CENEX PIPELINE LLC — Notice of Probable Violation

party submissionOfficial PDF520075015_Operator_Response_to_Notice_and_Request_for_Extension_05012007.pdf#

520075015_finalorder_08262008_text.pdf, page 1Official PDFU S Department of Transportation Pipeline and Hazardous Materials Safety Administration t 200 New Jersey Ave S E Washington DC 20590 G P6 2008 Mr. Dan Knepper Vice President, Energy Operations CHS Inc. PO Box 909 Laurel, MT 59044 Re: CPF No. 5-2007-5015 Dear Mr. Knepper: Enclosed is the Final Order issued in the above-referenced case. It makes findings of violation and specifies actions that need to be taken by CHS Inc, to comply with the PHMSA pipeline safety regulations. When the terms of the Compliance Order have been completed, as determined by the Director, Western Region, this enforcement action will be closed. Your receipt of this Final Order constitutes service of that document under 49 C. F, R ) 190. 5. Thank you for your cooperation in this matter Smcerely, ssociate Administrator for Pipeline Safety Enclosure cc: Mr. Chris Hoidal, P. E, , Western Region Director, PHMSA CERTIFIED MAIL — RETURN RECEIPT RE UESTED#

520075015_finalorder_08262008_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 CHS Inc. , Respondent. CPF No. 5-2007-5015 FINAL ORDER On August 28 - 31, 2006, pursuant to 49 U. S. C. ( 60117, a representative of the Pipeline and Hazardous Materials Safety Administration, Office of Pipeline Safety (OPS), conducted an on- site pipeline safety mspection of CHS Inc. 's (CHS or Respondent) Integrity Management Program (IMP) in Laurel, Montana CHS operates approximately 1, 086 miles of hazardous liquid pipelines in Montana and North Dakota, much of which runs through environmentally sensitive areas, As a result of the mspection, the Director, Western Region, OPS (Director), issued to Respondent, by letter dated April 4, 2007, a Notice of Probable Violation and Proposed Compliance Order (Notice). In accordance with 49 C. F. R, $ 190. 207, the Notice proposed finding that Respondent had violated various provisions of 49 C. F. R. $195. 452 and ordering Respondent to take certain measures to correct the alleged violations Respondent responded to the Notice by letter dated May 1, 2007 (Response). Respondent did not contest the allegations of violations and indicated that it intended to complete the work identified in the proposed Compliance Order by November 1, 2007. Respondent further requested that in the event a Final Order should be issued prior to that date, an extension be granted for Respondent to complete the work. As of the date hereof, Respondent has not provided documentation showing completion of the work identified in the Compliance Order. In its Response, CHS did not request a hearing and therefore has waived its right to one. FINDINGS OF VIOLATION In its Response, Respondent did not contest the allegations in the Notice that it violated 49 C. F. R. Part 195, as follows' Item 1: Item 1 of the Notice alleged that Respondent violated various provisions of 49 C. F. R. $ 195. 452(i), which states, in relevant part: g 195. 452 Pipeline integrity management in high consequence areas. (a) " (i) 8'hat preventive and mitigative measures must an operator take to protect the high consequence area?#

520075015_finalorder_08262008_text.pdf, page 3(1) General requirements An operator must take measures to prevent and mitigate the consequences of a pipeline failure that could affect a high consequence area. These measures include conducting a risk analysis of the pipeline segment to identify additional actions to enhance public safety or environmental protection. Such actions may include, but are not limited to, implementing damage prevention best practices, better monitoring of cathodic protection where corrosion is a concern, establishing shorter inspection intervals, installing EFRDs on the pipeline segment, modifying the systems that monitor pressure and detect leaks, providing additional traming to personnel on response procedures, conducting drills with local emergency responders and adopting other management controls. . . . (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. (4) Emergency Flow Restrtcting Devices (EFRD) If an operator determines that an EFRD is needed on a pipeline segment to protect a high consequence area in the event of a hazardous liquid pipeline release, an operator must install the EFRD. In making this determmation, an operator must, at least, consider the following factors — the swiftness of leak detection and pipeline shutdown capabilities, the type of commodity carried, the rate of potential leakage, the volume that can be released, topography or pipeline profile, the potential for ignition, proximity to power sources, location of nearest response personnel, specific terrain between the pipeline segment and the high consequence area, and benefits expected by reducing the spill size. Item 1(A): Item 1(A) of the Notice alleged that, as of the date of the inspection, Respondent had violated ) 195 452(i)(1) by failing to take measures to prevent and mitigate the consequences of a pipeline failure that could affect a high consequence area. Specifically, the Notice alleged that Respondent failed to conduct a risk analysis of its pipeline segments to identify additional actions to enhance public safety or environmental protection. CHS did not contest this allegation. Accordingly, based upon a review of the record, I find that Respondent violated 49 C. F. R. $ 194 452(i)(1)) by failing to have completed a risk analysis of its pipeline segments. Item 1(B): Item 1(B) of the Notice alleged that Respondent had violated 49 C. F. R. $ 195. 452(i)(3), as stated above, by failmg to complete, as of the date of the inspection, an evaluation of the leak detection capability of its pipeline system In its Response, Respondent did not contest this allegation but indicated that it intended to comply with the actions required under the proposed Compliance Order by November 1, 2007. Accordingly, based upon a review of the record, I find that Respondent violated 49 C. F R )195. 452(i)(3) by failing to have completed, as of the date of the inspection, an evaluation of the leak detection capabilities of its pipeline system.#

520075015_finalorder_08262008_text.pdf, page 4Item 1(C): Item 1(C) of the Notice alleged that Respondent had violated 49 C. F. R. ) 195. 452 (i)(4), as stated above, by failing to complete, as of the date of the inspection, an evaluation to determine if there were a need for additional EFRDs on any segment of its pipeline system in order to protect a high consequence area in the event of a release. In its Response, CHS did not contest the allegation but indicated that it intended to comply with the actions required under the proposed Compliance Order by November 1, 2007. Accordingly, based upon a review of the record, I find that Respondent violated 49 C. F. R. $195 452(i)(4) by failing to have completed, as of the date of the inspection, an evaluation to determine if there were a need for additional EFRDs on any segment of its pipeline system. Item 2(A): Item 2(A) of the Notice alleged that Respondent violated 49 C. F. R $ 195. 452(j)(2), which states: g 195. 452 Pipeline integrity management in high consequence areas. (a) " (j) What rs 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. (2) Evaluation An operator must conduct a periodic evaluation as frequently as needed to assure pipeline integrity. An operator must base the frequency of evaluation on risk factors specific to its pipeline, including the factors specified in paragraph (e) of this section. The evaluation must consider the results of the baseline and periodic integrity assessments. . . . The Notice alleged that Respondent had violated ( 195 452(j)(2) by failing to conduct, as of the date of the inspection, an annual evaluation of its pipeline system, as required by Article 7 1 of CHS' integrity management program. In its Response, Respondent did not contest the allegation but indicated that it intended to comply with the actions required under the proposed Compliance Order by November 1, 2007. Accordingly, based upon a review of the record, I find that Respondent violated 49 C. F. R. $195. 452(j)(2) by failmg to have conducted, as of the date of the inspection, a periodic evaluation of the integrity of its pipeline system, as required by Article 7. 1 of Respondent's IMP. Item 3(A): Item 3(A) of the Notice alleged that Respondent violated 49 C. F R. ) 195. 452(k), which states: f 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:#

520075015_finalorder_08262008_text.pdf, page 5(1) " (7) Methods to measure the program's effectiveness (see paragraph (k) of this section). . . (k) 8'hat methods to measure program effecttveness 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 and in protectmg 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 Respondent had violated 49 C. F. R. $ 195 452(k) by failing to conduct ongoing evaluations of the effectiveness of its IMP in assessing and evaluating the integrity of each pipeline segment and in protecting high consequence areas. Specifically, it alleged that CHS had failed to conduct an annual evaluation of its IMP, as required under Article 9. 1 of such plan. In its Response, Respondent did not contest the allegation but indicated that it intended to comply with the actions required under the proposed Compliance Order by November 1, 2007. Accordingly, based upon a review of the record, I find that Respondent violated 49 C. F. R. $195. 452(k) by failing to have conducted, as of the date of the inspection, periodic evaluations of the effectiveness of its IMP in assessing and evaluating the integrity of each pipelme segment and in protecting high consequence areas. These findings of violation will be considered prior offenses in any subsequent enforcement action taken agamst Respondent. COMPLIANCE ORDER The Notice proposed a compliance order with respect to Items 1(A), 1(B), 1(C), 2(A), and 3(A) in the Notice for violations of 49 C. F. R. $( 195 452(i)(1, 3, and 4), 195. 452(j)(2), and 195. 452(k). Under 49 U. S. C. ) 60118(a), each person who engages in the transportation of hazardous liquids, or who owns or operates a pipeline facility, is required to comply with the applicable safety standards established under Chapter 601 Pursuant to the authority of 49 U, S. C. $ 60118(b) and 49 C. F. R. $ 190. 217, Respondent is ordered to take the following actions to ensure compliance with the pipeline safety regulations applicable to its operations With respect to Notice Iteml(A) pertaining to preventive and mitigative measures, Respondent must perform a preventive and mitigative analysis, using a risk analysis of its pipeline segments to identify additional actions to enhance public safety or environmental protection. Such actions may include, but are not limited to, implementing damage prevention best practices, improving monitoring of cathodic protection where corrosion is a concern, establishing shorter inspection intervals, installing EFRDs on pipeline segments, modifying systems that monitor pressure and detect leaks, providing additional training to personnel on response procedures, conducting drills with local emergency responders, and adopting other management controls. With respect to Notice Item 1(B) pertaining to evaluation of leak detection capabilities, Respondent must evaluate the capability of its leak detection methods and modify the methods, as necessary, to protect the high consequence areas. This evaluation must, at least, consider the following factors: the length and size#

520075015_finalorder_08262008_text.pdf, page 6of the pipeline, the type of product transported, the proximity of the pipeline to high consequence areas, the swiftness of leak detection, the location of nearest response personnel, the pipeline's leak history, and the pipeline risk assessment results. With respect to Notice Item 1(C) pertaming to evaluatmg EFRDs, Respondent must evaluate its EFRDs. This evaluation must, at least, consider the following factors. the swiftness of leak detection and pipeline shutdown capabilities, the type of commodity carried, the rate of potential leakage, the volume that can be released, the topography or pipeline profile, the potential for igmtion, the pipeline proximity to power sources, the location of nearest response personnel, the specific terrain between the pipeline segment and the high consequence areas, and the benefits expected by reducing the spill size. If Respondent determines that any pipeline segment requires an EFRD to protect a high consequence area in the event of a hazardous liquid pipeline release, Respondent must install the EFRD. With respect to Notice Item 2(A) pertaining to periodic evaluations of integrity information, Respondent must conduct a periodic evaluation to ensure pipeline integrity. This evaluation must consider the results of the baseline and periodic integrity assessments, an information analysis as required under )195. 452(g), decisions about remediation, and preventive and mitigative actions as required under $195. 452(h) and (i). This analysis must also include the basis for determimng the frequency of future evaluations. Respondent must determine this frequency according to the evaluation of risk factors specific to its pipeline, including the factors specified in paragraph (195 452(e). With respect to Notice Item 3(A) pertaming to periodic evaluations of the effectiveness of an IMP, Respondent must evaluate its IMP's effectiveness in assessing and evaluating the integrity of each pipeline segment and in protecting high consequence areas, Respondent shall maintain documentation of the safety improvement costs associated with fulfilling this Compliance Order and submit them to the Director, Western Region, Pipeline and Hazardous Materials Safety Administration, 12300 W. Dakota Avenue, Suite 110, Lakewood, CO 80228 Costs shall be reported in two categories; 1) total cost associated with preparation/revision of plans, procedures, studies and analyses; and 2) total cost associated with replacements, additions and other changes to pipeline infrastructure Within 30 days of receipt of the Final Order, Respondent must complete the items listed above and submit appropriate documentation showing their completion to the Director, Western Region, Pipeline and Hazardous Materials Safety Administration, 12300 W. Dakota Avenue, Suite 110, Lakewood, CO 80228.#

520075015_finalorder_08262008_text.pdf, page 7The Director may grant an extension of time to comply with any of the items set forth above 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 terms of the order, including any required corrective action, shall remain in full force and effect unless the Associate Ad inistrator, upon request, grants a stay. The terms and conditions of this Final Order shall eco e effective upon receipt. g6 p 6 2008 Date Issued J ffr D. iese ' ssoc ate A s rator ipeline Safety#

520075015_notice letter_04042007_text.pdf, page 1Official PDFU. S. Department of Transportation Pipeline and Hazardous Materials Safety Administration 12300 W Dakota Ave, Suite 110 Lakewood, CO 80228 NOTICE OF PROBABLK VIOLATION and PROPOSED COMPLIANCE ORDER CERTIFIED MAIL - RETURN RECEIPT RE UESTED April 4, 2007 Mr. Dan Knepper VP Energy Operations CHS Inc. 803 Highway 212 South Laurel, MT 59044 SENT TO COMPLIANCE REGISTRY Hardcopy Electronical y + ¹ of Copies'/ Date Of CPF 5-2007-5015 Dear Mr. Knepper: On August 28 through 31, 2006 a representative of the Pipeline and Hazardous Materials Safety Administration (PHMSA) pursuant to Chapter 601 of 49 United States Code inspected your integrity management program in Laurel, Montana. As a result of the inspection, it appears that you have committed probable violations of the Pipeline Safety Regulations, Title 49, Code of Federal Regulations. The items inspected and the probable violations are: $195. 452 Pipeline integrity management in high consequence areas. (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: (6) Identification of preventive and mitigative measures to protect the high consequence area (see paragraph (i) of this section);#

520075015_notice letter_04042007_text.pdf, page 2~ Item 1. A: $195. 452(i)(1) CHS stated at the time of this inspection that they had not completed any preventive and mitigative analysis on their pipeline system. ~ Item 1. B: $195. 452(i)(3) CHS stated at the time of this inspection that they had not completed an evaluation of leak detection capability of their pipeline system. CHS stated that a leak detection capability evaluation is ongoing and should be completed in 2007. ~ Item 1. C: $195. 452(i)(4) CHS stated at the time of this inspection that they had not completed an evaluation to determine if there is a need for additional EFRDs. 2. $195. 452 Pipeline integrity management in high consequence areas. (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: (5) A continual process of assessment and evaluation to maintain a pipeline's integrity (see paragraph (j) of this section); ~ Item 2. A: $195. 452(j)(2) Though CHS's IM program Article 7. 1 calls for an annual evaluation of its pipeline segments to assure pipeline integrity CHS stated at the time of this inspection that they had not completed any such evaluations. 3. $195. 452 Pipeline integrity management in high consequence areas. (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#

520075015_notice letter_04042007_text.pdf, page 3management program: (7) Methods to measure the program's effectiveness (see paragraph (k) of this section); ~ Item 3. A: $195. 452(k) Though CHS's IM program Article 9. 1 calls for an annual evaluation of its IM program's effectiveness CHS stated at the time of this inspection that they had not performed any program evaluations. Pro osed Com liance Order Pursuant to 49 United States Code $ 60118, the Pipeline and Hazardous Materials Safety Administration proposes to issue a Compliance Order to CHS. Please refer to the Proposed Compliance Order that is enclosed and made a part of this Notice. Res onse to this Notice Enclosed as part of this Notice is a document entitled Response Options for Pipeline Operators in Compliance Proceedings. Please refer to this document and note the response options. Be advised that all material you submit in response to this enforcement action is subject to being made publicly available. If you believe that any portion of your responsive material qualifies for confidential treatment under 5 U. S. C. 552(b), along with the complete original document you must provide a second copy of the document with the portions you believe qualify for confidential treatment redacted and an explanation of why you believe the redacted information qualifies for confidential treatment under 5 U. S. C. 552(b). If you do not respond within 30 days of receipt of this Notice, this constitutes a waiver of your right to contest the allegations in this Notice and authorizes the Associate Administrator for Pipeline Safety to find facts as alleged in this Notice without further notice to you and to issue a Final Order. In your correspondence on this matter, please refer to CPF 5-2007-5015 and for each document you submit, please provide a copy in electronic format whenever possible. Sincerely, Chris Hoidal Director, Western Region Pipeline and Hazardous Materials Safety Administration cc: PHP-60 Compliance Registry PHP-500 G. Davis (¹117712) Enclosures: Proposed Compliance Order Response Options for Pipeline Operators in Compliance Proceedings#

520075015_notice letter_04042007_text.pdf, page 4PROPOSED COMPLIANCE ORDER Pursuant to 49 United States Code $ 6011S, the Pipeline and Hazardous Materials Safety Administration (PHMSA) proposes to issue to CHS a Compliance Order incorporating the following remedial requirements to ensure the compliance of CHS with the pipeline safety regulations: In regard to Item Number 1. A. of the Notice pertaining to preventative and mitigative measures, CHS must perform a preventative and mitigative analysis using their risk analysis of their pipeline segments to identify additional actions to enhance public safety or environmental protection. Such actions may include, but are not limited to, implementing damage prevention best practices, better monitoring of cathodic protection where corrosion is a concern, establishing shorter inspection intervals, installing EFRDs on the pipeline segment, modifying the systems that monitor pressure and detect leaks, providing additional training to personnel on response procedures, conducting drills with local emergency responders and adopting other management controls. In regard to Item Number I. B. of the Notice pertaining to evaluation of leak detection capabilities, CHS must evaluate the capability of its leak detection means and modify, as necessary, to protect the high consequence area. This evaluation must, at least, consider the following factors: the length and size of the pipeline, the type of product transported, the proximity of the pipeline to high consequence areas, the swiftness of leak detection, the location of nearest response personnel, the pipeline leak history, and the pipeline risk assessment results. In regard to Item Number 1. C. of the Notice pertaining to evaluation EFRDs CHS must make an evaluation of EFRDs and this evaluation must at least, consider the following factors: the swiftness of leak detection and pipeline shutdown capabilities, the type of commodity carried, the rate of potential leakage, the volume that can be released, the topography or pipeline profile, the potential for ignition, the pipeline proximity to power sources, the location of nearest response personnel, the specific terrain between the pipeline segment and the high consequence area, and the benefits expected by reducing the spill size. If CHS determines that an EFRD is needed on any pipeline segment to protect a high consequence area in the event of a hazardous liquid pipeline release, CHS must install the EFRD. In regard to Item Number 2. A. of the Notice pertaining to periodic evaluations of integrity information, CHS must conduct a periodic evaluation to assure pipeline integrity. This evaluation must consider the results of the baseline and periodic integrity assessments, information analysis as required under $195. 452(g), and decisions about remediation, and preventive and mitigative actions as required under $195. 452(h) and (i). This analysis must also include the basis for for the determination for the frequency of future evaluations and this frequency must be based on the evaluation on risk factors specific to its pipeline, including the factors specified in paragraph $195. 452(e).#

520075015_notice letter_04042007_text.pdf, page 5In regard to Item Number 3. A. of the Notice pertaining to periodic evaluations of the effectiveness of an IM program, CHS evaluate the must evaluate the effectiveness of their IM program in assessing and evaluating the integrity of each pipeline segment and in protecting the high consequence areas. Within 30 days of receipt of the Final Order CHS must complete the items listed and submit appropriate documentation showing completion of the above items. CHS shall maintain documentation of the safety improvement costs associated with fulfilling this Compliance Order and submit the total to Chris Hoidal, Director, Western Region, Pipeline and Hazardous Materials Safety Administration. Costs shall be reported in two categories: I) total cost associated with preparation/revision of plans, procedures, studies and analyses, and 2) total cost associated with replacements, additions and other changes to pipeline infrastructure.#