ALON USA, LP — Notice of Probable Violation

520045021_FinalOrder_08062009_text.pdf, page 1Official PDFAUG 6 2009 Mr. Randy Hillman Vice President of Pipelines General Manager of Logistics and Utilities Alon USA, LP P.O. Box 1311 Big Spring, TX 79721 RE: CPF No. 5-2004-5021 Dear Mr. Hillman: Enclosed is the Final Order issued in the above-referenced case. It makes findings of violation and assesses a civil penalty of $200,000. When the civil penalty has been paid, as determined by the Director, Western Region, PHMSA, this enforcement action will be closed. Your receipt of the Final Order constitutes service of that document 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. Chris Hoidal, Western Region Director, PHMSA CERTIFIED MAIL – RETURN RECEIPT REQUESTED [7005 0390 0005 6162 5647]#

520045021_FinalOrder_08062009_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 ) ) Alon USA, LP, ) CPF No. 5-2004-5021 ) Respondent. ) ______________________________) FINAL ORDER From August 18 to 22, 2003, pursuant to 49 U.S.C. § 60117, representatives of the Pipeline and Hazardous Materials Safety Administration (PHMSA), Office of Pipeline Safety (OPS), Western, Central, and Southwest Regions, in conjunction with the Texas Railroad Commission (TRC), conducted an inspection of the pipeline Integrity Management Program (IMP) of Alon USA, LP (Alon or Respondent), a company with crude oil refineries, pipeline facilities, and refined-product marketing operations in several Western, Rocky Mountain, and Southwestern states. This inspection, which occurred at the company’s refinery in Big Spring, Texas,1 included a review of the company’s IMP program for the 1,265 miles (279 miles of interstate and 986 miles of intrastate) pipelines that Alon was currently operating to transport crude oil and refined-petroleum products.2 As a result of the August 2003 inspection, the Director, Western Region, OPS (Director), issued to Respondent, by letter dated July 12, 2004, 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 committed various violations of 49 C.F.R. § 195.452, assessing Alon a civil penalty of $215,000 for 10 of the alleged violations, and ordering the company to take certain actions to comply with the IMP regulations. Alon responded to the Notice by letter dated August 11, 2004 (Response). It disputed nearly all of the violations, requested that the proposed civil penalty be reduced or eliminated, and argued that the proposed compliance order was not necessary. Respondent did not request a hearing and, therefore, has waived its right to one. 1 In February 2002, OPS and TRC conducted a prior joint inspection of Alon’s Big Spring refinery. See, In the Matter of Alon USA, C.P.F. 5-2002-5017 (Dec. 31, 2002). 2 PHMSA’s records indicate that after the August 2003 OPS inspection, Holly Energy Partners acquired Alon’s only interstate hazardous liquid pipeline system, the Trust-River System. Nonetheless, Alon’s 2008 annual report states that Respondent still operates 42 miles of pipelines used for the transportation of petroleum and other refined products, that 21 miles of those pipelines are designated as segments that could affect High Consequence Areas (HCAs), and that an additional four miles of non-HCA pipelines are also used in the transportation of crude oil.#

520045021_FinalOrder_08062009_text.pdf, page 32 FINDINGS OF VIOLATION Item 1 of the Notice alleged that Alon violated 49 C.F.R. § 195.452(b)(2), which states: § 195.452 Pipeline integrity management in high consequence areas. (a) …. (b) What program and practices must operators use to manage pipeline integrity? Each operator of a pipeline covered by this section must: (1) …. (2) Include in the program an identification of each pipeline or pipeline segment in the first column of the following table not later than the date in the second column: Pipeline Date Category 1 December 31, 2001. Category 2 November 18, 2002. Category 3 Date the pipeline begins operation. The Notice alleged that Alon violated 49 C.F.R. § 195.452(b)(2) by failing to identify all of the covered segments in its pipeline system that could affect High Consequence Areas (HCAs)3 as of August 2003, the date of the OPS inspection.4 Specifically, the Notice alleged that the TRC had previously cited Respondent for committing a similar violation of its intrastate regulations and that OPS had ordered the company to amend its written segment-identification procedures in a December 31, 2002 Order Directing Amendment (ODA). 5 It further alleged that Alon’s first contractor (Contractor A) failed to complete the pipeline segment-identification process by December 31, 2001, the applicable deadline under the regulations; that Respondent was not using the (albeit incomplete) results of Contractor A’s segment identification evaluation in its current IMP; and that the company could not explain how Contractor A performed his segment- identification evaluation or obtained his partial results. Finally, the Notice stated that Alon could not verify the total mileage of interstate pipeline segments in its system that could affect HCAs. 3 An HCA is defined for purposes of Part 195 as a “commercially navigable waterway, . . . [a] high population area, . . . [a]n other populated area, . . . [or] [a]n unusually sensitive area . . .” 49 C.F.R. § 195.450. A commercially navigable waterway is “a waterway where a substantial likelihood of commercial navigation exists;” a high population area is “an urbanized area, as defined and delineated by the Census Bureau, that contains 50,000 or more people and has a population density of at least 1,000 people per square mile;” an other populated area is “a place, as defined by the Census Bureau, that contains a concentrated population, such as an incorporated or unincorporated city, town, village, or other designated residential or commercial area;” id., and an unusually sensitive area is “a drinking water or ecological resource area that is unusually sensitive to environmental damage from a hazardous liquid pipeline release.” 49 C.F.R. § 195.6. 4 Given the total pipeline mileage operated by Alon and the installation date of the lines in question, the company had an obligation under § 195.452(b)(2) to identify all of its pipeline segments that could affect HCAs on or before December 31, 2001. See 49 C.F.R. § 195.452(a)(1) (“Category 1 includes pipelines existing on May 29, 2001, that were owned or operated by an operator who owned or operated a total of 500 or more miles of pipeline subject to this part . . ”); see also 49 § C.F.R. 195.1(a)-(b) (defining scope of applicability of Part 195). 5 In the Matter of Alon USA, C.P.F. 5-2002-5017 (Dec. 31, 2002).#

520045021_FinalOrder_08062009_text.pdf, page 43 Respondent disputed these allegations in its Response. Specifically, Alon argued that it had identified all of its pipeline segments that could affect HCAs by December 27, 2001, four days before the applicable regulatory deadline. Respondent also argued that it was using the data derived from Contractor A’s segment identification evaluation in its IMP, and was augmenting that data on the basis of a revised stream-and-waterway-transport methodology, developed by a subsequent contractor (Contractor B). Alon further argued that a description of Contractor A’s segment-identification methodology was on file with the company at the time of the OPS inspection but acknowledged that Contractor A could not provide a supporting rationale for that methodology when requested. Finally, Respondent argued that it received an updated analysis of its HCA pipeline mileage, as well as other related data, on April 17, 2002, but that OPS rejected that information as based upon Contractor A’s flawed methodology. Respondent’s arguments are not persuasive. The December 2002 ODA found that, as of February 2002, the date of a prior OPS-TRCC joint inspection and some two months after the deadline in § 195.452(b)(2) for identifying all could-affect HCA segments for Category 1 in its Response in this proceeding that Contractor A could not provide a supporting rationale for his methodology or reproduce his own results on request, and that “[a]t the time of the August[] 2003 inspection,” Contractor B “had just completed the segment identification process using stream and waterway transport modeling.” Thus, there is no dispute that Alon’s written procedures for performing the segment-identification process did not comply with the IMP pipelines, Alon’s segment-identification procedures were still inadequate.6 Alon also admitted regulations as of December 31, 2001, thereby invalidating any evaluation actually conducted pursuant to those procedures as of the 2001 deadline. Similarly, there is also no dispute that Alon’s new consultant, Contractor B, did not complete its subsequent segment-identification evaluation until well after that deadline. Accordingly, upon consideration of all of the evidence, I find that Respondent violated 49 C.F.R. § 195.452(b)(2) by failing to identify all of its pipeline segments that could affect HCAs on or before December 31, 2001. Item 2 of the Notice alleged that Alon violated 49 C.F.R. §§ 195.452(b)(1) and (4)-(5), which state: § 195.452 Pipeline integrity management in high consequence areas. (a) …. (b) What program and practices must operators use to manage pipeline integrity? Each operator of a pipeline covered by this section must: (1) Develop a written integrity management program that addresses the risks on each segment of pipeline in the first column of the following table not later than the date in the second column: Pipeline Date Category 1 March 31, 2002. 6 OPS also notified Alon, by letter dated October 14, 2003, that the segment identification procedures reviewed during the August 2003 inspection were not the same as the procedures it submitted several months earlier in response to the December 2002 ODA. The company responded to that letter by providing OPS with yet another version of those procedures, dated November 11, 2003.#

520045021_FinalOrder_08062009_text.pdf, page 54 (2) (4) Include in the program a framework that-- (i) Addresses each element of the integrity management program assessment and evaluation under paragraph (j) of this section;... under paragraph (f) of this section, including continual integrity (5) Implement and follow the program. The Notice alleged that Alon violated 49 C.F.R. §§ 195.452(b)(1) and (4)-(5) by failing to develop, implement, and follow a written IMP on or before the applicable deadline of March 31, 2002, or by the date of the August 2003 inspection. Specifically, the Notice stated that Alon issued a draft IMP on August 13, 2003, less than one week before the OPS inspection, but that Respondent could not demonstrate, through adequate documentation, that it had adopted or implemented a compliant IMP by March 31, 2002. Alon disputed these allegations in its Response. Specifically, Respondent argued that OPS actually reviewed the third edition of its IMP, not an early draft, during the August 2003 inspection. Alon submitted three versions of its written IMP to support these assertions, dated February 17, 2002, March 18, 2002, and August 13, 2003, respectively. These arguments are not persuasive. In fact, the evidence submitted by Alon (i.e., the various to develop, implement, and follow a written IMP on or before March 31, 2002. With respect to editions of its IMP) only serves to confirm the allegations in the Notice. Alon had an obligation development, Respondent's February 17, 2002 IMP was clearly inadequate. That is reflected in the findings of the December 2002 ODA and confirmed on further review in this proceeding. Indeed, the February 2002 IMP omits certain necessary information and admittedly relies in other instances on unverified information? Alon's March 18, 2002 IMP suffers from many of these same inadequacies. In addition to inadequate development of an IMP, there is also no evidence that Alon actually implemented any version of it from March 31, 2002, the deadline for initially developing the program, until the date of the August 2003 OPS inspection? In fact, the OPS inspector noted in his report from the August 2003 inspection that "the first traceable iota of movement with respect to Alon's [IMP] in the previous 16 months" occurred when the company hired its new " Response at Attachment 2.0, pp. 17-18, 20. For instance, under the subheading "Evolving Risk Analysis coefficients." Id. at 17. Similarly, under "What are the risk factors for establishing an assessment schedule (for both Capabilities," the February 2002 IMP simply states "*** Discuss linear model" and **** Table of risk factor the baseline and continual integrity assessments)," it notes «***Discuss limitations," «***Discuss arbitrary selection more complicated risk analysi[s.]" Id. at 18. Finally, under the subheading for "Computerized Records," the of parameters," «***Discuss confirmation of the risk model," "Discuss model by risk analysis," and ****Discuss February 2002 IMP twice states, in conjunction with a listed procedure, "Confirm this is so." Id. at 20. & Response at Attachment 2.1, pp. 32 (notation to insert missing schedule for baseline evaluation), 56 (notation to insert missing American Petroleum Institute Standard). ' See 49 C.F.R. § 195.452(1) (requiring an operator to maintain records of "actions taken ... to implement... each element" of an IMP).#

520045021_FinalOrder_08062009_text.pdf, page 65 consultant some two weeks prior to that inspection. Accordingly, upon consideration of all of the evidence, I find that Respondent violated 49 C.F.R. §§ 195.452(b)(1) and (4)-(5) by failing to develop an adequate written IMP on or before March 31, 2002, and to implement and follow an adequate written IMP from that date until the August 2003 OPS inspection. Item 3 of the Notice alleged that Alon violated 49 C.F.R. § 195.452(f)(2) and (c)(1), which state, in relevant part: § 195.452 Pipeline integrity management in high consequence areas. (a) . . . (f) What are the elements of an integrity management program? An integrity management program begins with the initial framework. An operator must continually change the program to reflect operating experience, conclusions drawn from results of the integrity assessments, and other maintenance and surveillance data, and evaluation of consequences of a failure on the high consequence area. An operator must include, at minimum, each of the following elements in its written integrity management program: (1) . . . (2) A baseline assessment plan meeting the requirements of paragraph (c) of this section . . . The Notice alleged that Alon violated 49 C.F.R. § 195.452(f)(2) by failing to include a compliant Baseline Assessment Plan (BAP) in its IMP. Specifically, the Notice stated that Respondent lacked a BAP (or any of the information that must be included in one) at the time of the inspection. The Notice also stated that Alon’s personnel informed the OPS inspection team that the development of its BAP could not be completed until its new consultant, Contractor B, had finished the revised segment identification evaluation. Alon admitted in its Response that “[a]t the time of the August 2003 inspection, [it only] had a limited documented [BAP],” and that it “couldn’t complete a fully documented risk[-]based consideration of all of the evidence, I find that Respondent violated 49 C.F.R. § 195.452(f)(2) by assessment until the HCA identification analysis had been updated . . .”10 Accordingly, upon failing to include a compliant BAP in its IMP as of the date of the OPS inspection. Items 4(a), (b), and (c) of the Notice alleged that Alon violated 49 C.F.R. § 195.452(e)(1) and (g)(1)-(4), which state, in relevant part: § 195.452 Pipeline integrity management in high consequence areas. (a) . . . (e) What are the risk factors for establishing an assessment schedule (for both the baseline and continual integrity assessments)? (1) An operator must establish an integrity assessment schedule that prioritizes pipeline segments for assessment (see paragraphs (d)(1) and (j)(3) of this section). An operator must base the assessment schedule on all risk factors that reflect the risk conditions on the pipeline segment. The factors an operator must consider include, but are not limited to: 10 Response at 5.#

520045021_FinalOrder_08062009_text.pdf, page 76 (i) Results of the previous integrity assessment, defect type and size that the assessment method can detect, and defect growth rate; (ii) Pipe size, material, manufacturing information, coating type and condition, and seam type; (iii) Leak history, repair history and cathodic protection history; (iv) Product transported; (v) Operating stress level; (vi) Existing or projected activities in the area; (vii) Local environmental factors that could affect the pipeline (e.g., corrosivity of soil, subsidence, climatic); (viii) Geo-technical hazards; and (ix) Physical support of the segment such as by a cable suspension bridge. (2) . . . (g) What is an information analysis? In periodically evaluating the integrity of each pipeline segment (paragraph (j) of this section), an operator must analyze all available information about the integrity of the entire pipeline and the consequences of a failure. This information includes: (1) Information critical to determining the potential for, and preventing, damage due to excavation, including current and planned damage prevention activities, and development or planned development along the pipeline segment; (2) Data gathered through the integrity assessment required under this section; (3) Data gathered in conjunction with other inspections, tests, surveillance and patrols required by this Part, including, corrosion control monitoring and cathodic protection surveys; and (4) Information about how a failure would affect the high consequence area, such as location of the water intake. Item 4(a) of the Notice alleged that Alon violated 49 C.F.R. § 195.452(e)(1) and (g)(1)- (4) by failing to establish an integrity assessment schedule that prioritized its pipeline segments for assessment on the basis of all risk factors and by failing to analyze all available information about the integrity of its entire pipeline system and the consequences of a failure. Specifically, the Notice alleged that Alon presented the OPS inspection team with a draft risk assessment method that had been copied verbatim from a textbook. The Notice also alleged that the company provided the inspection team with a risk-factor form (a document that it planned to use to collect information on its pipeline system) that was inconsistent with its draft risk assessment methodology. Finally, the Notice alleged that Alon could not demonstrate how it planned to use any of the data gathered from the risk-factor form in its IMP. Alon admitted in its Response that it presented OPS with a draft risk assessment method taken verbatim from a textbook but “only as an example of the type of risk assessment tool being developed for [it] at the time.”11 Respondent admitted, in other words, that it had not developed and was not implementing a compliant risk assessment method as of 11 Response at 7 (emphasis added).#

520045021_FinalOrder_08062009_text.pdf, page 87 the date of the OPS inspection. Alon also necessarily acknowledged, by implication, that it failed to develop an integrity assessment schedule based upon a valid risk assessment methodology. Accordingly, I find that Alon violated 49 C.F.R. § 195.452(e)(1) and (g)(1)-(4) by failing to develop and perform a compliant risk assessment and information integration analysis in establishing its BAP schedule. Item 4(b) of the Notice likewise alleged that Alon violated 49 C.F.R. § 195.452(e)(1) by failing to establish an integrity assessment schedule that prioritized its pipeline segments for assessment based on all risk factors that reflect the risk conditions on the pipeline segment. In particular, the Notice alleged that Alon limited its risk assessment method to only those pipeline segments that could affect HCAs, instead of collecting and integrating information on its entire pipeline system, including breakout tanks and pump stations. In its Response, Alon argued that its risk assessment method included pump stations at the time of the inspection. Respondent acknowledged, however, that its analysis did not include breakout tanks until after the OPS inspection. On the basis of the latter admission, and upon consideration of all of the evidence, I find that Respondent violated 49 C.F.R. § 195.452(e)(1) by failing to have a risk assessment method that incorporated the collection and integration of information on its entire pipeline system for use in establishing a compliant integrity assessment schedule. Item 4(c) of the Notice similarly alleged that Alon violated 49 C.F.R. § 195.452(e)(1) by failing to establish an integrity assessment schedule that prioritized its pipeline segments for assessment based on all risk factors that reflect the risk conditions on the pipeline segment. Specifically, the Notice alleged that Respondent’s IMP provided no guidance or information on the assignment of risk scores based on the subjective risk-assessment- method inputs. The Notice further stated that without such guidance, Alon’s risk-scores (and any prioritization of its pipeline segments for integrity assessment on the basis thereof) would vary and be unreliable over time. In its Response, Alon argued that its IMP included written assessment questions and formatted responses that dealt with risk ranking and submitted documentation of its written procedure.12 Respondent did not, however, dispute the allegation that the former written procedure was not in place at the time of the OPS inspection. In addition, the document Alon submitted did not indicate the effective date of the procedure.13 Accordingly, upon consideration of all of the evidence, I find that Respondent violated 49 C.F.R. § 195.452(e)(1) by failing to include proper guidance in its IMP on the assignment of risk scores based on the subjective risk-assessment-method inputs for use in establishing a compliant integrity assessment schedule. 12 Response at Attachment 4.3. 13 Moreover, at least some of the questions listed on the written procedure of record are in need of further clarification. For example, the form asks, without further guidance, whether relationship with local authorities is “excellent,” “good,” or “poor,” and whether the pipe material looks “excellent,” “good,” or “poor ”. Response at Attachment 4.3, pp. 5, 6.#

520045021_FinalOrder_08062009_text.pdf, page 98 Item 5 of the Notice alleged that Alon violated 49 C.F.R. § 195.452(l)(1), which states, in relevant part: § 195.452 Pipeline integrity management in high consequence areas. (a) . . . (l) What records must be kept? (1) An operator must maintain for review during an inspection: (i) A written integrity management program in accordance with paragraph (b) of this section. (ii) Documents to support the decisions and analyses, including any modifications, justifications, variances, deviations and determinations made, and actions taken, to implement and evaluate each element of the integrity management program listed in paragraph (f) of this section. The Notice alleged that Alon violated 49 C.F.R. 195.452(l)(1) by failing to maintain proper documentation of the decisions and analyses, including any modifications, justifications, variances, deviations and determinations made, and actions taken, to implement and evaluate each element of its IMP. Specifically, the Notice stated that Alon failed to properly document the modifications it had previously made to its February 2002 IMP and that it lacked a procedure for tracking such changes. In its Response, Alon disputed these allegations. In particular, Respondent argued that it had documented the changes made to its February 2002 IMP and that it had a procedure in place for making, implementing, and tracking such changes as of the date of the inspection. In support of its position, Alon submitted its written procedure for documenting changes to its IMP14 and a Master Change Log showing the changes that had been made to its IMP since July 3, 2003.15 This evidence, however, is not persuasive. First, the written procedure submitted by Alon is dated August 13, 2003, less than a week prior to the OPS inspection, and no other evidence exists that contradicts the OPS inspector’s allegation that an adequate procedure was not in effect as of March 31, 2002, the date required under the regulation. Moreover, even if Alon had a written procedure in effect at that time, the Master Change Log makes no mention of the decisions, analyses, and actions the company had taken in transitioning from the February 2002 IMP to the March 2002 IMP. On the contrary, the first notation in the Master Change Log is dated July 2003, more than a year after Alon had transitioned from its February 2002 IMP to its March 2002 IMP. Furthermore, the Master Change Log characterizes the March 2002 edition as Alon’s “[o]riginal” IMP, even though the company argued in its Response that the February 2002 IMP was the first written edition of that program. In other words, there is no evidence that Alon had a recordkeeping procedure prior to August 2003, even though the regulation required one as of March 31, 2002, or that the company followed such a procedure if in effect during that time period. Accordingly, upon consideration of the evidence of record, I find that 14 Response at Attachment 5.0. 15 Response at Attachment 5.1.#

520045021_FinalOrder_08062009_text.pdf, page 109 Respondent violated 49 C.F.R. § 195.452(l)(1) by failing to maintain documents supporting the decisions, analyses, and actions taken in modifying its February 2002 IMP. Items 6(a), (b), and (c) of the Notice alleged that Alon had violated 49 C.F.R. §195.452(f)(3) and (g)(1)-(4), which state, in relevant part: § 195.452 Pipeline integrity management in high consequence areas. (a) . . . (f) What are the elements of an integrity management program? An integrity management program begins with the initial framework. An operator must continually change the program to reflect operating experience, conclusions drawn from results of the integrity assessments, and other maintenance and surveillance data, and evaluation of consequences of a failure on the high consequence area. An operator must include, at minimum, each of the following elements in its written integrity management program: (1) . . . (3) An analysis that integrates all available information about the integrity of the entire pipeline and the consequences of a failure (see paragraph (g) of this section); . . . (g) What is an information analysis? In periodically evaluating the integrity of each pipeline segment (paragraph (j) of this section), an operator must analyze all available information about the integrity of the entire pipeline and the consequences of a failure. This information includes: (1) Information critical to determining the potential for, and preventing, damage due to excavation, including current and planned damage prevention activities, and development or planned development along the pipeline segment; (2) Data gathered through the integrity assessment required under this section; (3) Data gathered in conjunction with other inspections, tests, surveillance and patrols required by this Part, including, corrosion control monitoring and cathodic protection surveys; and (4) Information about how a failure would affect the high consequence area, such as location of the water intake. Item 6(a) of the Notice alleged that Alon violated 49 C.F.R. § 195.452(f)(3) by failing to include in its IMP an analysis that integrated all available information about the integrity of its entire pipeline and the consequences of a failure. Specifically, the Notice alleged that Respondent’s IMP did not include a compliant procedure for gathering, analyzing, and disseminating relevant information and findings on the integrity of each pipeline segment that could affect HCAs. For example, it alleged that Alon had not correlated the results of in-line inspection (ILI) tool runs on the Amdel Pipeline to determine if any of the dents that had been detected involved metal loss and had not compared the results of those ILI assessments to other information about that pipeline system.#

520045021_FinalOrder_08062009_text.pdf, page 1110 In its Response, Alon stated that its metal loss repair criteria exceeded the applicable regulatory requirements. The strictness of Respondent’s metal loss criteria is, however, not relevant to the violation alleged in the Notice, namely, that Alon lacked a process for integrating such ILI data upon its receipt. Alon also admitted that it had not developed any dent repair criteria until the adoption of its February 2002 IMP, and that it did not correlate the dent and metal loss data from these ILI tool runs until after the August 2003 OPS inspection.16 Accordingly, I find that Respondent violated 49 C.F.R. § 95.452(f)(3) by failing to include in its IMP an analysis that integrates all available information about the integrity of its entire pipeline and the consequences of a failure. Item 6(b) of the Notice similarly alleged that Alon violated 49 C.F.R. § 195.452 (g)(1)- (4) by failing to include in its written IMP an adequate procedure for analyzing all available information about the integrity of its entire pipeline and the consequences of a failure. Specifically, the Notice stated the Respondent lacked a compliant procedure for collecting and integrating field input and local knowledge on potential changes to pipeline segments that could affect HCAs. For example, the Notice explained that Alon’s IMP failed to specify the methods and personnel responsible for gathering such information, and that the program did not include a process for recording and disseminating that information. Alon disputed this allegation in its Response, contending that it had a written procedure in place at the time of the OPS inspection for collecting and using data on potential changes to pipeline segments in HCAs. However, a review of Alon’s supporting documentation17 shows that, while there was a procedure in place at that time, it failed to address any of the deficiencies cited in the Notice. Indeed, that procedure neither identifies the methods used nor the company personnel responsible for collecting data on pipeline segments in HCAs. Nor does it include a meaningful description of the process for recording or disseminating that information. Accordingly, I find that Respondent violated 49 C.F.R. § 195.452(g)(1)-(4) by failing to include in its written IMP an adequate procedure for analyzing all available information about the integrity of the entire pipeline and the consequences of a failure. Item 6(c) of the Notice similarly alleged that Alon violated 49 C.F.R. § 195.452(g)(1)- (4) by failing to include in its written IMP an adequate procedure for analyzing all available information about the integrity of its entire pipeline and the consequences of a failure. In particular, the Notice stated that its IMP did not include any consideration of the risks associated with the operation—or the consequences of a failure—of pump stations or breakout tanks. Respondent disputed this allegation in its Response. Specifically, Alon stated that its written IMP covered pump stations at the time of the OPS inspection. The company acknowledged, however, that it later revised some of its assumptions on the consequences 16 Response at Attachment 6.0 (relating to the correlation of dent and metal loss data dated December 8, 2003). 17 Response at Attachment 6.1, IMP-1.02-002 (revised as of August 13, 2003).#

520045021_FinalOrder_08062009_text.pdf, page 1211 of a pump station failure and that it did not include breakout tanks in its IMP until after the OPS inspection. Upon consideration of all the evidence of record, including Alon’s admission that its IMP did not include breakout tanks at the time of the OPS inspection, I find that Respondent violated 49 C.F.R. § 195.452(g)(1)-(4) by failing to include in its written IMP an adequate procedure for analyzing all available information about the integrity of its entire pipeline and the consequences of a failure. Items 7(b) of the Notice alleged that Alon violated 49 C.F.R. § 195.452(i)(2), which states: § 195.452 Pipeline integrity management in high consequence areas. (a) . . . (i) What preventive and mitigative measures must an operator take to protect the high consequence area? (1) . . . (2) Risk analysis criteria. In identifying the need for additional preventive and mitigative measures, an operator must evaluate the likelihood of a pipeline release occurring and how a release could affect the high consequence area. This determination must consider all relevant risk factors, including, but not limited to: . . . The Notice alleged that Alon violated 49 C.F.R. § 195.452(i)(2) by failing to perform a proper risk analysis to identify the need for additional preventive and mitigative measures to protect HCAs. Specifically, the Notice alleged that Respondent did not adequately consider in its draft risk assessment the consequences of pipeline releases and how such releases could affect HCAs. Respondent disputed this allegation in its Response, contending that its Automated Risk Assessment Tool (ARAT) “uses the impact to HCAs as the consequence for the occurrence of a threat” and the development of “threat lists” to determine the possible events that might occur and to develop preventive and mitigative measures. Alon also noted that at the time of the OPS inspection, it had a written procedure on preventative and mitigative measures.18 These arguments, however, are not responsive to the allegation in the Notice. First, the ARAT system was not operational at the time of the August 2003 OPS inspection and, therefore, is not relevant. Second, the written procedure on preventative and mitigative measures that Respondent submitted only addressed the potential consequences of a failure in a cursory fashion. Third, and most importantly, that procedure relied on the same flawed methodologies— i.e., the inadequate identification of pipeline segments that could affect HCAs, the lack of integrated information on the integrity of its pipeline system, and inadequate risk assessments— described at length in the prior sections of this Final Order. Accordingly, upon consideration of all of the evidence, I find that Respondent violated 49 C.F.R. § 195.452(i)(2) by failing to 18 Response at 11 and Attachment 7.1, IMP-4.001-010, Rev. 1.#

520045021_FinalOrder_08062009_text.pdf, page 1312 conduct a proper risk analysis to identify the need for additional preventative and mitigative measures to protect HCAs. Item 8 of the Notice alleged that Alon violated 49 C.F.R. § 195.452(j)(1), which states, in relevant part: § 195.452 Pipeline integrity management in high consequence areas. (a) . . . (j) What is a continual process of evaluation and assessment to maintain a pipeline's integrity? (1) General. After completing the baseline integrity assessment, an operator must continue to assess the line pipe at specified intervals and periodically evaluate the integrity of each pipeline segment that could affect a high consequence area. The Notice alleged that Alon violated 49 C.F.R. § 195.452(j)(1) by failing to specify in its IMP a time frame, after completing its BAP, for continuing to assess the line pipe at specified intervals and to periodically re-evaluate the integrity of each pipeline segment that could affect an HCA. The Notice further alleged that Alon failed to include a time frame in which to conduct an evaluation to determine whether reassessments should be performed at shorter intervals.19 Respondent disputed this allegation in its Response, contending that its IMP now includes the allegation that no such procedure existed at the time of the OPS inspection. In addition, unlike some of the other written procedures submitted by Respondent, the one at issue here includes no effective date. Thus, there is no evidence in the record that contradicts the OPS inspector’s allegation that Alon’s IMP included no such time frame during the inspection. Accordingly, upon consideration of all of the evidence, I find that Respondent violated 49 C.F.R. criteria for requiring reassessments within a shorter interval.20 Alon has not, however, refuted § 195.452(j)(1) by failing to include in its IMP a time frame, after completing its BAP, for continuing to assess the line pipe at specified intervals and to periodically re-evaluate the integrity of each pipeline segment that could affect an HCA. These findings of violation will be considered prior offenses in any subsequent enforcement action taken against Respondent. WITHDRAWAL OF ALLEGATION Items 7(a) of the Notice alleged that Alon violated 49 C.F.R. § 195.452(i)(3), which states: § 195.452 Pipeline integrity management in high consequence areas. (a) . . . 19 See 49 C.F.R. § 195.452(j)(2)-(3). 20 Response at Attachment 8.0, IMP-4.01-009.#

520045021_FinalOrder_08062009_text.pdf, page 1413 (i) What preventive and mitigative measures must an operator take to protect the high consequence area? (1) . . . (3) Leak detection. An operator must have a means to detect leaks on its pipeline system. An operator must evaluate the capability of its leak detection means and modify, as necessary, to protect the high consequence area. An operator's evaluation must, at least, consider, the following factors- length and size of the pipeline, type of product carried, the pipeline's proximity to the high consequence area, the swiftness of leak detection, location of nearest response personnel, leak history, and risk assessment results. The Notice alleged that Alon violated 49 C.F.R. § 195.452(i)(3) by failing to conduct a proper risk analysis to determine what additional preventive and mitigative measures might be needed to protect HCAs. Specifically, the Notice stated that Alon’s risk analysis did not adequately evaluate the capability of its leak detection system. In support of that allegation, the Notice cited Respondent’s purported failure to consider an incident that occurred on February 11, 2001, and to determine whether that incident justified making any changes to its leak detection system. Respondent disputed these allegations in its Response. After noting that the February 2001 of the leak showed that the affected line did not experience any concurrent decrease in operating pressure and that the leak would not have been detected by a lower alarm set point. Therefore, Response contended that this incident did not warrant any changes to its leak detection system. In addition, Respondent alleged that the OPS inspectors did not ask for or review any of the the U.S. Environmental Protection Agency. incident preceded the effective date of the IMP regulations,21 Alon argued that its investigation documents related to its investigation of this leak, including the reports Alon filed with TRC and The evidence of record is not sufficient to sustain the violation alleged in Item 7(a) of the Notice. In particular, Alon performed a contemporaneous investigation of the February 2001 leak, and the record suggests that OPS may not have reviewed all of the relevant documentation. For example, the OPS inspector indicated that the line in question was shut-in at the time of the leak, but Respondent’s documents show that the line had recently resumed operation. Given that OPS apparently did not consider all of the circumstances surrounding the incident, and upon consideration of all of the evidence, I am withdrawing Item 7(a) of the Notice as not supported by the evidence. Item 9 of the Notice alleged that Alon violated 49 C.F.R. § 195.452(k), which states: § 195.452 Pipeline integrity management in high consequence areas. (a) . . . (k) What methods to measure program effectiveness must be used? An operator's program must include methods to measure whether the program is effective in assessing and evaluating the integrity of each pipeline segment 21 Response at Attachment 7.0.#

520045021_FinalOrder_08062009_text.pdf, page 1514 and in protecting the high consequence areas. See Appendix C of this part for guidance on methods that can be used to evaluate a program's effectiveness. The Notice alleged that Alon violated 49 C.F.R. § 195.452(k) by failing to include in its IMP methods to measure whether the program was effective in assessing and evaluating the integrity of each pipeline segment and in protecting HCAs. Specifically, the Notice alleged that while the company had a good candidate list of performance measures to be used to evaluate the effectiveness of its IMP, its program did not include a methodology for interpreting and evaluating those measures. Respondent disputed this allegation. Specifically, Alon argued that at the time of the OPS inspection, the company had a written procedure on the performance measures it planned to use in evaluating the effectiveness of its program, and that it revised that procedure following the inspection. Alon submitted a copy of both procedures. A review of those procedures contradicts OPS’ characterization of the performance measurements in place at the time of the inspection as Alon’s Response persuasive and am, therefore, withdrawing the allegation of violation in Item 9 of the Notice. a mere list of potential “candidates.”22 Upon reviewing the relevant evidence of record, I find ASSESSMENT OF PENALTY Sections 49 U.S.C. § 60122 and 49 C.F.R. § 190.225 require that, in determining the amount of a civil penalty, I 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 $200,000 for the probable violations of 49 C.F.R. § 195.452 alleged in Items 1, 2, 3, 4(a), 4(b), 5, 6(a), 6(c), and 7(b) and a civil penalty of $15,000 for the probable violation alleged in Item 7(a). Having already determined that Item 7(b) is not supported by the evidence of record, I am withdrawing the $15,000 civil penalty for Item 7(a). With respect to the remaining Items, Alon offered three general arguments for a reduction or an elimination of the entire civil penalty: (1) that the company was acting in good faith to improve its IMP at the time of the OPS inspection; (2) that PHMSA’s IMP regulations “were new, complex, not well defined, and ever changing;” and (3) that the presence of conflicting state IMP regulations rendered compliance with the corresponding federal standards confusing and 22 Response at Attachments 9.0 and 9.1.#

520045021_FinalOrder_08062009_text.pdf, page 1615 difficult. Upon consideration of the evidence of record, the assessment criteria, and Respondent’s arguments, I find that each of the proposed civil penalty amounts is justified. On the issue of good faith, it should be noted that Alon had more than 18 months after the February 2002 OPS-TRC inspection to bring its IMP program into compliance, but nonetheless failed to achieve that objective. Furthermore, it appears that most of its efforts to comply with the regulations occurred only days before the August 2003 OPS inspection, including the long- overdue revision of its March 2002 IMP. Indeed, as the August 2003 OPS inspector noted in his report, “the first traceable iota of movement with respect to Alon’s [IMP] in the previous 16 months” occurred when the company hired its new consultant some two weeks prior to the inspection. Such belated efforts can hardly be characterized as a good faith attempt by Alon to achieve full and timely compliance with 49 C.F.R. § 195.452. With regard to the content of the IMP requirements, the regulations are performance-based, not prescriptive, and that can place a unique burden on operators in terms of achieving compliance. However, that is why the OPS-TRC team provided Alon with guidance on complying with the requirements of 49 C.F.R. § 195.452 during the February 2002 inspection. It is also why PHMSA has made a range of additional IMP-related information available on its website.23 Other operators have used that information to develop fully compliant IMPs within the allotted timeframes, but Alon did not. The reason for that failure lies, in the words of the OPS inspector, in Respondent’s “overall . . . lack of responsiveness and lack of any action whatsoever,” not any perceived conflict between the federal and state regulations. In terms of the gravity of the offenses, Respondent’s failure to comply with these deadlines was particularly serious. Indeed, the company still had not identified all of its Category 1 pipeline segments that could affect HCAs as late as August 2003, some 18 months after the applicable regulatory deadline. Similarly, Alon had no viable IMP in place at that time of the 2003 inspection, an omission that allowed, as the OPS inspector noted, Respondent to operate its “crude [oil] line between Big Spring . . . and Corpus Christy, [Texas,] . . . with un-remediated, ‘immediate’ anomalies in the line” in defiance of the regulations for an extended period of time.24 In summary, Alon knew of its responsibility to meet the various deadlines in the IMP requirements. It also had the added benefit of a prior TRC-OPS inspection, one specifically designed to facilitate Respondent’s compliance with the IMP regulations. PHMSA also issued a Notice of Amendment to Alon following that inspection, highlighting many of the fundamental deficiencies in its IMP, and later ordered the company to correct those deficiencies. Despite having the advantage of these prior actions by federal and state regulators, the company still took 23 Implementing Integrity Management for Hazardous Liquid Operators, http://primis.phmsa.dot.gov/iim/index.htm (accessed on Jun. 17, 2009). 24 See 49 C.F.R. § 195.452(h) (requiring operators to take appropriate action to detect and remediate anomalous conditions that could reduce pipeline integrity).#

520045021_FinalOrder_08062009_text.pdf, page 1716 little meaningful action to address the basic problems in its IMP until days before the August 2003 inspection. In so doing, Alon increased the risk of harm to life, property and the environment (including in HCAs) for more than a year’s time. For these reasons, I find that a civil penalty of $200,000 for the violations of 49 C.F.R. § 195.452 established in Items 1, 2, 3, 4(a), 4(b), 5, 6(a), 6(c), and 7(b) is appropriate. Accordingly, having reviewed the record and considered the assessment criteria, I assess Respondent a total civil penalty of $ 200,000. PAYMENT OF PENALTY Payment of the $200,000 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; (405) 954- 8893. Failure to pay the $200,000 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 United States District Court. COMPLIANCE ORDER The Notice proposed a compliance order with respect to Items 1 through 9 for violations by Respondent of 49 C.F.R. § 195.452. Under 49 U.S.C. § 60118(a), each person who engages in the transportation of a hazardous liquid or who owns or operates a pipeline facility is required to comply with the applicable safety standards established under Chapter 601. The Director has indicated that Respondent has taken the following actions specified in the proposed compliance order: With regard to Items 1 through 6(c) and Items 7(b) and 8, Alon has submitted a copy of its current written IMP and a review of that document has shown that Respondent has sufficiently resolved the violations of 49 C.F.R. § 195.452 identified in the Notice, subject to possible verification and scrutiny on re- inspection. Accordingly, since compliance has been achieved with respect to these violations, the compliance terms are not included in this Order.#

520045021_FinalOrder_08062009_text.pdf, page 1817 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 received within 20 days of Respondent’s receipt of this Final Order and must contain a brief statement of the issue(s). The terms of the order, including any required corrective action and amendment of procedures, shall remain in full force and effect unless the Associate Administrator, upon request, grants a stay. The terms and conditions of this Final Order shall be effective upon receipt. Jeffrey D. Wiese Date Issued Associate Administrator for Pipeline Safety#

520045021_Decision on the Petition for Reconsideration_10222009_text.pdf, page 1Official PDFOCT 22 2009 VIA CERTIFIED MAIL – RETURN RECEIPT REQUESTED [7004 2510 0003 6895 8792] Mr. Randy Hillman Vice President of Pipelines General Manager of Logistics and Utilities Alon USA, LP P.O. Box 1311 Big Spring, TX 79721 RE: CPF No. 5-2004-5021 Dear Mr. Hillman: Enclosed is this agency’s decision denying your company’s Petition for Reconsideration in this case. The penalty payment terms are set forth in the Final Order. This enforcement action closes automatically upon payment. Service of this decision by certified mail is complete upon mailing 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. Chris Hoidal, Director, Western Region, PHMSA Ms. Melissa A. Hearne DLA Piper LLP (USA) 500 8th Street, N.W. Washington, DC 20004#

520045021_Decision on the Petition for Reconsideration_10222009_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 ) ) Alon USA, LP, ) CPF No. 5-2004-5021 ) Respondent. ) ______________________________) DECISION ON PETITION FOR RECONSIDERATION Alon USA, LP (Petitioner or Alon) is the operator of a crude oil refinery and associated pipeline systems in the State of Texas. In an August 6, 2009 Final Order, I found that Petitioner committed several violations of 49 C.F.R. § 195.4521 in operating those facilities and assessed the company a $200,000 civil penalty for those violations. The following month, on September 9, 2009, Alon filed this Petition for Reconsideration (Petition). Petitioner’s sole argument is that PHMSA contravened the statute of limitations for commencing this enforcement proceeding by issuing the Final Order more than five years after the violations at issue occurred. 2 While I agree that this agency’s enforcement proceedings are subject to a five-year statute of limitations, I do not agree that PHMSA failed to comply with that deadline in this case. As a matter of law, our enforcement proceedings commence when an operator receives service of a notice of probable violation, not when the Associate Administrator issues a final order. Moreover, the facts of this case show that Alon received service of this notice of probable violation on or about July 14, 2004, and that all of the alleged had violations occurred within five years of that date. For these reasons, I am denying this Petition and affirming the Final Order without modification. I. Discussion A statute of limitations is generally defined as: 1 That regulation requires the owner or operator of a hazardous liquid pipeline in a high consequence area to develop and implement a written pipeline integrity management program. 2 28 U.S.C. § 2462.#

520045021_Decision on the Petition for Reconsideration_10222009_text.pdf, page 32 A law that bars claims after a specified period; specif[ically], a statute establishing a time limit for suing in a civil case, based on the date when the claim accrued . . . The purpose of such a statute is to require diligent prosecution of known claims, thereby providing finality and predictability in legal affairs and ensuring that claims will be resolved while evidence is reasonably available and fresh.3 The Pipeline Safety Laws4 do not prescribe a specific time limit for initiating an enforcement proceeding.5 Therefore, those proceedings are subject to the default statute of limitations.6 The applicable provision, entitled “[t]ime for commencing proceedings,” states: Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.7 This agency has previously determined that “[t]he plain language of th[is] statute requires only that enforcement actions be commenced, not concluded, within five years.”8 Moreover, our regulations state that “a Regional Director begins an enforcement proceeding by serving a notice of probable on a person charging that person with a probable violation of 49 U.S.C. 60101 et seq. or any regulation or order issued thereunder.”9 Thus, for purposes of the five-year statute of limitations, PHMSA’s enforcement proceedings commence (or begin) when an operator is served with a notice of probable violation.10 3 Black's Law Dictionary (8th ed. 2004). 4 49 U.S.C. §§ 60101-60137. 5 PHMSA’s administrative procedures for enforcing the Pipeline Safety Laws are described in Subpart B, Part 190, Title 49, Code of Federal Regulations. 6 See e.g., U.S. v. Banks, 115 F.3d 916 (11th Cir. 1997) (holding that “[b]ecause the [Clean Water Act] does not specify a limitations period for enforcement actions under § 309 . . ., the default limitations provisions of 28 U.S.C. § 2462 apply to the government's actions for civil fines or penalties.”); U.S. v. C & R Trucking Company, 537 F.Supp. 1080, 1083 (D. W. Va. 1982) (holding that “[s]ince the Clean Water Act does not contain a specific limitation on the commencement of an action to assess a civil penalty, this Court must resort to 28 U.S.C. s 2462”). 7 28 U.S.C. § 2462 (italics added). 8 In the Matter of Bridgemark Corporation, CPF No. 5-2005-0018, Decision on Petition for Reconsideration, p. 4 (Jul. 28, 2009). 9 49 C.F.R. § 190.207(a) (italics added). 10 49 C.F.R. § 190.5 (prescribing the requirements for service).#

520045021_Decision on the Petition for Reconsideration_10222009_text.pdf, page 43 In this case, the Office of Pipeline Safety (OPS) and Texas Railroad Commission (TRC) performed a joint inspection of Alon’s refinery in Big Spring, Texas, in August 2003. The OPS and TRC inspectors discovered a number of deficiencies in Petitioner’s Integrity Management Program (IMP), including its failure to comply with December 31, 2001 and March 31, 2002 deadlines for identifying the pipeline segments covered by § 195.452 and for developing, implementing, and following an adequate written program for managing the integrity of those pipelines. Thereafter, the Director, Western Region, OPS, issued Alon a Notice of Probable Violation (Notice). The Notice, dated July 12, 2004, proposed finding that Petitioner committed several violations of § 195.452, assessing the company a civil penalty of $215,000 for 10 of those violations, and ordering it to take certain actions to comply with the former regulation. The following month, on August 13, 2004, PHMSA received Petitioner’s written response (Response) to the Notice. In that Response, the company acknowledged its receipt of the Notice “[o]n or about July 14, 2004, proposed civil penalty be reduced or eliminated, and argued that the proposed compliance order was not necessary. ”11 disputed nearly all of the alleged violations, requested that the This agency’s enforcement proceedings commence (or begin) for purposes of the applicable statute of limitations when an operator is served with a notice of probable violation, and Alon received service of this Notice on or about July 14, 2004. Moreover, the statute of limitations only requires that a proceeding be commenced within five years of the date when a claim first accrued, and there is no dispute that all of the violations at issue here arose on or after July 14, 1999.12 Accordingly, I find that PHMSA complied in all respects with the five-year statute of limitations for commencing this enforcement proceeding. 13 11 Response at 1. 12 Petition at 2. 13 C & R Trucking Company, 537 F.Supp. at 1083 (holding that “the oil spill is alleged to have occurred on or about February 19, 1977[,] . . . [and that] [t]he Government instituted this action on November 27, 1981, within the five years prescribed by 28 U.S.C. s 2462[;] . . . therefore, . . . the Government is not barred from bringing this action [under the CWA] to assess a civil penalty against the Defendant.”).#

520045021_Decision on the Petition for Reconsideration_10222009_text.pdf, page 54 II. Conclusion For the reasons stated in Part I of this decision, I am denying Alon’s Petition for Reconsideration and affirming the Final Order without modification. This is the final administrative action in this proceeding. _____________________________ __________________________ Jeffrey D. Wiese Date Issued Associate Administrator for Pipeline Safety#