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Houston Business Journal: Houston firms facing pipeline fines, penalties

Houston Business Journal – June 29, 2001
by Monica Perin

A pair of Houston oil and gas pipeline companies face huge fines levied by federal and state regulators in connection with two pipeline explosions involving the deaths of 15 people.

The U.S. Department of Transportation has proposed a $2.5 million penalty against El Paso Pipeline Co., whose Southeastern natural gas pipeline exploded near Carlsbad, N.M., last August. Twelve people died in the explosion.

And Houston-based Equilon Pipeline Co. was slapped last week with $10 million in state and federal environmental fines for the 1999 rupture of a gasoline pipeline in Bellingham, Wash., resulting in three fatalities.

Equilon also faces a $3 million fine issued last year by the DOT — the largest penalty ever proposed against a pipeline operator in the history of the federal pipeline safety program. The El Paso penalty is the largest ever proposed against a natural gas pipeline operator.

Equilon, a joint venture of Texaco and Royal Dutch/Shell, was majority owner of Olympic Pipeline Co, operator of the Bellingham pipeline at the time of the accident. Since then, BP has taken control of Olympic Pipeline.

Both El Paso and Equilon were charged with violating numerous safety requirements in the operation of their respective pipelines.

Equilon told the state it was not operating the pipeline at the time of the rupture but had simply loaned Olympic several employees, including Equilon’s president, three vice presidents and the head of environmental compliance.

State investigators in Washington found that Olympic Pipeline employees were poorly trained, had no written procedures and that management did not respond to problems reported by employees.

Olympic, Equilon, BP and a construction company that allegedly damaged the pipeline have 90 days to negotiate their shares of the $10 million environmental penalty.

In addition, the U.S. Attorney’s office in Bellingham is conducting a criminal investigation into the rupture. And the companies are still in negotiations with the DOT over the $3 million fine for safety violations.

In connection with last year’s explosion in New Mexico — the worst U.S. pipeline accident in 25 years — the federal transportation agency cited El Paso for numerous safety violations relating to surveillance and maintenance of the pipeline to detect and prevent corrosion.

The pipeline exploded at a point where it zigzagged across the Pecos River, a low point where water from condensed vapors collected, eating away 50 percent of the thickness of the steel pipe, the agency says.

A similar rupture had occurred on the same line near Roswell, N.M., in 1996, but El Paso did not follow investigators’ recommendations for avoiding a recurrence, the agency says.

“We do not believe that anything we did or failed to do contributed to this tragedy. We do not believe we violated regulations,” says Norma Dunn, El Paso’s spokeswoman. 

El Paso initially has 30 days to officially respond to the allegations and the proposed penalty.


In the Olympic Pipeline case, the penalty still has not been levied a year after it was proposed because the company has requested extensions on its deadline to respond.

While both Equilon and El Paso are expected to try to negotiate lower fines, an official with the federal transportation agency told the Houston Business Journal that the size of the penalties is based on the seriousness of the violations, and the agency’s objective is “not to negotiate down.”

The companies would have to produce new and mitigating information in order to get the fines lowered, the official says.

Levying penalties to pipeline companies is a fairly uncommon response for DOT, which in the past has preferred issuing letters of “concern” and “warning” to pipeline companies about safety violations uncovered by inspectors.

In February 2000, for example, the president of Equilon Pipeline received a “warning letter” from the director of the southwest regional office of DOT’s Office of Pipeline Safety addressing another incident involving the spilling of gasoline into the ground.

“We have decided not to assess a civil penalty,” the letter concluded. “Because of the good faith you have exhibited up to this time, we expect that you will act to bring your pipeline into compliance with safety regulations.”

This was a standard closing on hundreds of letters sent to pipeline operators by the Office of Pipeline Safety in recent years.

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