CITGO PIPELINE CO — Notice of Probable Violation

party submissionOfficial PDF420075010_Petition for Reconsideration_06102011.pdf#

party submissionOfficial PDFCPF 4-2007-5010 Citgo request for hearing_05042007.pdf#

420075010_Closure_09102012_text.pdf, page 1Official PDFCERTIFIED MAIL – RETURN RECEIPT REQUESTED September 10, 2012 Mr. Jim Sanders General Manager, Terminal and Pipelines CITGO Petroleum Corporation 1293 Eldridge Parkway Houston, TX 77077 CPF 4-2007-5010 Dear Mr. Sanders On April 14, 2011, the Pipeline and Hazardous Materials Safety Administration (PHMSA) issued to CITGO Petroleum Corporation a Final Order in the above reference case. This order included a Compliance Order and Civil Penalty assessment. Based on our review of the documentation you provided and confirmation of payment of the civil penalty, it has been determined that you have complied with terms of this order. Accordingly, this case is now closed and no further action is contemplated with respect to the matters involved in this case. Thank you for your cooperation in this matter. Sincerely, R. M. Seeley Director, Southwest Region Pipeline and Hazardous Materials Safety Administration cc: Curtis L. Craig; Vice President & General Counsel, Explorer Pipeline#

420075010_Decision on Reconsideration_12292011_text.pdf, page 1Official PDFDEC 29 2011 Mr. Jim Sanders General Manager, Terminal and Pipelines CITGO Petroleum Corporation 1293 Eldridge Parkway Houston, TX 77077 Re: CPF No. 4-2007-5010 Dear Mr. Sanders: Enclosed please find the Decision on Reconsideration issued in the above-referenced case. It grants your Petition for Reconsideration, in part. Service of the Decision 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, Jeffrey D. Wiese Associate Administrator for Pipeline Safety Enclosure cc: Mr. Rod Seeley, Director, Southwest Region, OPS Mr. Alan Mayberry, Deputy Associate Administrator for Field Operations, OPS Mr. Bruce Oakley, Partner, Hogan Lovells US LLP, 700 Louisiana Street, Suite 4300 Houston, TX 77002 CERTIFIED MAIL – RETURN RECEIPT REQUESTED [71791000164203033168]#

420075010_Decision on Reconsideration_12292011_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 ) ) CITGO Pipeline Company, ) CPF No. 4-2007-5010 ) Petitioner. ) ______________________________) DECISION ON RECONSIDERATION In an April 14, 2011 Final Order, I found that CITGO Pipeline Company (CITGO or Petitioner) had committed several violations of the hazardous liquid pipeline safety regulations. I assessed Petitioner a civil penalty of $82,000 and ordered the company to complete certain remedial actions for committing those violations. On June 10, 2011, after receiving an extension of the 20-day filing deadline in 49 C.F.R. § 190.215(a), CITGO submitted this timely Petition for Reconsideration (Petition). Petitioner seeks reconsideration of two of the findings of violation and associated civil penalties and compliance items in the Final Order. First, CITGO argues that I erred in finding that the company violated 49 C.F.R. § 195.412(a) by failing to perform adequate inspections of the right- of-way (ROW) for the Eagle Pipeline. Petitioner further argues that even if the evidence substantiates that violation, the terms of the resulting compliance order are unlawful, and that its sale of the Eagle Pipeline to Explorer Pipeline Company (Explorer) on October 31, 2007, has rendered that aspect of this case moot. Second, CITGO argues that I erred in finding that it violated 49 C.F.R. § 195.573(d) and (e) by failing to have adequate cathodic protection for the aboveground breakout tanks at its Sour Lake Tank Farm. Petitioner asks that this finding of violation be withdrawn, and that the associated $50,000 civil penalty be rescinded. I am denying CITGO’s request for reconsideration of the finding that it violated the ROW inspection requirements of 49 C.F.R. § 195.412(a). However, I am granting Petitioner’s request for reconsideration of the finding that it violated the cathodic protection requirements of 49 C.F.R. § 195.573(d) and (e). The $50,000 civil penalty and associated compliance items for that violation are withdrawn for lack of sufficient evidence. Background From February to June 2006, the Pipeline and Hazardous Materials Safety Administration (PHMSA), Office of Pipeline Safety (OPS), conducted an on-site pipeline safety inspection of CITGO’s facilities and records in Texas and Oklahoma. As a result that inspection, the Director,#

420075010_Decision on Reconsideration_12292011_text.pdf, page 33 Southwest Region, OPS (Director), issued to Petitioner, by letter dated April 2, 2007, a Notice of Probable Violation, Proposed Civil Penalty, and Proposed Compliance Order (Notice). The Notice alleged that CITGO had committed several violations of the hazardous liquid pipeline safety regulations. Two of those violations related to Petitioner’s failure to comply with the ROW inspection requirements of 49 C.F.R. § 195.412(a) and cathodic protection requirements in 49 C.F.R. § 195.573(d) and (e). The Notice proposed assessing the company a total civil penalty of $94,000 and ordering Petitioner to perform certain remedial measures for committing those violations. The Notice further proposed finding that CITGO had committed certain other probable violations of 49 C.F.R. Part 195 and warning the company to take appropriate corrective action to address them or be subject to future enforcement action. Petitioner responded to the Notice by letters dated May 4, 2007 (Response) and June 25, 2007 (Supplemental Response). CITGO contested several of the alleged violations and the proposed civil penalty amounts and compliance activities. Petitioner also requested a hearing, which was held on July 24, 2007, at the PHMSA Southwest Region Office in Houston, Texas. Mr. Christian A. Garza represented Petitioner as counsel. CITGO later submitted post-hearing material for the record by letter dated August 23, 2007 (Closing). On April 14, 2011, I issued the Final Order in this case. I found that Petitioner had committed all but two of the alleged violations, assessed the company a reduced civil penalty of $84,000, and ordered CITGO to take certain actions to comply with the hazardous liquid pipeline safety regulations. On April 21, 2011, Petitioner’s new counsel, Mr. Bruce D. Oakley, asked for an extension of the 20-day deadline for seeking reconsideration of the Final Order. 49 C.F.R. § 190.215. That request was granted, and on June 10, 2011, CITGO filed this timely Petition. Petitioner seeks reconsideration of two of the findings of violation and associated civil penalties and compliance activities in the Final Order. First, CITGO argues that I erred in finding that the company violated 49 C.F.R. § 195.412(a) by failing to perform adequate inspections of the Eagle Pipeline ROW. Petitioner further argues that even if the evidence substantiates that violation, the compliance activities imposed in the Final Order are unlawful and, have become moot as a result of its sale of the Eagle Pipeline to Explorer on October 31, 2007. Second, CITGO argues that I erred in finding that the company violated 49 C.F.R. § 195.573(d) and (e) by failing to have adequate cathodic protection for the aboveground breakout tanks at its Sour Lake Tank Farm. Petitioner asks that this finding of violation be withdrawn, and that the associated $50,000 civil penalty be rescinded. CITGO included a number of exhibits with its Petition in support of these arguments. Standard of Review A respondent may petition the Associate Administrator for reconsideration of a final order. Reconsideration is not a right of appeal or to seek a de novo review of the record.1 It is an opportunity to present the Associate Administrator with previously unavailable information or to request that any errors in the final order be corrected. Requests for consideration of additional facts or arguments must be supported by a statement of reasons as to why those facts or 1 49 C.F.R. § 190.215(a)-(e).#

420075010_Decision on Reconsideration_12292011_text.pdf, page 44 arguments were not presented prior to the issuance of the final order. Repetitious information or arguments will not be considered. Analysis I. Request for consideration of additional facts or arguments under 49 C.F.R. § 190.215(b). Section 190.215(b) of the Pipeline Safety Regulations states that “[i]f the respondent requests the consideration of additional or arguments, the respondent must submit the reasons they were not presented prior to issuance of the final order.” CITGO included 26 exhibits with its Petition. Six of those exhibits consist of materials submitted prior to the issuance of the Final Order in this case, i.e., Petitioner’s Response, Supplemental Response, Closing, and certain attachments. Two other exhibits contain documents related to the actions of Explorer, the operator who purchased the Eagle Pipeline after the July 2007 hearing. The remaining exhibits contain a variety of materials not submitted prior to the issuance of the Final Order, including: • Excerpts from CITGO’s Non-Refining Operations Manual, dated February 2, 2006; • A blank CITGO surface inspection report; • ROW inspection logs from 2006 and 2007; • An undated CITGO Pipeline Compliance List with information on its ROW inspection program; • Documents related to a September 2004 ROW maintenance contract between CITGO and a third party, J B L Plant Services; • An August 2005 service contract between CITGO and J B L Plant Services; • Additional documentation, dated July and August 2006, on the ROW maintenance contract between CITGO and J B L Plant Services. • Invoices, purchase orders, and emails for ROW maintenance from J B L Plant Services to CITGO from 2007; • Work orders for ROW maintenance and clearing from June 2006 to August 2007; • A May 10, 2011 third-party analysis of the cathodic protection program for the breakout tanks at the Sour Lake Tank Farm; • November 13, 2003, December 2, 2004, July 26, 2005, and September 26, 2006 facility surveys for the Sour Lake Tank Farm; and • Additional information, including prior inspection and operating reports, for the rectifier at the Sour Lake Tank Farm. With the exception of the two exhibits related to the activities of Explorer, CITGO did not provide any explanation as to why the new exhibits submitted with its Petition should be considered at this stage of the proceeding. Such an explanation is required under § 190.215(b). Accordingly, I find that Petitioner did not comply with the requirements of § 190.215(b) and am excluding Exhibits 1, 5, 6A-6B, 7A-7G, 10, 11A-11D, and 12A-12B from the record. II. Request for reconsideration of the finding that CITGO violated the ROW inspection requirements in 49 C.F.R. § 195.412(a).#

420075010_Decision on Reconsideration_12292011_text.pdf, page 55 CITGO seeks reconsideration of the finding that the company failed to perform adequate inspections of the Eagle Pipeline ROW as required under 49 C.F.R. § 195.412(a). Specifically, Petitioner contends that I erred in concluding that it was not contesting that allegations in the Notice, and that I failed to require that PHSMA meet its burden of proof in sustaining that finding of violation. CITGO further argues that I failed to consider all of the relevant exculpatory and mitigating evidence, and that the company did not receive adequate notice of the specific basis for its alleged violation of § 195.412(a). Petitioner also argues that even if the evidence substantiates that allegation, the compliance activities imposed in the Final Order are unlawful, and that its sale of the Eagle Pipeline on October 31, 2007, to Explorer Pipeline Company renders the compliance order moot. CITGO has not presented a persuasive basis for withdrawing this finding of violation. The Pipeline Safety Regulations state, in relevant part: § 190.211 Hearing. (a) A request for a hearing provided for in this part must be accompanied by a statement of the issues that the respondent intends to raise at the hearing. The issues may relate to the allegations in the notice, the proposed corrective action (including a proposed amendment, a proposed compliance order, or a proposed hazardous facility order), or the proposed civil penalty amount. A respondent's failure to specify an issue may result in waiver of the respondent's right to raise that issue at the hearing. . . . In its hearing request, Petitioner did not object to the allegation that it violated the ROW inspection requirements in 49 C.F.R. § 195.412(a). Rather, CITGO acknowledged in its Response that “[t]he issue cited is that large trees overhanging the right-of-way obscure it from aerial surveillance,” and “agree[d] that this is an important issue and will undertake a focused inspection of its rights-of-way from the air to identify any areas that actually obscure the right- of-way from aerial surveillance.” Petitioner also stated in its Supplemental Response that it was “assessing its current canopy trimming program to reduce problem areas.” Such statements, particularly in a document submitted by counsel, indicate that CITGO agreed with the merits of the allegation of violation, not that the company disputed it. Moreover, even if Petitioner intended to raise such an objection, the evidence of record supports the finding of violation. As noted in the Violation Report, the OPS inspector observed areas of overgrowth on the Eagle Pipeline ROW that would prevent the performance of adequate aerial inspections, and CITGO’s employees stated those areas would be subject to ground surveillance in the future. The OPS inspector also submitted photographic evidence of obstructed areas of the Eagle Pipeline ROW near the North Arbuckle Block Valve, the West Trinity Block Valve, Wynnewood Junction, the north Houston suburbs, and Milepost 87.6. Such evidence is more than sufficient to sustain the alleged violation. Accordingly, I am denying Petitioner’s request for reconsideration of the finding that it failed to perform adequate inspections of the Eagle Pipeline ROW as required under 49 C.F.R. § 195.412(a). With respect to CITGO’s remaining arguments, the terms of the compliance order do not mandate that Petitioner perform aerial inspections of the Eagle Pipeline ROW. CITGO is merely required to take certain steps, e.g., identification and clearing of overgrowth, to ensure that its aerial inspections are being conducted in an appropriate manner. Nothing in the compliance#

420075010_Decision on Reconsideration_12292011_text.pdf, page 66 order precludes Petitioner from using other appropriate means of performing ROW inspections, including ground surveillance.2 Nor has Petitioner’s sale of the Eagle Pipeline to Explorer Pipeline Company rendered the terms of the compliance order moot. CITGO is the moving party and bears the burden of establishing mootness, 3 i.e., that “[t]he controversy between the parties has thus clearly ceased to be ‘definite and concrete’ and no longer ‘touch(es) the legal relations of parties having adverse legal interests[,]’”4 and that it is “impossible . . . to grant ‘any effectual relief whatever’[.]”5 That is a “heavy burden” where, as here, the allegation of mootness arises from the moving party’s own voluntary conduct, i.e., Petitioner’s sale of the Eagle Pipeline. 6 In such a case, CITGO “bears the formidable burden of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur[,]”7 and that “interim relief or events have completely and irrevocably eradicated the effects of the alleged violation.”8 Petitioner states that it sold the Eagle Pipeline to Explorer on October 31, 2007, that CITGO no longer has any authority to perform inspections of that pipeline ROW, and that Explorer has its own program for complying with the requirements in § 195.412(a). Petitioner has also submitted a September 30, 2009 letter from Explorer to OPS, which states that “Explorer has conducted an aerial survey [of the Eagle Pipeline] to determine locations where ROW clearing needs to be enhanced to facilitate weekly aerial patrol,” and that “[c]ertain ROW clearing has been completed.” The evidence provided is not sufficient to show that the sale of the Eagle Pipeline has “completely and irrevocably eradicated the effects” of Petitioner’s violation of the ROW inspection requirements. Explorer’s letter indicates that aerial inspections of the Eagle Pipeline ROW are still being conducted, and that additional clearing of the ROW may be needed in certain areas. This indicates that CITGO’s failure to comply with the requirements in § 195.412(a) is still adversely impacting the condition of the ROW. As important, the evidence does not make “absolutely clear” that Petitioner has no obligation to ensure that these actions are completed. The specific terms of CITGO’s transaction with Explorer are not of record in this proceeding, including Petitioner’s obligations, if any, for conduct that arose prior to its sale of 2 PHMSA has broad discretion to ensure compliance with the Pipeline Safety Laws and Regulations, and in cases of non-compliance such discretion can include requiring operators to take remedial actions that might not otherwise be required in the absence of a violation. 49 U.S.C. § 60118. 3 Friends of the Earth v. Laidlaw, 528 U.S. 167, 189-90 (2000). 4 DeFunis v. Odegaard, 416 U.S. 312, 317 (1974) (per curiam) (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41 (1937)) 5 Church of Scientology of California v. U.S., 506 U.S. 9, 12 (1992) (quoting Mills v. Green, 159 U.S. 651, 653 (1895)). 6 Friends of the Earth, 528 U.S. at 189-190 (citing United States v. Concentrated Phosphate Export Assn., 393 U.S. 199 (1968); City of Mesquite v. Aladdin's Castle, Inc., 455 U.S. 283, 289 (1982)). 7 528 U.S. at 190. 8 Los Angeles County v. Davis, 440 U.S. 625, 631 (1979).#

420075010_Decision on Reconsideration_12292011_text.pdf, page 77 the Eagle Pipeline. Therefore, I find that CITGO has not met its heavy burden of establishing that the terms of the compliance order are moot. III. Request for reconsideration of the finding that CITGO violated the cathodic protection requirements in 49 C.F.R. § 195.573(d) and (e). CITGO requests reconsideration of the finding in the Final Order that it violated 49 C.F.R. § 195.573(d) and (e) by failing to have adequate cathodic protection for the aboveground breakout tanks at its Sour Lake Tank Farm. Petitioner argues that OPS has not submitted the evidence required to sustain that violation, i.e., that its case rests solely on the fact that one of the four cathodic protection beds was out of service at the time of the inspection, but that the record does not contain any evidence to show that the breakout tank was not receiving adequate cathodic protection from the three remaining in-service beds. I find CITGO’s arguments persuasive. OPS bears the burden of proof in an enforcement action and must prove, by a preponderance of the evidence, that all of the elements necessary to sustain a violation are present in a particular case. that one of the four cathodic protection beds for the breakout tank at the Sour Lake Tank Farm was out of service. However, the record does not contain any additional evidence, such as test results or an expert opinion, to demonstrate that the breakout tank was not receiving adequate cathodic protection from the three remaining beds. Accordingly, I am withdrawing the finding in the Final Order that CITGO violated 49 C.F.R. § 195.573(d) and (e) by failing to have adequate cathodic protection for the aboveground breakout tanks at its Sour Lake Tank Farm and rescinding the $50,000 civil penalty for that violation. 9 As Petitioner notes, OPS’s case is based on the fact RELIEF GRANTED Based on the information provided in the Petition, a review of the relevant portions of the record, and for the reasons stated above, I am withdrawing the finding in the Final Order that CITGO violated 49 C.F.R. § 195.573(d) and (e) by failing to have adequate cathodic protection for the aboveground breakout tanks at its Sour Lake Tank Farm and rescinding the $50,000 civil penalty for that violation. The remainder of the Final Order is affirmed without modification. This Decision is the final administrative action in this proceeding. _____________________________ __________________________ Jeffrey D. Wiese Date Issued Associate Administrator for Pipeline Safety 9 In the Matter of Alyeska Pipeline Service Co., Decision on Reconsideration, CPF No. 5-2005-5023, p. 4-5 (Dec. 16, 2009); In the Matter of Butte Pipeline Co., Final Order, CPF No. 5-2007-5008, p. 2, n. 3 (Aug. 17, 2009); see Schaeffer v. Weast, 546 U.S. 49, 56-58 (2005).#

cpf 4-2007-5010 citgo pipeline company nopv pcp pco_text.pdf, page 1Official PDFU. S. Oepartment of Transportation Pipeline and Hazardous Sttatertats Safety Admtnistratlon 8701 South Gessner, Suite 1110 Houston. TX 7707S NOTICE OF PROBABLE VIOLATION PROPOSED CIVIL PENALTY and PROPOSED COMPI IANCE ORDER CERTIFIED MAIL - RETURN RECEIPT REQUESTED April 2, 2007 Jim Sanders Vice President, Operations Citgo Pipeline Company 1293 Eldridge Parkway Houston, TX 77077 CPF 4-2007-5010 Dear Mr. Sanders: During the weeks of February 6 — 10, March 6 - 10, April 3 — 7, and May 31 - June 2, 2006, a representative of the Pipeline and Hazardous Materials Safety Administration (PHMSA), pursuant to Chapter 601 of 49 United States Code, inspected CITGO Pipeline Company's (CITGO) operations and maintenance procedures, and records, and conducted field inspections of your Sour Lake district pipelines and tank farm, the Eagle Line south pipeline unit, from Houston to Arlington, TX, and the Eagle Line north pipeline unit from Arlington, TX to the Drumrigrtt, OK area. An inspection of the Tulsa control center for the pipeline units was also conducted as part of these standard inspections. As a result of the 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. rJ 195. 128 Station Piping Any pipe to be installed in a station that is subject to system pressure must meet the applicable requirements of this subpart.#

cpf 4-2007-5010 citgo pipeline company nopv pcp pco_text.pdf, page 2The regulation requires that materials for permanent installation in facility piping be suitable, and meet the requirements of referenced standards. ABME B31. 4 does not list rubberized, braided hoses as suitable for permanent installation in pipeline service. Drag Reducing Agent (DRA) is introduced at a number of pump stations on the OITGO pipeline systems. The DRA is pumped into the station piping from permanently located tank and pump assemblies, but is being introduced into the pipeline system through braided, rubber covered hoses, casually laid on the ground between pump and the pipeline. In addition, the rubber hoses laid on the ground present a tripping, or snagging safety hazard. 2. &tf &35A06 Maximuiim operating pressure b. No operator may permit the pressure in a pipe!ine during surges or other varialio&ss from nord!el operations to exse, . di 1I10 percent of tltie operating pressure lllmit establlished under paragraph (al of this sect(on. I=aoh operator must provid'e adequate controls and protectlive equ!pnaent to cir&ntrr&l the priessure within thiis limit. Pipeline must be protected against over pressures and surges that would exceed ';l10% of the MOP established for the pipeline Adequate controls and protective equipment to control the pressure within this limit must be prowded. CITGO was unable to provide documentation that surge pressures have been car&side!ed:, . rtr that' t'lie pigsk!Ine is adequately protected from surges. 3. &9 595A10 Line markers (a!' Except ss providled' in pasagraph (9&]& of this section, sxach &rperatoi shall place andi m&sintaiin line markers over eaclh buiried pi&pelfne In adcorr!;anccx with the fallowing: (0;I Markers midst be located at each put&lip road crossing, at each railroad a&rossing, , snd In sufficient number along the r&areain der of. eacih buir led Itrte so that its location is aiccurately known. CITGO does not have sufficient markers along their pipelines in some areas. When crossing cultivated agricultural fields, often the markers on the far side of the field could not be seen. From Valve sites, looking in both directions, the next marker for i"e pipeline could not be seen. The pipeline markers across Northgate Forest golf course are flush mounted markers The markers are from Area Pipeline, and the phone numbers on the markers are no longer valid.#

cpf 4-2007-5010 citgo pipeline company nopv pcp pco_text.pdf, page 34. It 195. 412 Inspection of Right of Way (a) Each opet'ator shall. at iritel'va'Is not ettceefftpg 3 weeks, bgt at leakii 26 times each calendar year, Inspect the sitrfaaa Condihiona gn or adjacent to qpgii pipeline rightmf-way. Methodis of inspect!on !ncltttie vs(king, dr(vir&g, flyihg or other appropriate mean of traver'sing the rigl;t-of vtra„. In order to perform pipeline surveillance, the right of way must ". 8 i'naintained so that the ROW is clearly visible by the means of surveillance employed. Aerial surveillance is the primary method of pipeline patrolling used by CITQO. Many areas of Cl JGG's pipelines have ROW areas that are lined with targe trees The treeS liave branches that overhang the ROW, and form a canopy that obscures the pipeline ROW from observation by aerial surveillance. Some areas are overgrown with deep brush and grass that should be cleared to allow clear observation of the ROW during surveillance, and to allow visibilily of pipe ine markers. 5. 4r 19. '5. 42ll Valjve Mainftenance (c) IEacki operator shall provide protection for each valve from t!Nattfthorized operatic. ni and fromm vandalism. A number of the CITGO pipeline valves do not have protection from vandalism at the sites. The valves were chained and locked to prevent unauthorized use, but these ocations did not provide any deterrence against vandalism. I-ocal personn"-. did provi~ additional information regarding this issue. During the inspections it was noted that CITG&&s preferred method of complying wit", I 195. 420(c) is to install locked chain link fencing around the valves. This was evident in the three CITGO units that were inspected, where the majority of above ground valves were located in locked fences. Stime of the remaining valves in those units were located above ground with no fences. i4 number of above ground valves that were observed without fences by the inspeclc~ FA' the three Texas and Oklahoma units, and the lack of fencing was pointed out to C ITiiGO personnel at the time of the inspections. It should be pointed out that a of the unfenced valves were i tain locked and most. htfd' steel barricade posts installed. A review of your procedures by our inspectors did'rL'hatt reveal any alternative method of security for valve sites acceptable to you Ci!TiG& should review their program, procedures, and facilities to ensure they are compliant with this regulation. 6. g95:432 Breakout tar &ks. (b) Each opetratnr shallins pi!. t. tie It, itysi cal intpgrtty of ln-a@vice atmoflPheric arcr' Inw pass ue s: teel, atsvegrouna breako utltanirs according to akctton. 4, nf API X'ttrrdtnt d653', Hnvever, . if;structural conditio nb' i prevent access to, i!he tat ik bottom, 3#

cpf 4-2007-5010 citgo pipeline company nopv pcp pco_text.pdf, page 4the bottom integrity may be assessed according to a piap included in the operations and maintenance manual uhider t)195. 402tc)(3). (d) The intervals of inspection Speotfled by documents refehenqed in paragraphs (b) and (c) of this seiction begin on May 3. 1999, or on the opargtor's last recorded date of the inspection, whichiever' is cacti„r. A number of tanks at the Sour Lake facility, Fauna Station, and Arlington Station have items that are out of compliance with API-653. Most of these arise from items that are being missed during monthly inspections The purpose of the monthly inspections is to catch minor items, such as vegetation growing adjacent to tanks, wa'bouts of sttbegi' from under tank bottom or animal burrows, cracks in concrete nng wall, leaks or diiba at mixers or flanges, etc These items should be noted in the monthly inspections, sis well as other items, as listed in the API-653 checklist. Once noted, the items should be resolved prior to the next inspection, or a reason given for why the item was not resolved. Regulations require that the operator of pipeline breakout tanks adopt an API-653 Istql; inspection schedule, and inspect breakout tanks on a frequency prescribed in the standard. CITGO has adopted the API-653 tank inspection standard, but has not met the required tank inspection frequency, as required by the standard and regulation. Two tanks are overdue for their out of service internal inspections. Eight tanks have been missed for the in-service external inspections, and it appeeii's that eight tanks have been missed for their UT inspections. This information is based upon the operator's records for 'enk inspections. 7, $1195. 573 Iitfhat must I do to itnociltror tecterntcj corrosion COntrolg (d) Breaks. ut I;an)rs. 'You mus t (inspect eac'h sathcitfie prot~ttion, sysfpm used, to co ntrol corresiorri on the bottom ctf an atto vegroutid' breakout (isnk to ensure that operatjenn and maintenance ef the sya4ern are in accordance vyifh, API Recomoxenided Pracfice 651. However, tltiis ittsspectktn is not requitiad ilf you note in the crtrrositon contrctl procWurssx cstaitdtshecl uindeti, Sec. 1I94 402(iclt3) why ciomp'liance wdhi alP or certain'. opettatiort and nItsettenance previsions of API Recorntnended Pracfiice 651 is n~ol necessary forithy safety oftlltitsftank, , (e) Correct(ve action. Youi umst ccxrrwt any fdiritttified deficiency in corrosion control as renviuiredl by Sec. . 1f!5401'(bx):. IRowever, , lf the dfjficiansy involves, a pipeline ih an ibilegrity mar raacimctitt. procqract urtder Sec. 195. 452, you must correct the deffciieincy as required by Siec. 1ic)5. 452tfti). Regulation requires that the operator of pipeline breakout tanks maintain a cathodic protection system on their breakout tanks which is in accordance with AF:. IMP-651. The regulations also require that if there is an identified deficiency, it must be corrected within a reasonable time.#

cpf 4-2007-5010 citgo pipeline company nopv pcp pco_text.pdf, page 5Citgo discovered that tank farm rectifier/ground bed, Srbu'r' I ake ¹3, had failed in October 2003. The records indicate that the system was failing as early as December 2002. As of the standard inspection conducted February 6 - 10, 2006, the Sour Lake ¹3 system was still down, and not providing Cathedic Protection to the tank farm. The system has been failing or out of service for over -1 years, without correction. 8. II195. 579 What tnust I do to miticiate internal corrosion? (a} General, . If you transport any llih", slrtlous liquid or carbon dig)ride '„habit would coirroitie tbe pipeline, you must invesfi$Iate the corfos;ve effect rf the I)azardous liquid or carbohi dioxide on the pipellihe arid take adequate steps fo mitigate intertsali corrosion, CIYGO Pipeline has not performed adequate investigations of the corrosivity of the products on their pipelines and facilities. The operator has not performed inspections on dead legs, low points, facility and non-piggable pipe, and downstream of supplier taps. The operator also does not have adequate monitoring, and monitoring points that are insta led are installed incorrectly. Pro osed Civil Penalt Under 49 Unifed' States Code, g 60122, you are subject to a civil penalty not to exceed $100, 000 for each vio ation for each day the violations persists up to a maximum of $1, 000, 000 for any related series of violations. The Compliance Officer has reviewed the circumstances and supporting documentatiori involved in the above probable wolation(s) anti recommended that you be preliminanly assessed a civil penalty of $94, 000 as follows: Item number (1] (6] (7) FEALTY $:, '2:000] $32, 000 $50, 000 W~il t With respect to item 5 we have reviewed the circumstances and supporting documents involved in this case and have decided not to conduct additional enforcement ai". . Ibn or penal'y' assessment proceedings at this time. We advise you to promptly cirrect these item(s). advised that failure to do so may result in CITGO Pipeline Company being subject to additioi, al enforcement action. Pro osed Com liance Order With respect to items 1, 2, 3, 4, 6, 7, and 6, pursuant to 49 United States 'Code g 60116 the Pipe ine and Hazardous Materials Safety Administration propose '':4' I&'ue a' t'ompliance Ckder to CITGO Pipeline Company. Please refer to the Proposed i. omp//ance Order whicn is enclosed and made a part of this Notice.#

cpf 4-2007-5010 citgo pipeline company nopv pcp pco_text.pdf, page 6Res onse to this Notice Enclosed as part of this Notice is a document entitled Response O)5tlr)ns for Pipetirid Voerators in Compliance Proceedings. Please refer to this document antj rioti' '. tie respor'5" offttons. Be advised that all matenal you submit in response to this entorcement action is subject to b ' g made publicly available If you believe that any portion of your responsive material qualifies fb'k confidential treatment under 5 U. S. C. 552(b), along with the complete original documeri' ~c"j must provide a second copy' df the document with the portions you believe qua', ify fo, ' confidential treatment redacted aih'd an explanation of why you believe the redacted inforiftgt'Gri qualifies for confidential treatment under 5 U. S. C. 552(b). If you dC r)c&t I'espond 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, ieged in this Notice without further notice to you and to issue a Final Order In your correspondence on this matter, please refer to CPF 4~F7 I" O and for each document you submit, please prowde a copy in electronic format whenever possib e. Sincerely, R trt, Saeley Director, Southwest Region Pipeline and Hazardous Materials . efety Administration Enclosures: Proposed Compliance Order Response Options for Pipeline Operators in Comptrancr. ' P'oceedings#

cpf 4-2007-5010 citgo pipeline company nopv pcp pco_text.pdf, page 7PROPOSED COMPLIANCE ORDER Pursuant to 49 United States Code g 60118, the Pipeline and Hazardous Materials Safety Administration (PHMSA) proposes to issue to CITGO Pipeline Company a Compliance Order incorporating the following remedial requirements to ensure the compliance of ITGO Pipeline Company with the pipeline safety regulations: Regarding item Number 1 of the Notice, CITGO must inspect all of their pipeline systems to locate areas using temporary hose/ piping in permanent Iodatiene. Provide a plan to re-pipe the locations with piping that comply with standards, recommended practices and regulations. Provide the results of the analysis to PHMSA Based on the results, CITGO should implement any modifications necessary to assure that the pipelines are compliant with (~95. 128. In regard to Item Number 2 of the Notice, CITGO must perform the necessary hydraulic analysis including the consideration of surges to insure that their pipelines will not be over pressured during normal operations. Provide the results of the analysis to PHKRSA. Based on the results, CITGO should implement any modifications necessary to assure that the pipelines are compliant with $195. 406(b). In regard to Item Number 3 of the Notice, pertaining to CITGO's pipeline systems, perform an inspection of all pipelines to locate areas lacking sufficient markers. If there are areas where it is impractical to place markers, or because the markers are removed or plowed under by the landowner, an alternativia method of ensuring the safety of the public and the pipeline should be developed. In areas where fhefe' are insufficient markers, develop a plan and time table to place markers to ensure Cl I GO is in compliance with $195. 410(a)(1). In regard to Item Number 4 of the Notice, pertaining to CITGQ's pipeline systdmS, perform an inspection of all pipelines to locate areas where ROW is over grown with brush or tall grass, or areas where the ROW is overgil'owri by a canopy firWi surrounding trees, preventing visibility from aerial surveila'fit. Develop a plan Nff@ time table to clear brush and canopy from ROW to ensure that C"-ITGO is in compliance with $195, 412(a). Until the ROW can be clea'red' a'nd made suitable for aerial surveillance, develop an alternative surveillance method for affected areas. In Regard to Items Number 6 of the Notice, pertaining tc GITGO's pipeline systems, review CITGO's Tank Inspection program, Develop a plan arid time tab e to inspect tanks that have been missed, and ensure that inspections are performed according to the required schedules in the future. Ensure that monthly inspections note items as required by API 653, and that the items are addressed prior to sequential inspections. Ensure that inspection report documentation )La eiotnplete, and tl at items from all inspection reports are addressed, and documenrtedI, so that CITGO is in compliance with II195. 432 and referenced API 653. In regard to Item Number 7 of the Notice, pertaining to Cl I~~O's pipeline systems, review C:ilTGO's CP data collection and evaluation to ensuire tliat if CP systems need repair or replacement, they are addressed promptly and tltiant the pipelines and tarik~ are protected. Develop a plan and time table to replace iiin&dequate iCP systems to bring CITGO into compliance with $195. 573.#

cpf 4-2007-5010 citgo pipeline company nopv pcp pco_text.pdf, page 87. In regard to Item Number 8 of the Notice, pertaining to CITGO's pipeline systems, perform an assessment to fully determine the corrosive effect of the transported products on pipelines and all facilities. If there are areas that would be susceptible to internal corrosion, perform inspections, install monitoring, and if active corrosion is determined, implement mitigation methods to ensure that CITGO is in compliance with $195. 579. 8, CITGO shall maintain documentation of the safety improvement costs associated with fulfilling this Compliance Order and submit the total to R. M. Seeley, Director, Southwest Region, Pipeline and Hazardous Materials Safety Administration. Costs shall be reported in two categones: 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. 9. Submit to the Director, Southwest Region, Pipeline and Hazardous Materials Safety Administration, 8701 South Gessnei, Suite 1110, Houston, Texas 77074: ~ Results of surveys, assessments, and plans, with time table, must be submitted within 30 days following the receipt of the Final Order ~ All items shall be completed within 180 days following the receipt of the Final Order.#

420075010_FinalOrder_04142011_text.pdf, page 1Official PDFAPR 14 2011 Mr. Jim Sanders General Manager, Terminal and Pipelines CITGO Petroleum Corporation 1293 Eldridge Parkway Houston, TX 77077 Re: CPF No. 4-2007-5010 Dear Mr. Sanders: Enclosed please find the Final Order issued in the above-referenced case. It withdraws two of the allegations of violation, makes other findings of violation, assesses a reduced civil penalty of $82,000, and specifies actions that need to be taken by CITGO Pipeline Company to comply with the pipeline safety regulations. The penalty payment terms are set forth in the Final Order. When the civil penalty has been paid and the terms of the compliance order completed, as determined by the Director, Southwest Region, this enforcement action will be closed. 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, Jeffrey D. Wiese Associate Administrator for Pipeline Safety Enclosure cc: Rod Seeley, Director, Southwest Region, PHMSA Christian A. Garza, Corporate Counsel, CITGO Petroleum Corporation CERTIFIED MAIL – RETURN RECEIPT REQUESTED [7005 1160 0001 0075 9169]#

420075010_FinalOrder_04142011_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 ) ) CITGO Pipeline Company, ) CPF No. 4-2007-5010 ) Respondent. ) ______________________________) FINAL ORDER From February until June 2006, 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 CITGO Pipeline Company (CITGO or Respondent), a subsidiary of CITGO Petroleum Corporation.1 The OPS inspection included CITGO pipeline facilities in Louisiana, Texas and Oklahoma. 2 As a result of the inspection, the Director, Southwest Region, OPS (Director), issued to Respondent, by letter dated April 2, 2007, a Notice of Probable Violation, Proposed Civil Penalty, and Proposed Compliance Order (Notice). In accordance with 49 C.F.R. § 190.207, the Notice proposed finding that Respondent had committed various violations of 49 C.F.R. Part 195 and proposed assessing a civil penalty of $94,000 for the alleged violations. The Notice also proposed ordering Respondent to take certain measures to correct the alleged violations. The Notice further proposed finding that Respondent had committed another probable violation of 49 C.F.R. Part 195 and warning Respondent to take appropriate corrective action to address it or be subject to future enforcement action. 1 CITGO Petroleum Corporation, a refiner, transporter and marketer of transportation fuels, lubricants, petrochemicals and other industrial products, is owned by PDV America, Inc., an indirect, wholly-owned subsidiary of Petroleos de Venezuela, S.A., the national oil company of Venezuela. See http://www.citgo.com/AboutCITGO/CompanyHistory.jsp (last accessed December 13, 2010). 2 The OPS inspection included the following facilities: (1) the Sour Lake District facilities, including a 64-mile, 20- inch pipeline that transports crude oil from a tank farm in Sour Lake, Texas, to Lake Charles, Louisiana, and a 100- mile, 10- and 12-inch pipeline that transports propane and ethane from Lake Charles to Mount Belvieu, Texas; (2) the Eagle Line South, including a 264-mile pipeline that transports petroleum products from a pump station in Pasadena, Texas, to Arlington, Texas, and five other short pipelines in the Houston area; (3) the Eagle Line North, including an 8-inch, 229-mile pipeline that transports petroleum products from Arlington to Drumright, Oklahoma; and (4) a control center in Tulsa, Oklahoma.#

420075010_FinalOrder_04142011_text.pdf, page 32 CITGO responded to the Notice by letters dated May 4 and June 25, 2007 (collectively, Response). Respondent contested several of the allegations and requested a hearing, which was subsequently held on July 24, 2007, with an attorney from the Office of Chief Counsel, PHMSA, presiding. At the hearing, Respondent was represented by counsel, Mr. Christian A. Garza. After the hearing, CITGO provided additional written material for the record by letter dated August 23, 2007 (Closing). 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. § 195.128, which states: § 195.128 Station piping. Any pipe to be installed in a station that is subject to system pressure must meet the applicable requirements of this subpart. The Notice alleged that CITGO violated § 195.128 by installing pipe in a station that did not meet the applicable requirements in Subpart C of Part 195. Specifically, the Notice alleged that stations and had connected the tanks to its pipeline with rubberized braided hoses, an installation that was not consistent with accepted industry standards (ASME B31.4) or Subpart C of 49 Respondent had installed permanent tanks for storing drag reducing agent (DRA)3 at its pump C.F.R. Part 195, particularly the requirement that station piping be of steel construction. In its Response and at the hearing, CITGO argued that the installation of its DRA injection systems did not violate § 195.128. Specifically, Respondent stated that DRA is not a hazardous liquid, and that it had equipped the attached hoses with steel check valves to ensure that they would not experience system pressure. CITGO also stated that the pressure ratings of the hoses exceeded the maximum pressure requirements for its pipeline system. Therefore, the requirements in § 195.128 did not apply to this piping. OPS countered that Respondent’s DRA injection systems were “fabricated assemblies” under 49 assemblies to its pipeline to comply with 49 C.F.R. §§ 195.100 and 195.112(a). Steel station piping was required, OPS asserted, because the operating pressure of the DRA injection system C.F.R. § 195.130,4 and that CITGO had to use steel station piping to connect the hoses in these exceeded that of Respondent’s pipelines. Section 195.128 only applies to station piping that is subject to system pressure. A “pipe” is defined for purposes of 49 C.F.R. Part 195 as “a tube, usually cylindrical, through which a hazardous liquid or carbon dioxide flows from one point to another. ”5 OPS argues that CITGO’s 3 DRA is a compound used to reduce friction and improve flow rate in petroleum pipelines. 4 Section 195.130 states: “Each fabricated assembly to be installed in a pipeline system must meet the applicable requirements of [Subpart C of 49 C.F.R. Part 195].” 5 49 C.F.R. § 195.2.#

420075010_FinalOrder_04142011_text.pdf, page 43 DRA injection hoses are installed in pump stations and operate at a pressure higher than that of its pipelines. Therefore, those hoses are station “pip[ing] . . . subject to system pressure” under § 195.128 and must be of steel construction to comply with the design requirements in Subpart C of 49 C.F.R. Part 195, including §§ 195.100 and 195.112(a). I do not find OPS’ position persuasive.6 CITGO’s DRA injection systems are “pipeline facilities” within the scope of the Pipeline Laws and Regulations. 7 However, § 195.128 only applies to “pipe,” not all pipeline facilities, and, as noted above, the term “pipe” is defined as “a tube, usually cylindrical, through which a hazardous liquid or carbon dioxide flows from one point to another.” The evidence indicates that the only product which flows through Respondent’s DRA injection systems “from one point to another” is DRA, a compound that OPS has not argued is a hazardous liquid or carbon dioxide. 8 Moreover, the fact that Respondent’s DRA injection hoses operate at a pressure higher than that of its pipelines does not make those hoses “subject to system pressure” under § 195.128. In order for that regulation to apply, station piping must be capable of experiencing or being affected by the internal operating pressure of the pipeline system. That is not the case here, as the evidence shows that CITGO has used independent pumps to provide the pressure for its DRA injection systems and had installed steel check valves to isolate the hoses from the internal pressure of its pipeline. For these reasons, I find that Respondent’s DRA hoses are not station piping subject to system pressure for purposes of § 195.128. Accordingly, based upon a review of all the evidence, I hereby withdraw Item 1 of the Notice. Item 2: The Notice alleged that Respondent violated 49 C.F.R. § 195.406(b), which states: § 195.406 Maximum operating pressure. (a) . . . . 6 OPS bears the burden of proof in an enforcement proceeding and must prove, by a preponderance of the evidence, that an alleged violation occurred, i.e., that an operator had a legal duty to follow a particular regulation, and that it breached that duty by engaging in conduct that did not meet the applicable requirements. In the Matter of Butte Pipeline Co. (Butte), Final Order, CPF No. 5-2007-5008, p.2 (Aug. 17, 2009) (http://primis.phmsa.dot.gov/comm/reports/enforce/documents/520075008/520075008_Final%20Order_08172009.p df?nocache=1644); see also, Schaeffer v. Weast, 546 U.S. 49, 56-58 (2005). 7 49 C.F.R. § 195.2 defines the term pipeline facility as “new and existing pipe, rights-of-way and any equipment, facility, or building used in the transportation of hazardous liquids or carbon dioxide.” 8 The term hazardous liquid is defined as “petroleum, petroleum products, or anhydrous ammonia.” The term petroleum is defined as “crude oil, condensate, natural gasoline, natural gas liquids, and liquefied petroleum gas.” The term petroleum product is defined as “flammable, toxic, or corrosive products obtained from distilling and processing of crude oil, unfinished oils, natural gas liquids, blend stocks and other miscellaneous hydrocarbon compounds.” Id.#

420075010_FinalOrder_04142011_text.pdf, page 54 (b) No operator may permit the pressure in a pipeline during surges or other variations from normal operations to exceed 110 percent of the operating pressure limit established under paragraph (a) of this section. Each operator must provide adequate controls and protective equipment to control the pressure within this limit. The Notice alleged that CITGO violated § 195.406(b) by failing to provide “adequate controls and protective equipment” to control the pressure of its pipeline within 110 percent of its maximum operating pressure (MOP). Specifically, the Notice alleged that Respondent had no records showing that it had considered “surge pressures” or that the pipeline was adequately protected from surges whereby the pressure could exceed 110 percent of MOP. In its Response and at the hearing, CITGO argued that a “surge analysis” was not the only means of determining the adequacy of its pressure controls and protective equipment under § 195.406(b). Respondent stated that operating records could be used to show that a particular pipeline had not previously experienced surges over 110 percent of MOP. The company also included in its Response a brief analysis of its malfunction and abnormal operating condition reports for the 2004, 2005, and 2006 calendar years; a description of the controls and protective equipment it had installed on its pipeline system; and a 1996 memorandum describing the results of a surge analysis of its Eagle South Pipeline. These documents, CITGO asserted, showed that its pipelines had not experienced, and were not likely to experience, pressure surges over 110 percent of MOP. Notwithstanding its defense to the allegations, Respondent agreed to perform a surge analysis to substantiate the adequacy of the controls and protective equipment on its pipeline systems. I do not find Respondent’s arguments convincing. None of the evidence in the record shows that Respondent considered pressure surges before installing the controls and protective equipment on its pipeline systems. CITGO did not complete its brief analysis of the reports from the 2004 to 2006 calendar years or its description of the protective equipment on its pipeline systems until after the issuance of this Notice; the 1996 memorandum only covered the 10-inch Eagle South Pipeline; and there is no evidence that Respondent could, or did, consider that memo in determining the appropriate controls and protective equipment for its other pipelines. 9 Accordingly, based upon a review of all of the evidence, I find that Respondent violated § 195.406(b) by failing to provide adequate controls and protective equipment to control the pressure of its pipeline within the limit established under paragraph (a) of that regulation. Item 3: The Notice alleged that Respondent violated 49 C.F.R. § 195.410(a), which states, in relevant part: § 195.410 Line markers. (a) Except as provided in paragraph (b) of this section, each operator shall place and maintain line markers over each buried pipeline in accordance with the following: 9 See, In the Matter of Kinder Morgan Energy Partners, L.P., C.P.F. 4-2006-5023 (Aug. 31, 2010).#

420075010_FinalOrder_04142011_text.pdf, page 65 (1) Markers must be located at each public road crossing, at each railroad crossing, and in sufficient number along the remainder of each buried line so that its location is accurately known. The Notice alleged that CITGO violated § 195.410(a) by failing to install a sufficient number of markers along its buried pipeline so that its location was accurately known. Specifically, the Notice alleged that certain line markers could not be seen in either direction when crossing cultivated agriculture fields and at valve sites. In its Response and at the hearing, CITGO argued that pipeline markers need not provide “line- of-sight” in all directions to comply with § 195.410(a)(1). PHMSA acknowledges that while many operators follow the so-called “line-of-sight” test, as applied in the Notice in this case, many others do not. Furthermore, the regulation does not expressly require “line-of-sight.” In an effort to arrive at greater consensus on this and other line-marking issues, PHMSA convened a public workshop in 2008 and is currently considering whether to issue a notice of proposed rulemaking.10 Under such circumstances, I find it is appropriate to withdraw the allegation of probable violation in Item 2 of the Notice. Such withdrawal neither constitutes an interpretation of § 195.410(a)(1) nor prejudices future potential enforcement action against Respondent or any other operator.11 Item 4: The Notice alleged that Respondent violated 49 C.F.R. § 195.412(a), which states: § 195.412 Inspection of rights-of-way and crossings under navigable waters. (a) Each operator shall, at intervals not exceeding 3 weeks, but at least 26 times each calendar year, inspect the surface conditions on or adjacent to each pipeline right-of-way. Methods of inspection include walking, driving, flying or other appropriate means of traversing the right- of-way. The Notice alleged that Respondent violated 49 C.F.R. § 195.412(a) by failing to inspect the surface conditions on or adjacent to each pipeline right-of way (ROW) at the required intervals. Specifically, the Notice alleged that large tree overhangs were allowed to grow and form a canopy over the pipeline that obscured the surface conditions adjacent to the ROW from observation by aerial surveillance, which is CITGO’s primary means of patrolling its pipelines. Respondent did not contest this allegation. Accordingly, based upon a review of all the 10 The workshop was held on February 20-21, 2008, in Houston, Texas, to discuss, among other issues, the location of line markers. Pipeline Safety: Workshop on Public Awareness Programs for Pipeline Operators and Location of Line Markers, 73 Fed. Reg. 223 (Jan. 2, 2008). 11 The Notice also indicated that the line markers on the Northgate Forest Golf Course were flush-mounted and did not list the correct operator name and phone number, an allegation that, if true, would constitute a violation of 49 C.F.R. § 195.410(a)(2)(ii). However, as the primary focus of Item 3 was the “line-of-sight” requirement and the Notice did not specifically cite an alleged violation of subsection (a)(2)(ii), no further action regarding CITGO’s potential non-compliance with § 195.410(a)(2)(ii) is appropriate.#

420075010_FinalOrder_04142011_text.pdf, page 76 evidence, I find that CITGO violated 49 C.F.R. § 195.412(a) by failing to inspect the surface conditions on or adjacent to each pipeline ROW. Item 6: The Notice alleged that Respondent violated 49 C.F.R. §§ 195.432(b) and (d), which state: § 195.432 Inspection of in-service breakout tanks. (a) . . . . (b) Each operator shall inspect the physical integrity of in-service atmospheric and low-pressure steel aboveground breakout tanks according to section 4 of API Standard 653. However, if structural conditions prevent access to the tank bottom, the bottom integrity may be assessed according to a plan included in the operations and maintenance manual under Sec. 195.402(c)(3). (c) . . . . (d) The intervals of inspection specified by documents referenced in paragraphs (b) and (c) of this section begin on May 3, 1999, or on the operator's last recorded date of the inspection, whichever is earlier. The Notice alleged that Respondent violated 49 C.F.R. §§ 195.432(b) and (d) by failing to inspect the physical integrity of its breakout tanks in accordance with section 4 of API Standard 653 at the required intervals. Specifically, the Notice alleged that CITGO had not properly identified or resolved certain API 653 compliance issues during its monthly inspections. The Notice also alleged that CITGO’s tank inspection records showed that two tanks were overdue for their out-of-service internal inspections; eight tanks missed their in-service external inspections; and eight tanks missed their ultrasonic inspections. In its Response, CITGO did not contest these allegations. It offered no information to defend the adequacy of its monthly inspections, agreed that some of its breakout tanks had not received the required external inspections and acknowledged that a review and revision of its procedures for performing those inspections were in order. CITGO also provided an explanation as to why some of the breakout tanks in the Sour Lake District had not been inspected at the required intervals. Respondent provided similar information in its Closing. Accordingly, based upon a review of all the evidence, I find that Respondent violated 49 C.F.R. §§ 195.432(b) and (d) by failing to inspect the physical integrity of its breakout tanks in accordance with section 4 of API Standard 653 at the required intervals. Item 7: The Notice alleged that Respondent violated 49 C.F.R. §§ 195.573(d) and (e), which state: § 195.573 What must I do to monitor external corrosion control? (a) . . . . (d) Breakout tanks. You must inspect each cathodic protection system used to control corrosion on the bottom of an aboveground breakout tank to ensure that operation and maintenance of the system are in accordance with API Recommended Practice 651. However, this inspection is not#

420075010_FinalOrder_04142011_text.pdf, page 87 required if you note in the corrosion control procedures established under Sec. 195.402(c)(3) why compliance with all or certain operation and maintenance provisions of API Recommended Practice 651 is not necessary for the safety of the tank. (e) Corrective action. You must correct any identified deficiency in corrosion control as required by § 195.401(b). However, if the deficiency involves a pipeline in an integrity management program under § 195.452, you must correct the deficiency as required by § 195.452(h). The Notice alleged the Respondent violated 49 C.F.R. §§ 195.573(d) and (e) by failing to have an adequate external corrosion control program for its aboveground breakout tanks and to ensure that operation and maintenance of its cathodic protection system was in accordance with API Recommended Practice 651 (RP 651). Specifically, it alleged that the company failed to correct an identified deficiency in corrosion control within “a reasonable time,” as required by § 195.401(b), because one of the ground beds at the Sour Lake Tank Farm had started failing in December 2002, had completely failed by October 2003, and had remained out of service at the time of the February 2006 OPS inspection. In its submissions and at the hearing, CITGO argued that the Sour Lake Tank Farm had four ground beds, that only one of those beds was out of service, and that the three remaining ground beds provided adequate cathodic protection throughout the relevant period. The company further stated that it had intended to replace the failed ground bed, if needed, and that it had done so in the fall of 2006. OPS countered that the cathodic protection system for the Sour Lake Tank Farm was designed to function as a unit, and that all four ground beds had to be operational for it to be considered “adequate” under RP 651. The evidence supports OPS’ position. CITGO installed a four-bed cathodic protection system at the Sour Lake Tank Farm, and there is no evidence, aside from the company’s mere assertion in response to the Notice, that the system was designed to provide adequate protection in the event that one of the beds failed. Moreover, CITGO knew of the failed ground bed but did not correct the deficiency for more than three years. Accordingly, based upon a review of all the evidence, I find that Respondent violated 49 C.F.R. §§ 195.573(d) and (e) by failing to have an adequate cathodic protection system for its aboveground breakout tanks and to correct an identified deficiency in that system, as required by § 195.401(b) Item 8: The Notice alleged that Respondent violated 49 C.F.R. § 195.579(a), which states: § 195.579 What must I do to mitigate internal corrosion? (a) General. If you transport any hazardous liquid or carbon dioxide that would corrode the pipeline, you must investigate the corrosive effect of the hazardous liquid or carbon dioxide on the pipeline and take adequate steps to mitigate internal corrosion. The Notice alleged that Respondent violated 49 C.F.R. § 195.579(a) by failing to investigate the corrosive effects of a hazardous liquid on its pipeline and take adequate steps to mitigate internal corrosion control. In particular, the Notice alleged that Respondent had not inspected certain dead legs, low points, facility and non-piggable pipe, and areas downstream of supplier taps for#

420075010_FinalOrder_04142011_text.pdf, page 98 indications of internal corrosion. The Notice further alleged that Respondent did not have an adequate program for monitoring internal corrosion, including proper corrosion monitoring points. In its submissions and at the hearing, CITGO stated that it only transported refined petroleum products and crude oil imported via supertanker, neither of which is typically corrosive in a pipeline. Respondent further stated that it monitored for internal corrosion through “top-of-the- line” corrosion control coupons, and that the historical data from those coupons, including corrosion probe readings, showed that its pipelines had not experienced any corrosion-related problems. I do not find CITGO’s arguments persuasive. Respondent’s assertion that the products transported through its pipelines are not corrosive is unsubstantiated. As PHMSA has stated, “49 CFR 195.579(a) require[s] operators to determine if the hazardous liquids they are transporting could corrode the pipeline and, if so, take adequate steps to mitigate that corrosion potential.” 12 Furthermore, “in accordance with 49 CFR 195.589(c), [operators] must maintain a record of the above analysis required by 49 CFR 195.579(a) in sufficient detail to demonstrate the adequacy of corrosion control measures or that corrosion control measures are not necessary[,] . . . these records [must be retained] for at least five years[,] . . . [and they] must be readily available for inspection.”13 In this case, the record does not indicate that CITGO ever performed any type of analysis to determine if the products being transported could be corrosive. Such analysis would require consideration of such risk factors as commodity type, flow rate, velocity, and operating pressure; the potential presence of foreign materials, contaminants, microbes, or other corrosive substances; pipe configuration, design, and specifications; and operating conditions.14 In addition, the historical data that Respondent relied upon to establish the non-corrosive nature of its products is inconclusive, i.e., the OPS inspector stated that CITGO’s corrosometer probes were only capable of detecting severe corrosion in their present locations, and that the probes themselves were susceptible to pitting corrosion, which could affect the accuracy of any resulting readings. Therefore, Respondent should have used corrosometer probes in conjunction with other methods to monitor internal corrosion.15 Moreover, the evidence indicates that CITGO’s corrosion control coupons were not located in all areas where water and other corrosive components could potentially accumulate, including facilities that were not amenable to inline inspection and areas of intermittent flow. Respondent has not demonstrated whether, if corrosion did occur, it would be prepared to take adequate steps to mitigate its effects, such as through the implementation of an inhibition program. 12 73 Fed. Reg. 71089-90 (Nov. 24, 2008). 13 Id. 14 Id. 15 See, In the Matter of Sunoco Pipeline, L.P., C.P.F. 4-2007-5040 (Dec. 16, 2010).#

420075010_FinalOrder_04142011_text.pdf, page 109 Accordingly, based upon a review of all the evidence, I find that Respondent violated 49 C.F.R. § 195.579(a) by failing to investigate the corrosive effects of a hazardous liquid on its pipeline and to take adequate steps to mitigate internal corrosion control. These findings of violation will be considered prior offenses in any subsequent enforcement action taken against Respondent. ASSESSMENT OF PENALTY Under 49 U.S.C. § 60122, Respondent is subject to an administrative civil penalty not to exceed $100,000 per violation for each day of the violation, up to a maximum of $1,000,000 for any related series of violations. 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; the Respondent’s ability to pay the penalty 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 $94,000 for the violations cited above. Item 1: The Notice proposed a civil penalty of $12,000 for Respondent’s alleged violation of 49 C.F.R. § 195.128, for failing to install station piping that met the applicable requirements in Subpart C. As noted above, I found that CITGO’s DRA injection hoses were not station piping subject to system pressure for purposes of that regulation. Based upon the foregoing, I withdraw the proposed penalty for violation of 49 C.F.R. § 195.128. Item 6: The Notice proposed a civil penalty of $32,000 for Respondent’s violation of 49 C.F.R. §§ 195.432(b) and (d), for failing to inspect the physical integrity of its breakout tanks in accordance with section 4 of API Standard 653 at the required intervals. Specifically, the Notice alleged that CITGO had not properly identified or resolved certain API 653 compliance issues during its monthly inspections. The Notice also alleged that CITGO’s tank inspection records showed that two tanks were overdue for their out-of-service internal inspections; eight tanks missed their in-service external inspections; and eight tanks missed their ultrasonic inspections. CITGO did not contest these alleged violations. Breakout tank inspections are designed to detect corrosion, settlement, and other threats to the integrity of those facilities. When inspections are not adequately performed or do not occur at the required intervals, these threats are more likely to progress to the point of failure. The environmental consequences of such an event would be significant, particularly given the large quantity of hazardous liquids stored in the tanks. Moreover, the evidence shows that Respondent is fully culpable for failing to perform the required inspections, and there is no allegation that payment of the proposed penalty would impair its ability to continue doing business. Based upon the foregoing, I assess CITGO a civil penalty of $32,000 for violating 49 C.F.R. §§ 195.432(b) and (d).#

420075010_FinalOrder_04142011_text.pdf, page 1110 Item 7: The Notice proposed a civil penalty of $50,000 for Respondent’s violation of 49 C.F.R. §§ 195.573(d) and (e), for failing to have an adequate cathodic protection system at the Sour Lake Tank Farm and to correct an identified deficiency in that system. The record indicates that CITGO was aware that one of the ground beds in that system had failed but took no steps to address that deficiency for more than three years. In so doing, CITGO created an environment where corrosion at the Sour Lake Tank Farm could progress to a critical phase and present a significant risk to the safety of the public, property, and the environment. Furthermore, the evidence shows that Respondent was fully culpable for failing to correct this deficiency. The company has not presented any evidence or argument that would justify a reduction in the proposed penalty. Based upon the foregoing, I assess CITGO a civil penalty of $50,000 for violation of 49 C.F.R. §§ 195.573(d) and (e). 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 $82,000. Payment of the civil penalty must be made within 20 days of service. Federal regulations (49 C.F.R. § 89.21(b)(3)) require this payment 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, OK 73125. The Financial Operations Division’s telephone number is (405) 954-8893. Failure to pay the $82,000 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. COMPLIANCE ORDER The Notice proposed a compliance order with respect to Items 1, 2, 3, 4, 6, 7 and 8 in the Notice for violations of 49 C.F.R. §§ 195.128, 195.406(b), 195.410(a)(1), 195.412(a), 195.432 (b) and (d), 195.573(d) and(e), and 195.579(a), respectively. Under 49 U.S.C. § 60118(a), each person who engages in the transportation of hazardous liquids or who owns or operates a pipeline facility is required to comply with the applicable safety standards established under chapter 601. I have withdrawn Items 1 and 3, so there is no need to include compliance terms for those Items. The remaining compliance requirements are set forth below. Pursuant to the authority of 49 U.S.C. § 60118(b) and 49 C.F.R. § 190.217, Respondent is ordered to take the following actions to ensure compliance with the pipeline safety regulations applicable to its operations: 1. With respect to the violation of 49 C.F.R. § 195.406(b) (Item 2), Respondent must perform an audit to ensure that it has adequate controls and protective equipment for#

420075010_FinalOrder_04142011_text.pdf, page 1211 controlling the pressure of its pipeline within 110 percent of MOP. The audit must include a hydraulic analysis of the effect of surges during normal operations. Respondent must provide the Director with the results of that analysis and documentation of the implementation of any required modification to its pipeline facilities or equipment. 2. With respect to the violation of 49 C.F.R. § 195.412(a) (Item 4), Respondent must inspect all of its pipelines to locate areas where the ROW is overgrown with brush or tall grass or is overgrown by a canopy from surrounding trees that prevents visibility from aerial surveillance; develop a plan and schedule to clear brush and canopy from the ROW; and a plan for alternative surveillance method for affected ROWs that are being cleared and made suitable for aerial surveillance. 3. With respect to the violation of 49 C.F.R. §§ 195.432(b) and (d) (Item 6), Respondent must review its program for inspecting breakout tanks; develop a plan and schedule for inspecting any tanks that have missed any required periodic inspections; and provide documentation showing that it takes note monthly of items required under API 653 and any other matters from prior inspections that still require further action. 4. With respect to the violation of 49 C.F.R. §§ 195.573(d) and (e) (Item 7), Respondent must review its cathodic protection program; determine whether any of its cathodic protection systems are in need of repair or replacement; and develop a plan and schedule for performing such repairs or replacements. 5. With respect to the violation of 49 C.F.R. § 195.579(a) (Item 8), Respondent must perform a comprehensive assessment to fully determine the corrosive effect of the transported products on pipelines and all facilities; provide documentation showing that areas susceptible to internal corrosion are inspected and monitored; and provide documentation showing that adequate steps to mitigate internal corrosion are implemented on any areas of active corrosion. 6. Respondent is requested to maintain documentation of the safety improvement costs associated with fulfilling this Compliance Order and submit the total to Director, Southwest Region, Pipeline and Hazardous Materials Safety Administration, 8701 South Gessner, Suite 1110, Houston, Texas 77074. Costs shall 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. 7. Within thirty days (30) days of receipt of the Final Order, Respondent must submit all required surveys, assessments, and plans with timetables, to the Director, Southwest Region, Pipeline and Hazardous Materials Safety Administration, 8701 South Gessner, Suite 1110, Houston, Texas 77074. 8. Within 180 days of receipt of the Final Order, Respondent must complete all actions required by this Compliance Order and submit documentation of completion to the Director.#

420075010_FinalOrder_04142011_text.pdf, page 1312 The Director may grant an extension of time to comply with any of the required items upon a written request timely submitted by the Respondent and demonstrating good cause for an extension. Failure to comply with this Order may result in the administrative assessment of civil penalties not to exceed $100,000 for each violation for each day the violation continues or in referral to the Attorney General for appropriate relief in a district court of the United States. WARNING ITEM With respect to Item 5, the Notice alleged probable violations of Part 192 but did not propose a civil penalty or compliance order for this item. Therefore, this is considered to be a warning item. The warning was for: 49 C.F.R. § 195.420(c) (Notice Item 5) ─ Respondent’s alleged failure to protect the valves on its pipeline systems from unauthorized operation and vandalism. Although Respondent contested this item in its Response and at the hearing, it could not demonstrate that it had developed or implemented an adequate, risk-based process for ensuring valve protection. In particular, the evidence showed that CITGO had used various methods at different sites without having a reasoned basis for making those distinctions. Accordingly, having considered such information, I find, pursuant to 49 C.F.R. § 190.205, that probable violations of 49 C.F.R. § 195.420(c) (Notice Item 5) have occurred and Respondent is hereby advised to correct such conditions. In the event that OPS finds a violation of this provision in a subsequent inspection, Respondent may be subject to future enforcement action. Under 49 C.F.R. § 190.215, Respondent has a 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 this 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. § 190.215. The filing of a petition automatically stays the payment of any civil penalty assessed. Unless the Associate Administrator, upon request, grants a stay, all other terms and conditions of this Final Order are effective upon service in accordance with 49 C.F.R. § 190.5. ___________________________________ __________________________ Jeffrey D. Wiese Date Issued Associate Administrator for Pipeline Safety#