ALYESKA PIPELINE SERVICE CO — Notice of Probable Violation

party submissionOfficial PDF520065018_ Petition for Reconsideration_02082010.pdf#

520065018_Decision on Petition for Reconsideration_03012010_text.pdf, page 1Official PDFMAR 1 2010 Mr. Mike Joynor Senior Vice President Oil Movements, Engineering and Pipeline Alyeska Pipeline Service Company 900 E. Benson Blvd. P.O. Box 196660 Anchorage, AK 99519 Re: CPF No. 5-2006-5018 Dear Mr. Joynor: Enclosed is the Decision on the Petition for Reconsideration filed by Alyeska Pipeline Service Company in the above-referenced case. The decision denies your petition in all respects except that Requirement 3 in the Compliance Order has been stricken. The remaining terms of the Final Order are in effect, including the assessment of a civil penalty in the amount of $263,000, and the actions specified therein to comply with the pipeline safety regulations. When the civil penalty has been paid and the terms of the compliance order completed, as determined by the Director, Western Region, this enforcement action will be closed. Service of this document is in accordance with 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 Sheila Doody Bishop, Counsel, Alyeska Pipeline Service Co. 900 E. Benson Blvd., P.O. Box 196660, Anchorage, AK 99519 CERTIFIED MAIL – RETURN RECEIPT REQUESTED [7009 1410 0000 2472 5057]#

520065018_Decision on Petition for Reconsideration_03012010_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 ) Alyeska Pipeline Service Company, ) CPF No. 5-2006-5018 ) ) ) Petitioner. ) ____________________________________) DECISION ON PETITION FOR RECONSIDERATION On January 13, 2010, the Pipeline and Hazardous Materials Safety Administration (PHMSA) issued a Final Order in this case finding that Alyeska Pipeline Service Company (Alyeska or Petitioner) had committed two violations of the hazardous liquid pipeline safety regulations. In Item 1 of the Final Order, Alyeska was found to have violated 49 C.F.R. § 195.452(h)(2) by failing to promptly obtain, within 180 days after an integrity assessment, sufficient information about anomalous conditions on the pipeline to determine if they present a potential threat to integrity. In Item 2, Alyeska was found to have violated § 195.452(h)(3) and (h)(4)(i)(C) by failing to complete remediation of an anomalous condition according to a schedule for immediate repair, and by failing to temporarily reduce operating pressure or shut down the pipeline until completing the repair. The Final Order assessed a total civil penalty of $263,000 for the violations, reduced from the proposed amount of $350,000. The Final Order also specified actions to be taken by the company to comply with the pipeline safety regulations (Compliance Order). Alyeska responded to the Final Order as permitted under § 190.215 by submitting a Petition for Reconsideration dated February 8, 2010 (Petition). In its Petition, Alyeska requested reconsideration of the civil penalty and the associated compliance terms for Item 1. 1 Section 190.215 provides that a respondent may petition the Associate Administrator for reconsideration of a final order. The Associate Administrator does not consider repetitious information, arguments, or petitions, but may consider additional facts or arguments, provided that the respondent submits a valid reason why such information was not presented prior to issuance of the final order. The Associate Administrator may grant or deny, in whole or in part, a petition for reconsideration without further proceedings, but may request additional information, data, and comment as deemed appropriate. This rule allows a respondent to present information or arguments that were unavailable or unknown prior to issuance of the final order, and gives PHMSA an opportunity to correct any errors. Section 190.215 further provides that a petition must be received by PHMSA no later than 20 days after service of the final order. 1 Alyeska also requested a stay of the compliance order pending PHMSA’s issuance of a decision on its petition, but that request is rendered moot by this decision.#

520065018_Decision on Petition for Reconsideration_03012010_text.pdf, page 32 At the outset, Alyeska noted that PHMSA’s regulation provides that service of a final order by certified mail “is complete upon mailing. precise date of mailing, and therefore could not calculate 20 days from the date of service to determine the deadline for filing its Petition. For this reason, the company requested that PHMSA accept its Petition as timely filed. I find nothing in the record demonstrating the precise date PHMSA mailed the Final Order. Therefore I find no reason to deny that Alyeska’s petition is timely. ”2 Alyeska maintained that it could not determine the I. Civil Penalty for Item 1 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 the respondent’s culpability; the history of the 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 the 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. Item 1 in the Final Order assessed a civil penalty of $173,000 for the violation of § 195.452(h)(2). This penalty was reduced from the proposed amount of $260,000. The reduction and final assessment of the penalty in the Final Order were based on the above- referenced assessment criteria. In particular, I found the nature and circumstances of Petitioner’s failure to obtain complete and accurate information about anomalous conditions on its pipeline for more than five months beyond the regulatory deadline justified the assessment of the full proposed penalty amount. On the other hand, I found Petitioner had received some preliminary information that permitted the company to determine, at least initially, that there were no conditions that necessitated immediate repair—supporting my conclusion that the gravity of the violation warranted some reduction to the proposed amount. I further determined that Alyeska was culpable for the violations, and that the company’s history of prior offenses supported the penalty. I also found Alyeska was able to pay the penalty without adversely affecting its ability to continue in business. Finally, I considered the extent to which the company had taken good faith steps to comply with the regulations, but in light of the other assessment criteria, I found such efforts did not warrant further reduction to the already-reduced penalty. In its Petition, Alyeska argued that PHMSA failed in several respects to properly consider the assessment criteria and to meet its burden of persuasion by providing sufficient evidence to support the assessment of the civil penalty. A. Culpability First, Alyeska contended the Final Order erroneously considered culpability. Petitioner argued that PHMSA equated culpability with “responsibility,” contrary to the definition of culpability in Black’s Law Dictionary and in two administrative decisions from the Environmental Protection 2 § 190.5.#

520065018_Decision on Petition for Reconsideration_03012010_text.pdf, page 43 Agency, which defined culpability to mean purposely, knowingly, recklessly, negligently, or in wanton or reckless disregard for consequences. Alyeska argued further that the Final Order did not support the proposition that Alyeska acted with culpability as there is no evidence of culpability in the record. For this reason, Petitioner contended that PHMSA’s finding of culpability is arbitrary and capricious, and must be withdrawn. A standard dictionary definition of culpability is “[d]eserving of blame or censure as being whether the company deserves the blame for the violation that occurred. The Final Order found that Alyeska operated the subject pipeline during the time in question, and therefore was responsible for compliance with the applicable pipeline safety regulations. This fact is well- supported in the record. Moreover, Alyeska neither contended that another entity was wrong, evil, improper, or injurious.”3 When evaluating an operator’s culpability, I determine responsible for compliance nor that another entity deserves the blame for the violations that occurred. For these reasons, the Final Order found that Alyeska was culpable, that is, the company deserves the blame for the violations that occurred on the pipeline system during the time in question. I find nothing in Alyeska’s Petition that warrants altering this determination. B. History of Prior Offenses Second, Alyeska contended that the Final Order erroneously considered the company’s history of prior offenses. Petitioner argued that PHMSA had improperly considered previous enforcement cases in which Alyeska had not violated the same regulation at issue in this case (§ 195.452), improperly considered cases that had not yet reached final resolution at the time the Notice was issued, and generally failed to account for petitions for reconsideration and consent agreements that reduced penalties, withdrew findings, and eliminated compliance orders. While a repeat violation of the exact same regulatory section is certainly the most acute example of a prior offense, I am not precluded from considering Alyeska’s overall compliance history, including all previous violations of the pipeline safety regulations regardless of regulatory section number. consider not only instances of past violations of the same regulation, but also the company’s history of other offenses, such as prior violations of other regulations, the extent to which such violations resulted in civil penalties, and whether corrective action was necessary. 4 Accordingly, when evaluating Alyeska’s history of prior offenses, I may With respect to the finality of prior offenses, I affirm that my consideration of Alyeska’s history of prior offenses included the consideration of only final determinations, that is, only decisions on reconsideration in cases where a petition for reconsideration had been filed, and only final orders and orders directing amendment in cases where a petition had not been filed. I may consider such prior offenses even if the final determinations in those cases post-date the Notice in this case, because the prior offenses and violations were committed by Alyeska prior to the Notice in this case. 3 The American Heritage Dictionary of the English Language 442 (4th ed. 2000). 4 See also 49 U.S.C. § 60122(b)(2)(B) and 49 C.F.R. § 190.225(b)(2), which authorizes PHMSA to consider such other matters as justice may require in determining the amount of a civil penalty.#

520065018_Decision on Petition for Reconsideration_03012010_text.pdf, page 54 Approximately eight of the ten prior cases referred to in the Final Order resulted in findings that Alyeska violated the pipeline safety regulations. 5 Six of the ten cases involved a final assessment of civil penalties for violations, and nine of the ten cases involved the completion of compliance terms by Alyeska or amendment of its procedures.6 These are just the cases initiated against Alyeska in the six years prior to issuance of the Notice in this case. The Final Order found the significance of the enforcement history against Alyeska supported assessment of the penalty amount. After considering Alyeska’s Petition, I find no reason to alter the determination in the Final Order. C. Good Faith in Attempting to Achieve Compliance Finally, Alyeska contended that the Final Order improperly considered the company’s good faith in attempting to achieve compliance. As stated in the Final Order, I “considered the extent to which Respondent was cognizant of the relevant requirements and took good faith steps to comply with the regulations,” but found that its efforts did not warrant further reduction to the capricious to not further reduce the civil penalty, because the Final Order did not reference any penalty “[i]n light of the other assessment criteria.”7 Alyeska contended that it was arbitrary and evidence that Alyeska’s good faith was insufficient to justify reducing the penalty further. The Final Order discussed in detail the evidence of the violation, including the nature, circumstances, and gravity of the violation. The Final Order determined that such evidence and assessment criteria considerations outweighed any reason to reduce the civil penalty further for Alyeska’s attempt to achieve compliance. After further review, I affirm that this determination is supported by the evidence. I find no reason to alter the decision set forth in the Final Order. For all of the reasons discussed above, I deny Alyeska’s request to modify the assessment of the civil penalty for Item 1. Payment of the civil penalty must be made within 20 days of service of this Decision. The payment instructions are set forth in detail in the Final Order. Failure to pay the $263,000 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. II. Compliance Order for Item 1 In accordance with 49 U.S.C. § 60118(b) and 49 C.F.R. § 190.217, PHMSA may issue an order directing compliance with the pipeline safety regulations. The Final Order included a Compliance Order that set forth corrective actions required to be taken by Alyeska to comply 5 The other two had not alleged violations, but rather inadequate procedures, resulting in the issuance of orders directing amendment under § 190.237. 6 These figures already take into consideration the consent agreement. 7 Final Order at 9.#

520065018_Decision on Petition for Reconsideration_03012010_text.pdf, page 65 with the pipeline safety regulations. In the Final Order, I acknowledged that Alyeska had argued that such actions were unnecessary because they had already been completed. I found, however, that the record lacked adequate documentation demonstrating the details of those efforts. In particular, I determined that Alyeska had not submitted documentation demonstrating the completion of the compliance terms. In its Petition, Alyeska contended that PHMSA ignored the facts in the record regarding the work already completed by the company. Petitioner argued that it had provided details of its actions to PHMSA in its initial response to the Notice and again at the hearing. Alyeska again proceeded to explain in its Petition the actions it has taken. Under § 190.215, I do not consider repetitious arguments that were made prior to issuance of the Final Order. I have already determined that the information provided by Alyeska to PHMSA as of the date of the Final Order did not demonstrate compliance with the terms of the Compliance Order, and Alyeska has not offered any additional documentation in its Petition demonstrating compliance that would enable me to verify that the actions taken satisfy the compliance terms. Accordingly, I do not alter the finding in the Final Order that the record does not demonstrate the compliance terms have been satisfied. Alyeska must therefore complete the actions specified in the Compliance Order within the original deadlines specified therein, except as provided below under Section III. 8 III. Documentation of Safety Improvement Costs Among the requirements in the Compliance Order, Requirement 3 specified that Alyeska must maintain documentation of the safety improvement costs associated with fulfilling the Compliance Order and report the total costs. With regard to this requirement, Petitioner contended, among other things, that PHMSA failed to base the provision on a pipeline safety regulation that explicitly requires operators to maintain and submit documentation of compliance costs. After reconsidering this requirement in light of Alyeska’s argument, I find the provision does not direct compliance with the pipeline safety regulations because there is not a pipeline safety regulation that requires pipeline operators to maintain and submit safety improvement costs. Furthermore, I do not find the provision directs compliance with 49 U.S.C. chapter 601. While PHMSA has valid reasons to collect this information, I see no basis to order this conduct when an operator has objected to providing such information. Accordingly, Requirement 3 in the Compliance Order is stricken from the Final Order. IV. Timeliness of the Final Order Alyeska further argued in its Petition that the issuance of the Final Order after “substantial delay” violated § 190.213(e), which Petitioner argued requires PHMSA to issue a final order 8 The filing of a petition for reconsideration does not stay required corrective action in a final order, unless otherwise provided by the Associate Administrator. § 190.215(d).#

520065018_Decision on Petition for Reconsideration_03012010_text.pdf, page 76 March 16, 2007, upon submission of Alyeska’s Closing Statement to the hearing officer. within 45 days of receipt of the case file.9 Alyeska contended the case file was complete on Petitioner also argued that PHMSA failed to notify Alyeska of the delay or expected issuance date as required in § 190.213(e), warranting withdrawal of the compliance order. Section 190.213(e) does not specify that a final order should be issued within 45 days, but instead provides that “[i]t is the policy of the Associate Administrator, OPS to issue a final order under this section expeditiously . . . . ”10 Furthermore, PHMSA has held that issuing a Final Order in a timely manner under § 190.213(e) is a policy, not a requirement, and a failure to do so does not operate as a bar to PHMSA’s issuance of a Final Order in furtherance of its pipeline safety mission.11 Accordingly, I find no reason to withdraw the compliance order under § 190.213(e). Conclusion 190.215(e) provides that the Associate Administrator may issue a decision on a petition for reconsideration without further proceedings, but may also request additional information, data, In closing, Alyeska requested that it be given “90 days to fully brief these issues.”12 Section and comment as deemed appropriate. I find no reason to grant Alyeska’s request for an additional 90 days to brief the issues addressed above. Accordingly, I issue this decision without further proceedings. As set forth in the Decision, the findings of violation and civil penalties assessed in the Final Order remain in effect. The terms of the Compliance Order also remain unchanged, except that Requirement 3 is stricken. All other terms of the Final Order remain in effect as set forth therein. This Decision on Reconsideration is the final administrative action in this proceeding. ___________________________________ __________________ Jeffrey D. Wiese Date Issued Associate Administrator for Pipeline Safety 9 Petition at 4. 10 Section 190.213(e) was amended prior to issuance of the Notice by the Nomenclature Change and Technical Amendments, 70 Fed. Reg. 11,135, 11,137 (Mar. 8, 2005). The current regulation further states: “In cases where a substantial delay is expected, notice of that fact and the date by which it is expected that action will be taken is provided to the respondent upon request and whenever practicable.” Alyeska never filed such a request. 11 See In the Matter of Northern States Power Co., Decision on Reconsideration, CPF No. 36301, 2005 WL 5010130 (Oct. 27, 2005); In the Matter of Texaco Exploration and Production, Inc., Decision on Reconsideration, CPF No. 52010, 2004 WL 5150199 (Feb. 3, 2004). 12 Petition at 5.#

520065018_Final Order_01132010_text.pdf, page 1Official PDFJAN 13 2010 Mr. Mike Joynor Senior Vice President Oil Movements, Engineering and Pipeline Alyeska Pipeline Service Company 900 E. Benson Blvd. P.O. Box 196660 Anchorage, AK 99519 Re: CPF No. 5-2006-5018 Dear Mr. Joynor: Enclosed is the Final Order issued in the above-referenced case. It makes findings of violation, assesses a reduced civil penalty of $263,000, and specifies actions to be taken by Alyeska 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, Western Region, this enforcement action will be closed. Service of this document is in accordance with 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: Chris Hoidal, Director, Western Region, PHMSA Sheila Doody Bishop, Counsel, Alyeska Pipeline Service Co. 900 E. Benson Blvd., P.O. Box 196660, Anchorage, AK 99519 CERTIFIED MAIL – RETURN RECEIPT REQUESTED [7005.0390 0005 6162 5296]#

520065018_Final Order_01132010_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 ) Alyeska Pipeline Service Company, ) CPF No. 5-2006-5018 ) ) ) Respondent. ) ____________________________________) FINAL ORDER On August 15–18, 2005, pursuant to 49 U.S.C. § 60117, representatives of the Pipeline and Hazardous Materials Safety Administration (PHMSA), Office of Pipeline Safety (OPS), conducted an on-site pipeline safety inspection of the integrity management program of Alyeska Pipeline Service Company (Alyeska or Respondent) in Fairbanks, Alaska. Respondent operates the 800-mile crude oil Trans-Alaska Pipeline System (TAPS) from the North Slope, Alaska, to Valdez. As a result of the inspection, the Director, Western Region, OPS (Director), issued to Respondent, by letter dated April 19, 2006, 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 violations of 49 C.F.R. Part 195 and proposed assessing a civil penalty of $350,000 for the alleged violations. The Notice also proposed ordering Respondent to take certain measures to comply with the pipeline safety regulations. After requesting and receiving an extension of time, Respondent responded to the Notice by letter dated July 18, 2006 (Response). Respondent contested the allegations and requested a hearing. In accordance with 49 C.F.R. § 190.211, a hearing was held on January 18, 2007, in Lakewood, Colorado, with an attorney from the Office of Chief Counsel, PHMSA, presiding. After the hearing, Respondent provided a Closing Statement dated March 16, 2007. FINDINGS OF VIOLATION The Notice alleged that Respondent committed two violations of 49 C.F.R. Part 195, as follows: Item 1: The Notice alleged that Respondent violated 49 C.F.R. § 195.452(h)(2), which states: § 195.452 Pipeline integrity management in high consequence areas. (a) Which pipelines are covered by this section? This section applies to each hazardous liquid pipeline and carbon dioxide pipeline that could affect a high consequence area . . . .#

520065018_Final Order_01132010_text.pdf, page 32 (h) What actions must an operator take to address integrity issues?— (1) General requirements. An operator must take prompt action to address all anomalous conditions the operator discovers through the integrity assessment or information analysis. In addressing all conditions, an operator must evaluate all anomalous conditions and remediate those that could reduce a pipeline’s integrity . . . . (2) Discovery of condition. Discovery of a condition occurs when an operator has adequate information about the condition to determine that the condition presents a potential threat to the integrity of the pipeline. An operator must promptly, but no later than 180 days after an integrity assessment, obtain sufficient information about a condition to make that determination, unless the operator can demonstrate that the 180-day period is impracticable. The Notice alleged that Respondent violated § 195.452(h)(2) by failing to obtain, within 180 days of an integrity assessment, sufficient information about anomalous conditions on TAPS to determine if they presented a potential threat to the integrity of the pipeline. Specifically, the Notice alleged that Alyeska completed an inline inspection (ILI) integrity assessment on May 26, 2004, but failed to obtain the ILI vendor’s report in its entirety until April 20, 2005, approximately 330 days after the assessment. The Notice further alleged that the final report contained inadequate information to enable Respondent to determine if the conditions presented a potential threat to integrity. Respondent allegedly could not demonstrate that it had adequate information about anomalous conditions on the pipeline until January 2006, approximately 600 days after the integrity assessment.1 In its written submissions and at the hearing, Respondent acknowledged that it had completed a magnetic flux leakage (MFL) tool run on May 26, 2004. Alyeska also acknowledged that it had sent a letter to the Director on November 30, 2004, stating that the company could not meet the 180-day deadline in § 195.452(h)(2) due to some “technical difficulties.”2 Despite this apparent acknowledgement of non-compliance, Alyeska contended in its Response that “Alyeska had preliminary information from the vendor about potential integrity threats within the 180 day requirement,” and requested that PHMSA “find that the pig vendor’s preliminary information enabled Alyeska to obtain sufficient and adequate information within 180 days . . . as required under 49 CFR §195.452(h)(2).” 3 1 Item 1 in the Notice also alleged that Respondent did not take adequate steps to mitigate adverse operational conditions on TAPS, in order to ensure that the inspection data would be obtained in a timely manner. In its Response, Alyeska acknowledged that certain operating conditions, including additional wax in the oil stream, had made it more challenging to obtain complete and accurate data; however, the company contended that it had taken adequate steps to mitigate those challenges. This final order does not make a finding as to the adequacy of Respondent’s mitigation efforts because it is not essential to the finding of whether Respondent violated § 195.452(h)(2) by failing to obtain adequate information within 180 days of the March 2004 assessment. 2 Pipeline Safety Violation Report (Violation Report), dated Apr. 13, 2006, Item 1, Attachment 1. In the same letter, Alyeska stated that it believed “[t]he 180-day time period from the end of the last 2004 Magnetic Flux Leakage (MFL) pig run ended November 26, 2004. ” As discussed below, the 180-day time period actually ended November 22, 2004. 3 Response at 2 and 4.#

520065018_Final Order_01132010_text.pdf, page 43 Alyeska received this “preliminary information,” also referred to as a “top ten list,” from its (i.e., metal loss) anomalies and the ten most notable pressure (i.e., remaining strength) anomalies on each of the four TAPS segments. Respondent explained in its Response that the company had correlated this data with existing information from Alyeska’s Engineering Data Management MFL tool vendor on November 29, 2004.4 The report identified the ten most notable penetration (EDM) System database, which consisted of information from previous ILI assessments, digs, investigations, close-interval surveys, coupons, rectifiers, and historical knowledge regarding the condition of TAPS. Based on the company’s correlation of data from the preliminary report and its EDM System, Alyeska contended that it had determined the top anomalies identified by the vendor had either already been addressed or did not meet the regulatory repair criteria. With regard to the pressure anomalies in particular, Respondent had performed two additional calculations to arrive at its conclusion. First, Respondent applied an “aggressive corrosion growth rate” by assuming the pipeline corroded faster than it actually did.5 Second, the company applied a conservative forecast to determine when an anomaly would need to be physically examined. These two calculations, according to Respondent, “added a 5% margin of safety” to the requirement for remediation of pressure anomalies.6 Alyeska’s analysis of the preliminary ILI data, its EDM System information, and other calculations led the company to determine there were no actionable anomalies on the pipeline. Alyeska did not provide, nor could it document, a date certain by which it had made this determination; rather the company contended generally that adequate information had been the ILI vendor’s final report, which Alyeska received on April 20, 2005, validated the company’s received and analyses performed “within the 180 day requirement.”7 According to Respondent, determinations with respect to the penetration and pressure anomalies. At the hearing, Respondent acknowledged that the vendor’s final report contained inaccuracies about maximum operator pressure (MOP) on TAPS, but downplayed its significance, claiming that the error did not affect the company’s determination about conditions on the pipeline. With regard to anomalies that might constitute immediate repair conditions under § 195.452(h)(4)(i), Respondent indicated the company could have identified those conditions despite the incorrect MOP reported by the vendor. With respect to anomalies that might be 180- day repair conditions under § 195.452(h)(4)(iii), Respondent explained that it had compensated for the inaccurate MOP through the application of an aggressive corrosion growth-rate calculation, also known as “years to dig. ”8 After reviewing all of the evidence in the record, I find that Respondent completed an MFL integrity assessment of TAPS, a pipeline that could affect a high consequence area, on May 26, 2004. In accordance with § 195.452(h)(2), Respondent was required to obtain sufficient 4 Response Exhibit 2 at 1. 5 Response at 3. 6 Response at 3. 7 E.g., Response at 2. At the hearing, the presiding official asked Alyeska representatives if the company could document actions that had been taken within the 180-day time period. Alyeska’s Closing Statement describes the actions taken, but, again, only states that the actions were taken “in November 2004.” Closing Statement at 1. 8 Response at 3.#

520065018_Final Order_01132010_text.pdf, page 54 information from this assessment to determine if anomalous conditions discovered on the pipeline presented a potential threat to its integrity. The information was required to be obtained 29, 2004, seven days after the deadline, Respondent received the preliminary “top ten list” conditions from the vendor. Respondent compared this preliminary information with data it already had about conditions on the pipeline to determine if any of the anomalies identified on promptly, but no later than 180 days from May 26, 2004, or November 22, 2004.9 On November the preliminary list could threaten the line’s integrity. Respondent concluded, based on this review, that no anomalies required repair. There is no date certain by which Respondent made this determination. I further find that Respondent subsequently received the ILI vendor’s final report on April 20, 2005, approximately five months after the deadline. The list of features in the final report was predicated on two important data inaccuracies. First, the list indicated a constant MOP of 850 pounds per square inch gauge (psig) everywhere on TAPS, even though sections of the pipeline had a different MOP. Second, the features list indicated a constant specified minimum yield strength (SMYS) of 65,000 psig everywhere on TAPS, even though the pipeline consisted of pipe with varying SMYS. These inaccuracies are material because MOP and SMYS play a key role in determining whether an identified anomaly constitutes a potential threat to integrity under § 195.452(h)(4). Pursuant to that regulation, Respondent had to calculate the remaining strength of the pipe at the point of the anomaly. To determine the remaining strength, Respondent had to calculate burst pressure and maximum safe operating pressure at those particular locations.10 Inaccurate data concerning SMYS would have led to erroneous calculations of burst pressure and maximum safe operating pressure.11 In turn, since immediate repair conditions and 180-day repair conditions are both defined in terms of their relationship to MOP, inaccurate data concerning MOP would have further impacted the validity of Respondent’s overall determination as to whether conditions were a threat to integrity.12 In fact, Respondent acknowledged in its Closing Statement that “[t]he pipeline condition reports may not have included anomalies that might have been reported if the correct maximum operating pressure for the section had been used.”13 Respondent performed additional analyses after receiving the vendor’s final report to compensate for these inaccuracies, as explained above, but § 195.452(h)(2) required that Respondent complete all necessary analyses to determine if conditions on the pipeline threatened integrity no later than November 22, 2004. Even though § 195.452(h)(2) did not require 9 Respondent did not contend in its written submissions or at the hearing that the 180-day period was impracticable. 10 Section 195.452(h)(4)(i)(B) defines an “immediate repair condition” as a condition where a “calculation of the remaining strength of the pipe shows a predicted burst pressure less than the established maximum operating pressure at the location of the anomaly.” Section 195.452(h)(4)(iii)(D) defines a “180-day condition” as a condition where a “calculation of the remaining strength of the pipe shows an operating pressure that is less than the current established maximum operating pressure at the location of the anomaly.” 11 See also Frequently Asked Question (FAQ) 7.18, which states, “Burst pressure of corroded pipe is determined by calculation, considering the flow stress and the dimensions of the metal loss (depth and length). For liquid pipelines, the maximum safe operating pressure of corroded pipe is equivalent to 72% of the pipe’s calculated, predicted burst pressure.” (Revised Jul. 9, 2002). PHMSA publishes answers to FAQs concerning compliance with the integrity management regulations at: http://primis.phmsa.dot.gov/iim/faqs.htm. 12 See § 195.452(h)(4)(i)(B) and (h)(4)(iii)(D). 13 Closing Statement at 2.#

520065018_Final Order_01132010_text.pdf, page 65 Respondent to receive a final report within 180 days, it did require Respondent to obtain “sufficient information, ” which means enough information to allow an operator to accurately and reliably identify, locate, validate, and evaluate pipeline anomalies detected by the integrity assessment and to properly classify them for repair, if necessary, under § 195.452(h). Furthermore, I note that Respondent was required to obtain such information “promptly”—the 180-day deadline was merely the “upper limit.”14 Respondent’s receipt of even the preliminary “top ten list” was not received until November 29, 2004, seven days after the deadline. The report did not by itself provide sufficient information about conditions on the pipeline because it was not comprehensive (it listed only a select number of conditions) and because it required Respondent to correlate the data with its EDM System and apply additional calculations, such as an “aggressive corrosion growth rate,” in order to determine if conditions presented potential threats to the integrity of the pipeline. The final report, which was received approximately five months after the deadline, also required additional analyses to compensate for inaccuracies in the data. These facts demonstrate that Respondent did not obtain sufficient information about the conditions on the pipeline as required by § 195.452(h)(2). Accordingly, I find that Respondent violated § 195.452(h)(2) by failing to promptly obtain, within 180 days after an integrity assessment, sufficient information about anomalous conditions to determine if they present a potential threat to the integrity of the pipeline. Item 2: The Notice alleged that Respondent violated 49 C.F.R. § 195.452(h)(3) and (h)(4)(i)(C), which states: § 195.452 Pipeline integrity management in high consequence areas. (a) . . . . (h) What actions must an operator take to address integrity issues?— (1) General requirements. An operator must take prompt action to address all anomalous conditions the operator discovers through the integrity assessment or information analysis. In addressing all conditions, an operator must evaluate all anomalous conditions and remediate those that could reduce a pipeline’s integrity . . . . (3) Schedule for evaluation and remediation. An operator must complete remediation of a condition according to a schedule prioritizing the conditions for evaluation and remediation. If an operator cannot meet the schedule for any condition, the operator must explain the reasons why it cannot meet the schedule and how the changed schedule will not jeopardize public safety or environmental protection. (4) Special requirements for scheduling remediation— (i) Immediate repair conditions. An operator’s evaluation and remediation schedule must provide for immediate repair conditions. To maintain safety, an operator must temporarily reduce operating pressure or shut down the pipeline until the operator completes the repair of these conditions. An operator must calculate the temporary reduction in operating pressure using the formula in section 451.7 of ASME/ANSI 14 Pipeline Integrity Management in High Consequence Areas (Repair Criteria), 67 Fed. Reg. 1650, 1653 (Jan. 14, 2002).#

520065018_Final Order_01132010_text.pdf, page 76 B31.4 (incorporated by reference, see § 195.3). An operator must treat the following conditions as immediate repair conditions: (A) . . . . (C) A dent located on the top of the pipeline (above the 4 and 8 o’clock positions) that has any indication of metal loss, cracking or a stress riser . . . . The Notice alleged that Respondent violated § 195.452(h)(3) and (h)(4)(i)(C) by failing to complete remediation of an immediate repair condition according to a schedule for evaluation and repair, and by failing to temporarily reduce operating pressure or shut down the pipeline until the repair had been made. Specifically, the Notice alleged that during the summer of 2004, Respondent discovered a dent, located on the top of the pipeline, that showed an indication of metal loss. This anomalous condition was located at Mile Post (MP) 545.79 on TAPS, a render the dent an “immediate repair condition” pursuant to § 195.452(h)(4)(i)(C), the Notice alleged that Respondent failed to promptly repair the condition according to a schedule prioritizing it for immediate repair, as required by § 195.452(h)(3), and that Respondent also failed to temporarily reduce operating pressure or shut down the pipeline, as required by segment that could affect a high consequence area (HCA).15 Although this would automatically § 195.452(h)(4)(i)(C). The Notice alleged the anomaly was not repaired until June 27, 2005. In its Response and at the hearing, Alyeska argued the top-of-pipe dent was not an immediate repair condition pursuant to § 195.452(h)(4)(i)(C) because ILI data never reported metal loss associated with the condition. Respondent explained that it had treated the condition as having metal loss “in an excess of conservatism” based on the company’s experience finding a correlation between similar conditions and metal loss. 16 Respondent also explained it was not “known” that the dent had metal loss until the condition was excavated and the metal loss confirmed. 17 Alyeska acknowledged that when scheduling the condition for repair, it had not recognized MP realizing the segment could affect an HCA, the company scheduled the dent for excavation within one year, in accordance with its procedures for responding to conditions in non-HCA locations. Respondent argued in its Response that even if the company had recognized the condition because no data had indicated any metal loss. 545.79 was a covered segment under the company’s integrity management program.18 Not segment could affect an HCA, the condition still would not have been an immediate repair Section 195.452(h)(3) and (h)(4)(i)(C) requires each operator to promptly address all anomalous conditions discovered through an integrity assessment or information analysis. The conditions must be addressed according to a schedule for evaluation and repair that provides for “immediate repair conditions,” such as dents located on the top of the pipeline that have any indication of metal loss. To maintain safety, an operator must also temporarily reduce operating pressure or shut down the pipeline until the repair of an immediate repair condition has been completed. 15 Hazardous liquid pipelines that can affect an HCA are “covered pipelines” under the integrity management rule. § 195.452(a), (b)(2). 16 Response at 7. 17 Response at 8. 18 Response at 8.#

520065018_Final Order_01132010_text.pdf, page 87 Respondent’s 2004 annual integrity report for TAPS identified, among other things, eight sites that were to be investigated.19 Of those sites, the report stated that four, one of which was MP 545.79, “show indications of multiple bottom-of-pipe dents or dents with metal loss, according to ILI data.”20 The pipeline segment including that location was listed in Respondent’s integrity management program as a segment that could affect an HCA.21 On June 27, 2005, Respondent completed a report that documented its investigation of the condition at MP 545.79. Handwritten notes on the investigation report indicated, “The purpose of this investigation is to evaluate a that the dent was on the top of the pipe and that it had an ascertainable amount of metal loss. TOP [top-of-pipe] dent/gouge w[ith] metal loss.”22 The investigation report also documented Additional evidence in the record shows that around 2001, Respondent had employed a pattern recognition approach to identify pipeline features, using data from an ultrasonic transducer (UT) ILI tool. Using the new algorithm, Respondent had identified 77 features affecting buried portions of TAPS to be considered for investigation. Between 2001 and 2004, Respondent physically investigated what it believed to be the more significant locations. Respondent investigated 42 locations, which contained over 400 scrapes, dents, gouges and other defects. Those investigations showed that approximately 95 percent of the features investigated, or “~95% of digs,” had some degree of metal loss.23 Although Respondent argued the condition at MP 545.79 was not an immediate repair condition because it was not “known” to contain metal loss, any indication of metal loss on a top-side dent is sufficient to render it an immediate repair condition under the regulation. 24 An indication of metal loss may be in the ILI data, as Respondent suggested, but it may also come from other sources, including information analysis. In this case, Respondent’s information showed a correlation between similar conditions and metal loss. Based upon this known correlation, Respondent treated the condition at MP 545.79 as having metal loss. reported the condition at MP 545.79 as having an indication of metal loss, § 195.452(h)(3) and (h)(4)(i)(C) required Alyeska to address the condition according to a schedule for “immediate repair conditions,” and to temporarily reduce operating pressure or shut down the pipeline until the repair had been completed. 25 Since Respondent Respondent failed to temporarily reduce operating pressure or shut down the pipeline until the condition had been repaired, and further failed to schedule the dent for immediate repair, apparently because the company did not realize MP 545 was subject to the requirements of § 195.452(h). Therefore, after considering all the evidence, I find that Respondent violated 49 C.F.R. § 195.452(h)(3) and (h)(4)(i)(C) by failing to complete remediation of the condition at MP 545.79 according to a schedule for immediate repair, and by failing to temporarily reduce operating pressure or shut down the pipeline until Respondent had completed such repair. 19 Violation Report, Item 2, Attachment 2 at 10. 20 Violation Report, Item 2, Attachment 2 at 10 (emphasis added). 21 Violation Report, Item 2, Attachment 3 at 98. 22 Violation Report, Item 2, Attachment 4 at 1. 23 Violation Report, Item 2, Attachment 5 at 6. At the hearing, Respondent explained that the correlation between less-severe conditions and metal loss was not as high as 95 percent. 24 Response at 8. 25 § 195.452(h)(4)(i)(C) (emphasis added).#

520065018_Final Order_01132010_text.pdf, page 98 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 $350,000 for the violations as follows: Item 1: The Notice proposed a civil penalty of $260,000 for the violation of § 195.452(h)(2). As discussed above, I found that Respondent violated § 195.452(h)(2) by failing to promptly obtain, no later than 180 days after an MFL tool assessment, sufficient information about anomalous conditions to determine if they presented a potential threat to the integrity of TAPS. Respondent received a preliminary “top ten list,” but that report did not provide information about all conditions on the pipeline, nor was it received within 180 days of the completion of the integrity assessment. Alyeska subsequently received a final report approximately five months after the deadline, but it still contained inaccuracies for which Respondent was required to perform additional analyses. An operator’s failure to promptly obtain information about conditions on a pipeline that could affect an HCA may delay the discovery of immediate repair conditions and other anomalies that need to be remediated in order to protect the HCA. High consequence areas include commercially navigable waterways, high population areas, residential and commercial areas, and drinking water and ecological resource areas that are unusually sensitive to environmental damage. Performance of integrity assessments and the identification of conditions needing prompt repair is a vital component of the integrity management regulations, which are designed to ensure a heightened level of safety for HCAs. For this reason, I find the nature and circumstances of Respondent’s failure to promptly obtain information about anomalous conditions on its pipeline justify the proposed civil penalty. On the other hand, Respondent did receive preliminary information from the ILI vendor, albeit several days after the deadline, which indicated the most prominent anomalies on the pipeline.#

520065018_Final Order_01132010_text.pdf, page 109 Based on this preliminary report, Respondent determined, at least initially, that there were no conditions that necessitated immediate repair. While this did not comply with the regulation because the information was neither comprehensive nor received before the deadline, it leads me to believe that safety was not compromised to the extent that it might otherwise have been had Respondent failed to receive and analyze any information for months until the final report. Respondent affirmed that this analysis was completed in November 2004. For this reason, I find the gravity of the violation is diminished to some degree and warrants a reduction to the proposed civil penalty. With regard to both Item 1 and Item 2, Respondent is responsible for compliance with the applicable pipeline safety regulations as the operator of TAPS and is therefore the culpable party, absent some showing that the responsibility for the violations rests with another entity. There was no such showing in this case. With regard to the company’s history of prior offenses, there is evidence in the record that Respondent has been the subject of numerous enforcement actions, including at least ten cases in the six-year period prior to issuance of the Notice. These prior offenses involved civil penalties and compliance terms for violations of the pipeline safety regulations. Alyeska’s history of prior offenses supports the penalties proposed in this case. Since Respondent has not provided any evidence suggesting the company is unable to pay the proposed civil penalty, I find Respondent is able to pay the penalty without adversely affecting its ability to continue in business. Finally, I have considered the extent to which Respondent was cognizant of the relevant requirements and took good faith steps to comply with the regulations. In light of the other assessment criteria, however, I find that such efforts do not warrant further reduction in the proposed penalties. Accordingly, having reviewed the record and considered the assessment criteria, I assess Respondent a reduced civil penalty of $173,000 for the violation of 49 C.F.R. § 195.452(h)(2). Item 2: The Notice also proposed a civil penalty of $90,000 for the violation of § 195.452(h)(3) and (h)(4)(i)(C). As discussed above, I found that Respondent violated § 195.452(h)(3) and (h)(4)(i)(C) by failing to promptly remediate an immediate repair condition and to temporarily reduce operating pressure or shut down the pipeline until the condition had been repaired. Respondent discovered a top-of-pipe dent on a line segment that could affect an HCA. While Respondent reported that the dent had metal loss based on the company’s experience that similar conditions had metal loss, Alyeska did not treat the anomaly as an immediate repair condition because the company did not recognize the segment could affect an HCA. Upon excavating the pipe approximately one year later, Respondent confirmed that the dent had an ascertainable amount of metal loss. The integrity management regulations classify certain pipeline conditions by risk and prescribe the amount of time an operator has to remediate them. “Immediate repair conditions” are pipeline anomalies that warrant the highest level of concern due to their risk of failure. The regulations specify not only that immediate repair conditions must be repaired promptly to protect the HCA, but that an operator must immediately reduce operating pressure (or shut down the pipeline) until the condition has been repaired. Respondent’s failure to repair the dent and to reduce operating pressure for a full year posed an unacceptable risk to public safety. For that reason, I find the nature, circumstances, and gravity of the violation warrant assessment of the proposed civil penalty.#

520065018_Final Order_01132010_text.pdf, page 1110 Alyeska argued that PHMSA should not penalize the company for being overly conservative, since it reported the condition as having metal loss even though ILI data did not indicate that metal loss was present. In response to this argument, I note that Respondent’s 2004 integrity report stated that four anomalies, one of which was MP 545.79, “show indications of multiple however, I remind Respondent that pipeline operators are expected to make sound engineering judgments concerning the integrity of their pipelines based on available data. Particularly when judgments concern the integrity of a pipeline that could affect an HCA, responsible operators bottom-of-pipe dents or dents with metal loss, according to ILI data.”26 will often make conservative judgments. In this case, Alyeska did the right thing by assuming the anomalous condition had metal loss (which it did) based on data gathered over a three- to four-year period showing a rather strong correlation (“~95%”) between similar conditions and metal loss. Unfortunately, Respondent erred by failing to recognize that the pipeline segment could affect an HCA and therefore failed to realize that the requirements for immediate repair conditions applied under § 195.452(h). While I commend Alyeska’s appropriate conservatism in reporting the condition at MP 545.79, I find Respondent has not presented information to warrant a reduction in the civil penalty. More importantly, Accordingly, having reviewed the record and considered the assessment criteria, I assess Respondent a civil penalty of $90,000 for the violation of 49 C.F.R. § 195.452(h)(3) and (h)(4)(i)(C). 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 $263,000. 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; (405) 954-8893. Failure to pay the $263,000 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 Item 1 in the Notice for violation of 49 C.F.R. § 195.452(h)(2). Under 49 U.S.C. § 60118(a), each person who engages in the transportation of hazardous liquids by pipeline or who owns or operates a hazardous liquid pipeline facility is required to comply with the applicable safety standards established under chapter 601. 26 Violation Report, Item 2, Attachment 2 at 10 (emphasis added).#

520065018_Final Order_01132010_text.pdf, page 1211 In response to the proposed compliance order (PCO), Alyeska contended that the terms were unnecessary, particularly since Alyeska had completed the actions proposed. In regard to Paragraph 1.1 of the PCO, which proposed that Alyeska identify the root cause of the failure of ILI tools to function properly, Alyeska contended that it “already understands the root cause(s),” which is “the increase of wax in the crude oil delivered to TAPS at Pump Station 1 from the North Slope oil fields.”27 In regard to Paragraph 1.2, which proposed that Respondent identify factors that contributed to the company’s “failure to perform data analyses,” the company argued that it did perform data analyses in accordance with the regulation. In regard to Paragraph 1.3, which proposed that Alyeska identify factors that might impact the company’s ability to comply with the integrity management regulations, Alyeska explained that, among other things, it was “in the midst of a conceptual engineering analysis to evaluate possible future issues that may arise for smart pigs when they travel over Atigun Pass.”28 In regard to Paragraph 2 of the PCO, which proposed that Respondent develop and implement a mitigation plan, Alyeska contended that each of the enumerated steps had already been taken by the company. Specifically, Respondent was already evaluating the adequacy of, and improvements to, the pipeline infrastructure, such as installation of a new pig-launch facility at Pump Station 9. The company also contended that it was already evaluating improvements to ILI technology, methodology, and testing procedures by working with the UT pig vendor to develop methods for an improved tool that would achieve greater accuracy. In addition, Respondent contended that it had evaluated its analytical procedures and determined that they did not require any changes. Respondent explained that it had also taken steps to mitigate challenges to obtaining complete and accurate smart pig data. These included changing the specifications for pig runs “to require 95% coverage for each mile of the line”; working with the UT pig vendor to develop methods for greater accuracy; ensuring the line was as “tight” as possible (i.e., full of oil) during pig runs to maintain a better travel speed for the pig; storing a volume of the least waxy oil to be used for pigging operations; and replacing cleaning pigs (which Alyeska runs several hours before the smart pigs) with ones that were more aggressive.29 In summary, Alyeska requested that PHMSA find that “Alyeska has taken adequate steps to mitigate the adverse operational conditions affecting ILI data acquisition; and [PHMSA’s] proposed compliance order is not needed in light of these mitigation efforts.”30 Respondent has provided numerous examples of actions taken by the company to identify and mitigate the effects of operational challenges in support of its claim that the proposed compliance terms are not necessary. Unfortunately, the record lacks adequate documentation demonstrating the details of those efforts. In particular, Respondent has not submitted documentation demonstrating compliance with the proposed compliance terms. It is difficult, if not impossible, to evaluate the extent to which Respondent’s efforts have met the proposed compliance terms or mitigated the need for such terms without being able to review the actual analyses, findings, and implementation of those corrective actions. Without more than the operator’s claims that it has taken appropriate corrective actions, I cannot verify the compliance terms have already been 27 Response at 6. 28 Response at 6. 29 Response at 4–5. 30 Response at 7.#

520065018_Final Order_01132010_text.pdf, page 1312 satisfied and are no longer necessary. Therefore, I do not find that Respondent has taken sufficient action to warrant withdrawing the PCO. I do find, however, that certain terms of the PCO were overly broad, given the violations upon which they were based. Therefore I have made appropriate adjustments to limit the scope of certain terms and have provided clarification where Alyeska argued that the terms were unclear. Accordingly, 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. Alyeska must— 1. In accordance with § 195.452(h)(2), conduct a study that includes the following: 1.1 An analysis of the reasons (root cause) why any ILI tools used by Alyeska on TAPS did not function as intended or did not collect complete and accurate information, which affected Alyeska’s ability to obtain adequate information about anomalous conditions promptly, but no later than 180 days after an integrity assessment. 1.2 An analysis of the factors that impact Alyeska’s ability to perform timely information analyses to determine if anomalous conditions present a potential threat to the integrity of the pipeline; and 1.3 An analysis of any other factor that could impact Alyeska’s ability to timely discover anomalous conditions on TAPS in accordance with § 195.452(h)(2). 2. Develop a written plan to mitigate the potential impacts identified by the study conducted pursuant to Paragraph 1 of this Compliance Order. Include in the plan a schedule for implementing mitigative actions. The plan must provide for the following, as necessary, to mitigate the potential impacts: 2.1 Determining the adequacy of and making necessary improvements to ILI testing procedures and equipment, including the pipeline infrastructure; 2.2 Improvements to ILI technology and methodology; and 2.3 Revisions to analytical procedures. 3. Maintain documentation of the safety improvement costs associated with fulfilling this Compliance Order and report the total cost as follows: (a) total cost associated with preparation and revision of plans and procedures, and performance of studies and analyses; and (b) total cost associated with physical changes, if any, to the pipeline infrastructure, including replacements and additions. 4. Complete each of the above items and submit documentation demonstrating compliance within 90 days of receipt of this Final Order. Documentation shall be submitted to the Director, Western Region, Office of Pipeline Safety, 12300 W. Dakota Ave. #110, Lakewood, CO 80228.#

520065018_Final Order_01132010_text.pdf, page 1413 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 demonstrating good cause for an extension. Failure to comply with this Order may result in 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. 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 filing of the petition automatically stays the payment of any civil penalty assessed. All other terms of the order, including any required corrective action, shall remain in full force and effect unless the Associate Administrator, upon request, grants a stay. The terms and conditions of this Final Order are effective upon service of this document in accordance with 49 C.F.R. § 190.5. ___________________________________ __________________ Jeffrey D. Wiese Date Issued Associate Administrator for Pipeline Safety#

520065018_Compromise Agreement and Order_11162011_text.pdf, page 1Official PDFNOV 16 2011 U.S. DEPARTMENT OF TRANSPORTATION PIPELINE AND HAZARDOUS MATERIALS SAFETY ADMINISTRATION OFFICE OF PIPELINE SAFETY WASHINGTON, D.C. 20590 ____________________________________ ) In the Matters of ) ) CPF No. 5-2006-5018 Alyeska Pipeline Service Company, ) CPF No. 5-2007-5041 ) CPF No. 5-2008-5008 Respondent. ) CPF No. 5-2009-5019 ____________________________________) COMPROMISE AGREEMENT AND ORDER The U.S. Department of Transportation, Pipeline and Hazardous Materials Safety Administration (PHMSA) and Alyeska Pipeline Service Company (Alyeska or Respondent) have engaged in settlement discussions regarding the resolution of the four enforcement actions listed above. Having concluded those discussions, PHMSA and Alyeska (collectively, Parties) agree that a settlement of these matters is in the best interests of the Parties and the public and will avoid further administrative proceedings or litigation. The Parties further agree that the entry of this Compromise Agreement and Order is the most appropriate means of accomplishing that objective. I. Procedural History. A. CPF No. 5-2006-5018 On April 19, 2006, PHMSA issued to Alyeska a Notice of Probable Violation, Proposed Civil Penalty, and Proposed Compliance Order (Notice). Item 1 of the Notice alleged that Alyeska had violated 49 C.F.R. § 195.452(h)(2) and proposed assessing the company a civil penalty of $260,000 for that violation. Item 2 of the Notice alleged that Alyeska had violated 49 C.F.R. §§ 195.452(h)(3) and (h)(4)(i)(C) and proposed assessing the company a civil penalty of $90,000 for that violation. The Notice also proposed ordering Alyeska to complete certain corrective actions to address both violations. On April 27, 2006, Alyeska submitted a written response to the Notice and requested an informal hearing. That hearing was held on January 18, 2007, with an Attorney Advisor from the Office of Chief Counsel, PHMSA, presiding.#

520065018_Compromise Agreement and Order_11162011_text.pdf, page 2On January 13, 2010, the Associate Administrator for Pipeline Safety, PHMSA, issued a Final Order in the case. The Final Order found that Alyeska had violated 49 C.F.R. § 195.452(h)(2) as alleged in Item 1 of the Notice and assessed a civil penalty of $173,000. The Final Order further found that Alyeska had violated 49 C.F.R. §§ 195.452(h)(3) and (h)(4)(i)(C) as alleged in Item 2 of the Notice and assessed a civil penalty of $90,000. The Final Order also ordered Alyeska to complete certain corrective measures. On February 8, 2010, Alyeska submitted a Petition for Reconsideration (Petition) of the Final Order. The Petition sought, among other things, reconsideration of the civil penalty assessed against Alyeska for Item 1. On March 1, 2010, the Associate Administrator denied that part of the Petition in a Decision on Reconsideration (Decision). On March 22, 2010, Alyeska made a payment of $90,000 in full satisfaction of the civil penalty assessed for Item 2. On April 20, 2010, Alyeska submitted, to the Director, PHMSA Western Region (Director), information documenting full compliance with the corrective actions in the Final Order and the Decision. On July 29, 2010, Alyeska made another payment of $173,000, under protest and with full reservation of rights, in full satisfaction of the civil penalty assessed for Item 1. On August 3, 2010, Alyeska filed a complaint in the United States District Court for the District of Alaska, Case No. 3:10-CV-00177-JWS (Complaint). The Complaint alleged that the Associate Administrator (1) had assessed Alyeska an excessive civil penalty for Item 1; (2) had failed to comply with the procedural requirements in 49 C.F.R. § 190.213(e) in issuing his Final Order; and (3) had found Alyeska in violation of 49 C.F.R. § 195.452(h)(2) without substantial evidence. The Complaint sought, among other things, the return of the $173,000 that Alyeska had paid to PHMSA for Item 1. On October 20, 2011, PHMSA filed an answer (Answer) to the Complaint. The Answer denied all of Alyeska’s allegations and asserted that the company had already admitted all of the facts necessary to affirm the Final Order. B. CPF 5-2007-5041 On November 27, 2007, PHMSA issued to Alyeska a Notice of Probable Violation, Proposed Civil Penalty, and Proposed Compliance Order (Notice). The Notice alleged that Alyeska had committed several violations of 49 C.F.R. Part 195 and proposed assessing the company a total civil penalty of $817,000 for those violations. The Notice also proposed ordering Alyeska to complete certain corrective actions and issuing a warning that the company take appropriate action to address several other probable violations. Alyeska responded to the Notice on February 26, 2008, requesting an informal hearing. That hearing was held on October 28, 2008, with an attorney from the Office of Chief Counsel, PHMSA, presiding. 2#

520065018_Compromise Agreement and Order_11162011_text.pdf, page 3C. CPF 5-2008-5008 On April 1, 2008, PHMSA issued to Alyeska a Notice of Probable Violation, Proposed Civil Penalty, and Proposed Compliance Order (Notice). The Notice alleged that Alyeska had committed several violations of 49 C.F.R. Part 195 and proposed a total civil penalty of $170,000 for those violations. The Notice also proposed ordering Alyeska to complete certain corrective actions to address several of those violations. On May 22, 2008, Alyeska responded to the Notice and requested an informal hearing. That hearing was held on October 30, 2008, with an attorney from the Office of Chief Counsel, PHMSA, presiding. D. CPF 5-2009-5019 On April 21, 2009, PHMSA issued to Alyeska a Notice of Probable Violation, Proposed Civil Penalty, and Proposed Compliance Order (Notice). The Notice alleged that Alyeska had committed two violations of 49 C.F.R. Part 195 and proposed a civil penalty of $43,800 for one of those violations. The Notice also proposed issuing a warning that the company take appropriate corrective action to address the other probable violation. On May 21, 2009, Alyeska responded to the Notice, requesting an informal hearing. That hearing was held on October 21, 2009, with an attorney from the Office of Chief Counsel, PHMSA, presiding. II. General Provisions. 1. Alyeska acknowledges that the company and its pipeline system, known generally as the Trans-Alaska Pipeline System (TAPS), are subject to the jurisdiction of the Federal pipeline safety laws, 49 U.S.C. 60101, et seq., and the regulations and administrative orders issued thereunder. For purposes of this Compromise Agreement and Order, Alyeska acknowledges that it received proper notice of PHMSA’s actions in CPF 5-2006- 5018, CPF 5-2007-5041, CPF 5-2008-5008, and CPF 5-2009-5019 (collectively, Enforcement Actions) and that the Notices, Final Orders, and Decisions issued in the Enforcement Actions all state claims upon which relief may be granted pursuant to 49 U.S.C. 60101, et seq., and the regulations and orders issued thereunder. 2. By entry of this Compromise Agreement and Order, PHMSA neither vacates nor withdraws the Final Order and Decision issued in CPF 5-2006-5018. All provisions of the Final Order and Decision in CPF 5-2006-5018 shall remain in full force and effect, except as expressly modified by this Compromise Agreement and Order. Nothing in this Compromise Agreement and Order shall bar consideration of the findings of violation set forth in the Final Order and Decision in CPF 5-2006-5018 as prior offenses in any future PHMSA enforcement action. 3#

520065018_Compromise Agreement and Order_11162011_text.pdf, page 43. Alyeska agrees to the issuance of this Compromise Agreement and Order and hereby waives any further procedural requirements with respect to its issuance. Alyeska waives all rights to contest the adequacy of the Notices, Final Orders, and Decisions issued in the Enforcement Actions and the validity of this Compromise Agreement and Order, including all rights to administrative or judicial hearings or appeals. 4. This Compromise Agreement and Order constitutes the final, complete, and exclusive agreement and understanding between the Parties with respect to the Enforcement Actions and the issues embodied in this agreement. The Parties acknowledge that there are no representations, agreements, or understandings relating to the amount or collection of any civil penalties other than those expressly contained in this agreement, except that the terms of this agreement may be construed by reference to any Notices, Final Orders, and Decisions issued in the Enforcement Actions. 5. Nothing in this Compromise Agreement and Order affects or relieves Alyeska of its responsibility to comply with all applicable requirements of the Federal pipeline safety laws, 49 U.S.C. § 60101, et seq., and the regulations and orders issued thereunder. Nothing in this agreement alters PHMSA’s right of access, entry, inspection, and information gathering, or its authority to bring any enforcement action against Alyeska pursuant to the Federal pipeline safety laws, the regulations and orders issued thereunder, or any other provision of Federal or State law. 6. This Compromise Agreement and Order does not waive or modify any Federal, state, or local laws or regulations that are applicable to Alyeska’s pipeline system. This agreement is not a permit or a modification of a permit under any Federal, State, or local laws or regulations. Alyeska remains responsible for achieving and maintaining compliance with all applicable Federal, State, and local laws, regulations and permits. 7. This Compromise Agreement and Order does not create rights in, or grant any cause of action to, any person not a party to this agreement. PHMSA is not liable for any injuries or damages to persons or property arising from acts or omissions of Alyeska or its officers, employees, or agents carrying out the work required by this agreement. PHMSA, its officers, employees, agents, and representatives are not liable for any cause of action arising from any acts or omissions of Alyeska or its contractors in carrying out any work required by this agreement. 8. This Compromise Agreement and Order shall apply to and be binding on Alyeska, its officers, directors, employees, successors and assigns, including, but not limited to, subsequent purchasers. III. Finding of Violations. 9. With respect to CPF 5-2007-5041, the Parties mutually agree, and PHMSA hereby finds, that Alyeska committed the violations alleged in Items 1, 2, 3, 4, 6, 8, and 9 of the Notice. The Parties mutually agree, and PHMSA hereby finds that Alyeska had inadequate procedures as alleged in Items 5, 7, 16a, and 16b of the Notice.4#

520065018_Compromise Agreement and Order_11162011_text.pdf, page 510. With respect to CPF 5-2008-5008, the Parties mutually agree, and PHMSA hereby finds, that Alyeska committed the violations alleged in Items 1, 2, 3, 5, 6, and 7 of the Notice, but that the allegation in Item 4 of the Notice should be, and hereby is, withdrawn. 11. With respect to CPF 5-2009-5019, PHMSA hereby finds that the allegation in Item 1 of the Notice should be, and hereby is, withdrawn. 12. The findings of violation in Paragraphs 9, 10, and 11 will be considered prior offenses in any subsequent enforcement actions taken against Alyeska. IV. Civil Penalty. 13. The Parties mutually agree, and PHMSA hereby orders, that the total civil penalty assessed for Items 1 to 9 and 16a to 16b of the Notice in CPF 5-2007-5041 and Items 1 to 3 and 5 to 7 of the Notice for CPF 5-2008-5008 is Six-Hundred-Thousand Dollars ($600,000). 14. Alyeska will pay the civil penalty amount in Paragraph 13 within 30 days of signing of this Compromise Order and Agreement. Payment may be made by sending a certified check or money order, made payable to “U.S. Department of Transportation,” to the Federal Aviation Administration, Mike Monroney Aeronautical Center, Financial Operations Division (AMZ-341), P.O. Box 269039, Oklahoma City, Oklahoma 73125. Payment may also be made by wire transfer through the Federal Reserve Communications System (Fedwire), to the account of the U.S. Treasury. 15. The Parties agree that the civil penalty assessed and collected in this proceeding will not be deductible for purposes of Federal taxes. 16. The Parties agree that the civil penalty assessed and collected in this proceeding will not be used in determining the amount of any civil penalty for any future enforcement action. V. Compliance Order. 17. The Parties mutually agree, and PHMSA hereby finds, that Alyeska has satisfied the terms of all of the proposed compliance orders for the Enforcement Actions, except for the following: A. CPF 5-2008-5008 i. With respect to the violation of § 195.583 (Item 7), Alyeska must develop and implement a risk-based atmospheric corrosion control program for TAPS, as required under that regulation. Alyeska must submit, for 5#

520065018_Compromise Agreement and Order_11162011_text.pdf, page 6approval by the Director, documentation of the program within 180 days of the Effective Date of this Compromise Order and Agreement. VI. Warning Items. 18. The Parties mutually agree, and PHMSA hereby orders, that Alyeska has received a warning for committing the probable violations in Items 10, 13, and 14 of the Notice in CPF 5-2007-5041 and Item 2 of the Notice in CPF 5-2009-5019, and that the company must take appropriate corrective actions or be subject to future enforcement action. PHMSA hereby finds that the warnings in Items 11, 12 and 15 of the Notice in CPF 5-2007-5041 should be, and hereby are, withdrawn. VII. Dismissal of Complaint. 19. The Parties agree to sign, and that Alyeska will file, a voluntary "Stipulation for Dismissal of Action," in a form substantially similar to the document attached to this order as Exhibit A, in the United States District Court for the District of Alaska within thirty (30) days of Alyeska’s payment of the civil penalty amount referenced in paragraph 13 of this Compromise Order and Agreement. Said dismissal will be with prejudice and without costs or fees for either of the Parties. VIII. Dispute Resolution 20. PHMSA and Alyeska will attempt to resolve any disputes arising under this Compromise Agreement and Order on an informal basis. If Alyeska and PHMSA are unable to informally resolve the dispute within 15 days, Alyeska may request in writing, within 10 days, a written determination resolving the dispute from the Associate Administrator for Pipeline Safety. Such a request must include all of the information that Alyeska believes is relevant to the dispute. If the request is submitted as provided herein, the Associate Administrator will issue a final determination in writing. The existence of a dispute and PHMSA’s consideration of matters placed in dispute will not excuse, toll, or suspend any term or timeframe for completion of any work to be performed under this agreement during the pendency of the dispute resolution process, except as agreed by the Director or the Associate Administrator in writing. IX. Enforcement 21. This Compromise Agreement and Order are subject to all enforcement authorities available to PHMSA under 49 U.S.C. § 60101 et seq. and 49 C.F.R. Part 190, including the assessment of civil penalties as determined in accordance with the requirements of 49 U.S.C. § 60122 and 49 C.F.R. §§ 190.223 to 190.225, if PHMSA determines that Alyeska is not complying with the terms of this agreement, any determinations made by the Director, or, if appealed, with any decisions of the Associate Administrator. Failure to comply with the terms of this agreement may also result in referral to the Attorney General for appropriate relief in a United States District Court pursuant to 49 U.S.C. § 60120. 6#

520065018_Compromise Agreement and Order_11162011_text.pdf, page 7X. Effective Date. 22. The “Effective Date” is the date on which this Compromise Agreement and Order has been signed by both Alyeska and PHMSA. XI. Modification. 23. The terms of this Compromise Agreement and Order may be modified by mutual agreement of the parties. Such modifications must be in writing and signed by both parties. XII. Termination. 24. This Compromise Agreement and Order will terminate upon Alyeska’s payment of the civil penalty referenced in Paragraphs 13 and 14 and upon its completion of the terms set forth in Paragraph 17 of Section V, as determined, in writing, by the Director. Nothing in this agreement prevents Alyeska or PHMSA from completing any of the obligations earlier than the deadlines provided for in this agreement. XIII. Ratification. 25. The Parties’ undersigned representatives certify that they are fully authorized to enter into the terms and conditions of this Compromise Agreement and Order and to execute and legally bind such party to this document. 26. The Parties hereby agree to all conditions and terms of this Compromise Agreement and Order: For PHMSA: For Alyeska: ___________________________ ____________________________ Jeffrey D. Wiese Michael W. Joynor Associate Administrator Senior Vice President of Operations for Pipeline Safety Alyeska Pipeline Service Company _____________________ _____________________ Date Date 7#