TC OIL PIPELINE OPERATIONS INC — Notice of Probable Violation

party submissionOfficial PDF320155010_Operator Response to Notice and Request for Hearing_12182015.pdf#

320155010_NOPV PCP PCO_11202015_text.pdf, page 1Official PDFNOTICE OF PROBABLE VIOLATION PROPOSED CIVIL PENALTY and PROPOSED COMPLIANCE ORDER CERTIFIED MAIL - RETURN RECEIPT REQUESTED November 20, 2015 Mr. Vern Meier President TransCanada (TC) Oil Pipeline Operations, Inc. 717 Texas Avenue Houston, Texas 77002-2761 CPF 3-2015-5010 Dear Mr. Meier: On multiple occasions between April 2 and November 15, 2012, representatives of the Pipeline and Hazardous Materials Safety Administration (PHMSA), Office of Pipeline Safety (OPS), pursuant to Chapter 601 of 49 United States Code inspected TransCanada Oil Pipeline Operations Inc.’s (TransCanda’s) Keystone Pipeline throughout the central United States. Physical facilities and records were inspected on the mainline from the Canadian Border to Patoka, Illinois and the Cushing Extension. Background TransCanada’s Keystone Pipeline (Keystone) is a hazardous liquid pipeline transporting crude oil from Canada to facilities in the central United States comprised of the following two lines: • A 1,025-mile, 30-inch diameter, Mainline from the Canadian border at Cavalier County,#

320155010_NOPV PCP PCO_11202015_text.pdf, page 2North Dakota, traversing the states of North Dakota, South Dakota, Nebraska, Kansas and Missouri, to Wood River and Patoka, Illinois; and • A 291-mile, 36-inch diameter, Cushing Extension from Steele City (Jefferson County), Nebraska through Kansas, to Cushing (Marion County), Oklahoma. TransCanada completed construction of the Keystone mainline segment from the Canadian border to Steele City, Nebraska in 2008 followed by construction of the mainline segment from Steele City, Nebraska to Wood River and Patoka, Illinois in 2009-2010, all of which were then placed in service by June 30, 2010. The Cushing Extension from Steele City, Nebraska to Cushing, Oklahoma was placed in service by February 8, 2011. In October 2012, Keystone reported to PHMSA four significant metal loss anomalies from an in-line inspection (ILI) requiring immediate pressure reduction and verification digs in the Salisbury, Missouri to Patoka, Illinois segment (MP 868 to 1083). The digs validated that stray current D.C. interference from foreign pipelines near MP 995 had caused four metal loss features over sixty percent deep (97%, 69%, 74%, 61%). The 97% deep anomaly left a remaining wall thickness of 0.0120 inch, which is less than 1/64 inch. Keystone conducted a close interval survey in December 2011 which had identified cathodic protection potentials that were below criteria, along with the existence of interference from other pipeline operators in the vicinity. A report, Corrosion Anomaly at MP 995 KS9 Salisbury to Patoka on Keystone Pipeline (Report), issued on November 21, 2012, identified the primary cause of the pitting mechanism as the inadequacy of the original CP design. The secondary cause identified was the timeliness of corrective actions that could have been accelerated to mitigate the corrosion. As a result of the inspection, it appears that TransCanada has committed probable violations of the Pipeline Safety Regulations, Title 49, Code of Federal Regulations. The items inspected and the probable violations are: 1. §195.401 General requirements. (a) No operator may operate or maintain its pipeline systems at a level of safety lower than that required by this subpart and the procedures it is required to establish under §195.402(a) of this subpart. TransCanada did not operate the Steele City to Patoka and Cushing Extension at a level of safety as required by Subpart F and the procedures required by §195.402(a). Part 195.402(a) requires each operator to prepare and follow procedures for normal operations and maintenance activities which are further described in §195.402(c)(3) to include “operating, maintaining, and repairing the pipeline system in accordance with each of the requirements of this subpart and subpart H of this part.” Subpart H – Corrosion Control includes Part 195.563(a) which requires each pipeline to have cathodic protection (CP) in operation no later than 1 year after the pipeline is constructed. The mainline segment from Steele City, Nebraska to Patoka, Illinois was placed in service by June 30, 2010. Corrective measures to complete the installation of the CP did not occur until November 2012 and then again in 2013. According to the criteria in TransCanada’s 2#

320155010_NOPV PCP PCO_11202015_text.pdf, page 3procedures and Part 195.563(a), adequate CP should have been in operation on the pipeline by June 30, 2011. Upon investigation, the CP system was not designed properly as stated in TransCanada’s Corrosion Anomaly at MP 995 KS9 Salisbury to Patoka on Keystone Pipeline Report (Report), and did not meet its procedure TED-CP-DD Cathodic Protection Design Directive regarding sufficient current supplied to the pipeline as described in Section 9 “Current Required for Protection.” The summary of the Report found (in part): “The anomalies in the MP995 Anomaly Area were unprecedented…..(they) are believed to be a direct result of low cathodic protection levels caused by an inadequate cathodic protection design which did not fully consider all of the bare metallic structures including substation grounding grids in the pump stations.” In discussions with TransCanada’s personnel in November 2012 and as documented in the CP reports, TransCanada determined that design changes made to the pump stations early in the project were not communicated to the personnel designing the CP system. The design changes in the pump stations created an increased demand for CP current, which was not adequately incorporated into the final design of the CP system. In addition, the initial CP design only called for ground beds at the pump stations on the mainline between Steele City, Nebraska and Patoka, Illinois. The CP system on the mainline from the Canadian border to Steele City, on the other hand, had ground beds at both the pump stations and midway between the pump stations. TransCanada’s initial CP survey of the Steele City to Patoka mainline completed in December 2010 and the Cushing Extension segments completed in August 2011 showed low CP in numerous locations. As a result, TransCanada installed 12 new ground bed systems on the mainline between Steele City and Patoka and an additional 4 ground beds installed on the Cushing Extension in 2012. An additional 5 ground beds were installed on the Steele City to Patoka segment of the mainline in 2013, primarily at the eastern end of the mainline just west of St. Louis. An additional two ground beds were installed on the Cushing Extension in 2013. TransCanada operated its cathodic protection system on the Keystone Pipeline at a level of safety below that required by Subpart F; therefore specifically violating §195.401(a). 2. §195.573 What must I do to monitor external corrosion control? (a) Protected pipelines. You must do the following to determine whether cathodic protection required by this subpart complies with Sec. 195.571: (1) Conduct tests on the protected pipeline at least once each calendar year, but with intervals not exceeding 15 months. However, if tests at those intervals are 3#

320155010_NOPV PCP PCO_11202015_text.pdf, page 4impractical for separately protected short sections of bare or ineffectively coated pipelines, testing may be done at least once every 3 calendar years, but with intervals not exceeding 39 months. TransCanada failed to conduct tests to monitor the protected pipeline at least once each calendar year, but with intervals not exceeding 15 months. According to TransCanada’s records, fifty-one (51) required annual cathodic protection test station readings were not taken from 2010 to 2012 on the East Leg of Keystone from Steel City, Nebraska to Patoka, Illinois. Twenty-three (23) were from Steele City to Salisbury and the other twenty-eight 28 were from Salisbury to Patoka. TransCanada provided no rational for the failure to conduct and record the required testing. 3. §195.573 What must I do to monitor external corrosion control? (e) Corrective action. You must correct any identified deficiency in corrosion control as required by Sec. 195.401(b). TransCanada failed to correct cathodic protection deficiencies found in 62 locations within a reasonable time. TransCanada’s records indicate deficiencies that remained uncorrected for multiple years. On the TransCanada Keystone Pipeline from Steel City, Nebraska to Patoka, Illinois compiled records from 2010 to 2012 documented the following 56 deficiencies: • 44 multiple-year cathodic protection test station deficient (low) readings with 5 still not remediated by March 2013; • 3 test stations at 1 pump station not remediated by March 2013; and • 9 multiple-year cathodic protection deficient (low) readings at 5 valve sites. In addition, on the TransCanada Keystone Cushing Extension from Steele City, Nebraska to Cushing, Oklahoma records from 2010 to 2012 documented the following 6 deficiencies: • 3 mainline multiple-year cathodic protection test station deficient readings; and • 3 multiple-years of cathodic protection deficient readings at 1 pump station. 4. §195.577 What must I do to alleviate interference currents? (a) For pipelines exposed to stray currents, you must have a program to identify, test for, and minimize the detrimental effects of such currents. TransCanada failed to minimize the detrimental effect of interference currents on at least two areas under the influence of another pipeline CP system in a timely manner. Records document that at MPs 991 to 998 on the mainline near St. Louis and MP 137 on the Cushing Extension, stray currents existed on the pipeline over a year after installing corrosion control 4#

320155010_NOPV PCP PCO_11202015_text.pdf, page 5measures meant to alleviate the problem. TransCanada reported to PHMSA on March 27, 2012, in the Special Permit Condition #37 Response, the existence of interference locations and mitigation efforts taken to address those problems. Phase 1 refers to the pipeline from the Canadian/US border to Illinois and Phase 2 refers to the Cushing Extension. The response stated in part: • “Phase 1 o A review of the 2010 annual survey data indicates potential DC interference conditions existed at thirty (30) locations. Prior to the 2011 annual survey, remedial action had been completed at all thirty (30) potential interference sites. A review of 2011 annual survey data indicates the potential for DC interference exists at five (5) locations of which four (4) are from the initial sites identified in 2010; one (1) new location has been identified in 2011. Site testing has been planned at these 5 sites in Q2 2012.” • “Phase 2 o A review of the 2011 survey data indicates potential DC interference conditions existed at two (2) locations. o Both sites identified as having potential interference issues have had remedial facilities installed.” TransCanada’s own contractor finding from its National Pipeline Service report dated October 23, 2013 stated: “The existing cathodic protection systems at St. Paul and Hartford Pump Stations were installed and energized in June of 2010, approximately 9 months after installation of the pipeline. The temporary bonds were then installed approximately one year later in August of 2011, after baseline annual test point surveys indicated inadequate potentials and then ensuing investigation determined the strong possibility for stray current interference from neighboring pipelines.” Severe interference corrosion anomalies were identified in October 2012 near St. Louis MP 998. On November 14, 2012, TransCanada’s Close Interval Survey dated November 14, 2012, showed interference current still on the pipeline from MP 991 to 998 which was 28 months after the pipeline was placed in service. Keystone had knowledge of the foreign pipelines in these locations as this was a common pipeline corridor as shown in alignment sheets. TransCanada also continued to remediate interference on the Cushing Extension near MP 137 through 2012 which involved another operator’s facility that had been in place over 50 years. TransCanada did not correct the interference until November 2, 2012, almost 21 months after deliveries began on February 8, 2011. Problems continued to persist requiring one rectifier to be installed at MP 136.62 in May 2013. TransCanada continued to identify anomalies from 5#

320155010_NOPV PCP PCO_11202015_text.pdf, page 6low cathodic protection levels as documented in its Letter to PHMSA December 9, 2013 – KS 10 Proposed Excavation. The letter stated: “In accordance with special condition 42, TransCanada hereby informs PHMSA of a proposed correlation excavation on the Cushing Extension of Keystone on or around Dec 20th, 2013. Specifically, the excavation is on the KS10 section in Kansas near the Burns receipt barrel. Although the metal loss anomaly is not in a HCA (or in a could affect segment), nor does it meet any prescribed response criteria, with a reported depth of 67%WT the feature has been flagged for correlation in support of the final report for the ILI. This feature is in an area of initially low CP potentials that were subsequently remediated with the addition of new anode beds. The dig sheet for the proposed excavation is attached.” The dig sheet called pits with depths of 34.1 to 66.9 percent through wall which were later validated in TransCanada’s “Summary of Initial Correlation Excavation on KS10” report to be 32 to 34 percent through wall. The multiple anomalies found on TransCanada’s Keystone segments near St. Louis, Missouri and on the Cushing Extension near Burns, Kansas were the result of not correcting the effects of interference corrosion in a timely manner as required by §195.577. Proposed Civil Penalty Under 49 United States Code, § 60122, you are subject to a civil penalty not to exceed $200,000 per violation per day the violation persists up to a maximum of $2,000,000 for a related series of violations. For violations occurring prior to January 4, 2012, the maximum penalty may not exceed $100,000 per violation per day, with a maximum penalty not to exceed $1,000,000 for a related series of violations. The Compliance Officer has reviewed the circumstances and supporting documentation involved in the above probable violation(s) and has recommended that you be preliminarily assessed a civil penalty of $187,200 as follows: Item number PENALTY 1 $53,800 2 $51,800 3 $53,200 4 $28,400 Proposed Compliance Order With respect to item(s) 1, 3, and 4 pursuant to 49 United States Code § 60118, the Pipeline and Hazardous Materials Safety Administration proposes to issue a Compliance Order to TransCanada. Please refer to the Proposed Compliance Order, which is enclosed and made a part of this Notice. 6#

320155010_NOPV PCP PCO_11202015_text.pdf, page 7Response 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. All material you submit in response to this enforcement action may be 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. In your correspondence on this matter, please refer to CPF 3-2015-5010 and for each document you submit, please provide a copy in electronic format whenever possible. Sincerely, Allan C. Beshore Director, Central Region, OPS Pipeline and Hazardous Materials Safety Administration Enclosures: Proposed Compliance Order Response Options for Pipeline Operators in Compliance Proceedings 7#

320155010_NOPV PCP PCO_11202015_text.pdf, page 8PROPOSED COMPLIANCE ORDER Pursuant to 49 United States Code § 60118, the Pipeline and Hazardous Materials Safety Administration (PHMSA) proposes to issue to TransCanada (TC) Oil Pipeline Operations, Inc. a Compliance Order incorporating the following remedial requirements to ensure the compliance of TransCanada Oil Pipeline Operations, Inc. with the pipeline safety regulations: 1. 2. 3. 4. In regard to Items Number 1 and 4 of the Notice pertaining to an inadequate cathodic protection system, TC Keystone must provide records of facilities installed and close interval surveys taken on the Keystone Pipeline confirming that the pipeline is adequately protected on the East Leg segment from Steele City, Nebraska to Patoka, Illinois and interference currents have been alleviated. In regard to Item Number 3 of the Notice pertaining to deficiencies in corrosion control, TC Keystone must correct the remaining deficiencies listed in Item 3 of the NOPV and record the cathodic protection pipe-to-soil potentials. TC Keystone must provide the records in Item 1 and 2 of the proposed compliance order within six (6) months of the date of the Final Order. It is requested (not mandated) that TransCanada (TC) Oil Pipeline Operations Inc. maintain documentation of the safety improvement costs associated with fulfilling this Compliance Order and submit the total to Allan Beshore, 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. 8#

320155010_Final Order_05312017_text.pdf, page 1Official PDFMr. Russell K. Girling President and Chief Executive Officer TransCanada Corporation 450 - First Street SW Calgary, Alberta, Canada T2P 5H1 Re: CPF No. 3-2015-5010 Dear Mr. Girling: Enclosed please find the Final Order issued in the above-referenced case to your subsidiary, TC Oil Pipeline Operations, Inc. It withdraws one of the allegations of violation and the proposed compliance order, makes three other findings of violation, and assesses a reduced civil penalty of $135,400. The penalty payment terms are set forth in the Final Order. This enforcement action closes automatically upon receipt of payment. Service of the Final Order by certified mail is deemed effective upon the date of mailing, or as otherwise provided under 49 C.F.R. § 190.5. Thank you for your cooperation in this matter. Sincerely, Alan K. Mayberry Associate Administrator for Pipeline Safety Enclosure cc: Mr. Allan Beshore, Director, Central Region, Office of Pipeline Safety, PHMSA Mr. Vern J. Meier, President, TC Oil Pipeline Operations Inc., 700 Louisiana Street, Suite 700, Houston, Texas 77002 CERTIFIED MAIL - RETURN RECEIPT REQUESTED#

320155010_Final Order_05312017_text.pdf, page 2U.S. DEPARTMENT OF TRANSPORTATION PIPELINE AND HAZARDOUS MATERIALS SAFETY ADMINISTRATION OFFICE OF PIPELINE SAFETY WASHINGTON, D.C. 20590 ________________________________________________ In the Matter of ) ) ) TC Oil Pipeline Operations, Inc., ) a/k/a TransCanada Oil Pipeline Operations, Inc., ) Respondent. ) ________________________________________________) ) CPF No. 3-2015-5010 FINAL ORDER On multiple occasions between April 2 and November 15, 2012, pursuant to 49 U.S.C. § 60117, a representative of the Pipeline and Hazardous Materials Safety Administration (PHMSA), Office of Pipeline Safety (OPS), conducted an on-site pipeline safety inspection of the facilities and records of TC Oil Pipeline Operations, Inc. (TransCanada or Respondent), throughout the central United States, including the company’s mainline from the Canadian border to Patoka, Illinois (Mainline Segment), and its 291-mile, 36-inch-diameter Cushing Extension pipeline from Steele City, Nebraska, through Kansas to Cushing, Oklahoma (Cushing Extension). 1 TransCanada is a multi-national corporation with tens of thousands of miles of oil and gas pipelines, as well as extensive oil and gas storage assets, throughout North America. The facilities are part of TransCanada’s Keystone Pipeline System within the United States.2 As a result of the inspection, the Director, Central Region, OPS (Director), issued to Respondent, by letter dated November 20, 2015, a Notice of Probable Violation, Proposed Civil Penalty and Compliance Order (Notice). In accordance with 49 C.F.R. § 190.207, the Notice proposed finding that TransCanada had committed four violations of 49 C.F.R. Part 195, assessing a civil penalty of $187,200 for the alleged violations, and ordering Respondent to take certain actions to correct the alleged violations. TransCanada responded to the Notice by letter dated December 18, 2015 (Response). The company contested one of the allegations of violation, provided an explanation of its actions, and requested that the proposed civil penalties for the uncontested Items be reduced. Respondent initially requested a hearing but subsequently waived that right, based on discussions with the 1 TC Oil Pipeline Operations, Inc., is a wholly indirectly-owned subsidiary of TransCanada Corporation. See Complaint, TransCanada Keystone Pipeline, LP, and TC Oil Pipeline Operations, Inc., v. John Kerry, et als (January 6, 2016), available at http://www.keystone-xl.com/wp-content/uploads/2016/01/TransCanada-Complaint-January-6- 2016.pdf (last accessed March 24, 2017). 2 See http://www.transcanada.com/facts-figures.html. (current as of 8/17/16)#

320155010_Final Order_05312017_text.pdf, page 3CPF No. 3-2015-5010 Page 2 Region by email on April 1, 2016. By letter of the same date, the Region withdrew Item 2 and the associated civil penalty and, based on the additional information provided by TransCanada showing that the requested corrective actions had been completed, withdrew the Proposed Compliance Order. FINDINGS OF VIOLATION The Notice alleged that Respondent violated 49 C.F.R. Part 195, as follows: Item 1: The Notice alleged that Respondent violated 49 C.F.R. § 195.401(a), which states: § 195.401 General requirements. (a) No operator may operate or maintain its pipeline systems at a level of safety lower than that required by this subpart and the procedures it is required to establish under §195.402(a) of this subpart. The Notice alleged that Respondent violated 49 C.F.R. § 195.401(a) by failing to operate the Mainline Segment and the Cushing Extension at the required level of safety. Specifically, the Notice alleged that the Mainline Segment had been in service since June 30, 2010, but corrective measures to complete the installation of cathodic protection (CP) were not begun until November 2012 and not completed until 2013. According to TransCanada’s own procedures established under § 195.402(a) and 49 C.F.R. § 195.563(a), adequate CP should have been in operation on the pipeline by June 30, 2011.3 The Notice further alleged that TransCanada’s initial CP survey of the Mainline Segment was completed in December 2010 and the survey of the Cushing Extension was completed in August 2011. According to the Notice, both surveys revealed low CP readings at “numerous locations” but the company failed to install additional ground beds until 2012-13. The company’s own investigation revealed that TransCanada’s CP system had not been designed properly and did not meet the company’s own procedure (TED-CP-DD, Cathodic Protection Design Directive) regarding sufficient current being supplied to the pipeline.4 In its Response, TransCanada did not contest the allegations of violation, acknowledging that the original CP system had inadequately compensated for the amount of current lost to substation grounding grids at pump stations and that such lost current had had an adverse effect on localized portions of the pipeline. However, TransCanada noted that the issues were identified within six months of the line being placed in service, even though the time required to implement those 3 49 C.F.R. § 195.563(a) states: “(a) Each buried or submerged pipeline that is constructed, relocated, replaced, or otherwise changed after the applicable date in § 195.401(c) must have cathodic protection. The cathodic protection must be in operation not later than 1 year after the pipeline is constructed, relocated, replaced or otherwise changed, as applicable.” 4 As detailed in TransCanada’s Corrosion Anomaly at MP 995 KS9 Salisbury to Patoka on Keystone Pipeline Report. See Pipeline Safety Violation Report, TransCanada Oil Pipeline Operations, Inc., CPF No. 3-2015-5010 (Violation Report), Nov. 20, 2015 (on file with PHMSA).#

320155010_Final Order_05312017_text.pdf, page 4CPF No. 3-2015-5010 Page 3 measures was extended by factors outside its control.5 The Region met with TransCanada to receive additional information on February 4, 2016. At that meeting, TransCanada indicated it was not contesting this Item but requested that PHMSA consider withdrawing it altogether or reducing the proposed penalty.6 Given the seriousness of TransCanada’s failure to maintain adequate cathodic protection of its pipeline over an extended period of time and the fact that TransCanada did not dispute the allegations of violation, I see no basis for withdrawing this Item. As for the alternative request that the penalty be reduced, I will address that issue in the “Assessment of Penalty” section below. Accordingly, after considering all of the evidence, I find that Respondent violated 49 C.F.R. § 195.401(a) by failing to operate the Mainline Segment and the Cushing Extension at the required level of safety. Item 2: The Notice alleged that Respondent violated 49 C.F.R. § 195.573(a)(1), which states: § 195.573 What must I do to monitor external corrosion control? (a) Protected pipelines. You must do the following to determine whether cathodic protection required by this subpart complies with § 195.571: (1) Conduct tests on the protected pipeline at least once each calendar year, but with intervals not exceeding 15 months. However, if tests at those intervals are impractical for separately protected short sections of bare or ineffectively coated pipelines, testing may be done at least once every 3 calendar years, but with intervals not exceeding 39 months. The Notice alleged that Respondent violated 49 C.F.R. § 195.573(a)(1) by failing to conduct tests to monitor protected pipelines at least once each calendar year, but with intervals not exceeding 15 months. Specifically, the Notice alleged that TransCanada’s records showed 51 required annual CP-test-station readings were not taken from 2010 to 2012 on the East Leg of the Mainline Segment but did not provide any rationale for its failure to conduct and record the tests in a timely manner. TransCanada contested this allegation, claiming that each of the required readings was timely taken, in compliance with the regulations, but that the data presented to PHMSA may have been confusing in its tabulation, formatting, and naming conventions. TransCanada initially requested a hearing to re-present the data in a better format and to demonstrate compliance. The Region subsequently met with TransCanada on February 4, 2016, to allow the company to provide further information about the proposed compliance items and then, on the next day, to provide the re-formatted data. As a result of this meeting, the Central Region has reviewed the re-formatted data, concluded 5 In its Response, TransCanada stated that the time required to complete its CP remediation program “was affected by unavoidable factors such as acquiring land access permission, environmental permitting, and the need for the supplemental facilities to polarize the pipeline before they could be adequately assessed.” Response, at 5. 6 Response, at 10.#

320155010_Final Order_05312017_text.pdf, page 5CPF No. 3-2015-5010 Page 4 that the readings were indeed properly taken, and recommends that this Item be withdrawn. Accordingly, after considering all of the evidence, I hereby order that Item 2 be withdrawn, including the related civil penalty and Proposed Compliance Order. Item 3: The Notice alleged that Respondent violated 49 C.F.R. § 195.573(e), which states, in relevant part: § 195.573 What must I do to monitor external corrosion control? (a) . . . (e) Corrective action. You must correct any identified deficiency in corrosion control as required by § 195.401(b). . . . The Notice alleged that Respondent violated 49 C.F.R. § 195.573(e) by failing, within a reasonable time, to correct cathodic protection deficiencies found at 62 locations, as required under § 195.401(b).7 Specifically, the Notice alleged that TransCanada’s records indicated CP deficiencies had remained uncorrected for multiple years. The inspection documented 56 deficiencies from Steele City, Nebraska, to Patoka, Illinois, that persisted from 2010 to 2012. An additional six deficiencies were documented from Steele City, Nebraska, to Cushing, Oklahoma, from 2010 to 2012. In its Response, TransCanada did not contest PHMSA’s allegations, but outlined the company’s efforts to remedy known CP deficiencies throughout the relevant time period. At its meeting with the Region on February 4, 2016, TransCanada requested that PHMSA consider eliminating this Item or reducing the proposed penalty.8 As noted above, given the seriousness of TransCanada’s failure to maintain proper cathodic protection on the pipeline over an extended period of time and the fact that TransCanada did not dispute the allegations of violation, I see no basis to withdraw this Item. As for the alternative request that the proposed penalty be reduced, I will discuss this issue in the “Assessment of Penalty” section below. Accordingly, after considering all of the evidence, I find that Respondent violated 49 C.F.R. § 195.573(e) by failing, within a reasonable time, to correct cathodic protection deficiencies found at 62 locations, as required under § 195.401(b). Item 4: The Notice alleged that Respondent violated 49 C.F.R. § 195.577(a), which states: § 195.577 What must I do to alleviate interference currents? (a) For pipelines exposed to stray currents, you must have a program to identify, test for, and minimize the detrimental effects of such currents. 7 49 C.F.R. § 195.401(b) states: “(b) An operator must make repairs on its pipeline system according to the following requirements: (1) Non integrity management repairs. Whenever an operator discovers any condition that could adversely affect the safe operation of its pipeline system, it must correct the condition within a reasonable time…” 8 Region Recommendation, at 2 (on file with PHMSA).#

320155010_Final Order_05312017_text.pdf, page 6CPF No. 3-2015-5010 Page 5 The Notice alleged that Respondent violated 49 C.F.R. § 195.577(a) by failing to minimize the detrimental effects of interference currents on at least two areas under the influence of another pipeline’s CP system. Specifically, the Notice alleged that TransCanada’s records showed stray currents existed on the pipeline from milepost (MP) 991 to MP 998 on the Mainline Segment near St. Louis and at MP 137 on the Cushing Extension, over one year after installing corrosion- control measures to alleviate the problem. PHMSA further alleged that TransCanada reported the existence of these interference locations to PHMSA on March 27, 2012, and detailed the company’s efforts to mitigate them.9 According to the Notice, a third-party report by a TransCanada contractor confirmed the problem when it indicated the “strong possibility for stray current interference.” In addition, TransCanada’s own November 14, 2012 Close Interval Survey showed interference current on the pipeline from MP 991 to MP 998 (28 months after the pipeline was put in-service). Finally, the Notice alleged that by letter to PHMSA dated December 9, 2013, TransCanada acknowledged its continuing efforts to identify and remedy anomalies from low CP levels and that these efforts were the result of TransCanada failing to timely correct the effects of interference currents. In its Response, TransCanada did not contest the allegations of violation, but noted that it had developed and implemented a stray-current interference program designed to identify, test for, and minimize stray-current interference once the company recognized that it had a problem. TransCanada’s program identified the existence of stray-current interference during both a December 2010 survey and an August 2011 survey (both conducted within six months of the facilities going into service). TransCanada outlined a number of steps it had taken upon its recognition of the problems on both systems, but did not contest the allegation that stray-current interference existed well after the initial identification of the problem. However, TransCanada’s efforts to identify stray-current interference were not initiated right away and only gradually addressed the problem, despite the fact that both pipelines operated in shared pipeline corridors where stray currents were likely to occur. On February 4, 2016, the Region met with TransCanada to receive further information from the company about the proposed compliance terms. At that meeting, TransCanada did not contest this Item but requested that PHMSA consider eliminating this Item and/or reducing the proposed penalty.10 Given the seriousness of TransCanada’s failure to maintain proper cathodic protection on the pipeline over an extended period of time and the fact that the company did not contest the allegations of violation, I see no basis to withdraw this Item. As for the request that the proposed penalty be reduced, I will discuss this issue in the “Assessment of Penalty” section below. Accordingly, after considering all of the evidence, I find that Respondent violated 49 C.F.R. § 195.577(a) by failing to minimize the detrimental effect of interference currents in at least two areas that were under the influence of another pipeline’s cathodic protection system. These findings of violation will be considered prior offenses in any subsequent enforcement action taken against Respondent. 9 Violation Report at 24-26. 10 Region Recommendation, at 2 (on file with PHMSA).#

320155010_Final Order_05312017_text.pdf, page 7CPF No. 3-2015-5010 Page 6 ASSESSMENT OF PENALTY Under 49 U.S.C. § 60122, Respondent is subject to an administrative civil penalty not to exceed $200,000 per violation for each day of the violation, up to a maximum of $2,000,000 for any related series of violations.11 In determining the amount of a civil penalty under 49 U.S.C. § 60122 and 49 C.F.R. § 190.225, I must consider the following criteria: the nature, circumstances, and gravity of the violation, including adverse impact on the environment; the degree of Respondent’s culpability; the history of Respondent’s prior offenses; and any effect that the penalty may have on its ability to continue doing business; and the good faith of Respondent in attempting to comply with the pipeline safety regulations. In addition, I may consider the economic benefit gained from the violation without any reduction because of subsequent damages, and such other matters as justice may require. The Notice proposed a total civil penalty of $187,200 for the violations cited above. Item 1: The Notice proposed a civil penalty of $53,800 for Respondent’s violation of 49 C.F.R. § 195.401(a), for failing to operate the Mainline Segment and the Cushing Extension at the required level of safety. TransCanada did not contest this Item but asked that the proposed penalty be reduced because (1) it had identified problems with its CP system within six months of Phase I of the project being placed in service, (2) it took additional time to implement the corrective measures due to circumstances beyond its control, and (3) the company had “commenced remediation and mitigation efforts prior to any response or direction from PHMSA.”12 I have reviewed the record and the penalty-assessment factors that the Region considered in proposing the penalty and believe that the penalty is appropriate. The Violation Report noted, among other things, that the inadequate CP system caused metal loss anomalies up to 97 percent of pipe wall loss at one location located within a High Consequence Area near St. Paul, Missouri, and that the company’s initial CP surveys showed low CP levels at numerous locations.13 In other words, this violation came extremely close to causing a pipeline failure in a location that could have resulted in serious damage to life, property or the environment. Further, the proposed penalty did recognize and take into account Respondent’s efforts to address its CP problems. Under the “Culpability” penalty factor, the Violation Report noted that TransCanada took significant steps to comply with the regulation but that it did not achieve compliance in a timely manner.14 I fail to see how any of the additional or any other arguments presented by the company provide a basis for reducing the proposed penalty. Accordingly, having reviewed the record and considered the assessment criteria, I assess Respondent a civil penalty of $53,800 for violation of 49 C.F.R. § 195.401(a). 11 The Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, Pub. L. No. 112-90, § 2(a)(1), 125 Stat. 1904, January 3, 2012, increased the civil penalty liability for violating a pipeline safety standard to $200,000 per violation for each day of the violation, up to a maximum of $2,000,000 for any related series of violations. 12 Response, at 5. 13 Violation Report, at 8. 14 Id., at 9.#

320155010_Final Order_05312017_text.pdf, page 8CPF No. 3-2015-5010 Page 7 Item 3: The Notice proposed a civil penalty of $53,200 for Respondent’s violation of 49 C.F.R. § 195.573, for failing, within a reasonable time, to correct cathodic protection deficiencies found at 62 locations, as required under § 195.401(b). TransCanada did not contest PHMSA’s allegations of violation, but requested that the proposed penalty be reduced on account of the company’s “good faith efforts” to come into compliance. First, it outlined the company’s ongoing and progressive efforts to remedy known CP deficiencies throughout the relevant time period. Second, it asserted that TransCanada had self-reported the issue to PHMSA before taking various corrective measures. I do not find these arguments persuasive. First, the company’s attempts to correct the CP deficiencies were taken into account in calculating the proposed penalty. Under the “Culpability” penalty assessment factor, the Violation Report noted that after TransCanada found the non-compliance, it took action to address the cause of the violation and was in the process of correcting the problem before PHMSA learned of the violation.15 Second, TransCanada asserts in its Response that it self-reported the violation, but the Violation Report alleged that PHMSA discovered the violation.16 While TransCanada may be correct in its assertion, I can find no evidence in the record to support the notion that the violation was self-reported. Finally, it is clear that TransCanada’s prolonged period of inadequate CP significantly compromised the integrity of its pipeline and threatened High Consequence Areas. Accordingly, having reviewed the record and considered the assessment criteria, I assess Respondent a civil penalty of $53,200 for violation of 49 C.F.R. § 195.573. Item 4: The Notice proposed a civil penalty of $28,400 for Respondent’s violation of 49 C.F.R. § 195.577, for failing to minimize the detrimental effect of interference currents on at least two areas under the influence of another pipeline’s CP system. TransCanada did not contest this Item but requested a reduction in the proposed penalty for the same reasons discussed above in Item 1, contending that it had developed and implemented a stray-current interference program to identify, test for, and minimize stray-current interference within six months of the facilities going into service. The proposed penalty for this Item was based in large part on the gravity of the violation, which significantly compromised safety of the pipeline in High Consequence Areas. In addition, the fact that stray-current interference was allowed to persist for close to two years is further evidence of the seriousness of the violation. Accordingly, having reviewed the record and considered the assessment criteria, I assess Respondent a civil penalty of $28,400 for violation of 49 C.F.R. § 195.577. In summary, having reviewed the record and considered the assessment criteria for each of the Items cited above, I assess Respondent a total civil penalty of $135,400. Payment of the civil penalty must be made within 20 days of service. Federal regulations 15 Id., at 22. 16 Id., at 20.#

320155010_Final Order_05312017_text.pdf, page 9CPF No. 3-2015-5010 Page 8 (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 (AMK-325), Federal Aviation Administration, Mike Monroney Aeronautical Center, 6500 MacArthur Boulevard, Oklahoma City, Oklahoma 79169. The Financial Operations Division telephone number is (405) 954-8845. Failure to pay the $135,400 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. Under 49 C.F.R. § 190.243, TransCanada has the right to submit a Petition for Reconsideration of this Final Order. The petition must be sent to: Associate Administrator, Office of Pipeline Safety, PHMSA, 1200 New Jersey Avenue, SE, East Building, 2nd Floor, Washington, DC 20590, with a copy sent to the Office of Chief Counsel, PHMSA, at the same address. PHMSA will accept petitions received no later than 20 days after receipt of service of the Final Order by the Respondent, provided they contain a brief statement of the issue(s) and meet all other requirements of 49 C.F.R. § 190.243. The filing of a petition automatically stays the payment of any civil penalty assessed but does not stay any other provisions of the Final Order, including any required corrective actions. If Respondent submits payment of the civil penalty, the Final Order becomes the final administrative decision and the right to petition for reconsideration is waived. The terms and conditions of this Final Order are effective upon service in accordance with 49 C.F.R. § 190.5. __________________________________ __________________________ Alan K. Mayberry Date Issued Associate Administrator for Pipeline Safety#