CITGO PIPELINE CO — Notice of Probable Violation

party submissionOfficial PDF420145010_Operator Response Notice_05282014.pdf#

420145010_NOPV PCP PCO_04242014_text.pdf, page 1Official PDFNOTICE OF PROBABLE VIOLATION PROPOSED CIVIL PENALTY and PROPOSED COMPLIANCE ORDER CERTIFIED MAIL - RETURN RECEIPT REQUESTED April 24, 2014 Mr. Jim Sanders General Manager Citgo Pipeline Company 1293 Eldridge Parkway Houston, Texas 77077 CPF 4-2014-5010 Dear Mr. Sanders: On October 29, 2012, a representative of the Pipeline and Hazardous Materials Safety Administration (PHMSA), Office of Pipeline Safety (OPS), pursuant to Chapter 601 of 49 United States Code conducted an investigation of an accident that occurred within the Sour Lake Tank Farm on October 18, 2012. As a result of the inspection, 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 violation(s) are: 1. §199.105 Drug tests required: Each operator shall conduct the following drug tests for the presence of a prohibited drug: (b) Post-accident testing. As soon as possible but no later than 32 hours after an accident, an operator shall drug test each employee whose performance either contributed to the accident or cannot be completely discounted as a contributing factor to the accident. An operator may decide not to test under this paragraph but such a decision must be based on the best information available immediately after the accident that the employee's performance could not have contributed to the accident or that, because of the time between that performance and the accident, it is not likely that a drug test would reveal whether the performance was affected by drug use.#

420145010_NOPV PCP PCO_04242014_text.pdf, page 2CITGO did not perform Post-accident drug and alcohol testing on their controller following an accident at their Sour Lake Tank Farm facility on October 18, 2012, resulting in the release of 718 barrels of crude oil from a 6” surge line connected to Tank 376. The controller’s failure to take action upon receipt of the initial creep alarm on the SCADA system prolonged the release of product from the Tank as the leak continued for two additional hours. 2. §195.402 Procedural manual for operations, maintenance, and emergencies. (a) General. Each operator shall prepare and follow for each pipeline system a manual of written procedures for conducting normal operations and maintenance activities and handling abnormal operations and emergencies. This manual shall be reviewed at intervals not exceeding 15 months, but at least once each calendar year, and appropriate changes made as necessary to insure that the manual is effective. This manual shall be prepared before initial operations of a pipeline system commence, and appropriate parts shall be kept at locations where operations and maintenance activities are conducted. §195.446 Control room management. (e) Alarm management. Each operator using a SCADA system must have a written alarm management plan to provide for effective controller response to alarms. The operator failed to include the definition of creep alarm and how to handle them within their written procedures manual. On October 18, 2012, a creep alarm was received by the controller, and he did not react after the first alarm because there was no written policy in place on how to handle the alarm. The controller did respond after the second creep alarm was received two hours later that indicated that the level in Tank 376 was continuing to decrease. 3. §195.402 Procedural manual for operations, maintenance, and emergencies. General. Each operator shall prepare and follow for each pipeline system a manual of written procedures for conducting normal operations and maintenance activities and handling abnormal operations and emergencies. This manual shall be reviewed at intervals not exceeding 15 months, but at least once each calendar year, and appropriate changes made as necessary to insure that the manual is effective. This manual shall be prepared before initial operations of a pipeline system commence, and appropriate parts shall be kept at locations where operations and maintenance activities are conducted 2#

420145010_NOPV PCP PCO_04242014_text.pdf, page 3CITGO failed to complete its assessment to determine the corrosive effect of the transported products and the removal of all of the low flow/dead leg piping in Sour Lake tank farm. On July 11, 2011, CITGO responded to Compliance Order 4-2007-5010 stating that they would complete a dead leg removal programs as part of their Facility Integrity Plans. However, CITGO indicated in correspondence following the accident that the pipe involved in the accident was inadvertently overlooked as part of the dead leg removal project evaluation. 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 $123,800 for item 2. Warning Items With respect to Items 1 and 3 we have reviewed the circumstances and supporting documents involved in this case and have decided not to conduct additional enforcement action or penalty assessment proceedings at this time. We advise you to promptly correct these items. Failure to do so may result in additional enforcement action. Proposed Compliance Order With respect to item 2 pursuant to 49 United States Code § 60118, the Pipeline and Hazardous Materials Safety Administration proposes to issue a Compliance Order to Citgo Pipeline Company. Please refer to the Proposed Compliance Order, which is enclosed and made a part of this Notice. Response to this Notice Enclosed as part of this Notice is a document entitled Response Options for Pipeline Operators in Compliance Proceedings. Please refer to this document and note the response options. 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, 3#

420145010_NOPV PCP PCO_04242014_text.pdf, page 4this 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 4-2014-5010 and for each document you submit, please provide a copy in electronic format whenever possible. Sincerely, R. M. Seeley Director, Southwest Pipeline and Hazardous Materials Safety Administration Enclosures: Proposed Compliance Order Response Options for Pipeline Operators in Compliance Proceedings 4#

420145010_NOPV PCP PCO_04242014_text.pdf, page 5PROPOSED COMPLIANCE ORDER Pursuant to 49 United States Code § 60118, the Pipeline and Hazardous Materials Safety Administration (PHMSA) proposes to issue to CITGO a Compliance Order incorporating the following remedial requirements to ensure the compliance of CITGO with the pipeline safety regulations: 1. 2. 3. In regard to Item Number 2 of the Notice pertaining to CITGO’s failure to include the definition of creep alarms and how to handle them within their written procedures manual. CITGO is required to amend their procedures to define a creep alarm and the actions to be taken in response to the alarm. The procedure should be sent to the Southwest Region within 30 days after receipt of Final Order. It is requested (not mandated) that CITGO 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. 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. 5#

420145010_Closure_06232015_text.pdf, page 1Official PDFCERTIFIED MAIL - RETURN RECEIPT REQUESTED June 23, 2015 Mr. Nelson Martinez President and Chief Executive Officer CITGO Petroleum Corporation 1293 Eldridge Parkway Houston, TX 77077-1670 CPF 4-2014-5010 Dear Mr. Martinez: On October 29, 2012, a representative of the Pipeline and Hazardous Materials Safety Administration (PHMSA), Office of Pipeline Safety (OPS), pursuant to Chapter 601 of 49 United States Code conducted an investigation of an accident that occurred within the Sour Lake Tank Farm on October 18, 2012. As a result of the investigation a Notice of Probable Violation, Proposed Civil Penalty and Proposed Compliance Order (Notice) CPF 4-2014-5010, was issued to Citgo Pipeline Company on April 24, 2014. CITGO responded by letter on May 28, 2014, and provided responses to the three (3) alleged violations. On March 25, 2015, PHMSA issued a Final Order in the matter which was received by CITGO on April 27, 2015. CITGO was assessed a penalty of $123,800.00 in the Final Order and payment of the penalty was made on April 13, 2015. On May 25, 2015 PHMSA requested CITGO to send its amended procedure to the Director of Southwest Region for review and approval. CITGO submitted the requested procedural modifications on June 10, 2015 and received “final” revised procedure on June 15, 2015. My staff reviewed the amended procedure, and it appears that the inadequacies have been corrected. This letter is to inform you no further action is necessary and this case is now closed. Thank you for your cooperation. Sincerely, R. M. Seeley Director, Southwest Region Pipeline and Hazardous Materials Safety Administration#

420145010_Final Order_03252015_text.pdf, page 1Official PDFMarch 25, 2015 Mr. Nelson Martinez President and Chief Executive Officer CITGO Petroleum Corporation 1293 Eldridge Parkway Houston, TX 77077-1670 Re: CPF No. 4-2014-5010 Dear Mr. Martinez: Enclosed please find the Final Order issued in the above-referenced case. It makes one finding of violation, assesses a civil penalty of $123,800, and specifies actions that need to be taken by your subsidiary, 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: Mr. Rodrick Seeley, Director, Southwest Region, OPS Mr. Glenn Hilman, Terminal Facilities and Pipeline, CITGO Petroleum Corporation CERTIFIED MAIL - RETURN RECEIPT REQUESTED#

420145010_Final Order_03252015_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, ) a subsidiary of CITGO Petroleum Corporation, ) Respondent. ) __________________________________________) ) CPF No. 4-2014-5010 FINAL ORDER On October 29, 2012, pursuant to 49 U.S.C. § 60117, a representative of the Pipeline and Hazardous Materials Safety Administration (PHMSA), Office of Pipeline Safety (OPS), initiated an investigation of an accident involving the pipeline system of CITGO Pipeline Company (CITGO or Respondent). CITGO is a subsidiary of CITGO Petroleum Corporation, which owns and operates oil refineries and related pipeline facilities in Texas, Louisiana, and Illinois, with a daily refining capacity of 750,000 barrels.1 The investigation arose out of a crude-oil release that occurred on October 18, 2012, at CITGO’s Sour Lake Tank Farm in Sour Lake, Texas. At the time of the accident, a six-inch surge pipeline at the facility was not in service, but several areas of internal corrosion had caused the pipeline to erode and ultimately fail. The resulting accident resulted in approximately 718 barrels of crude oil being spilled at the Tank Farm. 2 As a result of the investigation, the Director, Southwest Region, OPS (Director), issued to Respondent, by letter dated April 24, 2014, a Notice of Probable Violation and Proposed Civil Penalty (Notice), which also included a warning pursuant to 49 C.F.R. § 190.205. In accordance with 49 C.F.R. § 190.207, the Notice proposed finding that CITGO had violated 49 C.F.R. § 195.402 and proposed assessing a civil penalty of $123,800 for the alleged violation. CITGO Petroleum Corporation responded to the Notice by letter dated May 28, 2014 (Response). The company did not contest the allegation of violation but provided information concerning the corrective actions CITGO had taken, submitted copies of its revised procedures, and requested that OPS reduce the proposed civil penalty. Respondent did not request a hearing 1 http://www.citgo.com/WebOther/CITGOforYourBusiness/CompanyProfile.pdf (last accessed on November 26, 2014). 2 Pipeline Safety Violation Report (Violation Report), (April 23, 2014) (on file with PHMSA), at 2.#

420145010_Final Order_03252015_text.pdf, page 3CPF No: 4-2014-5010 Page 2 and therefore has waived its right to one. FINDING OF VIOLATION In its Response, Respondent did not contest the allegation in the Notice that it violated 49 C.F.R. Part 195, as follows: Item 2: The Notice alleged that Respondent violated 49 C.F.R. § 195.402(a), 3 which states: § 195.402 Procedural manual for operations, maintenance, and emergencies. (a) General. Each operator shall prepare and follow for each pipeline system a manual of written procedures for conducting normal operations and maintenance activities and handling abnormal operations and emergencies. This manual shall be reviewed at intervals not exceeding 15 months, but at least once each calendar year, and appropriate changes made as necessary to insure that the manual is effective. This manual shall be prepared before initial operations of a pipeline system commence, and appropriate parts shall be kept at locations where operations and maintenance activities are conducted. The Notice alleged that Respondent violated 49 C.F.R. § 195.402(a) by failing to prepare and follow for each pipeline system a manual of written procedures for conducting normal operations and maintenance activities and handling abnormal operations and emergencies. Specifically, the Notice alleged that CITGO failed to have a written alarm management plan to provide for effective controller response to “creep alarms.” The Notice further alleged that even though Respondent’s controller registered a creep alarm on October 18, 2012, he was unable to immediately respond to the release because CITGO had not instituted a written policy for handling such alarms. Instead, the controller waited until a second creep alarm sounded before contacting the field to investigate the dropping tank level.4 Respondent did not contest this allegation of violation, but provided several reasons why it thought the proposed civil penalty should be reduced. These arguments will be addressed in the “Assessment of Penalty” section below. Accordingly, based upon a review of all of the evidence, I find that Respondent violated 49 C.F.R. § 195.402(a) by failing to prepare and follow for each pipeline system a manual of written procedures for conducting normal operations and maintenance activities and handling abnormal operations and emergencies. This finding of violation will be considered a prior offense in any subsequent enforcement action 3 The Notice also referenced 49 C.F.R. § 195.446(e), which states: “Each operator using a SCADA system must have a written alarm management plan to provide for effective controller response to alarms….” 4 Violation Report, at 4.#

420145010_Final Order_03252015_text.pdf, page 4CPF No: 4-2014-5010 Page 3 taken against Respondent. 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. 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 $123,800 for the violation cited above. Item 2: The Notice proposed a civil penalty of $123,800 for Respondent’s violation of 49 C.F.R. § 195.402(a), for failing to prepare and follow for each pipeline system a manual of written procedures for conducting normal operations and maintenance activities and handling abnormal operations and emergencies. CITGO objected to the proposed civil penalty for several reasons. First, it argued that having a written process at the time of the accident for handling creep alarms would not have “prevented” the accident because the controller “had a reasonable basis to believe that the alarm had been triggered by the tank settling after being filled” and therefore no further action was warranted. Second, the company argued that the controller’s “subsequent conduct to monitor the situation was consistent with his training.” Last, CITGO contended that the leak was restricted to the tank containment area, had no adverse offsite impacts, and was appropriately addressed.5 I find that there are several reasons to impose the civil penalty as proposed. First, OPS discovered this violation; it was not self-reported by the operator. Second, the operator failed to take appropriate action prior to the accident to comply with the regulatory requirement by having an effective written procedure in place and this noncompliance increased the consequences of the release. Accordingly, having reviewed the record and considered the assessment criteria, I assess Respondent a civil penalty of $123,800 for violation of 49 C.F.R. § 195.402(a). In summary, having reviewed the record and considered the assessment criteria for the Item cited above, I assess Respondent a total civil penalty of $123,800. Payment of the civil penalty must be made within 20 days of service. Federal regulations (49 C.F.R. § 89.21(b)(3)) require such payment to be made by wire transfer through the Federal Reserve Communications System (Fedwire), to the account of the U.S. Treasury. Detailed instructions are contained in the enclosure. Questions concerning wire transfers should be directed to: Financial Operations Division (AMK-325), Federal Aviation Administration, Mike 5 Response, at 2-3.#

420145010_Final Order_03252015_text.pdf, page 5CPF No: 4-2014-5010 Page 4 Monroney Aeronautical Center, P.O. Box 269039, Oklahoma City, Oklahoma 73125. The Financial Operations Division telephone number is (405) 954-8845. Failure to pay the $123,800 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 Item 2 in the Notice for violation of 49 C.F.R. § 195.402(a). 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. 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 § 195.402(a) (Item 2), Respondent must amend its procedures to include in its written manual of procedures a definition of creep alarms and state the actions that must be taken in responding to this kind of alarm. The procedure must be sent to the Director, Southwest Region, for review and approval, within 30 days of receiving this Final Order. 2. It is requested that CITGO maintain documentation of the safety improvement costs associated with fulfilling this Compliance Order and submit the total to R.M. Seeley, Director, Southwest Region, OPS. 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. 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 $200,000 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.#

420145010_Final Order_03252015_text.pdf, page 6CPF No: 4-2014-5010 Page 5 WARNING ITEMS With respect to Items 1 and 3, the Notice alleged probable violations of 49 C.F.R. Parts 199 and 195 but did not propose a civil penalty or compliance order for these items. Therefore, these are considered to be warning items. The warnings were for: 49 C.F.R. § 199.105(b) (Item 1) ─ Respondent’s alleged failure to conduct post- accident drug and alcohol tests on the controller as soon as possible, but no later than 32 hours after the accident; and 49 C.F.R. § 195.402(a) (Item 3) ─ Respondent’s alleged failure to prepare and follow a manual of written procedures for handling abnormal operations and emergencies by failing to complete its assessment of the potential for corrosion on its low flow/dead leg pipeline at the Sour Lake tank farm. CITGO presented information in its Response showing it had taken certain actions to address the cited items and objecting to OPS’ position that the company had failed to perform post-accident drug and alcohol testing on its controller following the accident. If OPS finds a violation of any of these items in a subsequent inspection, Respondent may be subject to future enforcement action. Under 49 C.F.R. § 190.243 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. § 190.243. 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#