ROCKIES EXPRESS PIPELINE LLC — Notice of Probable Violation

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320121003_Consent Agreement and Order_11022012_text.pdf, page 1Official PDFNOVEMBER 2, 2012 VIA CERTIFIED MAIL Mr. M. Dwayne Burton Vice President, Operations and Engineering Rockies Express Pipeline, LLC Kinder Morgan Energy Partners, L.P. 500 Dallas Street, Suite 1000 Houston, TX 77002 Re: CPF Nos. 3-2012-1003; 1004; 1005 Consent Agreement and Order Dear Mr. Burton: Enclosed is a Consent Agreement and Order that you signed on October 17, 2012 in the above- referenced cases. Your receipt of this Consent Agreement and Order constitutes service of that document under 49 C.F.R. § 190.5. Please direct any questions on this matter to David Barrett, Director, Central Region, Office of Pipeline Safety, PHMSA, at (816) 329-3800. Sincerely, Jeffrey Wiese Associate Administrator For Pipeline Safety cc: Mr. Alan Mayberry, Deputy Associate Administrator for Field Operations, OPS Mr. David Barrett, Director, Central Region, OPS Mr. Robert E. Hogfoss, Esq., Hunton & Williams LLP Ms. Catherine Little, Esq., Hunton & Williams LLP#

320121003_Consent Agreement and Order_11022012_text.pdf, page 2DEPARTMENT OF TRANSPORTATION PIPELINE AND HAZARDOUS MATERIALS SAFETY ADMINISTRATION OFFICE OF PIPELINE SAFETY WASHINGTON, DC 20590 ____________________________________ In the Matter of ) ) ) Rockies Express Pipeline, LLC, ) CPF Nos. 3-2012-1003; ) 1004; 1005 Respondent ) ____________________________________) CONSENT AGREEMENT AND ORDER From July 2007 through November 2009, representatives of the Pipeline and Hazardous Materials Safety Administration (PHMSA), pursuant to Chapter 601 of title 49 United States Code, conducted on-site inspections of the construction of approximately 1,351 miles of the Rockies Express pipeline system, a 42-inch diameter natural gas pipeline running from Colorado to Ohio (REX Pipeline) constructed in two separate phases designated as the REX West pipeline and the REX East pipeline.1 As a result of these inspections, on June 15, 2012, PHMSA issued three Notices of Probable Violation (Notices) to Rockies Express Pipeline, LLC and Kinder Morgan Energy Partners, L.P. The first Notice, CPF 3-2012-1003, alleged 13 violations of the federal pipeline safety regulations in 49 C.F.R. Part 192 in connection with the construction of the REX West pipeline and proposed assessing a total civil penalty of $347,800 for 11 of the alleged violations. The Notice also proposed ordering certain measures to correct four of the alleged violations to ensure the possibility of any remaining construction defects is addressed. The second Notice, CPF 3-2012-1004, alleged 14 violations of the federal pipeline safety regulations in 49 C.F.R. Part 192 in connection with the construction of the REX East pipeline and proposed assessing a total civil penalty of $641,900 for the alleged violations. The third Notice, CPF 3-2012-1005, alleged a violation of a Special Permit Order issued by PHMSA on July 5, 2006 and proposed assessing a civil penalty of $61,800 for this alleged violation. 1 The REX West pipeline runs from Weld County, Colorado to Audrain County, Missouri. The REX East pipeline runs from Audrain County, Missouri to Monroe County, Ohio.2#

320121003_Consent Agreement and Order_11022012_text.pdf, page 3The alleged violations cited in these Notices involve, inter alia, welding procedures and practices; weld inspections, testing and quality control; ditching, padding, lowering-in, and backfilling; coating application and repairs; maximum allowable operating pressure design factor in some Class 2 locations; depth of cover in certain areas; and other construction specifications and standards. On July 16, 2012, Rockies Express Pipeline, LLC (Respondent) submitted a combined response to the Notices providing information concerning the extent to which it had cooperated with PHMSA’s investigation and self-identified some of the alleged violations cited in the Notices. Respondent also provided information concerning the corrective actions it has taken, reserved its right to a hearing, and requested consultations with PHMSA on the disposition of all three Notices. Respondent and PHMSA engaged in good faith settlement discussions resulting in this Consent Agreement and Order. Having agreed that settlement of this proceeding will avoid further administrative proceedings or litigation and that entry of this Consent Agreement and Order is the most appropriate means of resolving the Notices, pursuant to 49 C.F.R. Part 190, without adjudication of any issue of fact or law, and upon consent and agreement of Respondent and PHMSA (“the Parties”), the following is agreed upon and Ordered: I. General Provisions 1. Respondent acknowledges that Respondent and its pipeline system are subject to the jurisdiction of the Federal pipeline safety laws, 49 U.S.C. 60101 et seq., and the regulations and administrative orders issued thereunder. For purposes of this Consent Agreement and Order, Respondent acknowledges that it received proper notice of PHMSA’s action in this proceeding and that the Notice states claims upon which relief may be granted pursuant to 49 U.S.C. 60101 et seq. and the regulations and orders issued thereunder. 2. Respondent, for purposes of this Consent Agreement and Order, does not contest the allegations made in the Notices and agrees to abide by the terms of this Consent Agreement and Order. Respondent agrees to pay the civil penalty as set forth in Section VI of this Consent Agreement and Order, and agrees to achieve compliance by completing the actions specified in Section II (“Work to be Performed”). These actions, including any work plans and schedules, shall be automatically incorporated into this Consent Agreement and Order. This Consent Agreement and Order does not constitute a finding of violation of any Federal law or regulation and may not be used in any civil proceeding of any kind as evidence or proof of any fact, fault or liability, or as evidence of the violation of any law, rule, regulation or requirement, except in a proceeding to enforce the provisions of this Consent Agreement and Order. 3. Respondent consents to the issuance of this Consent Agreement and Order, and hereby waives any further procedural requirements with respect to its issuance. Respondent waives all rights to contest the Notices, or the validity of this Consent Agreement and Order, including all rights to administrative or judicial hearings or appeals. 3#

320121003_Consent Agreement and Order_11022012_text.pdf, page 44. This Consent Agreement and Order shall apply to and be binding upon PHMSA, and upon Respondent, its officers, directors, and employees, and its successors, assigns, or other entities or persons otherwise bound by law. Respondent agrees to provide a copy of this Consent Agreement and Order, and any incorporated work plans and schedules, to all of Respondent’s officers, employees, and agents whose duties might reasonably include compliance with this Consent Agreement and Order. 5. For all transfers of ownership or operating responsibility of Respondent’s REX pipeline, Respondent shall provide a copy of this Consent Agreement and Order to the prospective transferee at least 10 business days prior to such transfer and simultaneously provide written notice of the prospective transfer to the PHMSA Regional Director who issued the Notices. 6. This Consent Agreement and Order constitutes the final, complete and exclusive agreement and understanding between the Parties with respect to the settlement embodied in this Consent Agreement and Order, and the Parties acknowledge that there are no representations, agreements or understandings relating to the settlement other than those expressly contained in this Consent Agreement and Order, except that the terms of this Consent Agreement and Order may be construed by reference to the Notices. 7. Nothing in this Consent Agreement and Order affects or relieves Respondent of its responsibility to comply with all applicable requirements of the Federal pipeline safety laws, 49 U.S.C. § 60101 et seq., and the regulations and orders issued thereunder. Nothing in this Consent Agreement and Order alters PHMSA’s right of access, entry, inspection, and information gathering or PHMSA’s authority to bring enforcement actions against Respondent pursuant to the Federal pipeline safety laws, the regulations and orders issued thereunder, or any other provision of Federal or State law. 8. This Consent Agreement and Order does not waive or modify any Federal, State, or local laws or regulations that are applicable to Respondent’s pipeline systems. This Consent Agreement and Order is not a permit, or a modification of any permit, under any Federal, State, or local laws or regulations. Respondent remains responsible for achieving and maintaining compliance with all applicable Federal, State, and local laws, regulations and permits. 9. This Consent Agreement and Order does not create rights in, or grant any cause of action to, any third party not party to this Agreement. The U.S. Department of Transportation is not liable for any injuries or damages to persons or property arising from acts or omissions of Respondent or its officers, employees, or agents carrying out the work required by this Consent Agreement and Order. Respondent agrees to hold harmless the U.S. Department of Transportation, its officers, employees, agents, and representatives from any and all causes of action arising from any acts or omissions of Respondent or its contractors in carrying out the work required by this Consent Agreement and Order. 4#

320121003_Consent Agreement and Order_11022012_text.pdf, page 5II. Work to be Performed 10. Within 45 days of the Effective Date of this Consent Order and Agreement, Respondent agrees to submit to the Director, Central Region, PHMSA (Regional Director) a plan and schedule for completion of the actions set forth in the Proposed Compliance Order of the CPF 3- 2012-1003 Notice as follows: (a) In regard to Items 3 and 8 of the Notice pertaining to the quality of girth weld radiographs and Items 4 and 6 pertaining to girth weld defects, Respondent agrees to submit the analysis for girth weld anomalies in the magnetic flux leakage in-line inspections it has run in accordance with conditions 37 and 38 of the Special Permit Order, to develop and implement a plan to address the potential for remaining girth weld defects resulting from inadequate radiography or delayed cracking that was not identified during girth weld remediation activities, and to submit these items to the Regional Director. (b) Respondent agrees to maintain documentation of the costs associated with fulfilling the requirements of paragraph (a) and to report the costs to the Regional Director in three categories: (1) costs associated with testing, evaluations, studies, and information analysis; (2) costs associated with preparation or revision of plans or procedures; and (3) costs associated with physical changes to pipeline facilities, including repairs, replacements and other modifications. 11. The Regional Director may grant an extension of time for completion of any of the work to be performed hereunder upon a timely written request that demonstrates both good cause for an extension and sufficient detail to evaluate Respondent’s good cause request. III. Review and Approval Process 12. With respect to any submission under Section II of this Consent Agreement and Order that requires the approval of the Regional Director, the Regional Director may: (a) approve, in whole or in part, the submission, (b) approve the submission on specified conditions, (c) disapprove, in whole or in part, the submission, or (d) any combination of the foregoing. In the event of approval, approval in part, or approval upon conditions, Respondent will proceed to take all action required by the submission as approved by the Regional Director, subject to Respondent’s right to invoke the dispute resolution procedures in this section with respect to any conditions identified by the Regional Director. In the event that the Regional Director disapproves all or any portion of the submission, the Director will provide Respondent with a written notice of the deficiencies. Respondent may seek review by the Associate Administrator if Respondent disagrees with Regional Director and the decision by the Associate Administrator will constitute final agency action with respect to the determination made on the submission. Unless judicial review is sought by Respondent, upon receipt of the decision, Respondent will correct all deficiencies within the time specified by the Director and resubmit it for approval. 5#

320121003_Consent Agreement and Order_11022012_text.pdf, page 6IV. Enforcement of Agreement and Order 13. This Consent Agreement and Order is subject to all enforcement authorities available to PHMSA under 49 U.S.C. § 60101 et seq. and 49 C.F.R. Part 190, including administrative civil penalties under § 60122 of up to $200,000 per violation for each day the violation continues, if PHMSA determines that Respondent is not proceeding in accordance with terms of the Consent Agreement and Order, in accordance with determinations made by the Regional Director, or if appealed, in accordance with decisions of the Associate Administrator. All work plans and associated schedules set forth or referenced in Section II shall be automatically incorporated into this Consent Agreement and Order and are enforceable in the same manner. V. Record Keeping and Information Disclosure 14. Respondent agrees to maintain records demonstrating compliance with all requirements of this Consent Agreement and Order for a period of at least five years following completion of all work to be performed. For any reports, plans, or other deliverables required to be submitted to PHMSA pursuant to this Consent Agreement and Order, Respondent may assert a claim of business confidentiality or other protections applicable to the release of information by PHMSA, covering part or all of the information required to be submitted to PHMSA pursuant to this agreement in accordance with 49 C.F.R. Part 7. The claim of confidentiality shall be marked in writing on each page, and shall include a statement specifying the grounds for each claim of confidentiality. PHMSA shall determine release of any information submitted pursuant to this Consent Agreement and Order in accordance with 49 C.F.R. Part 7, the Freedom of Information Act, 5 U.S.C. § 552, DOT and/or PHMSA policies, and other applicable regulations and Executive Orders. VI. Civil Penalties 15. Respondent agrees to pay $945,900 in civil penalties no later than 10 business days following the Effective Date of this Consent Agreement and Order. Federal regulations (49 C.F.R. § 89.21(b)(3)) require such payment to be made by wire transfer through the Federal Reserve Communications System (Fedwire), to the account of the U.S. Treasury. Detailed instructions are contained in the enclosure. Questions concerning wire transfers should be directed to: Financial Operations Division (AMZ-341), Federal Aviation Administration, Mike Monroney Aeronautical Center, P.O. Box 269039, Oklahoma City, Oklahoma 73125. The Financial Operations Division telephone number is (405) 954-8893. 16. Failure to pay the $945,900 civil penalty will result in accrual of interest at the current annual rate in accordance with 31 U.S.C. § 3717, 31 C.F.R. § 901.9 and 49 C.F.R. § 89.23. Pursuant to those same authorities, a late penalty charge of six percent (6%) per annum will be charged if payment is not made within 110 days of service. Furthermore, failure to pay the civil penalty may result in referral of the matter to the Attorney General for appropriate action in a district court of the United States. 6#

320121003_Consent Agreement and Order_11022012_text.pdf, page 717. At the time of payment, Respondent agrees to simultaneously send written notice of the payment and a copy of the payment transmittal documentation to: David Barrett Director, Central Region Pipeline and Hazardous Materials Safety Administration 901 Locust Street, Suite 462 Kansas City, MO 64106 Rod Dyck Director of Enforcement Pipeline and Hazardous Materials Safety Administration 1200 New Jersey Avenue, SE, Room E24-302 Washington, DC 20590 18. Respondent agrees that the civil penalty payment specified in paragraph 15 will not be deductible by Respondent or any of its affiliates for purposes of Federal taxes. VII. Effective Date 19. The “Effective Date” as used herein is the date on which this Consent Agreement and Order has been signed by both Respondent and PHMSA. Unless specified to the contrary, all deadlines for actions required by this Consent Agreement and Order run from the Effective Date of this Consent Agreement and Order. VIII. Modification 20. The terms of this Consent Agreement and Order may be modified by mutual agreement of the parties. Such modifications shall be in writing and shall be signed by both parties. IX. Termination 21. This Consent Agreement and Order shall terminate upon payment of the civil penalty and the completion of all terms set forth in Section II (Work to Be Performed) as determined by the Director, Central Region. Respondent may request written confirmation from PHMSA when this Consent Agreement and Order is terminated. Nothing in this Consent Agreement and Order prevents Respondent from completing any of the obligations earlier than the deadlines provided for herein. 7#

320121003_Consent Agreement and Order_11022012_text.pdf, page 8X. Ratification 22. The parties undersigned representatives certify that they are fully authorized to enter into the terms and conditions of this Consent Agreement and Order and to execute and legally bind such party to this document. 23. The Parties hereby agree to all conditions and terms of this Consent Agreement and Order: For Respondent: ______________________________________ Mr. M. Dwayne Burton Vice President, Operations and Engineering Rockies Express Pipeline, LLC ______________________________________ Date For PHMSA: Respondent is hereby ordered to comply with the terms of this Consent Agreement and Order, effective immediately. _______________________________________ Mr. Jeffrey D. Wiese Associate Administrator for Pipeline Safety PHMSA _______________________________________ Date 8#

320121003_NOPV PCP PCO_06152012_text.pdf, page 1Official PDFNOTICE OF PROBABLE VIOLATION PROPOSED CIVIL PENALTY and PROPOSED COMPLIANCE ORDER UPS NEXT DAY AIR June 15, 2012 Mr. M. Dwayne Burton Vice President, Operations and Engineering Rockies Express Pipeline, LLC Kinder Morgan Energy Partners, L.P. 500 Dallas Street, Suite 1000 Houston, Texas 77002 CPF 3-2012-1003 Dear Mr. Burton: The western portion of Rockies Express Pipeline, LLC’s pipeline system (REX West) is a 713-mile, 42-inch diameter pipeline that transports natural gas from Weld County, Colorado, to Audrain County, Missouri. In calendar years 2007 and 2008, Kinder Morgan Energy Partners, L.P. (KM) built and began its operation. Representatives from the Pipeline and Hazardous Materials Safety Administration (PHMSA) pursuant to Chapter 601 of 49 United States Code inspected the construction and initial operations of REX West on numerous occasions from July 2007 through January 2008. As a result of these inspections, it appears that you have committed probable violations of the Pipeline Safety Regulations, Title 49, Code of Federal Regulations. The items inspected and the probable violations are: 1. §192.225 Welding Procedures (a) Welding must be performed by a qualified welder in accordance with welding procedures qualified under section 5 of API 1104 (incorporated by reference, see §192.7) or section IX of the ASME Boiler and Pressure Vessel Code “ Welding and Brazing Qualifications” (incorporated by reference, see 1#

320121003_NOPV PCP PCO_06152012_text.pdf, page 2§192.7) to produce welds meeting the requirements of this subpart. The quality of the test welds used to qualify welding procedures shall be determined by destructive testing in accordance with the applicable welding standard(s). KM did not properly qualify welding procedure RX8-01 to be utilized on REX West. KM provided welding procedure qualification records 754-P, 754-AF, 754-AL, 754-AR, and 754-AW documenting the testing performed to qualify Welding Procedure RX8-01. Test Certificate 754-P indicates one root bend test unacceptable; therefore, this procedure failed to pass all of the destructive tests as required by API 1104. After the non-compliance was observed by PHMSA on July 16, 2007, KM re-qualified Welding Procedure RX8-01 on July 23, 2007. 2. §192.225 Welding Procedures (a) Welding must be performed by a qualified welder in accordance with welding procedures qualified under section 5 of API 1104 (incorporated by reference, see §192.7) or section IX of the ASME Boiler and Pressure Vessel Code “ Welding and Brazing Qualifications” (incorporated by reference, see §192.7) to produce welds meeting the requirements of this subpart. The quality of the test welds used to qualify welding procedures shall be determined by destructive testing in accordance with the applicable welding standard(s). KM performed welding at certain locations during the construction of REX West that was not in accordance with welding procedures it had qualified under API 1104. The deficiencies are: Date Description Various Certain weld repairs made on Spread 5 were not performed in accordance with welding procedures qualified under section 5 of API 1104. KM utilized an electrode that was not specified in its repair welding procedure. An EWI Microalloying contract welding inspector first identified this problem and informed the Oak Ridge National Laboratory (ORNL) inspector who was under contract to provide inspection services to PHMSA on the REX West project. The ORNL inspector investigated 102 girth welds that had been made with an electrode not specified in KM’s repair welding procedure. The welds were later re- repaired utilizing the correct electrode. 2#

320121003_NOPV PCP PCO_06152012_text.pdf, page 3August 7, 2007 While auditing spread 5, PHMSA personnel observed mechanized welders not following a qualified welding procedure during the startup of construction. KM developed welding procedures REX-A-WPS1 and REX-A-WPS3, which specify a 122 ºF preheat. PHMSA personnel observed workers heating the pipe to around 250 ºF and then letting it cool before welding commenced. The welders then started to weld at preheat values between 150 ºF and 200 ºF. The workers were not following the qualified welding procedure that specified a 122 ºF preheat. Welding with this procedure had started earlier that same week. August 30, 2007 PHMSA personnel observed KM welders that were not following qualified welding procedure RX8-01A for shielded metal arc welding and flux-cored arc welding on one occasion. The welding procedure specified a gas flow rate of from 35 to 50 cfh for the gas shielded flux-cored arc welding process. PHMSA personnel observed tie-in welders utilizing the gas shielded flux-cored arc welding process with the gas flow regulators set wide open. KM subsequently investigated this and measured the gas flow with a turbine meter and it was determined that a wide-open flow meter delivers approximately 60 cfh. The welding was not being performed in accordance with the qualified welding procedure. October 25, 2007 While auditing Spread 5, PHMSA personnel observed mechanized welding on 42” diameter, 0.555” thick Berg pipe in which welders were not following the welding procedure. The qualified welding procedure specified a maximum interpass temperature of 253 ºF. PHMSA observed welding being performed with interpass temperatures of 267 ºF and 270 ºF. When questioned, the welding inspectors, and welders were unaware of the specific requirements of welding procedure REX-A-WPS17 that was specifically developed to weld the Berg pipe. The welders did not follow the qualified procedure for welding the Berg pipe. Welding with this procedure had been performed for 3 days prior to PHMSA personnel identifying this issue. 3. §192.243 Nondestructive testing. (a) Nondestructive testing of welds must be performed by any process, other than trepanning, that will clearly indicate defects that may affect the integrity of the weld. 3#

320121003_NOPV PCP PCO_06152012_text.pdf, page 4KM’s process for nondestructive testing of welds did not clearly indicate defects that may have affected the integrity of the welds on REX West. KM utilized radiography to examine completed manual girth welds for defects. During the construction of REX East, radiographic irregularities were identified during a review conducted by ORNL under contract to PHMSA. At PHMSA’s direction, KM conducted a review of the REX West radiographs. As a result, it was determined that 859 of the 7229 radiographs reviewed were not acceptable to either API 1104 or KM’s construction standards. These radiographs either had not been properly taken or were improperly interpreted. KM then developed a program to further evaluate the deficient radiographs, obtain acceptable radiographs as necessary, and then repair or cut out the girth welds that contained defects that had not previously been identified by the nondestructive testing and repaired during the initial construction. Based on the radiographic review requested by PHMSA, 64 welds containing defects that were not found during the construction phase of REX West required repair after the pipeline facilities were placed into natural gas service. 4. §192.245 Repair or removal of defects. (b) Each weld that is repaired must have the defect removed down to sound which would adversely affect the quality of the weld repair. After repair, the metal and the segment to be repaired must be preheated if conditions exist segment of the weld that was repaired must be inspected to ensure its acceptability. For certain welds that were repaired, KM did not remove the defect down to sound metal as required for those welds that were found to be unacceptable under §192.241(c). KM identified many mechanized girth weld defects on the REX West pipeline that were discovered and repaired during construction. Nine of the repaired areas were later found to contain through-wall defects during the pipeline’s hydrostatic test. These welds had not been properly repaired by removing the defect down to sound metal and preheating as necessary to prevent delayed hydrogen cracking. In response to the defective welds found during hydrotests, KM initiated a repair weld re-inspection program that consisted of 260 welds. As a result of the additional re-inspection program KM, discovered another 7 welds that had already been placed into service that contained unacceptable defects. These welds were not removed or repaired by removing the defect down to sound metal, but were covered with a pressure containing welded sleeve. KM also failed to ensure that each repair weld on REX West was properly inspected to ensure its acceptability since these girth welds that contained unacceptable defects were not removed or repaired during the pipeline’s construction. 4#

320121003_NOPV PCP PCO_06152012_text.pdf, page 55. §192.303 Compliance with specifications or standards. Each transmission line or main must be constructed in accordance with comprehensive written specifications or standards that are consistent with this part. KM did not construct REX West in accordance with written specifications in certain locations. KM procedure C1080 Item 2.3 specifies: Contractor shall be responsible for application of coating according to the Manufacturer's specifications and requirements of the Company Representative. KM did not apply coating to certain girth welds within the temperature range specified by the manufacturer. KM utilized 3M 6233 fusion bonded epoxy for coating girth welds on the pipeline. 3M specifies an application temperature of 425 ºF to 488 ºF. PHMSA personnel observed workers on 5 occasions through Spreads 1, 6, and 7 not heating the pipe to a level within the proper temperature range required by the manufacturer’s specifications. The observations of inadequate application temperatures were made on August 10, 2007, and August 21, 2007, on Spread 1; October 16, 2007, on Spread 6; and August 14, 2007, and November 28, 2007, on Spread 7. KM procedure C1080 Item 7.9 specifies: To repair pinholes in epoxy coatings, the original coated surface shall be thoroughly cleaned and lightly abraded with sandpaper (approximate area 0.5-inch radius around pinhole). All dust shall be removed before applying a patch stick. The cleaned pipe surface shall be heated until the patch stick begins to melt when rubbed over the heated area. Material shall be applied to obtain a minimum thickness of 15 mils over the entire abraded area. KM procedure C1080 Item 7.10 specifies: Holidays larger than 0.5 square-inch shall not be repaired using patch sticks. Contractor shall use coatings specified for large area repairs and apply coating in conformance with Manufacturer’s recommendations. Workers failed to follow KM procedures limiting holiday repairs using patch sticks to holidays smaller than 0.5 square-inches. PHMSA personnel observed workers repairing holidays larger than 0.5 square-inches with patch sticks on 3 5#

320121003_NOPV PCP PCO_06152012_text.pdf, page 6occasions. These observations were made on August 8, 2007, on Spread 4; and on September 19, 2007, and February 12, 2008, on Spread 6. 6. §192.305 Inspection: General. Each transmission line or main must be inspected to ensure that it is constructed in accordance with this part. KM did not adequately inspect the welding on its REX West transmission line at certain locations to ensure it was constructed in accordance with Part 192. KM contracted with Gulf Interstate to supply a Senior Welding Inspector and dedicated welding inspectors on each of the construction spreads. Nevertheless, as set forth in Item 2 above, PHMSA identified 3 instances of welding that had not been performed in accordance with a qualified welding procedure. In each of these cases, welding had already been performed when PHMSA personnel observed that the qualified procedures were not being followed. If KM’s inspectors had adequately inspected the welding processes, the workers’ failure to follow the qualified procedure would have been identified and corrected. The welding inspectors did not inspect the construction activity in a manner that ensured the transmission line was constructed in accordance with applicable requirements and Part 192. 7. §192.305 Inspection: General. Each transmission line or main must be inspected to ensure that it is constructed in accordance with this part. KM did not adequately inspect the coating of its transmission line at certain locations to ensure it was constructed in accordance with this part. KM hired a dedicated pipe coating inspector on each of the construction spreads. As set forth in Items 5, 11, and 12, KM did not apply or repair coating at certain locations as required. Had KM adequately inspected the coating work, the workers’ failure to follow the procedure for pipe coating would have been identified and corrected. In many cases, coating work had already been performed and the problems had to be discovered by PHMSA after the fact. The coating inspectors did not inspect the coating work in a manner that ensured the transmission line was constructed in accordance with applicable requirements and Part 192. 8. §192.305 Inspection: General. Each transmission line or main must be inspected to ensure that it is constructed in accordance with this part. KM did not adequately inspect the nondestructive testing of its transmission line to ensure it was constructed in accordance with this part. As set forth in Item 3 above, KM failed to adequately inspect the radiographic practices and film 6#

320121003_NOPV PCP PCO_06152012_text.pdf, page 7interpretation utilized during the construction of the Steele City, Meeker, Julesburg, Cheyenne, Turney, Wamsutter, Bertrand, Big Hole, Arlington, Arlington expansion, Echo Springs Meter, Echo Springs Lateral, Echo Springs Compressor, Echo Springs Field, Lost Creek Meter, KMIGT Meter, and NGPL Meter sections of REX West. If KM had adequately inspected the nondestructive testing of the girth welds during construction, the defective girth welds would have been identified by the inspector. KM did not inspect the construction in a manner that ensured the transmission line was constructed in accordance with applicable requirements and Part 192. 9. §192.319 Installation of pipe in a ditch (a) When installed in a ditch, each transmission line that is to be operated at a pressure producing a hoop stress of 20 percent or more of SMYS must be installed so that the pipe fits the ditch so as to minimize stresses and protect the pipe coating from damage. KM failed to install pipe within a ditch to minimize the stresses on the pipe by ensuring it fit properly within the ditch. During the week of November 26, 2007, PHMSA personnel observed workers on Spread 7 preparing to lower a continuous section of welded pipe into the ditch that was approximately 1-3/4 miles long. The maximum distance between open ends was greater than 5,000 feet, which is contrary to KM’s written construction procedures for minimizing stresses that requires that “open ends shall be a maximum distance of 5,000 feet apart (or less when required by terrain or land use).” When questioned, the Chief Inspector acknowledged that line sections were lowered in as welded and no additional cuts were made or other action taken to minimize stresses during installation into the ditch. 10. §192.319 Installation of pipe in a ditch (b) When a ditch for a transmission line or main is backfilled, it must be backfilled in a manner that: (2) Prevents damage to the pipe and pipe coating from equipment or from the backfill material. KM failed to prevent damage to the pipe and pipe coating from the trench and backfill material at various locations on REX West. PHMSA personnel received reports that indicated that sections of Spread 5 pipe had been backfilled with rocks that damaged the pipe coating (and potentially the pipe). In addition, the contractor did not install rock shield around the pipe or use rock shakers (devices to separate rock from the backfill material) as required to prevent damage from rocks. KM excavated the completed pipeline at about 100 locations to remediate indications from in-line inspection (ILI) tools and Direct Current Voltage Gradient (DCVG) surveys performed after the pipeline had been 7#

320121003_NOPV PCP PCO_06152012_text.pdf, page 8placed into service. These excavations were witnessed by PHMSA personnel and KM contract inspectors. At approximately 19 of the locations dents, rocks in the backfill, and/or pipeline in contact with solid rock were identified. Four of the excavations also showed evidence that the pipeline was backfilled before the wet two-part epoxy that had been applied to the girth welds had completely cured, causing the coating to be a mixture of dirt and epoxy. 11. §192.461 External corrosion control: Protective coating. (c) Each external protective coating must be inspected just prior to lowering the pipe into the ditch and backfilling, and any damage detrimental to effective corrosion control must be repaired. KM did not inspect each protective coating just prior to lowering the pipe into the ditch during portions of the REX West construction. PHMSA personnel observed workers on Spread 3 and 5 that were not removing building insulation from the pipe. The workmen were manipulating the electronic holiday detector’s spring to jump over the attached insulation. The building insulation was used to pad the pipe from the skids. Certain areas of the coating could not be visually or electronically inspected because the building insulation had not been removed. KM procedure C1080 Item 7.3 also specifies that buried coated facilities shall pass both a visual and electrical holiday detector test as the pipe is lowered into the ditch. 12. §192.461 External corrosion control: Protective coating. (c) Each external protective coating must be inspected just prior to lowering the pipe into the ditch and backfilling, and any damage detrimental to effective corrosion control must be repaired. KM did not repair damaged coating detrimental to effective corrosion control at certain locations during the REX West construction. During the week of August 27, 2007, PHMSA personnel observed workmen on Spread 3 that were not repairing visible coating damage that had occurred as a result of the welding bands utilized. Spread 3 utilized RMS Welding Systems’ bands that were found to cause visible damage to the thin film epoxy coating on the pipe. Coating defects caused by band damage were found adjacent to 2 girth welds that had been lowered-in the ditch and 10 other girth welds that had been through the pre- jeeping process. Given the nature of the coating damage, these areas were not identified by the electrical holiday detectors so the workers were not repairing them, even though the coating damage was clearly visible. 13. §192.619 Maximum allowable operating pressure - Steel or plastic pipelines 8#

320121003_NOPV PCP PCO_06152012_text.pdf, page 9(a) No person may operate a segment of steel or plastic pipeline at a pressure that exceeds a maximum allowable operating pressure determined under paragraph (c) or (d) of this section, or the lowest of the following: (1) The design pressure of the weakest element in the segment, determined in accordance with subparts C and D of this part. §192.111 Design factor for steel pipe. (a) Except as otherwise provided in paragraphs (b), (c), and (d) of this section, the design factor to be used in the design formula in §192.105 is determined in accordance with the following table Class location Design factor (F) 1 0.72 2 0.60 KM established the maximum allowable operating pressure of REX West at various locations at a pressure that exceeded the design pressure of the pipe and placed the pipeline into service on or about April 28, 2008. KM used a Class 1 design factor to establish the maximum allowable operating pressure of 1480 psig in 4 pipeline segments totaling about 3500 feet of pipe that were actually located in Class 2 areas. Most of the pipe was installed near the town of Renick, Missouri in the summer of 2008. KM did not use the proper Class 2 design factor of 0.60, which would establish the maximum allowable operating pressure at 1110 psig, rather than the 1480 psig. The maximum allowable operating pressure of the pipe was calculated using a Class 1 design factor of 0.8 (PHMSA Grant of Waiver to §192.111 - Docket No. PHMSA-2006-23998). The Waiver PHMSA granted to Rockies Express authorizes the use of a design factor of 0.8 only in Class 1 areas, not in Class 2 areas. KM subsequently took the pipeline out of service and replaced the pipe using Class 2 design factors on or about September 3, 2008. Proposed Civil Penalty Under 49 United States Code, § 60122, you are subject to a civil penalty not to exceed $100,000 for each violation for each day the violation persists up to a maximum of $1,000,000 for any related series of violations. The Compliance Officer has reviewed the circumstances and supporting documentation involved in the above probable violations and has recommended that you be preliminarily assessed a civil penalty of $347,800 as follows: 9#

320121003_NOPV PCP PCO_06152012_text.pdf, page 10Item number PENALTY 2 $20,600 $43,700 $28,100 $23,100 $20,000 $30,000 $43,700 10 $60,600 11 $23,700 12 $19,300 13 $35,000 Warning Items With respect to items 1 and 9, we have reviewed the circumstances and supporting documents involved in this case and have decided not to conduct additional enforcement action or penalty assessment proceedings at this time. We advise you to promptly correct these items. Be advised that failure to do so may result in Kinder Morgan Energy Partners, L.P. being subject to additional enforcement action. Proposed Compliance Order With respect to items 3, 4, 6, and 8, pursuant to 49 United States Code § 60118, the Pipeline and Hazardous Materials Safety Administration proposes to issue a Compliance Order to Kinder Morgan Energy Partners, L.P. Please refer to the Proposed Compliance Order, which is enclosed and made a part of this Notice. Response to this Notice Enclosed as part of this Notice is a document entitled Response Options for Pipeline Operators in Compliance Proceedings. Please refer to this document and note the response options. Be advised that all material you submit in response to this enforcement action is subject to being made publicly available. If you believe that any portion of your responsive material qualifies for confidential treatment under 5 U.S.C. 552(b), along with the complete original document you must provide a second copy of the document with the portions you believe qualify for confidential treatment redacted and an explanation of why you believe the redacted information qualifies for confidential treatment under 5 U.S.C. 552(b). If you do not respond within 30 days of receipt of this Notice, this constitutes a waiver of your right to contest the allegations in this Notice and authorizes the Associate Administrator for Pipeline Safety to find facts as alleged in this Notice without further notice to you and to issue a Final Order. 10#

320121003_NOPV PCP PCO_06152012_text.pdf, page 11In your correspondence on this matter, please refer to CPF 3-2012-1003 and for each document you submit, please provide a copy in electronic format whenever possible. Sincerely, David Barrett Director, Central Region Pipeline and Hazardous Materials Safety Administration Enclosures: Proposed Compliance Order Response Options for Pipeline Operators in Compliance Proceedings 11#

320121003_NOPV PCP PCO_06152012_text.pdf, page 12PROPOSED COMPLIANCE ORDER Pursuant to 49 United States Code § 60118, the Pipeline and Hazardous Materials Safety Administration (PHMSA) proposes to issue to Kinder Morgan Energy Partners, L.P. a Compliance Order incorporating the following remedial requirements to ensure the compliance of Rockies Express Pipeline LLC with the pipeline safety regulations: 1. In regard to Item Numbers 3 and 8 of the Notice pertaining to the quality of girth weld radiographs and to Item Numbers 4 and 6 pertaining to girth weld defects; there is a significant potential that girth weld defects remain in the pipeline, either as a result of inadequate radiography or from delayed cracking that was not identified during girth weld remediation activities. Given the threat to pipeline integrity that any remaining girth weld defects might represent to REX West, the magnetic flux leakage in- line inspections that KM runs in accordance with conditions 37 and 38 of the Waiver shall include an analysis for girth weld defects. 2. KM shall submit a plan and schedule for completing the above actions within 45 days of receiving a Final Order in this matter. 3. It is requested (not mandated) that KM maintain documentation of the safety improvement costs associated with fulfilling this Compliance Order and submit the total to David Barrett, Director, Central Region, Pipeline and Hazardous Materials Safety Administration. It is requested that these costs be reported in two categories: 1) total cost associated with preparation/revision of plans, procedures, studies and analyses, and 2) total cost associated with replacements, additions and other changes to pipeline infrastructure. 12#