucson, Eloy or Casa
Grande. The pipeline rupture had little effect on the public in Tucson.
Because I am counsel to Silvercreek, I followed the media coverage
closely. The rupture received substantially more media coverage in
Phoenix than in Tucson.
The Chairman. Thank you, Mr. Olcott. Do you think that we
ought to do whatever we can to increase the regulations that we
have concerning disclosure?
Mr. Olcott. I think so based on the reaction of the people
that, oh my goodness, my property values have decreased, I
wouldn't have purchased here had I known it been so close to
the gasoline pipeline.
The Chairman. In other words, how obscure is that
information?
Mr. Olcott. It's in the public report. I think most people
read it, but it certainly did not indicate that the pipeline is
10 feet from your house. The public report says there is a
pipeline, see the plat, if the consumer wants to bother to do
that. I frankly doubt that anyone really did.
The Chairman. Maybe we ought to work on getting regulations
so that it's far more prominent. Would you agree, Mr. Cowley?
Mr. Cowley. Yes. I think we have to accept human nature and
it happens--with this whole thing we've accepted things the way
that they've been for many years, and when this event occurred
we all learned something, and we discovered that we should have
read what we didn't read or we should have prepared for
something that we didn't prepare for. And I think those are the
very kinds of conversations that we ought to be having here in
the state subsequent to this event.
The Chairman. Mr. Cowley, do you believe that there was do
you agree with the Attorney General's assessment that there was
like only a dozen cases of price gouging?
Mr. Cowley. Yes. Once again I point out that we don't have
a price gouging statute, but had we had one there are probably
no more cases than that that would have qualified for it.
The Chairman. And that's--most of the gas station owners
and operators ought to be appreciated for that, for the small
number. There must be thousands.
Mr. Cowley. Well, at AAA we--with the amount of information
that we have is somewhat limited. Of course, we have no
information on wholesale margins and so on but I agree there's
no indication that most retailers were doing anything except
reacting to the normal price hikes that were coming to them.
Now it's true that margins--it's true that margins rose during
that period of time. They started at about 6 cents
The Chairman. I can see that.
Mr. Cowley. But that's part of the--in AAA's view, that's
also part of the pricing problem of gasoline nationwide. It
becomes very volatile and it does that because of the nature of
things like OTQs and regulations and so on. Anything that could
calm that would perhaps make it easy for us and for consumers
to accept these price changes.
The Chairman. Mr. Bannigan, serious questions can be raised
about the continuity of OPS' oversight of your operations, but
to me it's clear that for a number of years Kinder Morgan has
been aware of corrosion issues that raise serious concerns on
both of its pipelines that transport fuel between Tucson and
Phoenix. Why did it take until now for you to move
expeditiously to replace the problem pipe?
Mr. Bannigan. Well, let me address that in several pieces.
First, with regard to the general corrosion issues that you
reference, on two separate occasions with regard to both the 6-
inch pipeline and the 8-inch pipeline we had presented
information to the Department of Transportation Office of
Pipeline Safety with respect to the effectiveness of the
cathodic protection on both those systems. Those reports were
delivered to the Government and they were discussed and in
fact, with regard to the 6-inch pipeline action order that was
received, the Government concurred with our opinion with regard
to the effectiveness of the cathodic protection.
Now, with regard to the replacement of the pipeline, Kinder
Morgan has been looking at expanding its capacity from the east
since well over a year and a half ago. In October of last year
we submitted to the Federal Energy Regulatory Commission a
petition for a declaratory order that would allow us to charge
a regulatory structure, rate structure that we could use to
fund this investment, which would be somewhere between $180-
and $200 million in cost. So that effort was well under way,
Mr. Chairman, before this incident occurred. We decided that in
light of the fact we were moving forward with this project and
the nature of the incident that occurred on July 30, that we
would proceed with replacing the 8-inch pipe in the Tucson area
with 12-inch pipe. But I will add that all that pipeline has
been hydrostatically tested, so there is not a safety issue
with that 8-inch pipeline.
The Chairman. You conducted an internal inspection on a
portion of your 6-inch jet fuel pipeline in November 1999 but
the results, which revealed significant corrosion, were not
known until the following March. Why would it take so long?
Mr. Bannigan. The answer to that is very simple. The
information that you get from a smart pig run has to be
processed and you take the download from the smart pig and it
goes to technicians that we retain through our consultants that
actually do that effort. That is not uncommon to have a 2- to
3-month lag between the time that a smart pig is run and the
time that the data is made available to the company.
The Chairman. Well, it seems to me some bad things could
happen in the interim.
Mr. Bannigan. Well, sir, I think as the record demonstrates
we have not had bad things happen with regard to generalized
corrosion issues on any of our pipelines in the State of
Arizona.
The Chairman. You publicly committed to replacing the
remaining 8-inch line between Tucson and Phoenix. It's my
understanding that you have yet to provide OPS with a plan to
ensure the overall public safety of the pipeline as required by
OPS' corrective action order that they issued on August 6. When
do you intend to provide OPS with a plan?
Mr. Bannigan. Let me clarify for the record exactly that
time sequence. You are correct we did receive the corrective
action order from the Office of Pipeline Safety on August 6. We
responded to that on August 13, and in our response on August
the 13th, we made clear to the Office of Pipeline Safety that
the nature of the problem we were dealing with was no longer a
seam failure but rather it was stress corrosion cracking
incident and that we were going to have to modify our plans,
including a hydrostatic test of the pipeline.
That plan was submitted and approved by the DOT on the 14th
of August. The smart pig run was conducted on the 19. Following
that, on September 29, we submitted to the Department of
Transportation Office of Pipeline Safety our plan with regard
to stress corrosion cracking. We received from them on October
6, the amended corrective action order with regard to stress
corrosion cracking. So as a matter of fact our plan was in the
hands of the Federal Government before they sent us the amended
order.
The Chairman. How many miles of pipeline do you own?
Mr. Bannigan. We own or operate about 10,000 miles of
pipeline in the United States.
The Chairman. How secure is that?
Mr. Bannigan. Are you talking from a terrorist threat?
Candidly, Senator, there are miles and miles of open stretches
of pipeline in this country and it's very difficult to survey
all those lines on a constant basis. I think that fact of the
matter is is that if there were to be a problem from the
terrorist incident, the industry can respond very quickly to
restoring service. Most service disruptions can be responded to
in anywhere from an 18- to a 36-hour time period.
As you may be aware, there's a crude oil line in the Nation
of Colombia that gets attacked by terrorists some 200 times a
year and they have crews that just run up and down that
pipeline responding to those terrorist threats.
The Chairman. I want to thank the witnesses. Thank you very
much for being here. Mr. Cowley, thank you for everything that
AAA does. A lot of our citizens not only here in the valley but
throughout America are very much assisted by your good works,
including me. Mr. Olcott, thank you very being here. Thank you,
Mr. Bannigan. This hearing is adjourned.
[Whereupon, at 10:55 a.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Dr. Mark Cooper, Director of Research,
Consumer Federation of America
Mr. Chairman and Members of the Committee,
My name is Dr. Mark Cooper. I am Director of Research of the
Consumer Federation of America. The Consumer Federation of America
(CFA) is a non-profit association of 300 pro-consumer groups, which was
founded in 1968 to advance the consumer interest through advocacy and
education. I greatly appreciate the opportunity to appear before you
today to discuss the problem of rising gasoline prices and gasoline
price spikes.
The Upward Spiral of Gasoline Prices
Although gasoline prices have traditionally risen during the summer
driving months of June-August, in the past three years the seasonal
upswing has turned into a much more violent price spiral--a sharp price
spike followed by a modest decline with stabilization at a higher level
than previous years. We have also had out of season price spikes, which
exhibit the same roller coaster and ratchet.
A refinery fire here, a pipeline break there, a blackout somewhere
else, and prices go through the roof and stay high, because stocks are
low and capacity is constrained. Stockpiles and capacity are determined
by business decisions, not Mother Nature. How many times does this have
to happen before policy makers do something about it? Perhaps policy
cannot prevent accidents, although safety regulations could lower their
likelihood, but it can definitely diminish the negative impact these
accidents have on the public when they happen.
The underlying driver of this gasoline price ratchet has been an
increase in the refiner/marketer share of the pump price, called the
domestic spread, not foreign crude oil price increases. The domestic
price ratchet has resulted from a combination of inadequate capacity
and inadequate competition in the industry. The underlying tight market
condition is the result of both increasing demand and business
decisions that slowed the growth of long-term capacity. The price
spiral occurs because suppliers who face weak competition find they can
take unilateral actions in tight markets to quickly increase prices and
do not have to respond quickly to increase supplies that might lower
prices. The result is an increase in profits and an upward spiral of
prices.
Energy markets are highly complex. Their volatility poses
particular challenges for policy and economic analysis. The key
elements are the supply-side difficulties of inadequate competition,
insufficient production, transportation and storage interacting with
the demand side challenges of providing for a continuous flow of energy
to meet inflexible demand, which is subject to seasonal consumption
patterns. Public policy must recognize all three factors--supply,
demand and competition, if the price ratchet is to be broken in a
consumer-friendly fashion.
Supply-Side Fundamentals
On the supply side of the gasoline market, because of the nature of
the underlying molecules, the production, transportation and
distribution networks are extremely demanding, real time systems.
Energy is handled at high pressure, high temperature and under other
physical conditions that are, literally, explosive. These systems
require perfect integrity and real time balancing much more than other
commodities.
Transportation and distribution infrastructure is extremely capital
intensive and inflexible. Many sources of energy are located far from
consumers, requiring transportation over long distances. The
commodities are expensive to transport and store delivered over a
network that is sunk in place with limited ability to expand in the
short and medium term.
Refineries and pipelines, two key parts of the gasoline
distribution chain, are not only capital intensive, but they take long
lead times to build. They have significant environmental impacts. In
the short term, their capacity is relatively fixed. Refineries must be
reconfigured to change the yield of products. Although oil pipelines
have largely depreciated their historic, sunk costs, expansion would be
capital intensive. Thus, pipeline capacity is generally fixed capacity.
Accidents have a special role in networks such as these. Because of
the demanding physical nature of the network, they are prone to happen.
Because of the volatile nature of the commodity, accidents tend to be
severe. Because of the integrated nature of the network and demanding
real time performance, accidents are highly disruptive and difficult to
fix.
Given the basic infrastructure of supply in the industry, the
availability of stocks to meet changes in demand is the critical factor
in determining the flexibility of supply. Under all circumstances,
since output is slow to respond to price changes because of its
inelasticity, stockpiles, storage and importation of product become a
critical element of the gasoline market. Stocks are the key factor in
policy responses to market power where supply is inelastic.
Every investigation of every product price spike in the past
several years' points to ``unusually low stock'' as a primary driver of
price shocks. Who decides how much capacity to build, how much product
to refine and how much gasoline to have on hand? Oil companies. They
make those decisions to maximize their profits, given the industry
fundamentals that they face.
Business Decisions Keep Markets Tight
There are two clearly identifiable trends affecting the supply side
of the gasoline market--a reduction in capacity relative to demand and
an increase in concentration.
In 1985 refinery capacity equaled daily consumption of petroleum
products. By 2000, daily consumption exceeded refinery capacity by
almost 20 percent. The problem is not simply that no new refineries
have been built, but that in the past 15 years about 75 refineries were
closed. Reductions in storage capacity and the number of gasoline
stations of over ten percent have also taken place in just the past
half-decade.
These reductions in capacity have been driven in part by a merger
wave that has resulted in a significant increase in the concentration
of ownership of refinery capacity and gasoline outlets. Four-fifths of
regional refinery markets have reached levels of concentration that
trigger competitive concerns, even by the standards adopted by the
antitrust division of the Reagan administration's Department of
Justice. In these markets, the largest four firms account for at least
one-half and as much as three quarters of the refined product output. A
similar trend has been in evidence at the level of gasoline stations.
Even more ominous for short-term price volatility is the fact that
stockpiles have declined dramatically. Storage capacity has been
reduced and economic reserves--reserves above what is needed just to
keep the system running--have been slashed. The industry now typically
has no more than a day or two of gasoline supplies above its
operational minimum, compared to a week or so in the 1980s. Thus, there
is little reserve capacity to dampen price increases.
The previous discussion focuses on horizontal concentration.
Vertical integration between the segments of the industry may have an
impact as well. Vertical integration by dominant firms may create a
barrier to entry requiring entry at two stages of production, or
foreclosing critical inputs for competitors in downstream markets.
Vertical arrangements may restrict the ability of downstream operators
to respond to local market conditions,
Vertical integration not only removes important potential
competitors across stages of production, but also may trigger a wave of
integrative mergers, rendering small independents at any stage
extremely vulnerable to a variety of attacks.
Gasoline markets are vulnerable to these negative effects of
vertical integration. Product must move downstream from the refinery or
the tanker to the pump. Vertically integrated operations are closed to
independent sources of supply. They may impose zonal pricing formulas
or restrictions of sources of supply on their distribution outlets.
With vertical integration the market may be less responsive than it
could be both in the short term, since competing product has difficulty
getting into individual markets at the end of a vertically integrated
chain and in the long term because new competitors in any market may
have to enter at several stages of the business. The FTC found this to
have had a substantial impact on the market in its study of the
midwestern gasoline market.
The mergers and reduction of capacity have been driven by business
decisions. Larger, more vertically integrated companies may be more
efficient, but they can also exploit tight markets. Gasoline markets
have been slow to respond to price increases. The price differentials
that build up before product imports are used to increase supplies are
far larger than the transportation cost of imports.
The tightening of supply reflects private business decisions in
other ways. As suggested by the Federal Trade Commission report,
individual companies now may have pricing power, not through collusion
but through individual action. That is, with supply and demand tight
and a small number of suppliers in each market, individual suppliers
recognize that they can influence the price, at least for short periods
of time, by withholding supplies. They are no longer the price takers
we find in competitive markets; they become price makers in
oligopolistic markets.
Demand
The demand side of the market creates additional pressures and
vulnerabilities to price spirals. The demand for gasoline does not
respond quickly to price in the short term. When demand is
``inelastic'' as it is in the gasoline market, suppliers have a better
chance of making price increases stick when there is little spare
capacity. Increasing demand has reduced spare capacity.
The continuous flow of large quantities of product to meet highly
seasonal demand is the central characteristic of the demand side of the
market. Many discussions of the gasoline market start from the premise
that people drive a lot, perhaps too much. But in order to design
proper policies to deal with gasoline demand and how it affects the
market, we must have an appreciation for why people drive as much as
they do. Examining price and income elasticities leads to the
conclusion that energy is a necessity of daily life. Recognizing this
fact leads to policy choices that can have the greatest impact while
imposing the least cost and inconvenience on consumers.
Gasoline consumption is determined by the physical and economic
structure of daily life. People need to drive on a daily basis because
of the way our communities are built and our transportation systems
designed. Stores are far from homes. Homes are far from work. Social
and after-school activities are dispersed. In most communities, mass
transit is scarce and inconvenient. It is necessary to drive to get
from here to there. We own more cars and drive more miles on a
household basis over time. These trends and patterns have become
stronger and more deeply entrenched as our society has become wealthier
and the tendency for two-earner households has grown. For the past
three decades there has been an almost perfect, one-to-one
correspondence between economic growth and the growth of total miles
driven.
The result of the underlying socioeconomic determinants of
automobile travel is to render demand ``inelastic.'' The low elasticity
of demand is the critical factor in rendering the gasoline market
volatile and vulnerable to abuse. When demand is inelastic, consumers
are vulnerable to price increases, since they cannot cut back on or
find substitutes for their use of the commodity. When the most
important market force in disciplining market power, demand elasticity,
is as low as observed for gasoline, there are many opportunities to
exercise market power.
Over the 1990s, gasoline consumption grew by a total of almost 20
percent, compared to the 1980s when it grew by only 10 percent. The
number of drivers and passenger vehicles increased, as the driving age
population expanded. Gasoline consumption per passenger vehicles grew
by about 7 percent. About three quarters of that increase was caused by
an increase in the number of miles driven and one quarter was caused by
the shift to SUVs.
While the shift to SUVs was one striking feature of the 1990s, an
equally striking and more important feature of the demand side was the
failure of fuel efficiency to improve. If the fuel efficiency of autos
had increased as rapidly in the 1990s as it did in the 1980s, autos
would have been 20 percent more efficient, getting about 4 miles per
gallon more, in 2000. (If there had not been a shift to SUVs, the
average fleet efficiency would have been about 1 mile per gallon
higher.)
Consumer-Friendly Policies to Break the Price Spiral
In summary, this analysis demonstrates that gasoline markets are
volatile and suffer competitive problems. Market fundamentals
(inadequate capacity and inelastic supply and demand), market
structures (ownership concentration and vertical integration),
corporate conduct (capacity and production decisions), and market
performance (price and profits) all point toward the potential for the
abuse of market power.
Vigorous and broad based public policies should be pursued to
implement permanent institutional changes that reduce the chances that
markets will be tight and reduce the exposure of consumers to the
opportunistic exploitation of markets when they become tight. To
achieve this reduction of risk, public policy should be focused on
achieving five goals.
Restore reserve margins by developing both efficiency and
production.
(1) Increasing fuel efficiency at the rate achieved in the 1980s in
the decade ahead would save about 1.5 million barrels per day.
That rate of progress could be sustained over several decades.
(2) Increasing refinery capacity by 10 percent, either through
expansion at existing refineries or redevelopment of less than
one half the refineries closed in the past decade, would add
another 1.5 million barrels per day.
(3) To the extent investments to meet clean air standards are a
barrier to capacity expansion, public policy should find a way
to lower the cost of compliance, directly through subsidies or
indirectly through research on new technologies, rather than
lower the standards.
Increase market flexibility.
(4) Expand stockpiles with tax incentives to hold and draw down
supplies in the face of price increases, and/or mandatory
stocks requirements as a percentage of sales, and/or government
owned/privately operated supplies could add to existing
stockpiles.
(5) Larger, more uniform product markets should be developed to
expand to increase supply responsiveness, without lowering
clear air standards.
Promote a more competitive industry
(6) Further concentration of the petroleum industry should be
resisted by vigorous enforcement of the Department of Justice
Merger Guidelines.
(7) Restrictive marketing practices, such as zonal pricing and
franchise restrictions on supply acquisition should be
investigated and discouraged.
Deter private actions that make markets tight or exploit market
disruptions.
(8) Withholding of supply should draw immediate and intense public
and governmental scrutiny through a joint Federal state task
force of attorney's general.
(9) The task force or some other entity should develop ongoing
databases and information for evaluating industry structure and
conduct.
(10) The incentives to manipulate markets can be reduced by imposing
a windfall profits tax that triggers when specific
circumstances raise prices and profit sharply.
(11) Ultimately, market manipulation could be made illegal.
Provide adequate energy assistance for low-income households.
(12) Assistance policies directly targeted at transportation
expenditures should be considered.
(13) Energy assistance programs should be indexed to energy prices.
Attachment
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
Response to Written Questions Submitted by Hon. John McCain to
Terry Goddard
Question 1. Was your office notified that Kinder Morgan was
planning to voluntarily shut down the pipeline or did you find out
after the fact?
Answer. The Attorney General's Office was not contacted directly by
Kinder Morgan about the shut down. We were informed by other government
agencies afterwards.
Question 1a. What recommendations can you offer to ensure
sufficient communication regarding a matter of this significance is
adequately communicated to all of the state and local authorities that
should be apprized of such an event?
Answer. The Governor created an Essential Services Task Force that
is addressing this question, and we support the direction of the Task
Force. As long as those agencies that must be notified immediately are
so notified by industry, and other agencies are informed promptly on an
intra-governmental basis, we believe this will be sufficient.
Question 2. What type of communication efforts currently exist
between the Arizona Corporation Commission and your office?
Answer. Both the Attorney General's Office and the Arizona
Corporation Commission are members of the Governor's Gasoline Working
Group. This facilitates some communication on gasoline and pipeline
issues. The Commission is not regularly represented by this office, but
other communication on a variety of issues is conducted on an ad hoc
basis.
Question 3. All of us are familiar with the horror stories of long
lines and exorbitant gas prices in August. Has your office found any
evidence that consumers where subject to price gouging by gas station
operators following the shutdown of the Kinder Morgan pipeline?
Answer. Yes. We received approximately one thousand inquiries and
complaints mostly relating to pricing, shortages, and tying
arrangements (in which gasoline retailers were demanding the purchase
of additional products/services, e.g., a carwash before consumers could
purchase gasoline). There were some extremely high retail gasoline
prices in the Phoenix area (up to $4.97 per gallon regular CBG).
Question 3a. Does your office currently have the authority to
protect consumers and take action against those suspected of price
gouging? If not, what specific authority is needed and what actions is
your office taking to be provided such authority?
Answer. Arizona does not have a price gouging statute. While over
twenty states have laws protecting consumers, the Arizona Attorney
General does not currently have the authority to prosecute those
suspected of price gouging.
The Attorney General supports a state price gouging statute, and is
working with state legislators to propose price gouging legislation in
the upcoming legislative session.
Question 4. While Arizona currently has no regulation or law to
address the alleged price-gouging during the pipeline shutdown, the
Federal Trade Commission (FTC) does have some authority to protect
consumers against price fixing. The FTC requires evidence of collusion
or coordinated effort in order to begin a formal investigation. What
actions has your agency taken to coordinate with other state and
Federal agencies to determine whether collusion or coordinated efforts
existed?
Answer. The Antitrust Unit at the Attorney General's Office is
constantly monitoring the gasoline industry in Arizona for evidence of
antitrust violations, such as price fixing or other market
manipulations, pursuant to Arizona Revised Statutes sections 44-1401 et
seq.
The Attorney General's Office, Antitrust Unit, issued a Civil
Investigative Demand to Kinder Morgan for information on gasoline
deliveries and inventories, through both the pipeline and in their
storage facilities, from July--October 2003. That information is being
analyzed. The Attorney General's Office, Antitrust Unit has information
from this and other antitrust investigations that can be shared with
government employees upon receiving a written confidentiality agreement
pursuant to Arizona Revised Statutes Sec. 44-1406 (F).
The Antitrust Unit participates with the FTC's Gasoline Price
Monitoring Project, by regularly sending the FTC data on consumer
complaints received by the Attorney General's Office relating to
gasoline prices.
The Antitrust Unit participates in the Governor's Gasoline Working
Group to monitor the gasoline industry in Arizona. In particular, the
Antitrust Unit works closely with the Governor's Office, the Department
of Weights and Measures, the Department of Commerce--Energy Office, and
the Department of Transportation.
The Attorney General's Office has been in contact with the FTC
specifically relating to the August 2003 pipeline shutdown. The FTC has
offered technical support (economic analysis) as needed. We have not
yet requested that support on the pipeline shutdown issue since we have
an in-house economist in the Antitrust Unit examining these issues. The
Attorney General's Office is unaware of any independent investigation
by the FTC on the pipeline shutdown and gasoline shortages.
______
Response to Written Questions Submitted by Hon. John McCain to
Thomas A. Bannigan
Question 1. There appear to have been problems with the pipeline
used to transport gasoline since at least 1997. According to
documentation provided to the Committee, an inspection conducted in
July 1997 by the Office of Pipeline Safety (OPS) revealed numerous
instances of external corrosion. OPS followed up on August 15, 1997, by
requesting that then owner Santa Fe Pacific Pipeline Partners (SFPP)
submit a plan for recoating the line. A second request for the plan was
sent in October 1997. Yet it does not appear Santa Fe Pacific Pipeline
ever submitted a plan.
(a) What did OPS do to enforce its request?
(b) Was the line recoated?
(c) What, if any, action did OPS take regarding this requirement when
the pipeline changed ownership?
Answer. In December 1997, the OPS Southwest Regional Director met
with SFPP to evaluate corrosion on the 8-inch gasoline pipeline and
determine a corrosion protection plan. Through his evaluation, the OPS
Southwest Regional Director satisfied concerns over whether the
pipeline was operating in a safe condition and approved the SFPP
corrosion protection plan. Safety is often managed by keeping the
pipeline at an operating pressure that will maintain an adequate safety
margin even if there are instances of corrosion. Pipelines are designed
in accordance with conservative standards to provide for safe operation
with some corrosion. The approved plan was based on cathodic
protection, monitoring and internal inspection, rather than a general
recoating of the pipeline. We enforced the plan by ensuring through
inspections, both by the OPS and the Arizona Corporation Commission
(ACC), that the operator managed corrosion within acceptable levels
through corrosion protection, corrosion monitoring, maintenance and
pipeline repair.
After Kinder Morgan Energy Partners (KMEP) assumed ownership of the
gasoline pipeline, it followed the plan established by SFPP and
approved by OPS. The OPS Southwest Region and ACC continue to monitor
KMEP corrosion protection of the gasoline pipeline during standard
inspections. The ACC inspects the pipeline in Arizona and OPS inspects
the pipeline in New Mexico. There have been no significant corrosion
issues identified in these inspections.
Question 2. According to records supplied to the Committee, an
internal inspection by Kinder Morgan on March 2, 2000, of its 6-inch
jet fuel pipeline from Phoenix to Tucson revealed significant external
corrosion, significant enough in fact that Kinder Morgan reduced the
pipeline's operating pressure to 87 percent of the line's maximum
operating pressure. OPS was made aware of KMEP's report 6 days later,
on March 8. By April 15, OPS was aware that corrosion had eaten away
over 50 percent of the pipe wall in some locations. Why, then, did take
OPS until March 14, 2001--a full year after it was notified of what
sound like significant safety concerns--to issue a Corrective Action
Order?
Answer. After KMEP informed OPS of the significant external
corrosion on its 6-inch jet fuel pipeline from Phoenix to Tucson, OPS
met with KMEP and reviewed its inspection data, corrosion protection
system and its plans to address the external corrosion issues. As a
result of this meeting, and the OPS determination of necessary
protection actions to provide a greater level of safety, KMEP reduced
operating pipeline pressure further to 50 percent maximum allowable
operating pressure. OPS agreed to the KMEP plan to correct significant
corrosion defects. The plan was based on a very high safety standard
for repair that included criteria more stringent than the industry
standard. Because KMEP had taken responsible action, OPS did not issue
a corrective action order at that time. In February 2001, KMEP
completed repair of the pipeline in 52 locations and the replacement of
one-half mile of pipeline. This completed the correction of all
significant corrosion defects. At no time did OPS allow the operator to
operate the pipeline in an unsafe manner.
Question 3. Why was the Corrective Action Order issued after Kinder
Morgan had made 52 repairs to the line?
Answer. OPS issued the corrective action order (CAO) on the 6-inch
jet fuel pipeline to address the long-term corrosion protection of the
pipeline. OPS took this action because of concerns with KMEP long-term
corrosion protection and management plan for this pipeline.
Question 4. What additional protective measures were taken by
Kinder Morgan as a result of the Corrective Action Order?
Answer. The CAO placed the pipeline under a pressure restriction,
required a coating evaluation and a plan to recoat, repair or replace
sections shown by the coating evaluation to require remedial measures.
Among other requirements, the CAO also required KMEP to again conduct
internal inspection of the pipeline.
Question 5. Why did it take OPS two years after the Corrective
Action Order was issued to issue an amended Order? What happened during
these two years to improve the safety of the pipeline?
Answer. During the period of time before the CAO was amended, OPS
was satisfied that the pipeline was in a safe condition as a result of
the repairs and replacements completed in 2001 and the operator's
implementation of provisions of the original CAO. The process evolved
as follows: KMEP requested a hearing on the CAO. OPS/RSPA held the
hearing and amended the CAO in consideration of new information offered
by KMEP. In the amendment, OPS eliminated the recoating requirement
because the pipeline was adequately protected from corrosion by
aggressive cathodic protection. Further, OPS added to the amended CAO
inspection and analysis requirements to verify that corrosion on the
pipeline was not active. KMEP has performed a second in-line corrosion
inspection of the pipeline and is working on the analysis of the state
of active corrosion on the pipeline.
OPS's top priority is to first assure the public safety and
security and to subsequently complete the necessary administrative
activities in as timely a manner as possible, which was the case in
this circumstance
Question 6. In 1997, as a result of a Standard Inspection performed
by the Arizona Corporation Commission (ACC), OPS issued a Corrective
Order to Kinder Morgan for 5 items of regulatory non-compliance. Based
on the information OPS has provided the Committee, it took over 5 years
for this Order to finally be closed. Why?
Answer. RSPA legal staff finalize orders in as timely a manner as
possible. In recent years, the rapidly growing number of inspectors has
led to a significant increase in the number of cases proposed.
Question 7. Almost every year since 1994, the Arizona Corporation
Commission has performed a Standard Inspection of Kinder Morgan's
Arizona pipelines. And almost every year, the Commission has found the
company in ``probable non-compliance'' with respect to certain Federal
requirements. Yet it appears that OPS has routinely dismissed ACC's
findings as not valid.
Question 7a.. How do you explain this pattern? Dismissing ACC's
inspection results gives the appearance that OPS is letting Kinder
Morgan off the hook for violations of Federal safety regulations.
Answer. As with OPS' inspectors, the ACC inspectors propose
findings of violations as the first step in the enforcement process.
The OPS Regional Director reviews proposed violations and supporting
evidence to determine if a violation has occurred, if the case is
adequately documented, and if there are extenuating circumstances, such
as a waiver or interpretation in effect. OPS processed some violations;
and, some ACC proposed findings did not prove to be valid. For example,
ACC proposed a violation for not reading cathodic protection devices in
accordance with a schedule specified in the regulation. However, KMEP
was using an alternate process that provided a greater level of safety
and is allowed by regulatory interpretation. OPS' Southwest Region
orally informed ACC that the KMEP alternate process was not a
violation. In the future, OPS will use a written procedure to provide
information in a form more useful to all of our state partners.
Question 7b. Are the ACC's inspections being conducted with more
scrutiny than OPS?
Answer. No, to assure a consistent quality of inspection, OPS had
gone to considerable effort to provide Federal and state inspectors the
same training, procedures and information systems. We take state input
in the development of these procedures and materials to harmonize our
approach. Our goal is for inspections to be uniform across the Nation,
whether performed by an OPS or state inspector.
Question 7c. Given this pattern, do state inspectors need
additional training to better understand OPS' inspection criteria?
Answer. Yes, training for state and OPS inspectors is a continual
process. As new regulations and programs are developed, new training
programs are prepared and delivered to each inspector. OPS routinely
meets with state program directors to communicate information on new
policies and programs. OPS has made much of this information available
to state inspectors via the Internet and computer based training to
provide more flexible learning opportunities.
Question 7d. I can't understand how violations can be subjective
determinations--they should be black or white. How does OPS decide what
is and is not a safety violation and how is this communicated to ACC
and the pipeline owner?
Answer. Pipeline systems vary in complexity, design, operations and
maintenance so many pipeline safety regulations are written as
performance standards and require judgment to determine compliance. OPS
provides training and guidance to inspectors to prepare them to make
these judgments. OPS also makes interpretations available to inspectors
and industry to guide them in compliance with the regulations. In
addition, OPS routinely meets with state program directors to
communicate information on new policies and programs and sponsors
seminars across the Nation to keep inspectors and operators current on
program changes.
Question 8. According to the time line developed using OPS data,
there are extended gaps between actions taken by OPS to address the
safety concerns identified with Kinder Morgan's pipelines in Arizona.
It appears that OPS is often lax in follow-up enforcement on identified
safety problems. For example, it took OPS a year and seven months just
to revise its corrective action order against Kinder Morgan following
an August 2001 hearing on safety issues. No action was taken in the
interim. How do you explain these enforcement gaps?
Answer. As explained in Q/A5 above, OPS places its greatest
priority on assuring that protections are put in place to assure safety
and security and subsequently undertakes the appropriate administrative
actions. OPS has placed priority on investigating pipeline accidents,
developing corrective action orders to manage pipelines that present a
hazard to the public and on developing, implementing and enforcing the
new operator qualification and integrity management regulations that
have a great potential to substantially improving pipeline safety.
During the period of time before the CAO was amended, OPS was
satisfied that the pipeline was in a safe condition as a result of the
repairs and replacements completed in 2001 and the operator's
implementation of provisions of the original CAO. The process evolved
as follows: KMEP requested a hearing on the CAO. OPS/RSPA held the
hearing and amended the CAO in consideration of new information offered
by KMEP. In the amendment, OPS eliminated the recoating requirement
because the pipeline was adequately protected from corrosion by
aggressive cathodic protection. Further, OPS added to the amended CAO
inspection and analysis requirements to verify that corrosion on the
pipeline was not active. KMEP has performed a second in-line corrosion
inspection of the pipeline and is working on the analysis of the state
of active corrosion on the pipeline.
Question 9. Was Kinder Morgan's voluntary shut down of the line due
solely to safety concerns? If so, what did Kinder Morgan know that the
Office of Pipeline Safety did not, since OPS only required the operator
to reduce its operating pressure to 80 percent?
Answer. Once the preliminary metallurgical analysis on the cause of
failure was completed, and pointed to an exceedingly rare instance of
stress corrosion cracking (SCC), Kinder Morgan shut down the Tucson-
Phoenix hazardous liquid pipeline. As was evident in our testimony, SCC
is not a very well understood phenomenon on hazardous liquid pipelines.
Therefore, Kinder Morgan took the cautious approach and shut down the
pipeline to enable them to draft a plan to better respond to OPS'
Corrective Action Order and prevent a recurrence of the July 30
failure.
For pipelines that rupture suddenly, the cause unknown, or the
suspicion exists that other potential flaws reside in the pipeline, OPS
normally directs operators to reduce operating pressure 20 percent
below the pipeline pressure at the time of failure. This has been
proven by pipeline engineers and scholars to provide an adequate safety
margin and prevent failures, while the operator prepares and implements
a plan to prove the integrity of the pipeline segment that failed. The
terms in our Corrective Action Orders are the minimum that a company
has to adhere to; pipeline operators are free to take a more
conservative approach. Often an operator will operate at a lower
pressure sufficient to meet its market demands.
Question 9a. Is it typical for an operator to shutdown a line even
though OPS has only required Kinder Morgan to reduce the operating
pressure to 80 percent of maximum pressure?
Answer. To comply with OPS' Corrective Action Orders, operators
resort to a variety of options as long the safety factors that OPS
prescribes are upheld. Operators must at least reduce the pressure to
the amount mandated in the Order; they sometimes reduce it further, or
shut down the pipeline, depending on conditions of the failure. There
have been occasions when some pipeline operators have entirely shut
down the affected segment because supply to their markets can be
serviced by another pipeline. End user contracts, nominations, needs,
and the weather conditions determine strategies for operators. As long
as public and environmental safety is not compromised, OPS has not
intervened in these decisions.
Question 10. Once Kinder Morgan shut down its line, why did it take
5 days--from August 14 to August 19, 2003--for OPS to approve Kinder
Morgan's plan for hydro-static testing?
Answer. The Corrective Action Order required Kinder Morgan to
submit a plan to mitigate the effects of the stress corrosion cracking-
failure before returning the pipeline to normal operation, i.e.,
lifting the pressure restriction on the Tucson-Phoenix gasoline
pipeline. At a meeting on Thursday, August 14, to discuss the terms of
the Order, Kinder Morgan submitted its hydrostatic test plan to OPS.
OPS gave KMEP the approval to start preparing the pipeline for
hydrostatic test; a process that often takes 3 to 4 days.
OPS evaluated Kinder Morgan's proposed hydrostatic test plan and
found it inadequate to remove the ordered pressure restriction for a
stress corrosion cracking failure. On Friday, August 15, OPS notified
Kinder Morgan that OPS would not grant approval to remove the pressure
restriction only on the basis of a successful hydrostatic test at the
pressure proposed. Because SCC is exceedingly rare on hazardous liquid
pipelines, there was little precedent for determining the pressure
level for a hydrostatic test.
In a meeting on the morning of Tuesday, August 19, Kinder Morgan
explained to OPS that the purpose of the proposed hydrostatic test was
only to allow the pipeline to operate at 80 percent of the failure
pressure, as described in OPS' Order and not return to full operating
pressure. This had not been clear in Kinder Morgan's proposed
hydrostatic test plan. OPS' Order already permitted operation at 80
percent of failure pressure; there was no requirement for KMEP to
submit a plan. OPS considered the test as an additional mitigation
effort that increased confidence that the pipeline could operate safely
at 80 percent of the pre-failure pressure and immediately approved
Kinder Morgan's hydrostatic test. Kinder Morgan began hydrostatically
testing the pipeline segment late in the evening on August 19. The
Tucson-Phoenix pipeline is now operating at 50 percent of the pre-
failure pressure.
Question 11. Did Kinder Morgan meet the 30-day deadline for
submitting a written plan with corrective measures as required by OPS'
Corrective Action Order? [no]
Answer. By the 30-day deadline, KMEP had submitted its hydrostatic
test plan, a pipeline replacement plan and portions of its stress
corrosion cracking (SCC) plan to OPS. Because the cause of the pipeline
failure was determined to be SCC, a rare cause of failure for hazardous
liquid pipelines, the operator and OPS had additional considerations to
address in completing a comprehensive SCC plan within 30 days.
Question 11a. Did OPS take any official action when the plan was
not submitted and if so, when?
Answer. Yes, OPS continuously communicated with KMEP during this
period of time. On September 12, 2003. OPS' leadership team had a
conference call with the president of Kinder Morgan Liquid Pipelines to
discuss its plan. During that meeting, OPS notified Kinder Morgan that
it had not met the 30-day deadline on its SCC plan and that OPS had
issues with parts of the plans that had been submitted. Kinder Morgan
conveyed the complexity of the SCC issue and the need for more time to
develop a comprehensive SCC plan. Each CAO has a provision that allows
the OPS Regional Director to grant additional time for compliance with
the CAO for good cause. On October 3, OPS amended the CAO to
specifically address SCC, grant additional time to develop a SCC plan,
and to require the SCC plan to address the 6-inch jet fuel line as well
as the gasoline pipeline.
Question 11b. What signal does that send Kinder Morgan, let alone
the public, about OPS' commitment to strong and unwaivering
enforcement?
Answer. We see our enforcement policy as, ``tough, but fair.'' We
believe our policy sends the message to operators and the public that
OPS is focused on safety, the enforcement of the pipeline safety
regulations and justice.
Question 12. I understand that a metallurgical exam by Kinder
Morgan showed that the cause of the rupture in Tucson was stress crack
corrosion, which is more commonly found in gas pipelines, not liquid
pipelines. Does OPS or Kinder Morgan or even the ACC know what caused
the corrosion in this case?
Answer. Stress Corrosion Cracking, an environmentally assisted
cracking phenomenon, is a generic term that describes all types of
cracking in pipelines where the surrounding environment, the pipe
material, and stress act together to reduce the strength or load-
carrying capacity of a pipe. Other types of environmentally assisted
cracking have been found in other industries: boilers have developed
caustic cracking, nuclear reactor carbon steel coolant piping systems
have developed stress corrosion cracking, and stainless steel piping in
ammonia units in chemical plants have cracked, as have down-hole pipes
in sour oil wells.
None of the parties, OPS, ACC or Kinder Morgan, know exactly what
caused the stress corrosion cracking in the Tucson-Phoenix pipeline. It
is known that the union of environment, material, temperature and
stress play a role in stress corrosion cracking; but at what
concentration and what exactly was the catalyst for this failure is
unknown. This is why OPS' Corrective Action Order plainly states that
Kinder Morgan's plan must provide for the verification of the integrity
of the affected segment, must address all known or suspected factors in
the July 30 failure, and must include description of the assessment
criteria and methods that will be used in the evaluation and
prioritization of any integrity threats that are identified in the
pipeline section. Furthermore, Kinder Morgan must also evaluate the
adjacent Phoenix-Tucson hazardous liquid pipeline to ensure that stress
cracking corrosion signatures are not evident on the other pipeline.
This will enable OPS, Kinder Morgan, and ACC determine the stimuli for
the stress corrosion cracking on the Tucson-Phoenix pipeline.
Question 12a. Are older liquid pipelines more susceptible to
problems associated with stress crack corrosion?
Answer. Pipeline age, alone, is not a factor in the formation of
stress corrosion cracking. The formation of stress corrosion cracking
depends upon the proper combination of pipeline material, soil
condition (environment), temperature and local stress. Various
inquiries into the stress cracking phenomenon show that stress
corrosion cracking in not a widespread problem. OPS is sponsoring
research and hosting a public workshop in Houston on December 2, 2003
to share information between experts and practitioners about how to
better understand and manage stress corrosion cracking.
Question 12b. What actions do Kinder Morgan and other pipeline
operators need to take to halt stress corrosion cracking and prevent
future ruptures?
Answer. As mentioned previously, stress corrosion cracking is a
relatively new and evasive phenomenon on hazardous liquid pipelines.
The factors associated with SCC are known, but the relationship among
these factors has not been scientifically established. On October 2,
2003, OPS issued an Advisory Bulletin to pipeline operators on how to
evaluate their pipeline systems for stress corrosion cracking.
Replacement of long sections of pipeline to stave off SCC would be
economically impractical, but pipeline operators can try to reduce the
stresses or change the environment immediately in or adjacent to the
pipeline. For example, SCC is a more common phenomenon in natural gas
pipelines, and it has been found that stress corrosion cracking usually
occurs within 20 miles of a compressor station where operating
temperature are the highest. So, natural gas operators have reduced the
discharge temperatures of the natural gas to reduce the risk that SCC
will form.
Pipeline operators that have already experienced stress corrosion
cracking can perform predictive soil modeling to understand the soil
characteristics that promoted stress corrosion cracking. Questions to
be answered include: Are those soil properties unique to that region
where stress corrosion cracking was manifested? What processes can be
implemented to improve the drainage characteristics of soil enveloping
the pipeline? What role does the topography play in contributing to
stress corrosion cracking? OPS is prodding pipeline companies to answer
these questions to curb the role that soil plays in contributing to
stress corrosion cracking.
As stresses imparted into the pipeline during installation may
promote SCC, operators should also be cognizant of the construction
practices. They must also be familiar with the flaws in their
pipelines, because stress corrosion cracking has been shown to occur in
areas, such as dents, where stresses increase. Pipeline companies must
also be familiar with the geometry of their pipeline throughout its
route to enable them to better identify areas susceptible to stress
corrosion cracking as a result of pipeline stress. Stress
irregularities can be caused by internal operating pressure, residual
stress during manufacture, bending stresses during installation or out-
of-roundness and secondary stresses which can be due to soil settlement
or land slides, and stresses due to temperature differences.
Hazardous liquid pipeline operators should re-evaluate the pipeline
operations to minimize pipeline cycling. By reducing pressure and
fatigue cycling, the likelihood of growing existing stress corrosion
cracks is reduced. Thus, there is a very large range of operations,
maintenance, and integrity enhancement activities that pipeline
operators can take to stem the growth of stress corrosion cracking.
Question 12c. What actions are being taken by OPS to ensure
pipeline operators take the appropriate steps to address the increased
risk of ruptures due to stress corrosion cracking?
Answer. At this time, OPS does not believe that there is an
increased risk of ruptures due to stress corrosion cracking relative to
other modes of failure. Latent flaws resulting from third-party damage
continue as the major cause of failure, followed by external galvanic
corrosion, internal corrosion, operator error, and other factors.
From 1985-2001, there were only two instances of stress corrosion
cracking failures in hazardous liquid pipelines: 1998 in Missouri and
2001 in Kansas. Both these failures occurred on pipeline facilities
owned by Mid-America Pipeline Company. Metallurgical reports revealed
that the 1998-accident was caused by circumferentially-oriented SCC and
the 2001-accident was caused by longitudinally oriented SCC.
Since those two failures, RSPA/OPS has learned of three more
longitudinally oriented stress corrosion cracking failures that
occurred in 2003: July 10 on a CITGO pipeline in Cook County, Illinois;
July 16 on a Dome Pipeline Corporation pipeline in Barnes County, North
Dakota; and July 30 on the KMEP pipeline in Pima County, Arizona.
OPS has also seen indications of SCC on facilities of Enbridge
Pipelines, Inc. in Minnesota and Wisconsin. But Enbridge Pipelines,
Inc. has not experienced a failure due to stress corrosion cracking.
Even given the scarcity of pipeline ruptures due to stress
corrosion cracking, OPS has taken significant action to ensure that
pipeline operators take the appropriate steps to discover, manage,
mitigate, and remedy stress corrosion cracking indications on their
pipelines.
On October 2, 2003, OPS issued an Advisory Bulletin to alert
natural gas and hazardous liquid pipeline operators about the threats
from SCC, and to fully consider SCC when developing and implementing
integrity management plans. OPS advised operators to determine whether
their pipelines are susceptible to SCC and assess the impact of SCC on
pipeline integrity. Based on this evaluation, an operator should
prioritize additional in-line inspection and hydrostatic testing and
take actions to re-mediate problem areas.
During the week of October 6, 2003, OPS senior engineers convened
to discuss the threats posed by SCC and to revise the Hazardous Liquid
Integrity Management Plan protocols and guidance to enable inspectors
to better evaluate SCC risks. OPS is also preparing a strategy to
tackle this issue on natural gas pipelines.
OPS senior inspectors and corrosion specialists have also begun
developing a series of questions as an addendum to the standard
inspection forms. These forms will be available early next calendar
year and will complement OPS' suite of inspection protocols.
Because SCC detection technology is not yet fully adequate OPS
initiated two R&D programs directed toward identifying and
quantitatively measuring SCC:
BAA #1 award announcement on November 15, 2002 to Southwest
Research Institute, San Antonio, TX, and Pipeline Research
Council International, Inc., Washington, DC, to modify in-line
inspection tools to detect stress measurements that identify
corrosion, mechanical damage, cracks, wrinkles, etc. (OPS
$80,000 Industry $80,000)
BAA#3 Award announcement on September 8, 2003 to Battelle
Corporation of Columbus, Ohio, and Pipeline Research Council
International, Inc., Washington, DC, to develop quantitative
measures to assess corrosion defect severity and determine
failure pressure of pipelines (OPS $196,000, Industry $221,000)
OPS also commissioned a technical stress corrosion cracking study.
OPS is currently preparing a synthesis study that will be informed by
the wide range of work currently underway within OPS, companies and
trade associations, and research organizations. The purpose of the
synthesis study is to publicly develop a consensus that accurately
characterizes what is known (e.g., frequency and consequence of SCC,
susceptibility parameters, technological/procedural approaches to
detecting and characterizing it, best practices in managing SCC,
consensus standards development, regulatory approaches to SCC in the
U.S. and elsewhere, appropriate post-SCC failure event response, etc.)
and identify knowledge gaps. The results of the study will be made
public for researchers and for pipeline companies and regulators to use
in controlling risks from SCC.
To complement the technical study on stress corrosion cracking, OPS
is also hosting a technical workshop on December 2, 2003, in Houston,
Texas to address this important safety issue. The experts in the
workshop will review the framework and draft contents of OPS' technical
stress corrosion cracking study. Any deficiencies identified within the
workshop with the study framework will be fixed and the currency of all
information will be validated. This workshop will be hosted by the OPS
and its State pipeline safety partners, as well as by standards
organizations and pipeline trade associations.
Question 12d. I understand that several other recent liquid
pipeline ruptures have been attributed to stress corrosion cracking.
How serious is this rise in cases and should we be concerned that
liquid pipelines nationwide are going to rupture from stress corrosion
cracking?
Answer. OPS is concerned about stress corrosion cracking, although
is has not been a major cause of pipeline failure to date. During the
past five years, only five of 740 reported accidents on hazardous
liquid pipelines were caused by stress corrosion cracking. The recent
set of pipeline failures caused by SCC is an alert to OPS, state
pipeline safety agencies, and the pipeline industry that SCC is a
viable threat to pipeline safety. As described above, OPS' strategy to
improve the management of SCC is to increase our understanding of SCC,
improve detection technology and expand the emphasis on SCC management
in integrity management programs.
Question 13. Following the shut down of the Kinder Morgan pipeline,
I asked the Secretary of Transportation, Norman Mineta, to work to
ensure the operational safety of the pipeline as soon as possible and
to take any appropriate Administrative action to address the obstacles
to the timely transportation of available gas supply throughout the
affected Arizona communities. I also asked him what, if any, additional
action Congress should take now to further address this important
public safety issue. In his response, the Secretary indicated that the
population encroachment is a major issue for pipeline safety
nationwide.
Question 13a. What is your office doing to address the safety
problems associated with population encroachment?
Answer. OPS is providing leadership in managing the public risks of
encroachment of communities and other development on pipeline rights-
of-way. In conjunction with the Federal Energy Regulatory Commission,
OPS asked the Transportation Research Board (TRB) of the National
Academy of Sciences to begin a study to address issues of encroachment
and maintenance on pipeline rights-of-way. OPS's goal is to identify
promising approaches for local government for managing land use near
pipeline rights-of-way--guidelines on what development is compatible
with pipelines, and what development to avoid. The study we have
commissioned brings together all key stakeholders--including
representatives from local government, developers, pipeline companies,
environmental groups and others.
In enacting the Pipeline Safety Improvement Act of 2002 (PSIA),
Congress also recognized the need for this information and mandated
that we complete this study, and that we also include consideration of
how best to preserve natural resources (i.e., trees) that can pose a
problem for thorough monitoring of activity or problems along the
pipeline.
The TRB met on this issue for the first time in September 2003 and
expects to deliver its draft report to OPS by March 2004. This study is
an important step in informing local officials and others involved in
managing the risks of encroachment and in assessing the feasibility of
developing better guidance. OPS is committed to advancing the work done
by TRB in this short time-frame in a follow-up study.
In the meantime, to further our objective to educate communities
adjacent to pipelines about the consequences of pipeline releases, OPS
has hired a completely new cadre of engineers, called Community Action
and Technical Support (CATS) engineers. Their primary task is to meet
with community representatives to listen to their concerns and provide
information about:
the hazards posed by pipelines,
operators, and the commodities their pipelines transport
what measures exist in our Code of Federal Regulations for
their protection; and,
how to prevent damages to pipelines and how to respond to
pipeline accidents.
Question 13b. Does OPS have any authority to stop encroachment? If
not, what Federal or state agency does?
Answer. OPS does not have authority to stop encroachment. The
Federal Energy Regulatory Commission (FERC) is responsible for the
siting of interstate gas transmission lines. Aside from the interstate
gas pipeline siting, decisions about land use are primarily under the
control of local governments.
Question 14. In reports issued in 2000 and 2001, the U.S. General
Accounting Office (GAO) criticized OPS' practice in the 1990s of
issuing warning letters and letters of concern rather than issuing
fines. From 1990 to 1998, OPS decreased the proportion of enforcement
actions in which it proposed fines from about 49 percent to about 4
percent. What fines has Kinder Morgan been assessed by OPS?
Answer. OPS has fined Kinder Morgan for violations ranging from
failure to inspect and test relief valves to failure to establish a
written anti-drug plan. Since 1990, OPS has assessed Kinder Morgan a
total of $176,700 in fines. In 1998, OPS fined Kinder Morgan (Santa Fe)
$3,000 for failure to install valves on its 6-inch and 8-inch pipelines
in Tucson, Arizona where the pipeline crosses the Santa Cruz River. OPS
also fined Kinder Morgan (Santa Fe) $12,700 in 1994 for failing to
provide adequate cathodic protection on their 8-inch pipeline that
extends from Steins Pass, Arizona to Tucson.
Question 14a. Has OPS changed its policy of issuing warnings and
started imposing fines? Why or why not?
Answer. Since 2000, OPS has refocused its efforts to achieve
compliance with the pipeline safety regulations through enforcement
actions and use of civil penalties. We take a ``tough, but fair''
approach in dealing with operators. In the years 1995-1999 prior to our
change in policy, the yearly average number of civil penalties was 19
and the average penalty was $19,000. In 2000-2003, the years our new
policy has been in effect, the average number of civil penalties was 42
and the average penalty was $45,000. These numbers do not include the
very large proposed civil penalties as a result of the Olympic and El
Paso pipeline accidents. Including the proposed civil penalties for
Olympic and El Paso pipelines, the average propose civil penalty for
the 2000-2003 period would be $91,000.
Question 14b. The new pipeline safety law, enacted last year,
requires that GAO issue a report on OPS' assessment of the impact on
pipeline safety of issuing warning letters rather than assessing fines.
Since this study is on-going, I am concerned that OPS may still not
know how to judge the impact of different approaches on safety. Does
OPS have a clear understanding of the safety impact from warnings
versus fines?
Answer. OPS does have qualitative understanding of the value of
each of our enforcement tools, which range from a warning letter, to a
notice of probable violation with a civil penalty, to a corrective
action order. Each tool has a valid purpose and use. To better quantify
our understanding of the impacts of enforcement tools and to improve
enforcement policy, OPS has created the position of enforcement policy
director. This director will develop enforcement policy, guidance
material and performance measures for enforcement. This is intended to
provide, for example, more detailed guidance on some inspection types,
penalty-setting, and on collecting and presenting evidence.
Question 14c. When OPS issues a warning letter or letter of
concern, what does it do to follow up if the pipeline owner does not
respond?
Answer. Warning letters, letters of concern and other enforcement
action are recorded in OPS enforcement records. A standard procedure in
OPS' compliance manual requires an inspector to prepare through review
the history of the operator e.g., accidents, enforcement actions,
including warning letters and letters of concern. During the
inspection, the inspector is required to follow up on warning letters
and letters of concern and to prepare a notice of probable violation
and civil penalty if the operator has not corrected the issue. We
specifically look for instances of repeated violations in targeting our
inspections.
Question 15. OPS' regulations for integrity management require
that, after completion of the initial baseline inspection, liquid
pipelines be internally inspected every five years. Why 5 years and not
2 or 3 or 7?
Answer. The maximum interval allowed in regulation is the five-year
interval within which pipelines must be re-inspected in high
consequence areas. Based on the risk factors pipelines experience, some
pipelines may have to be re-inspected more frequently.
In setting this interval, OPS considered the rate of growth of
corrosion, technology and expertise available to detect corrosion, and
the current rate of inspection of pipeline ongoing prior to our
issuance of regulation. OPS set an aggressive goal that more than
doubled the rate of inspections at the time. We knew that most pipeline
operators whose pipelines can be internally inspected with an
intelligent tool (pig) prefer to deploy pigs for inspection because
they cull more information from the pipe body. Pigging, however, is a
complex operation requiring careful preparation and scheduling.
Operators must consider such factors as availability of pigging
equipment, weather conditions, and whether service interruptions to
perform the test can be tolerated. In considering testing frequency,
OPS considered availability of inspection tools and especially skilled
personnel for interpreting test data. Our consultation with pigging
experts in the industry revealed that the five year interval was the
most aggressive standard we could realistically set, based on available
capacity to serve the market. Many of the pipelines in high consequence
areas are operated by smaller companies. If the demand for internal
inspection tools exceeds available supply, the smaller companies will
not be able to compete with the larger companies who can offer larger
contracts to the pigging vendors.
Question 15a. It seems to me that the intervals between integrity
management inspections should be based on risk, including the age of
the pipeline and other factors that affect the integrity of the
pipeline. Are these factors that OPS takes into consideration?
Answer. Yes. The intervals between integrity management inspections
must take risk into consideration. The five-year re-inspection
frequency is an upper limit that pipeline operators must adhere to on
pipelines in high consequence areas. In many cases OPS expects pipeline
operators to re-inspect their facilities more frequently with different
tools to ensure that all risks are covered and mitigated.
OPS's integrity management rule clearly states that an operator
must base the frequency of evaluation on risk factors specific to each
pipeline segment and must consider the results of the baseline and
periodic integrity assessments, information analysis, and decisions
about remediation, preventive, and mitigative actions to arrive at a
re-inspection interval. The risk factors that a pipeline operator must
consider are results of the previous integrity assessment, defect type
and size that the assessment method can detect, defect growth rate,
pipe size, metallurgy, coating type, seam type, age, leak history,
cathodic protection history, commodity transported, and the terrain's
susceptibility to geo-technical hazards, to name a few.
Question 15b. What is the average age of liquid pipelines in the
U.S.?
Answer. OPS does not collect data on the age of liquid pipelines,
but we have worked with the American Petroleum Institute (API) to
sponsor studies on age. OPS is in rulemaking on a requirement for
hazardous liquid pipeline operators to provide information on integrity
management program performance measures. This effort will be realized
through the collection of data from Hazardous Liquid Pipeline Operators
via the Annual Report (RSPA Form 7000.1). Collection of miles of pipe
by nominal pipe size by location will commence in FY05 for calendar
year 2004, and will lend itself to review and analysis of age of pipe
issues.
Based on the API work, in 2001, Trench & Kiefner reported in Oil
Pipeline Characteristics and Risk Factors: Lessons From the Decade of
Construction, that pre-1930 pipe represents 2 percent of the share;
pipe constructed in 1930-1939 represents 7 percent; 13 percent was
constructed between 1940-1949; 22 percent in 1950-1959; 23 percent from
1960-1969; 17 percent from 1970-1979; 9 percent from 1980-1989; and 8
percent was constructed in 1990 or later.
Thus the majority of hazardous liquid pipeline is between 23 and 53
years old. The characteristics of the pipe vary by the manufacturing
and construction techniques in use at the time of construction. The
``average'' age therefore, would not necessarily provide a clear
indicator for understanding pipeline performance.
Question 16. You indicate in your statement that OPS inspects
Kinder Morgan's facilities about every three years. How does an OPS
inspection compare with the inspections performed by ACC?
Answer. OPS' goal is to perform a standard inspection on each
pipeline unit every two to three years. These inspections are performed
by either OPS or state inspectors. A pipeline unit is an identifiable
section of pipeline such as Kinder Morgan's pipelines in Arizona. ACC
and OPS inspections should be essentially the same. OPS provides state
and OPS inspectors with the same training, procedures and guidance
materials. Our goal is for inspections to be uniform across the Nation
whether performed by an OPS or state inspector.
Question 17. In your opinion, should older pipelines such as Kinder
Morgan pipelines in Arizona be subject to more stringent requirements
or more frequent inspections?
Answer. OPS's integrity management rule clearly states that an
operator must base the frequency of evaluation on risk factors,
including age, specific to each pipeline segment and must consider the
results of the baseline and periodic integrity assessments, information
analysis, and decisions about remediation, preventive, and mitigative
actions to arrive at a re-inspection interval. The risk factors that a
pipeline operator must consider are results of the previous integrity
assessment, defect type and size that the assessment method can detect,
defect growth rate, pipe size, metallurgy, coating type, seam type,
age, leak history, cathodic protection history, commodity transported,
and the terrain's susceptibility to geo-technical hazards, to name a
few.
Question 18. In background information provided to the Committee
prior to this hearing, your office stated that hazardous liquid
pipelines tend to be located in rural areas. That is certainly not true
in this case. What action is being taken at the Federal level to
identify where pipelines pose the greatest risk to public safety?
Answer. To protect communities and the environment from pipelines,
OPS published the integrity management rules that apply to and increase
testing and safety standards for all hazardous liquid pipelines. The
integrity management regulations apply to high consequence areas that
include commercially navigable waterways, high population areas, other
populated areas, and unusually sensitive areas like drinking water or
ecological areas that are unusually sensitive to environmental damage
from a hazardous liquid pipeline spill. These regulations also require
pipeline operators to develop and follow a safety program including
continuous evaluation of pipelines including mandatory testing with a
five-year interval for retesting.
As a joint government-industry effort between the OPS, other
Federal and state agencies, and the pipeline industry, the National
Pipeline Mapping System (NPMS) is a full-featured geographic
information system database that contains the locations and selected
attributes of natural gas transmission lines, hazardous liquid trunk
lines, and liquid natural gas facilities operating in onshore and
offshore territories of the U.S. The NPMS is created from mandatory
submissions of pipeline and LNG facility data by pipeline operators.
The NPMS National Repository is responsible for collecting, processing,
and building a national seamless pipeline database from the submitted
data.
OPS maps, maintains, and updates these areas periodically on the
National Pipeline Mapping System (NPMS). Nonetheless, pipeline
operators are responsible to ensure that they have identified all high
consequence areas that could be affected by a pipeline segments.
Operators are also responsible for periodically evaluating pipeline
segments to look for population or environmental changes that may have
occurred around their pipelines and to keep programs current with this
information. The rule also requires operators to include a process for
identifying which pipeline segments could affect high consequence
areas, and to take measures to prevent and mitigate the consequences of
a pipeline failure that could affect a high consequence area. Thus,
operators need to consider how each of their pipeline segments could
affect high consequence areas.
Question 18a. Do different safety standards apply to pipelines
depending on where they are located?
Answer. Yes, different safety standards apply to pipelines
depending on where they are located. Pipelines in areas defined as
unusually sensitive areas, that include populated areas and
ecologically sensitive areas, must be maintained according to more
stringent standards than other pipelines. NPMS maps are a starting
point to determine sensitivity, but operators are required to look
further. Operators must account for the impact of the commodity, the
topography, and geological conditions of the terrain it traverses and
ascertain if a spill ``could affect'' a high consequence area. In this
``could affect'' analysis, operators must also consider the amount of
product that could be released, possibility of a spillage in a farm
field following the drain tile into the waterway, ditches or ruts
parallel or perpendicular to the pipeline that assist the migration of
a spill into farther reaches, and exposure of the pipeline segment to
operating pressure exceeding established maximum operating pressure.
The regulation requires that operators of pipelines in, and that
could affect, high consequence areas must:
Conduct a baseline assessment plan meeting very stringent
requirements, and must perform an analysis that integrates all
available information about the integrity of the entire
pipeline and the consequences of a failure;
Perform an analysis that integrates all available
information about the integrity of the entire pipeline and the
consequences of a failure;
Develop criteria for remedial actions to address integrity
issues rated by the assessment methods and information
analysis;
Create a continual process of assessment and evaluation to
maintain a pipeline's integrity;
Identify preventive and mitigative measures to protect the
high consequence area
Develop methods to measure the program's effectiveness; and,
Create a process for the review of integrity assessment
results and information analysis.
Question 18b. Should there be a greater focus placed on pipelines
in populated areas?
Answer. Yes. There is a greater focus placed on pipelines in high
consequence areas that include populated areas, other populated areas,
and ecologically sensitive areas. Moreover, the integrity management
rule, for example, requires pipeline operators to incorporate newly
identified high consequence areas into their baseline assessment plans.
Pipeline operators are also required to have communication systems with
fire, police, and other public officials during emergency conditions
including natural disasters. Liquid pipeline operators, for example,
are required to patrol their pipelines at least 26 times per year. Our
analyses of patrolling procedures show that in populated areas,
pipeline operators patrol their systems much more frequently.
Question 19. The Pipeline Safety Improvement Act of 2002, which
reauthorized Federal pipeline safety programs through Fiscal Year 2006,
contains several new initiatives to improve pipeline safety. One such
initiative requires the Secretary of Transportation to study land use
practices, zoning ordinances, and preservation of environmental
resources with regard to pipeline rights-of-way and their maintenance.
Question 19a. What is the status of this study?
Answer. RSPA/OPS established a cooperative agreement with the
National Academy of Science's Transportation Research Board (TRB) to
conduct a study of encroachment risks and how they can be managed. This
agreement was finalized on September 26, 2002. The TRB met on this
issue for the first time in September 2003 and expects to deliver its
draft report to OPS by March 2004. This study is an important step in
informing local officials and others involved in managing the risks of
encroachment and in assessing the feasibility of developing better
guidance.
Question 19b. Why has it taken DOT so long to initiate and complete
this important study as required by Congress?
Answer. OPS actually finalized an agreement with the TRB to perform
the study prior to the signing of the Pipeline Safety Improvement Act
of 2002. The TRB experienced some delay in initiating the study because
of a turnover of key staff. The TRB has worked very carefully with
congressional staff and stakeholders to define the study and select a
study committee. The committee established to conduct this study is
comprised of senior representatives with national-level expertise from
interested organizations including all levels of government,
environmental organizations, pipeline companies, academia, and
technical consultants. Further, the Committee has set forth three
public meetings for which presentations have been solicited from other
interests, experts and others who share responsibility for ensuring the
protection of communities (e.g., emergency responders) and reliability
of critically needed energy supplies.
Question 19c. When will it be completed?
Answer. The TRB plans to deliver a draft report to OPS by March of
2004.
Question 20. How many violations of Federal pipeline safety laws
and regulations have been identified by OPS or its state partners in
the last year?
Answer. Between October 2002 and October 2003, OPS initiated 109
enforcement actions against operators for violating minimum Federal
pipeline safety regulations as promulgated by 49 CFR Part 190 thru Part
199 and Part 40. Typically, each enforcement action will address one to
five violations.
Question 20a. How many of those violations resulted in the issuance
of a corrective action order by OPS? How many fines were issued as a
result of these violations?
Answer. OPS does not typically issue violations as part of a
Corrective Action Order (CAO). A CAO is an enforcement tool that allows
OPS to manage actively the risk of a pipeline that may be a hazard to
the public. A CAO allows OPS to impose certain restrictions on an
operator's pipeline, including a reduction in operating pressure, and
generally requires the operator to take corrective action on their
pipeline.
OPS does however, issue Compliance Orders (CO) to operators as a
result of a violation. Between October 2002 and October 2003, OPS
initiated one CO against an operator for violating the minimum Federal
pipeline safety regulations. OPS did not issue a fine as a result of
this CO.
As a result of the 109 enforcement actions initiated, OPS fined
operators a total of $863,500.
Question 20b. Has OPS ever fined Kinder Morgan, and if so, what
violation was involved? Has Kinder Morgan ever been fined for problems
associated with the two pipelines that run between Tucson and Phoenix?
Answer. OPS has fined Kinder Morgan for violations ranging from
failure to inspect and test relief valves to failure to establish a
written anti-drug plan. Since 1990, OPS has assessed Kinder Morgan a
total of $176,700 in fines. In 1998, OPS fined Kinder Morgan (Santa Fe)
$3,000 for failure to install valves on its 6-inch and 8-inch pipelines
in Tucson, Arizona where the pipeline crosses the Santa Cruz River. OPS
also fined Kinder Morgan (Santa Fe) $12,700 in 1994 for failing to
provide adequate cathodic protection on its 8-inch pipeline that
extends from Steins Pass, Arizona to Tucson.
Question 21. OPS has established an on-line system for residents
nationwide to use to determine what pipelines are operated in the
vicinity of their homes. The site asks for your zip code and then
provides a list of operators in your area and how to contact them for
additional information. However, a recent test by Committee staff
showed the information was in several cases incomplete or non-existent.
One zip code within the Nation's capital showed no pipeline data
available. Another showed no contact information available for BP
Pipeline North America, even though Committee staff was able to get
contact information on-line from BP within minutes. Do you believe this
system is adequate to inform the general public on the risk associated
with living near a major pipeline?
Answer. OPS does believe that the public access tool will be
sufficient in meeting its goal of providing operator contact
information to the public. The tool is based on contact information for
pipeline operators that is required by law to be submitted by operators
to the National Pipeline Mapping System (NPMS). The database of
pipeline operator contact information is not yet complete. While nearly
99 percent of all pipeline mileage under OPS jurisdiction has been
submitted to the NPMS, approximately 45 percent of pipeline operators
have not submitted their contact information. Any current deficiencies
in the public access tool are due to noncompliance on the part of
pipeline operators. OPS believes that pipeline operators have
overlooked the requirement to submit contact information. OPS is
pursuing compliance orders against operators that have not submitted
their contact information.
Question 21a. What actions are you going to take to address the
problems identified by Committee staff?
Answer. OPS has made concerted efforts to contact pipeline
operators regarding their statutory requirement to submit pipeline and
operator contact data to the NPMS. OPS posted an Advisory Bulletin for
all jurisdictional pipeline operators (http://ops.dot.gov/notices/
AdvisoryBulletin/03-2449.pdf) on February 3, 2003, which appeared in
the Federal Register (i.e., FR, Vol. 68, No. 22, Monday, February 3,
2003, page 5338). OPS also conducted NPMS public meetings and operator
conferences via various industry groups and forums. Two weeks before
the submission deadline date of June 17, 2003, OPS e-mailed operators
to remind them of the approaching deadline for submission of pipeline
and operator contact data. Unfortunately, most operators have focused
on submitting their pipeline data and many neglected to submit their
operator contact information.
OPS is preparing notices proposing compliance orders to order
operators who have not provided the mapping and contact information
required by Section 15 of the Pipeline Safety Improvement Act of 2002,
to submit the information. This is the limit of authority granted to
OPS under the PSIA. The PSIA does not allow OPS to assess penalties for
violations of the statutory requirements added by the Pipeline Safety
Improvement Act of 2002. In addition, administrative civil penalties
are not available to enforce the requirements to review the
effectiveness of public education programs (Section 5), to have an
employee qualification program meeting statutory requirements in the
absence of standards regulations (Section 13), and the requirements for
gas integrity management programs (Section 14).
The compliance order will also provide instructions for accessing
an online form where operators can submit their contact information.
OPS will aggressively work with the pipeline operators to ensure that
they are in compliance. Additionally, OPS is pursuing the ability of
states to similarly enforce compliance by intrastate pipeline
operators.
Question 22. Please describe the relationship between the Office of
Pipeline Safety and the state pipeline safety officials, in this case,
the Arizona Corporation Commission. In particular, please explain which
agency is responsible for what, including inspections and the
subsequent enforcement against violations of safety regulations.
Answer. OPS administers the national regulatory program to assure
safe transportation of natural gas, petroleum, and other hazardous
materials by pipeline. The Federal/State partnership is the cornerstone
for assuring uniform implementation of the pipeline safety program
nationwide. Most states have supported the concept of common
stewardship in pipeline safety. The Federal/State partnership allows
leveraging of resources to deliver a cost-effective program that has
one of the best safety records in transportation. OPS and their state
partners regularly participate in joint government-industry-public
committees and task forces to discuss and address concerns related to
risk management, compliance, emerging technology, damage prevention,
and environmental protection.
While the Federal Government is primarily responsible for
developing, issuing, and enforcing pipeline safety regulations, the
pipeline safety statutes provide for state assumption of the intrastate
regulatory, inspection, and enforcement responsibilities under an
annual certification. Federal pipeline statutes, on the other hand,
provide for exclusive Federal authority to regulate interstate
pipelines. But, OPS may authorize a state to act as its agent to
inspect interstate pipelines, but retains responsibility for
enforcement of the regulations.
The ACC, along with five other states, participates in the
interstate hazardous liquid program. Similarly, Arizona is one of 13
``certified'' states with the authority to inspect and enforce
regulations on intrastate hazardous liquid pipeline facilities.
For natural gas pipelines, Arizona is one of nine ``agreement''
states with the authority to inspect and report on interstate natural
gas pipeline facilities. Arizona is also one of 50 ``certified'' states
with the authority to inspect and enforce regulations on intrastate
natural gas pipeline facilities.
Since this incident in Arizona, we have learned that there were
opportunities to improve communication which would have increased the
efficiency of our oversight. We are taking many actions to improve
communications through increased written follow-up in enforcement
actions, more immediate distribution of interpretations, more informal
group interaction, and tracking state by state involvement in policy
making activities.
Question 23. Is the division of duties between OPS and ACC
identical to OPS' relationship with all states or does each state have
a different agreement?
Answer. OPS's relationship with each state and the division of
duties between OPS and its agents are similar to the one with ACC. The
agreements OPS crafts with the states are also the same based on the
type of certifications that each state possesses.
Question 24. When was the last time the KM pipelines that run
through AZ were inspected? When will KM's baseline inspections, as
required by the integrity management requirements, be completed? Have
you considered expediting this inspection given the rupture and the
other problems that OPS had been concerned about on the six inch line?
Answer. The last time ACC requested to inspect Kinder Morgan's
pipelines in Arizona was in 2001. In 2002, ACC requested to inspect
Kinder Morgan's facilities once again. In 2003, ACC continued
inspection on all safety-related condition reports that Kinder Morgan
had submitted to OPS.
In 2002 and 2003, OPS and ACC also conducted the integrity
management inspections on Kinder Morgan's pipeline facilities. This
series of inspection began in January 2002. The ``quick-hit''
inspection was performed from January 15-17, followed by two weeks of
comprehensive inspections that were conducted from April 7-11 and April
21-25. The California State Fire Marshal and Virginia State Corporation
Commission also participated in these two weeks of comprehensive
inspections. On July 24 and 25, 2003, OPS continued with the
comprehensive inspections to review records.
Kinder Morgan has subdivided their pipelines in Arizona into eight
sections for purpose of inspection. This year Kinder Morgan completed
the baseline inspections on the Yuma Marine Corps Air Station lateral,
the Luke Air Force Base in Phoenix, and the 6-inch Phoenix to Tucson
line. In 2004 Kinder Morgan plans to complete the baseline inspections
on the eight-inch pipeline south of Tucson and the 8-inch line from
Tucson to Phoenix. Another 12-inch line south of Tucson was initially
scheduled for baseline inspections in 2007, but after the July 30-
incident OPS directed Kinder Morgan to schedule it sooner, and we
expect baseline assessment of this line to be completed in 2004.
The 12-inch Phoenix to Tucson line and the 20-inch Yuma to Phoenix
line were installed within the past 20 years. Therefore, its baseline
inspections are planned to occur in 2006 and 2007. OPS will determine
if these two pipelines baseline inspections need to be expedited based
on the findings on the other lines that will have a completed baseline
inspection by 2004.
Question 25. Should inspection results or potential public safety
concerns be disclosed to the public?
Answer. OPS believe that plans for inspection, the technology used
and the progress with those inspections should be shared, including
repairs identified and completed. New regulations will be issued soon
to address required performance reporting and additional regulation on
other communication requirement may follow.
Question 26. How many corrective action orders has OPS issued this
year? What accountability features are included in these orders? For
example, I understand that many times they do not have a date certain
for responding to the order. Further, and I believe it was with the
very case we are discussing today, even though OPS' order required a
date certain reply, KM had not replied by that deadline and OPS did not
issue any further official document or impose a fine or anything. What
signal do you think such lax oversight sends to pipeline operators, let
alone, the public?
Answer. OPS has issued 18 Corrective Action Orders (CAO) this year,
more than three times the combined total for the previous three years.
All CAOs issued by OPS have time limits within which the pipeline
operator must respond to the Regional Director. A provision of each CAO
gives the OPS regional directors the authority to grant an extension of
time for compliance with the term of the CAO for good cause. The
regional directors are given this authority to provide flexibility
because CAOs deal with unknown causes of failure, complex technical
issues that often do not have immediate solutions, complex testing and
inspection, and lengthy state and local permit processes needed for
testing and repair. The plan must provide for the verification of the
integrity of the affected segment, and must address all known or
suspected factors in the failure. All of these factors can add
substantial time to completing the requirement of a CAO. Pipeline
operators have an incentive to submit and execute their remedial action
plans promptly because the pressure restriction prevents them from
meeting their contractual delivery volumes. Granting additional time
for good cause is not lax oversight. It is necessary to achieving
quality in resolving safety issues.
We do not agree that a delay in the submittal or execution of the
remedial action plan sends a signal of lax oversight to the operator or
the public. First, OPS, through the pressure restriction, eliminates
the immediate hazard to the public and the environment. The pressure
restriction is not lifted until all elements of the remedial action
plan are completed and reports are made available to OPS and its state
partners within whose jurisdiction the failure occurred. Second, OPS
and its agent, if any, follow up closely on all the activities that the
operator is implementing on its pipeline.
OPS's record in issuing CAOs and resolving safety issue sends a
strong message that we are applying thorough oversight over the
pipeline industry. We are achieving results. Comparing the last five
years to the previous five, hazardous liquid incidents have decreased
by 28 percent. Two years ago, the volume of oil spilled decreased by 33
percent from the ten-year average. Last year there was a 57 percent
decrease.
Question 27. Following the initial rupture of your pipeline in a
residential area of Tucson, the OPS ordered Kinder Morgan to reduce the
operating pressure to 80 percent of maximum pressure. However, instead
of reducing the operating pressure, Kinder Morgan chose to shut down
operations for repairs. Why did you take the extreme action of shutting
down all operations of the pipeline, which was counter to OPS's
recommendations?
Answer. On July 30, 2003, Kinder Morgan's 8" pipeline from Tucson
to Phoenix failed during normal pipeline operations. Kinder Morgan and
OPS originally believed the cause of the release was an ERW pipe seam
failure. Based on the March 8, 1989, Pipeline Safety Alert Notice (ALN-
89-01) and discussion with the Department of Transportation Office of
Pipeline Safety Southwest Region (DOT), the pipeline was repaired and
restarted on August 1, 2003, based on the following operating
parameters:
Operate the pipeline at 50 percent maximum operating
pressure (MOP) for five (5) days
Operate the pipeline at 60 percent MOP for one (1) day
Operate the pipeline at 70 percent MOP for one (1) day
Operate the Pipeline at 80 percent MOP until further notice.
As part of Kinder Morgan's on-going integrity program, the joint of
pipe from the July 30, 2003, incident was sent to an independent lab
for metallurgical analysis. On August 8, 2003, Kinder Morgan received
the metallurgical report. The report concluded that the cause of the
rupture was high pH SCC. Kinder Morgan had never experienced SCC before
on one of its refined petroleum pipelines. Given this information and
the pipeline's location near populated areas in the City of Tucson,
Kinder Morgan determined that the only safe option was to shut down the
pipeline (which was still operating at 50 percent MOP) and conduct
further testing.
Question 27a. What factors did you consider in deciding to shut
down the pipeline?
Answer. Kinder Morgan considered public safety, the pipeline's
location near populated areas in the City of Tucson and the uniqueness
of the SCC phenomenon on a refined products pipeline. These were the
driving factors in making the decision that the only safe option was to
shut down the pipeline and conduct further testing to ensure the
integrity of the pipeline.
As stated above, Kinder Morgan originally thought the failure was
an ERW seam failure, and restarted the pipeline at a reduced MOP.
However, on August 8, 2003, Kinder Morgan received a metallurgical
report indicating that the cause of the failure was high pH Stress
Corrosion Cracking (SCC), a failure mode never before experienced on a
Kinder Morgan liquids pipeline. The metallurgical report and subsequent
conversations between our technical staff and the third party
metallurgical consultant did not provide technical justification for
allowing our line to operate at reduced pressure without further
testing. Given this information and the pipeline's location near
populated areas in the city of Tucson, Kinder Morgan determined that
the only safe option was to shut down the pipeline (which was still
operating at 50 percent MOP) and conduct hydrostatic testing of the
pipeline.
Question 27b. Was Kinder Morgan's voluntary shut down of the line
due solely to safety concerns? If so, what did Kinder Morgan know that
the Office of Pipeline Safety did not, since OPS only required the
operator to reduce its product to 80 percent?
Answer. Yes. Kinder Morgan decided that in order to ensure public
safety, the line needed to be hydrostatically tested before service
resumed.
Question 27c. Considering that you believed shutting down the
pipeline was the best course of action, and OPS believed the pipeline
could continue to operate at reduced pressure, should one assume that
OPS should have ordered you to shut down the pipeline? Was OPS wrong?
Answer. OPS's original corrective action order was premised on the
assumption that the failure mode was due to an ERW seam failure. The
order's timeline for gradual resumption of operating pressure reflects
that fact. As the owner and operator of these pipelines, it is Kinder
Morgan's ultimate responsibility to operate its' system safely.
Question 27d. Considering the overall impact on safety and gas
supply, did Kinder Morgan take the right course of action by shutting
down the pipeline?
Answer. The decision to temporarily shut down the 8" pipeline on
August 8 was the safe and prudent course of action. A fundamental
principle that we constantly emphasize to our operations personnel is:
``If in doubt, shut the pipeline down and restart the line only after
the doubts have been eliminated.'' High pH SCC has never been
experienced before on a Kinder Morgan refined products pipeline and we
believed the line had to be hydrostatically tested to ensure it could
be operated safely. Although the resultant service disruption
inconvenienced consumers, far greater would have been the criticisms
and consequences of continuing to operate the line and having another
release. Moreover, our flexibility and responsiveness were key to
providing petroleum products to Phoenix during the service disruption,
a task complicated by the surge in demand as ``panic buying'' set in.
Kinder Morgan is proud of our safety and compliance record. Safety
and compliance are integral to every decision we make. We take
seriously our commitment to operate a safe and reliable pipeline
system, and we strive for operational excellence and incident-free
operations. Kinder Morgan's track record in Arizona has been
outstanding since we acquired these pipelines in March 1998. During
this time, we have transported more than 440 million barrels of fuel
into the state, and the recent product release in Tucson was the first
time we have experienced an incident with one of our Arizona pipelines
that was not a result of third party damage. We have had two releases
due to third party damage and the July 30 release, which was due to
high pH stress corrosion cracking (SCC). There were no injuries or
fatalities as a result of any of these incidents.
Immediately after we decided to temporarily take the 8" Tucson to
Phoenix line out of service because of the sec failure mode, we
initiated steps to mitigate the impact of the shutdown. Throughout the
weekend of August 9-10, modifications were made to our Tucson terminal.
These modifications involved converting several tanks from conventional
service to CBG service and connecting a truck rack lane to these tanks.
These modifications allowed our shippers to transport by truck volumes
of CBG gasoline from the East that otherwise would have moved over the
closed 8" pipeline. Approximately 12,000 b/d were trucked to the
Phoenix market as a result of these facility modifications while the 8"
pipeline was out of service.
Kinder Morgan schedulers were also called to work the weekend of
August 9-10 to contact our shippers and initiate the process of
nominating additional volumes over the West Line to make up for volume
shortfalls on the temporarily closed line between Tucson and Phoenix.
During the week fo11owing the shutdown of the 8" pipeline, Kinder
Morgan's West Line and barrels trucked from Phoenix, were meeting over
92 percent of the average daily demand (175,000 b/d) in the Phoenix
market. For just over half the days in the month of August, deliveries
to Phoenix exceeded the average daily demand in Phoenix.
Kinder Morgan's deliveries, however, do not tell the entire story.
We do not know the inventory levels at the five other Phoenix terminals
at the start of the month of August or for any day thereafter. That
information is not in our possession and can only be obtained from the
owners of those terminals. We do know, however, that nationally the
trend is to maintain inventories at levels only necessary to meet
anticipated demand and avoid the holding costs of excess inventory.
When you combine the temporary shutdown of the 8'' pipeline with
current inventory management practices and the spike in demand
triggered by panic buying and ``topping-off' of tanks, there were
resultant shortages of gasoline. Further complicating the supply/demand
picture were logistical difficulties in accommodating increased
trucking of products from Tucson terminals and outside of the state.
(This problem in turn was exacerbated by weekly driving hour limits on
truck drivers in Arizona. These restrictions were later relaxed.)
It should be reiterated, however, that the flexibility and
responsiveness of Kinder Morgan's employees to the service disruption
and the round-the-clock efforts to restore service on the 8" pipeline,
allowed us to cover over 92 percent of the average daily demand in
Phoenix. Two facts have special note: Kinder Morgan's West and East
Lines delivered 8.4 million more gallons of total products into Phoenix
in August of 2003 than it did in August of 2002. Looking solely at
gasoline volumes in 2003 over 2002 for the month of August, Kinder
Morgan actually transported 13 million more gallons of gasoline. Again,
a reflection both of the flexibility of our pipeline operations in
Arizona and the extraordinary demand conditions in the Phoenix market.
Question 28. It is clear from information provided to the Committee
by OPS that Kinder Morgan should have been aware of corrosion problems
on both the 6-inch and 8-inch pipeline prior to purchasing the lines in
1998.What was the condition of Santa Fe Pacific's pipelines in Arizona
when they were acquired by Kinder Morgan in 1998?
Answer. Santa Fe Pacific had internally inspected the following
lines prior to Kinder Morgan's acquisition: the EP-TU 8" in 1988 and
1996 (approximately 304 miles), the EP-TU 12" in 1995 (approximately
165 miles) and the TU-Weymouth 8" in 1996 (approximately 12 miles).
There had been no generalized corrosion leaks on the TU-PX 8" pipeline
since 1980, on the PX-TU 6" since 1988, and no recorded corrosion leaks
on the EP-TU 12" and EP-TU 8" pipeline. In addition, there were no
outstanding DOT Corrective Action Orders on these pipelines.
Question 28a. What repairs and safety improvements has Kinder
Morgan made to the lines since acquiring them?
Answer. Kinder Morgan's track record in Arizona has been
outstanding since we acquired these pipelines in March 1998. Our
commitment to regulatory compliance is equally as strong. Kinder Morgan
has a pipeline safety staff that actively participates in regulatory
rulemaking, tracks all new regulations and ensures that our plans and
procedures comply with pipeline safety regulations. We have a
management of change process that ensures that changes are communicated
to operations personnel. We have a separate internal auditing division
that conducts audits of our field operations to ensure that we are
complying with all applicable safety regulations.
We are routinely inspected by the U.S. DOT Office of Pipeline
Safety (OPS) and State Pipeline Safety Agencies, such as the Arizona
Corporation Commission (ACC) and the California State Fire Marshall's
office. In Arizona, alone, we have been inspected four times by the ACC
since 1998 (1998, 1999, 2001 and 2003; in 1999 the OPS participated in
the Arizona Audit). The Southwest Region has also audited the pipeline
section between New Mexico and Texas twice. In addition, we have been
subject to audits of our Procedural Manuals, Integrity Management Plan
and Operator Qualification Program by OPS. These audits have not
uncovered any major compliance issues.
A specific example of our commitment to safety and compliance is
one of the elements of our preventive maintenance program-our Integrity
Management Program (IMP). Kinder Morgan Energy Partners (and its
predecessor SFPP) have been inspecting pipelines with Magnetic Flux
Leakage (MFL) in-line inspection tools (``smart pigs'') since the early
1970s. As part of our ongoing preventive maintenance programs, we were
internally inspecting pipelines in Arizona before such actions were
ever required by the Federal or state government. In fact, all Kinder
Morgan pipelines in Arizona had been smart pigged at least once before
the effective date of the IMP rule and most had been smart pigged at
least twice. The 8" Tucson-Phoenix pipeline was inspected in 1996 and
1999 and the 6" Phoenix to Tucson pipeline in 1999 and 2003. In each
case, we took appropriate action in the interest of public safety.
Maintenance crews were dispatched to excavate and investigate the
anomalies, and where necessary, appropriate repairs were made.
Our overall philosophy is that internal inspection is very
effective in detecting pipeline defects, allowing us to repair
potentially detrimental defects before they result in a release. By
combining information found during the in-line inspections, cathodic
protection surveys and coating surveys, we can identify areas along the
pipeline where recoating may be necessary and where more cathodic
protection rectifiers might be needed. We are then able to focus our
resources and take the appropriate remedial measures. We believe the
existence of such a proactive program is why there has not been a leak
due to generalized metal loss corrosion on these pipelines in Arizona
in the last 15 years.
Another example of our commitment to safety and compliance is
Kinder Morgan's corrosion control program. This program conforms to DOT
and National Association of Corrosion Engineers (NACE) Standards.
Cathodic Protection inspection tests in include
1. Annual inspections of all CP test leads and rectifiers
2. Six times per year inspection of all rectifiers, bonds & other
devices
3. Minimum 26 times per year aerial patrol of rectifier indicator
systems (in most cases this is weekly)
4. Inspection of pipe coating and pipe, if coating is removed,
whenever the pipe is uncovered
Our current IMP has been updated to incorporate DOT's 2001
regulations. Our response, repair and mitigation strategies did not
require any major revisions as a result of the 2001 DOT regulations;
however, as most of the new regulatory requirements were already a part
of our previous IMP program.
Question 28b. Why has it taken so long, and I note only after a
rupture that put the lives of local residents at risk, for you to
replace some of the pipeline?
Answer. As stated above, Kinder Morgan is proud of our safety and
compliance record. Safety and compliance are integral to every decision
we make. Kinder Morgan's track record in Arizona has been outstanding
since we acquired these pipelines in March 1998. The recent product
release in Tucson was the first time Kinder Morgan experienced an
incident with one of our Arizona pipelines that was not a result of
third party damage.
The decision to replace some of the pipeline follows on the heels
of the favorable outcome of a petition filed by Kinder Morgan at the
FERC regarding an overall expansion project involving our East Line.
This filing was necessary to ensure that an economically acceptable
rate methodology would be approved in advance of spending approximately
$200 million on this project. Included in that project is the
replacement of the 8" pipeline between Tucson and Phoenix.
Question 29. When the Office of Pipeline Safety issued a Corrective
Action Order on Kinder Morgan's jet fuel line, Kinder Morgan objected
to recoating the line, arguing that cathodic protection was sufficient
to prevent corrosion. Had Kinder Morgan made improvements to the
cathodic protection since it was initially installed in 1957?
Answer. In our review of the cathodic protection history for LS-53/
54, Kinder Morgan believes that actions were taken in the past to
enhance the cathodic protection system for these pipeline systems. LS-
53/54 was constructed in 1956 without cathodic protection. It was
approximately two years later before cathodic protection was applied.
Based on cathodic protection surveys, more anode ground beds and
rectifiers--the current source for cathodic protection, were installed
along the pipeline.
This is important because, although the November 1999 in-line
inspection indicated a number of locations of generalized corrosion,
there was no way to identify from the report when the corrosion took
place. In an effort to determine if the generalized corrosion was
active or on-going corrosion, electrical and chemical tests were
conducted at each location excavated. These tests demonstrated that the
line was receiving adequate cathodic protection and that there was no
active generalized corrosion taking place at the anomaly locations.
These tests demonstrated that the generalized corrosion that was
indicated on the in-line inspection report was most likely generalized
corrosion that occurred in the years prior to cathodic protection being
installed.
Question 30. Kinder Morgan conducted an internal inspection on a
portion of its 6-inch jet fuel pipeline in November 1999, yet the
results, which revealed significant corrosion, were evidently not known
until the following March. Why does it take so long to get the results
of these inspections? It would seem that there could be some serious
pipeline accidents while pipeline operators are awaiting inspection
results.
Answer. Internal inspection surveys are performed by electronic
devices called ``smart pigs'', which are inserted into the pipeline and
conveyed by the moving product through the pipeline. Kinder Morgan
typically uses two types of ``smart pigs'' in these inspection surveys.
The most common type is the Magnetic Flux Leakage (MFL) pig.
MFL pigs contain powerful magnets that saturate the steel pipe
walls with magnetic flux. MFL pigs also contain numerous sensing
elements spaced around the circumference of the inside diameter of the
pipeline. If the pipe wall contains a defect the magnetic field in the
pipe wall will change, and this change will be detected by the sensing
elements in the pig. The smart pig records the 0' Clock position of the
pipe defect, as well as the lineal distance along the pipeline -by use
of odometer wheels located on the pig. The length of each joint of pipe
is also recorded, along with the location of valves, tees, shop bends,
etc. All of this data, which is recorded and stored in electronic
format in the memory module of the smart pig, is later down-loaded to a
computer for thorough analysis.
In addition to MFL pigs, Kinder Morgan typically runs an Electronic
Geometry pig (EGP) that uses the vendor's proprietary eddy current
technology to identify changes in the pipeline diameter and geometry.
With this data, the vendor can infer the existence of possible dents
and other pipeline features.
Smart pig vendors have developed algorithms to assist in converting
the raw MFL and EGP signals to determine what type of defect exists and
the size of the defect. The process of converting the raw MFL and EGP
data signals is a phased approach. Initially, the MFL data is analyzed
to provide a preliminary report that identifies areas of immediate
concern but lacks much of the detailed analysis found in the final
report. For the final report, MFL data is combined with EGP data to
identify the location of possible dents and other pipeline features. In
addition, detailed calculations are performed to grade the discovered
features and provide additional information of use to the operator.
More thorough analysis is performed, and the EGP data is incorporated
to provide a very detailed report of the pipeline condition.
Question 31. While you have publicly committed to replacing the
remaining 8-inch line between Tucson and Phoenix, it is my
understanding that you have yet to provide OPS with a plan to ensure
the overall public safety of the pipeline as required by OPS's
Corrective Action Order issued on August 6, 2003.
Answer. We have been in communications with OPS and ACC since the
initial release and have been coordinating with them our plans of
initial repairs and subsequent investigation and corrective actions. We
have submitted several plans to OPS and are currently reviewing and
revising our field investigation plan based on their review and amended
corrective action order. Moreover, the 8'' pipeline continues to
operate at 50 percent of its maximum allowable operating pressure and
will do so until the sec investigation is completed.
KMEP submitted our first investigation plan to OPS on August 14,
2003. On September 5, 2003, we submitted an overview of our plans to
replace the 8 inch pipeline within Tucson. On September 29, 2003, we
submitted our initial version of our field investigation protocol for
the remainder of our Tucson to Phoenix pipeline. In October 3, 2003 OPS
issued KMEP an amended corrective action order. In response, we
modified our September 5, 2003 plan and submitted it on November 3,
2003. OPS reviewed this plan and requested some additional information
on November 14, 2003. We are currently working on modifications per
their request that will be submitted by December 19, 2003. Meanwhile,
we have been actively implementing the SCC investigation plan for the
8'' pipeline.
Question 31a. When do you intend to provide OPS with a plan for
review?
Answer. Kinder Morgan submitted its Stress Corrosion Cracking (SCC)
Field Investigation Protocol to DOT on September 29, 2003. This
document outlined an analytical method for identifying areas along the
pipeline system with the potential for SCC. Plans for a field
inspection program were presented in which direct knowledge from the 1-
mile area encompassing the July 30, 2003, release site will be used to
delineate the severity of SCC and establish the contributing
characteristics to locate other areas along the pipeline system with
the potential for sec.
Question 32. While published reports indicate that Kinder Morgan
has committed to replacing the remaining 8-inch sections of the
gasoline pipeline between Tucson and Phoenix, I would like know what
actions Kinder Morgan is taking to ensure the safety of the 12-inch
portions of that line, as well as the safety of the 6-inch product
line, that has been subject to the same corrosion problems.
Answer. The July 30, 2003, failure in an 8" portion of the pipeline
between Tucson and Phoenix was not the result of generalized metal loss
corrosion. Kinder Morgan has not had a metal loss corrosion release on
an Arizona pipeline since 1988 and on the 8-inch pipeline since 1980.
The July 30 failure was caused by high pH Stress Corrosion Cracking
(SCC), a phenomenon that is new to the refined products pipeline
industry and involves cracking and not wall loss due to corrosion. As
noted elsewhere, our pipelines are effectively protected from corrosion
by cathodic protection systems. Moreover, these pipelines are also
incorporated into our Integrity Management Plan which is discussed in
answers to questions 2, 3 and 4.
Question 32a. Is Kinder Morgan going to replace that line as well?
Answer. The currently proposed East Line Expansion would not affect
the 6" pipeline. The 6" pipeline is connected to the 20" West Line
bring product to Arizona from west coast refineries.
Question 32b. How can the citizens of Arizona be assured that
Kinder Morgan is acting with their safety in mind?
Answer. The decision to temporarily shut down the 8" pipeline on
August 8 reflects the company's commitment to public safety. In the
face of a unique failure mode on a line operating in a metropolitan
area, we shut the line down for additional testing. Public safety
trumps public wrath. We regret, and have apologized publicly, for the
inconveniences occasioned by this incident, and we took immediate and
decisive steps to address the temporary shortfall and to get the line
back up and operating. This focus on safety is part of our operating
philosophy and as our safety record demonstrates, the citizens of
Arizona can expect that we will continue to operate our facilities
safely and reliably.
Question 33. Recent reports have indicated the Federal Energy
Regulatory Commission (FERC) has already approved a special tariff to
pay for improvements in Kinder Morgan's El Paso to Phoenix pipeline.
How much will the tariff cost your customers and the consumers of
Arizona? When did Kinder Morgan ask FERC to approve a special tariff to
improve the pipeline?
Answer. On September 19, 2002, Kinder Morgan (SFPP, L.P.) submitted
a ``Petition for Declaratory Order'' to the FERC requesting the
``Commission issue a Declaratory Order that (1) SFPP will be permitted,
pursuant to 18 C.P.R. 342(a) (2001), to charge cost-of-service tariff
rates on its East Line in the event its proposed expansion described in
the Petition (the ``East Line Expansion'') goes into service, provided
that there is a difference of 20 percent or more between such cost-of-
service tariff rates and tariff rates calculated pursuant to 18 C.F.R.
342.3 (2001), the Commission's indexing regulation; and (2) if, in
response to a protest concerning the level of the tariff rates, the
Commission suspends East Line cost-of-service tariff rates filed by
SFPP following the East Line Expansion, those rates will be accepted
for filing and made effective as of the date proposed by SFPP, subject
to refund.''
The Petition was assigned Docket No. OR02-13-000, Timely
interventions and protests were filed by Chevron Products Company,
Tosco Corporation, Valero Marketing and Supply Company and the Navajo
Refining Company.
Question 33a. Do you know why it took FERC so long to act on your
application for a special tariff?
Answer. In its Petition, SFPP requested ``that the Commission issue
an expedited decision on this Petition no later than the end of
December 2002.''
On January 30, 2003, the FERC issued an ``Order on Petition for
Declaratory Order'' in Docket No. OR02-13-000. The Order said that
cost-of-service rates should be not be incremental, that a Declaratory
Order is appropriate and that a minimal suspension is appropriate.
Thus, FERC had granted the relief requested.
Navajo Refining Company filed a request for rehearing of this
Order, which caused the FERC to review its January 30, 2003 Order.
On July 12, 2003, the FERC issued a draft ``Order on Rehearing''
which was then officially issued on August 1, 2003. TI1e Order denied
Navajo's request for rehearing and ``affirmed the assurances requested
by SFPP to facilitate construction of the needed expansion of its East
Line.''
Question 33b. Do you believe FERC would have approved the tariff if
the rupture had not occurred?
Answer. As the above time line indicates, FERC's decisions were in
no way the result of, or influenced by, the July 30 incident in Tucson.
Question 34. While serious questions can be raised about the
continuity of OPS's oversight of your operations, it is very clear that
for a number of years Kinder Morgan has been aware of corrosion issues
that raise serious safety concerns on both of its pipelines that
transport fuel between Tucson and Phoenix. Why did it take you until
now, after a rupture that put the residents of Tucson in harms way, to
move expeditiously to replace the problem pipe?
Answer. Again, it is important to note that the July 30, 2003,
failure was not the result of generalized metal loss corrosion. Kinder
Morgan has not had a metal loss corrosion release on an Arizona
pipeline since 1988 and on the 8-inch pipeline since 1980. The July 30
failure was caused by high pH SCC, a phenomenon that is new to the
refined products pipeline industry and involves crackjng and not wall
loss due to corrosion. As for the replacement of the 8-inch pipe within
the City of Tucson, this project had been in the planning phase prior
to this incident.
Question 35. It was recently announced that Kinder Morgan is
purchasing a number of refined petroleum product terminals from Shell
Oil, including terminals in Tucson and Phoenix. Given what we have
learned regarding the maintenance and operations of your existing
pipelines in Arizona, what assurances can you give the residents of
Tucson and Phoenix regarding the continued safe operation of these
facilities?
Answer. We take seriously our commitment to operate a safe and
reliable pipeline and terminal system and please refer to the answer to
the third subpart of question 6.
Question 35a. The Pipeline Safety Improvement Act, enacted last
December, requires operators to carry out a public education effort.
What, specifically, has Kinder Morgan done in meeting this statutory
requirement? What additional actions to you plan to take based on what
you learned following the rupture?
Answer. Kinder Morgan has had a public education program in place
that met all of the requirements of the applicable regulation and meets
the majority of the elements now specified in the Act. We utilize a
direct mail out campaign to mail safety brochures to the general
public, schools, hospitals, and a pre-selected group public officials
identified by SIC codes, and any entity that receives mail located
within l/8 of mile radius of our pipeline at two year intervals. We
also mail these brochures to emergency response organizations and
persons involved in excavation. In addition, we offer to meet with the
emergency response organizations and have met with many of them. Our
safety brochure instructs recipients how to: notify us if they intend
to dig, identify our pipelines, recognize a leak, take appropriate
steps if they notice a leak, and immediately report a leak. It also
outlines emergency action procedures for public Safety Officials.
Kinder Morgan has been an active participant in the API Task Force
developing RP 1162 ``Public Awareness Programs for Pipeline Operators''
the guidance document referenced by the OPS: OPS was also on this task
force. In addition, we participated in the OPS Workshop, as a
presenter, on September 16 and 17, 2003 in Baltimore Maryland.
We began reviewing our Plan shortly after the enactment of the act.
We attended the Public Workshop in Houston, Texas on September 4 and 5,
2003. We have completed the self assessment and filed the certification
with the OPS. Based on the assessment, we are adding Mayors and School
District Administration officials in areas that we traverse to our list
of recipients, and adding verbiage regarding the benefit of pipelines
to our brochure.
Regarding additional actions, we have participated in numerous
public meetings discussions the July 30 incident and our current pipe
replacement project.
______
Response to Written Question Submitted by Hon. John McCain to
Jonathan Olcott
I am the attorney for the Silvercreek Homeowners Association in
Tucson, Arizona. You have asked me to comment on five questions. My
answers follow:
Question. Were the residents of Silver Creek aware of the Kinder
Morgan pipeline before the rupture?
Answer. For the most part, the residents were not aware of the
pipeline. Phase 1 of the development is approximately 400 feet from the
pipeline. The existence of the pipeline was not disclosed in the
Subdivision Public Report. There are 288 households in Phase 1. There
are signs that indicate the presence of the pipeline. The residents of
Phase 1 would have little reason to observe the signage. Only one
homeowner in Phase 1 indicated she saw the signage.
Phase 2 immediately adjoins the pipeline easement. Phase 2 consists
of only approximately 40 households. Phase 2 is still under
construction. Only a few homes are occupied. The pipeline is disclosed
in the Public Report for Phase 2. Whether any purchaser read and
understood the document is doubtful. No purchaser in Phase 2 has
indicated whether the purchaser knew the location of the pipeline
before the rupture.
To summarize the answer to this question, only one homeowner
indicated she was aware of the pipeline before the rupture.
2. Evacuation. There was no evacuation. The homes that were doused
with gasoline were under construction, and not occupied. Were the homes
occupied, there would have been evacuations.
3. Legal Action. This subject is privileged. Only my client can
waive the privilege.
I am concerned about two elements of damage. The first is the
contamination to the common area. A contractor dumped contaminated dirt
on the common area. Kinder Morgan has yet to provide us with
contamination reports. Neither has Kinder Morgan provided us with
remediation plans. Next, the recent revelation of leaking is a concern.
I have previous experience with gasoline pipeline cases. Old pipelines
leak. We are evaluating the extent of the contamination in the aquifer
and groundwater.
4. On-line Information. No homeowners indicated they were aware of
the pipeline through a website. It strains credulity that a purchaser
would scour the Internet for that information. I represent more than
1,000 homeowners associations in Arizona. I cover at least 300,000
households. I have been doing this for 16 years.
The vast majority of homeowners do little investigation before they
purchase. They rarely read the Public Report, Declaration of Covenants,
Conditions and Restrictions, or the other 12 inches of papers they are
provided in connection with the purchase. There is little possibility
they would search the Internet for proximate utility pipelines.
I do not believe a website could ever provide adequate disclosure
of a pipeline that conveys hazardous materials.
5. Recommendations for Proper Disclosure. If a new subdivision
encroaches on a formally remote haz mat pipeline, there should be
conspicuous signage. The signage should be located such that
prospective purchaser would view it before the sale. In the
alternative, developers should be required to display a conspicuous
disclosure on sales materials.
6. Caveats. The homes that were doused were not occupied. There was
little reaction in the community from the rupture. The reaction would
likely have been terror had the homes been occupied. Kinder, Morgan is
fortunate that the homes were not occupied. Kinder, Morgan is fortunate
that a homeowner was not barbequing a steak when the rupture occurred.
The feeling in the community is that the rupture is more of an
issue of pipeline safety, rather than encroachment. The community
understands that utilities are proximate and necessary for modern life.
With proper testing, I do not believe the thousands of households I
represent would be concerned about proximate haz mat pipelines. Of
course that feeling would dramatically change were a rupture to occur
that caused fatalities.
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