{"operation":"document","citation":"CPF 120080001","title":"PAPCO INC — Notice of Probable Violation","source_type":"enforcement","agency":"Pipeline and Hazardous Materials Safety Administration","status":"historical","official":true,"published_on":"2008-03-20","effective_on":null,"summary":"CLOSED notice of probable violation citing 192.463(a), 192.603, 199.115.","machine_formats":{"json":"https://regulus.evalyn.ai/document/phmsa-enforcement-120080001.json","markdown":"https://regulus.evalyn.ai/document/phmsa-enforcement-120080001.md"},"app_url":"https://regulus.evalyn.ai/document/phmsa-enforcement-120080001","source_url":"https://primis.phmsa.dot.gov/enforcement-data/case/120080001","body":"Notice of Probable Violation involving PAPCO INC. PHMSA's enforcement data identifies the cited regulations as 192.463(a),  192.603,  199.115. The case was opened on 2008-03-20 and is reported as closed as of 2011-08-10. Proposed civil penalty: $58,000. Assessed civil penalty: $56,500. Open the official case record for notices, responses, orders, and the latest status.\n\nOfficial case documents:\n\n120080001_Final Order_07222011.pdf: https://primis.phmsa.dot.gov/enforcement-documents/120080001/120080001_Final%20Order_07222011.pdf\n\n120080001_Final Order_07222011_text.pdf: https://primis.phmsa.dot.gov/enforcement-documents/120080001/120080001_Final%20Order_07222011_text.pdf\n\n120080001_NOPV PCP_03202008.pdf: https://primis.phmsa.dot.gov/enforcement-documents/120080001/120080001_NOPV%20PCP_03202008.pdf\n\n120080001_nopv pcp_03202008_text.pdf: https://primis.phmsa.dot.gov/enforcement-documents/120080001/120080001_nopv%20pcp_03202008_text.pdf\n\n120080001_Operator Response and Request for Hearing_05162008.pdf: https://primis.phmsa.dot.gov/enforcement-documents/120080001/120080001_Operator%20Response%20and%20Request%20for%20Hearing_05162008.pdf\n\n120080001_Final Order_07222011_text.pdf\n\nJUL 22 2011\nMr. Jon Peterson\nPresident\nPAPCO, Inc.\n213 West Third Avenue, Room 305\nWarren, PA 16365\nRe: CPF No. 1-2008-0001\nDear Mr. Peterson:\nEnclosed please find the Final Order issued in the above-referenced case. It makes findings of\nviolation and assesses a reduced civil penalty of $56,500. The penalty payment terms are set\nforth in the Final Order. This enforcement action closes automatically upon receipt of payment.\nService of the Final Order by certified mail is deemed effective upon the date of mailing, or as\notherwise provided under 49 C.F.R. § 190.5.\nThank you for your cooperation in this matter.\nSincerely,\nJeffrey D. Wiese\nAssociate Administrator\nfor Pipeline Safety\nEnclosure\ncc: Mr. Alan Mayberry, Deputy Associate Administrator for Field Operations, Pipeline Safety\nMr. Byron E. Coy, PE, Director, Eastern Region, PHMSA\nMr. Norman J. Kennard, Esq., Thomas, Long, and Kennard, 212 Locust Street, Suite 500\nP.O. Box 9500, Harrisburg, PA 17108-7600\nCERTIFIED MAIL - RETURN RECEIPT REQUESTED [7005 1160 0001 0075 9343]\n\n\n\nU.S. DEPARTMENT OF TRANSPORTATION\nPIPELINE AND HAZARDOUS MATERIALS SAFETY ADMINISTRATION\nOFFICE OF PIPELINE SAFETY\nWASHINGTON, D.C. 20590\n____________________________________\nIn the Matter of )\nPAPCO, Inc., ) CPF No. 1-2008-0001\n)\n)\n)\nRespondent. )\n____________________________________)\nFINAL ORDER\nOn June 11-13, 2007, pursuant to 49 U.S.C. § 60117, a representative of the Pipeline and\nHazardous Materials Safety Administration (PHMSA), Office of Pipeline Safety (OPS),\nconducted an on-site pipeline safety inspection of the facilities and records of PAPCO, Inc.\n(PAPCO or Respondent) in Warren, Pennsylvania. PAPCO operates a small gas distribution\nsystem consisting of 6.0 miles of plastic pipe and 0.25 miles of steel pipe and had six employees\nat the time of the inspection.\nAs a result of the inspection, the Director, Eastern Region, OPS (Director), issued to Respondent,\nby letter dated March 20, 2008, a Notice of Probable Violation and Proposed Civil Penalty\n(Notice). In accordance with 49 C.F.R. § 190.207, the Notice proposed finding that PAPCO had\nviolated 49 C.F.R. §§ 192.463(a) and 199.115 and proposed assessing a civil penalty of $58,000\nfor the alleged violations. The Notice also proposed finding that Respondent had committed a\nprobable violation of 49 C.F.R. § 192.603(b) and warning Respondent to take appropriate\ncorrective action or be subject to future enforcement action.\nRespondent responded to the Notice by letter dated May 16, 2008, as supplemented by letter\ndated April 27, 2009 (Response). PAPCO contested the allegations and requested a hearing. A\nhearing was subsequently held on April 30, 2009 via teleconference, with an attorney, PHMSA\nOffice of Chief Counsel, presiding. At the hearing, PAPCO was represented by counsel. After\nthe hearing, Respondent submitted a written objection to a refusal by the OPS inspector to\nanswer a question during the hearing by letter dated May 4, 2009. Respondent provided a post-\nhearing statement, financial statements, and other materials for the record, by letter dated May\n28, 2009 (Closing). Respondent provided further materials including maps for the record on\nNovember 17, 2009.\nFINDINGS OF VIOLATION\nThe Notice alleged that Respondent violated 49 C.F.R. Part 192 as follows:\n\n\n\n2\nItem 2: The Notice alleged that Respondent violated 49 C.F.R. § 192.463(a), which states:\n§ 192.463 -- External corrosion control: Cathodic protection\n(a) Each cathodic protection system required by this subpart must provide a\nlevel of cathodic protection that complies with one or more of the applicable\ncriteria contained in appendix D of this part. If none of these criteria is applicable,\nthe cathodic protection system must provide a level of cathodic protection at least\nequal to that provided by compliance with one or more of these criteria.\nSpecifically, the Notice alleged that at four cited locations, Respondent’s cathodic protection\nsystem did not provide a level of cathodic protection meeting the applicable -0.85V acceptance\ncriteria for pipe-to-soil readings. These locations included: (1) Williams Southwell Meter; (2)\nPublic Way Valves; (3) West End RR Bridge; and (4) 300 Yards East of Mohawk Valves. The\nNotice alleged that in three of the four locations, the readings remained below acceptance criteria\nfor over two years and at the West End RR Bridge location the readings remained below\nacceptance criteria for over three years.\nIn its Response and during the hearing, PAPCO acknowledged that the cathodic protection was\n“below the negative -.85 volt level” at three of the four locations cited in the Notice. With\nrespect to the Williams Southwell Meter location, Respondent provided maps and information\ndemonstrating that at the time of the inspection, the Williams Southwell Meter was located on a\ngathering line located outside the city limits of Warren, Pennsylvania. Under the regulations in\neffect at the time, the Williams Southwell Meter location was therefore exempt from the\nregulations.1\nAccordingly, after considering all of the evidence and the legal issues presented, I find that\nRespondent violated 49 C.F.R. § 192.463(a) by failing to provide a level of cathodic protection\nmeeting the applicable criteria at: (1) Public Way Valves; (2) West End RR Bridge; and (3) 300\nYards East of Mohawk Valves. I further find that Respondent did not violate 49 C.F.R.\n§ 192.463(a) with respect to the Williams Southwell Meter location. To the extent Respondent\nprovided information and explanations that may be relevant to mitigation of the proposed civil\npenalty for this violation, this information will be discussed in the Assessment of Penalty section\nbelow.\nItem 3: The Notice alleged that Respondent violated 49 C.F.R. § 199.115, which states:\n§ 199.115 – Contractor employees\nWith respect to those employees who are contractors or employed by a\ncontractor, an operator may provide by contract that the drug testing, education,\nand training required by this part be carried out by the contractor provided:\n(a) The operator remains responsible for ensuring that the requirements\nof this part are complied with; and\n(b) The contractor allows access to property and records by the operator, the\nAdministrator, and if the operator is subject to the jurisdiction of a state agency, a\nrepresentative of the state agency for the purpose of monitoring the operator's\ncompliance with the requirements of this part.\n1 Amendments have since been made to the regulations that may have impacted the exemption status of this line.\n\n\n\n3\nSpecifically, the Notice alleged that between 2002 and 2007 PAPCO engaged a contractor that\ndid not have its own drug and alcohol plan to perform maintenance on its pipeline without\nincluding the contractor in PAPCO’s drug and alcohol plan.\nIn its Response and during the hearing, PAPCO acknowledged that the contractor was not\nenrolled in its drug and alcohol program and that its assumption that the contractor was enrolled\nin a contractor drug and alcohol program was incorrect.\nAccordingly, after considering all of the evidence and the legal issues presented, I find that\nRespondent violated 49 C.F.R. § 199.115 by engaging a contractor that did not have its own drug\nand alcohol plan to perform maintenance on its pipeline without including the contractor in\nPAPCO’s drug and alcohol plan. To the extent Respondent provided information and\nexplanations that may be relevant to mitigation of the proposed civil penalty for this violation,\nthis information will be discussed in the Assessment of Penalty section below.\nThese findings of violation will be considered prior offenses in any subsequent enforcement\naction taken against Respondent.\nASSESSMENT OF PENALTY\nUnder 49 U.S.C. § 60122, Respondent is subject to an administrative civil penalty not to exceed\n$100,000 per violation for each day of the violation, up to a maximum of $1,000,000 for any\nrelated series of violations. In determining the amount of a civil penalty under 49 U.S.C.\n§ 60122 and 49 C.F.R. § 190.225, I must consider the following criteria: the nature,\ncircumstances, and gravity of the violation, including adverse impact on the environment; the\ndegree of Respondent’s culpability; the history of Respondent’s prior offenses; the Respondent’s\nability to pay the penalty and any effect that the penalty may have on its ability to continue doing\nbusiness; and the good faith of Respondent in attempting to comply with the pipeline safety\nregulations. In addition, I may consider the economic benefit gained from the violation without\nany reduction because of subsequent damages, and such other matters as justice may require.\nThe Notice proposed a total civil penalty of $58,000 for the violations cited above.\nIn its Response and during the hearing, PAPCO advanced general arguments about the total\nproposed penalty level as well as specific arguments about how the penalty assessment factors\nshould be applied to Items 2 and 3 individually. In particular, PAPCO took issue with OPS’\ncharacterization of its compliance efforts as being reactive and not proactive, and objected to this\ncharacterization being part of the final determination of whether or at what level civil penalties\nshould be assessed. PAPCO also argued that the total penalty amount proposed in the Notice\nwas excessive given the company’s financial condition and the fact that PAPCO was a small\noperator and only operated a single six-mile length of plastic pipe, albeit with steel risers.\nDuring the hearing, OPS stated that it believed the proposed penalty amount was appropriate in\npart because while PAPCO took action to correct the alleged non-compliance, it was being\n“reactive” to OPS inspections as opposed to being proactive on compliance. PAPCO’s counsel\nimmediately objected to OPS’ characterization of it as being reactive and responded by\nquestioning the OPS inspector on whether he believed PAPCO to be a generally good and\nresponsible operator. The inspector refused to respond to this question, stating that he felt any\n\n\n\n4\nresponse he gave would be subjective. PAPCO pointed out that three previous OPS inspections\nin 2000, 2002, and 2004 resulted in no findings of violations and only one warning item and\nwent on to repeat its question about whether the inspector considered PAPCO to be a generally\ngood and responsible operator. The inspector again refused to respond. In light of OPS’\nstatement that PAPCO was being reactive and not proactive on compliance, PAPCO objected to\nthe inspector’s refusal to respond to this question.\nBy letter dated May 4, 2009, PAPCO renewed its objection stating that the inspector’s refusal to\nrespond to its questions during the hearing constituted a refusal of the prosecuting office “to\nallow examination of the testimony of its witness in violation of due process and the hearing\nprocedures at 49 C.F.R. § 190.211.” These procedures state that:\nThe Respondent may also examine the evidence and witnesses presented by the\ngovernment.2\nPAPCO stated that the government’s attempt to justify the proposed penalty amount in part on\nthe grounds that PAPCO was being reactive not proactive, coupled with the inspector’s refusal to\nanswer the questions asked by PAPCO’s counsel in probing this statement, amounted to cutting\noff critical examination and unfairly prejudicing PAPCO’s ability to defend itself.\nPresiding Official noted PAPCO’s objection and stated that a determination on this issue would\nbe made in the Final Order.\n3 The\nFirst, it should be noted that the Federal Rules of Evidence are not controlling in administrative\nproceedings unless made so by statute or agency rule.4 Under 49 U.S.C. 60122 and 49 C.F.R.\nPart 190, pipeline enforcement hearings are conducted “informally without strict adherence to\napplicable in this proceeding, to the extent the probative value of evidence proffered by the\nprejudicial, such evidence will not be considered. The statement made during the hearing by\nby the information available in the record concerning PAPCO’s compliance history.\nrules of evidence.”5 Respondents are entitled to contest the proceeding and examine the\nevidence and witnesses presented by the government. While technical rules of evidence are not\ngovernment is outweighed by the potential adverse effects of its being confusing, misleading, or\nOPS that PAPCO was being reactive not proactive on compliance may have reflected the opinion\nof the individual who made the statement. However, I find that this statement was not supported\nAccordingly, PAPCO’s objection is sustained and OPS’ statement that PAPCO was being\nreactive on compliance is hereby stricken. Any civil penalty assessment shall not be based on\nthis statement in any way or on OPS’ opinion about PAPCO’s general intentions to comply.\nWith respect to the total penalty level, PAPCO argued that the penalty amount proposed in the\nNotice was excessive given the size of the company and the fact that it only operated a six mile\n2 49 C.F.R. § 190.211(d).\n3 Letter from Norman J. Kennard, Esq., Thomas, Long, Niesen & Kennard to Larry T. White dated May 4, 2009 at\npage 2.\n4 See for example, 10 C.F.R. Part 2, Subpart G (NRC); 12 C.F.R. § 622.8 (Farm Credit Administration); 14 C.F.R.\n§ 13.222(b) (FAA, civil penalty actions); 16 C.F.R. § 3.43(b) (FTC); 18 C.F.R. § 385.509 (FERC); 45 C.F.R.\n§ 81.78 (Health & Human Services, Part 80 proceedings).\n5 49 C.F.R. § 190.211(d).\n\n\n\n5\nplastic pipe, albeit with steel risers, along with the absence of a history of prior offenses.\nPAPCO cited previous cases in which OPS cited large pipeline operators with nationwide\nsystems consisting of thousands of miles of steel pipe for violating the same regulations and\nnoted that if the penalties assessed by PHMSA to these large operators were proportional based\non pipeline miles or throughput, these operators would have been fined in the hundreds of\nmillions of dollars but were only fined in the $4,000 to $5,000 range.\n6 In response OPS pointed\nto a case involving a large operator where higher penalties were assessed.7 Having considered\nthese arguments, pipeline operators should understand that the circumstances, gravity, and\nculpability are different in every case because different facts are involved, and penalty levels in\none case are generally not predictors of penalty levels in another case even if the same regulation\nis involved. There is no penalty schedule in the regulations and nothing in the regulations\nrequires that the same penalty levels be imposed for violations in different cases.8\nWith respect to its ability to pay, PAPCO stated that Hurricane Ike had caused hundreds of\nthousands of dollars in damage to its facilities, severely impacting its ongoing profitability.\nPAPCO submitted financial statements for the year ending October 31, 2008 and for the six-\nmonth period ending April 28, 2009. These statements consisted of balance sheets, statements of\nincome/loss, and statements of shareholder equity but were unaudited and did not include cash\nflow statements and other disclosures required by generally accepted accounting principles.\nThe transportation of hazardous products by pipeline is a regulated industry and companies\nchoosing to engage in this business need to have the financial ability to deal with all regulatory\nand compliance matters as part of being a safe operation. While the financial statements\nprovided by Respondent have been made part of the record and are being considered to the\nextent they constitute some evidence of PAPCO’s financial condition, they do not demonstrate\nan inability to pay regulatory penalties of the levels involved in this case. Accordingly, I am not\npersuaded that civil penalties for the violations in this case should be reduced on the grounds of\nability to pay.\nItem 2: The Notice proposed a civil penalty of $38,000 for Respondent’s violation of 49 C.F.R.\n§ 192.463(a) for failing to provide a level of cathodic protection meeting the -0.85V acceptance\ncriteria at four specified locations. With respect to the nature, circumstances, and gravity of this\nviolation, maintaining adequate levels of cathodic protection is a fundamental part of protecting a\npipeline from corrosion. In its Response and during the hearing, PAPCO argued that the non-\ncompliance was inadvertent and while the cathodic protection was below acceptance criteria, it\nwas in place and working and there was no immediate threat to the public. PAPCO further\nexplained that its cathodically protected sites were scheduled to be remediated in October 2007\nbut due to hurricane damage its crews were transferred to other facilities and remediation was\ndelayed until Spring 2008. I acknowledge that PAPCO took action to correct the cathodic\nprotection deficiencies and come into compliance. However, that does not negate the violation.\nMoreover, PAPCO was culpable for the violation as pipeline operators are obligated to monitor\ncathodic protection levels and promptly correct any deficiencies. In this case, the cathodic\n6 Specifically, the cases cited by Respondent were In the matter of Colonial Pipeline Company, CPF No. 2-2005-\n5012 (Sept. 1, 2006) and In the matter of Brea Canyon Oil Company, Inc., CPF No. 5-2004-0005 (Sept. 13, 2006).\n7 In the matter of Exxon Mobil Pipeline Company, CPF No. 1-2006-5005 (Nov. 24, 2008).\n8 The compliance history was known by OPS and the proposed penalty amounts in the Notice did not include any\nadditional penalty amounts for prior offenses.\n\n\n\n6\nprotection was not deficient for days or even weeks but for a period of many months. As\ndiscussed above, however, Respondent showed that with respect to the Williams Southwell\nMeter location, the meter was located on a gathering line located outside the city limits of\nWarren, Pennsylvania and was exempt from cathodic protection requirements under the\nregulations in effect at the time. Accordingly, I find that a proportional reduction in the penalty\namount proposed in the Notice for this Item is warranted on this basis. Based upon the\nforegoing, I assess Respondent a reduced civil penalty of $36,500.\nItem 3: The Notice proposed a civil penalty of $20,000 for Respondent’s violation of 49 C.F.R.\n§ 199.115 by engaging a contractor that did not have its own drug and alcohol plan to perform\nmaintenance on its pipeline without including the contractor in PAPCO’s drug and alcohol plan.\nWith respect to the nature, circumstances, and gravity of this violation, drug and alcohol testing\nof all personnel who perform work tasks on a pipeline is a key part of pipeline transportation\nsafety. In its Response and at the hearing, PAPCO stated that the individual concerned was a\nsober, reliable person who had never been involved in any erratic behavior. Drug and alcohol\ntesting, however, is not only required to be performed on personnel who appear to be under the\ninfluence on a given occasion or after an accident, rather continuous, ongoing testing is required.\nPAPCO was culpable for this violation as all pipeline operators are obligated to ensure all\npersonnel performing work on their pipelines are covered by a drug and alcohol program.\nMoreover, this violation continued for a period of five years. Having considered Respondent’s\narguments, I am not persuaded that a reduction in the penalty amount proposed in the Notice for\nthis Item is justified. Based on the foregoing, I assess Respondent a civil penalty of $20,000 for\nits violation of 49 C.F.R. § 199.115.\nIn summary, having reviewed the record and considered the assessment criteria for each of the\nItems cited above, I assess Respondent a total civil penalty of $56,500.\nPayment of the civil penalty must be made within 20 days of service. Federal regulations\n(49 C.F.R. § 89.21(b)(3)) require such payment to be made by wire transfer through the Federal\nReserve Communications System (Fedwire), to the account of the U.S. Treasury. Detailed\ninstructions are contained in the enclosure. Questions concerning wire transfers should be\ndirected to: Financial Operations Division (AMZ-341), Federal Aviation Administration, Mike\nMonroney Aeronautical Center, P.O. Box 269039, Oklahoma City, Oklahoma 73125. The\nFinancial Operations Division telephone number is (405) 954-8893.\nFailure to pay the $56,500 civil penalty will result in accrual of interest at the current annual rate\nin accordance with 31 U.S.C. § 3717, 31 C.F.R. § 901.9 and 49 C.F.R. § 89.23. Pursuant to\nthose same authorities, a late penalty charge of six percent (6%) per annum will be charged if\npayment is not made within 110 days of service. Furthermore, failure to pay the civil penalty\nmay result in referral of the matter to the Attorney General for appropriate action in a district\ncourt of the United States.\nWARNING ITEM\nWith respect to Item 1, the Notice alleged a probable violation of Part 192 warned Respondent to\npromptly correct this item of be subject to future enforcement action. The warning was for:\n\n\n\n7\n49 C.F.R. § 192.603(b) (Item 1) ─ Respondent’s alleged failure to maintain\nrecords demonstrating that the required annual valve inspections of the\ndistribution valves at the Glade Bridge Valve Station were conducted for 2004.\nPAPCO presented information in its Response showing that it had taken certain actions to\naddress the cited item. In the event that OPS finds a violation of this provision in a subsequent\ninspection, Respondent may be subject to future enforcement action.\nUnder 49 C.F.R. § 190.215, Respondent has the right to submit a petition for reconsideration of\nthis Final Order. Should Respondent elect to do so, the petition must be sent to: Associate\nAdministrator, Office of Pipeline Safety, PHMSA, 1200 New Jersey Avenue, SE, East Building,\n2nd Floor, Washington, DC 20590, with a copy sent to the Office of Chief Counsel, PHMSA, at\nthe same address. PHMSA will accept petitions received no later than 20 days after receipt of\nservice of the Final Order by the Respondent, provided they contain a brief statement of the\nissue(s) and meet all other requirements of 49 C.F.R. § 190.215. The filing of a petition\nautomatically stays the payment of any civil penalty assessed but does not stay any other\nprovisions of the Final Order, including any required corrective actions. If Respondent submits\npayment of the civil penalty, the Final Order becomes the final administrative decision and the\nright to petition for reconsideration is waived.\nThe terms and conditions of this Final Order are effective upon service in accordance with 49\nC.F.R. § 190.5.\n___________________________________ __________________________\nJeffrey D. Wiese Date Issued\nAssociate Administrator\nfor Pipeline Safety","truncated":false,"body_characters":23834}