ALYESKA PIPELINE SERVICE CO — Notice of Probable Violation

520085008_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.#

520085008_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#

520085008_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#

520085008_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#

520085008_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#

520085008_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#

520085008_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#

520085008_closure letter_01072014_text.pdf, page 1Official PDFCERTIFIED MAIL – RETURN RECEIPT REQUESTED January 7, 2014 Mr. Tom Barrett President and CEO Alyeska Pipeline Service Company 3700 Centerpoint Drive Anchorage, AK 99503 CPF 5-2008-5008 Closure Letter Dear Mr. Barrett: On May 16, 2011, PHMSA entered into a Compromise Agreement and Order (CA&O), whereby the parties mutually agreed that Alyeska had satisfied the terms of four (4) previously proposed compliance orders except for Item 7 of CPF 5-2008-5008. With respect to Item 7 (Item 17 of the CA&O), Alyeska was required to develop and implement a risk-based atmospheric corrosion control monitoring program for the Trans-Alaska Pipeline System (TAPS), as required under regulation §195.583. On May 14, 2012, Alyeska submitted procedures as required by the CA&O. The procedures described Alyeska’s method for conducting risk-based atmospheric corrosion control monitoring for the mainline TAPS and other facility piping. PHMSA responded to Alyeska on May 20, 2013 to inform them that their risk based atmospheric corrosion control procedures were still inadequate. Alyeska submitted revised procedures on June 20, 2013, August 1, 2013, and January 3, 2014. My staff reviewed the amended procedures (MP-166-3.03-02, Revision 6, effective date 12/24/13), and it appears that the inadequacies have been corrected. PHMSA will confirm during future inspections that Alyeska’s corrosion control plan is properly implemented and the pipelines are protected against atmospheric corrosion. This letter is to inform you this case is now closed. Thank you for your cooperation. Sincerely, Chris Hoidal Director, Western Region Pipeline and Hazardous Materials Safety Administration cc: PHP-60 Compliance Registry PHP-500 J. Strawn (#118838)#

520085008_nopv pcp pco_04012008_text.pdf, page 1Official PDFO U, S. Department of Transportation Pipeline and Hazardous Materials Safety Administration 12300 W Dakota Ave, Suite 110 Lakewood, CO 80228 NOTICE OF PROBABLE VIOLATION PROPOSED CIVIL PENALTY and PROPOSED COMPLIANCE ORDER CERTIFIED MAIL - RETURN RECEIPT RE UESTED April 1, 2008 Mr, Jim Johnson Pipeline Vice President Alyeska Pipeline Service Company 900 East Benson Blvd P. O. Box 196606 Anchorage, AK 99519 CPF 5-2008-500S Dear Mr. Johnson: Between June 18 and 21, 2007, a representative of the Pipeline and Hazardous Materials Safety Administration (PHMSA) pursuant to Chapter 601 of 49 United States Code inspected Alyeska Pipeline Service Company's (Alyeska) facihties and records for the Trans Alaska Pipeline System (TAPS) between Mile Posts 367 and 469. Operational reviews of Pump Stations 7 and 8 were also included in this inspection. As a result of the above referenced inspection, and an additional inspection that took place on Alyeska facilities between Pump Station 1 and Mile Post 126 on July 8-13, 2007, it appears that you have committed probable violations of the Pipeline Safety Regulations, Title 49, Code of Federal Regulations. The items mspected and the probable violations are:#

520085008_nopv pcp pco_04012008_text.pdf, page 2$195. 573 What must I do to monitor external corrosion control? (a) Protected pipelines. You must do the following to determine whether cathodic protection required by this subpart complies with Sec. 195. 571: (1) Conduct tests on the protected pipeline at least once each calendar year, but with intervals not exceeding 15 months. (e) Corrective action. You must correct any identified deficiency in corrosion control as required by Sec. 195. 401(b). However, if the deficiency involves a pipeline in an integrity management program under Sec. 195. 452, you must correct the deficiency as required by Sec. 195. 452(h). Alyeska failed to conduct pipe-to-soil tests on the mainline i e at several road crossin s on TAPS at least once each calendar year, but with intervals not exceeding 15 months, as required by $195. 573(a)(1), to determine whether cathodic protection (CP) complied with $195. 571. Further, Alyeska failed to correct CP deficiencies as required by )195. 573(e) after eventually conducting tests at some road crossings and discovering CP deficiencies. It is inappropriate for more than one (1) year to pass before areas of low CP are remediated. However, in instances of aggressive corrosion, remediation must occur in less than one (1) year. The records indicate that Alyeska failed to conduct pipe- to-soil tests and failed to remediate inadequate CP at the locations listed below: ~ Pipe-to-soil tests on the mainline pipe at road casings at Mile Posts 18. 69, 177. 29, 300. 31, 308. 01, 340. 46 and 367. 06 were not conducted for the years 2004 and 2005. ~ Pipe-to-soil tests of the mainline pipe at the road crossing at Mile Post 579. 48 were not conducted in years 2003 and 2004. The mainline pipe at this location did not meet NACE criteria for the years 2005 and 2006. ~ Pipe-to-soil tests of the mainline pipe at the road crossing at Mile Post 246, 18 were not conducted for 2004. The mainline pipe at this location did not meet NACE ' criteria for the years 2003, 2005 and 2006, ~ Pipe-to-soil tests of the mainline pipe at the road crossing at Mile Post 765. 24 were not conducted for the years 2003 and 2004. The mainline pipe at this location did not meet NACE criteria for the years 2005 and 2006. Evidence: 1. TAPS mainline road crossing surveys, '06, '05, '04, and '03. 2. MP-166-3, 22, Rev 1, Section 5, 2. 5. 1, dated 7/27/06.#

520085008_nopv pcp pco_04012008_text.pdf, page 32. $195. 571 What criteria must I use to determine the adequacy of cathodic protection? Cathodic protection required by this subpart must comply with one or more of the applicable criteria and other considerations for cathodic protection contained in paragraphs 6. 2 and 6. 3 of NACE Standard RP 0169 (incorporated by reference, see g 195. 3). $195. 573 What must I do to monitor external corrosion control? (e) Corrective action. You must correct any identified deficiency in corrosion control as required by Sec. 195. 401(b). However, if the deficiency involves a pipeline in an integrity management program under Sec. 195. 452, you must correct the deficiency as required by Sec. 195. 452(h). Alyeska's pipe-to-soil potentials at certain CP cou on test stations on TAPS failed to meet the criteria in NACE Standard RP 0169 as required by $195. 571. Records show that CP coupons failed to meet the NACE Standard at Mile Posts 449. 26, 474. 03, and 477. 48 on TAPS for the years 2004, 2005 and 2006. Further, Alyeska failed to correct those deficiencies in corrosion control at those locations as required by $195. 401(b). It is inappropriate for more than one (1) year to pass before areas of low CP are remediated. However, in some instances remediation must occur in less than one (1) year. Evidence: TAPS Mainline CP Coupon Surveys, '04, '05, '06. $195. 571 What criteria must I use to determine the adequacy of cathodic protection? Cathodik protection required by this subpart must comply with one or more of the applicable criteria and other considerations for cathodic protection contained in paragraphs 6. 2 and 6. 3 of NACE Standard RP 0169 (incorporated by reference, see g 195. 3). $195. 573 What must I do to monitor external corrosion control? (e) Corrective action. You must correct any identified deficiency in corrosion control as required by Sec. 195. 401(b). However, if the deficiency involves a pipeline in an integrity management program under Sec. 195. 452, you must correct the deficiency as required by Sec. 195. 452(h).#

520085008_nopv pcp pco_04012008_text.pdf, page 4Alyeska's pipe-to-soil potentials based on recurring Close Interval Surve s failed to meet the criteria in NACE Standard RP 0169 as required by $195. 571. Records show Close Interval surveys failed to meet the NACE Standard at Mile Posts 449. 22 to 449. 27, Mile Posts 468. 28 to 468. 37, Mile Posts 477. 15 to 477. 62 and Mile Post 477. 41 on TAPS for the years 2004, 2005, 2006. Further, Alyeska failed to correct those deficiencies in corrosion control at those locations as required by $195. 401(b). It is inappropriate for more than one (1) year to pass before areas of low CP are remediated. However, in some instances remediation must occur in less than one (1) year. Evidence: TAPS mainline Close Interval Survey data, '04, '05, '06. $195. 573 What must I do to monitor external corrosion control? (a) Protected pipelines. You must do the following to determine whether cathodic protection required by this subpart complies with Sec. 195. 571: (1) Conduct tests on the protected pipeline at least once each calendar year, but with intervals not exceeding 15 months. (e) Corrective action. You must correct any identified deficiency in corrosion control as required by Sec. 195, 401(b). However, if the deficiency involves a pipeline in an integrity management program under Sec. 195. 452, you must correct the deficiency as required by Sec. 195. 452(h). Alyeska failed to provide cathodic protection records that would indicate whether it had conducted the tests required by $195. 573(a)(1) on the 16" crude incoming line and 14" residual line at the North Pole metering facility on TAPS for the years 2004 and 2005. This lateral piping was installed in 1997 and 1998. $195. 579 What must I do to mitigate internal corrosion? (a) General. If you transport any hazardous liquid or carbon dioxide that would corrode the pipeline, you must investigate the corrosive effect of the hazardous liquid or carbon dioxide on the pipeline and take adequate steps to mitigate internal corrosion. Alyeska failed to provide any records to show that it investigates the corrosive effects of the hazardous liquid transported in TAPS. Alyeska as required by $195, 579 (a) to investigate the corrosive effects of the hazardous liquid in the TAPS pipeline. Alyeska's 2004 In-line Inspection (ILI) records indicate that internal corrosion exists on the TAPS#

520085008_nopv pcp pco_04012008_text.pdf, page 5mainline. Corrosive effects investigation is critical for determining the corrosive nature of the crude oil transported by TAPS and how the pipeline is affected. The hazardous liquids delivered to TAPS contain materials that are known to be potentially corrosive. Evidence: Internal corrosion pig calls from the 2001 UT pig and the 2004 MFL pig. 6. $195. 579 What must I do to mitigate internal corrosion? (a) General. If you transport any hazardous liquid or carbon dioxide that would corrode the pipeline, you must investigate the corrosive effect of the hazardous liquid or carbon dioxide on the pipeline and take adequate steps to mitigate internal corrosion. Alyeska failed to provide any records that indicate it takes adequate steps to mitigate internal corrosion on the TAPS mainline, Alyeska's 2004 In-line Inspection (ILI) records indicate that internal corrosion exists on the TAPS mainline. Alyeska is required by $195. 579 (b) to take adequate steps to mitigate internal corrosion. Evidence: Internal corrosion pig calls from the 2001 UT pig and the 2004 MFL pig. 7. $195. 583 What must I do to monitor atmospheric corrosion control? (a) You must inspect each pipeline or portion of pipeline that is exposed to the atmosphere for evidence of atmospheric corrosion, as follows: If the pipeline is located: Then the frequency of inspection is: Onshore At least once every 3 calendar years, but with intervals not exceeding 39 months (b) During inspections you must give particular attention to pipe at soil-to-air interfaces, under thermal insulation, under disbonded coatings, and at pipe supports. (e) Corrective action. You must correct any identified deficiency in corrosion control as required by Sec. 195. 401(b). However, if the deficiency involves a pipeline in an integrity management program under Sec. 195. 452, you must correct the deficiency as required by Sec. 195. 452(h).#

520085008_nopv pcp pco_04012008_text.pdf, page 6Alyeska failed to provide atmospheric corrosion control records for TAPS to PHMSA personnel. Alyeska is required by §195.583 (a) to monitor atmospheric corrosion at least every three (3) years and give particular attention to pipe at soil-to-air interfaces, under thermal insulation, under disbonded coatings, and at pipe supports. For example, Alyeska has belowground check valves in vaults, belowground mainline fittings in vaults, belowground mainline piping corridors, and belowground header piping. All of these were found to contain water during a recent inspection of PS 1 through Milepost 126 of TAPS. Alyeska failed to produce records for required atmospheric corrosion inspections at these locations. Evidence: 1. Photographs of check valves 8, 10, 11, 12, 13, 15, 16, Manual Gate Valve 10A, split tee, DRA injection ring. 2. OM-1 section 12.12, Atmospheric Corrosion. 3. Letter for specific information and Alyeska's response. 4. Alyeska as built database, indicating that a sleeve was placed over corrosion at the soil/air interface on a transition. Proposed Civil Penalty Under 49 United States Code, § 60122, you are subject to a civil penalty not to exceed $100,000 for each violation for each day the violation persists up to a maximum of $1,000,000 for any related series of violations. The Compliance Officer has reviewed the circumstances and supporting documentation involved in the above probable violation(s) and has recommended that you be preliminarily assessed a civil penalty of $ 170,000 as follows: Item number PENALTY $ 37,000 2 $ 37,000 3 $ 24,000 • 4 $ 11,000 5 $ 11,000 6 $ 39,000 7 $ 11,000 Total $170,000 Proposed Compliance Order With respect to Items 1, 2, 3, 4, 5, 6, and 7, pursuant to 49 United States Code § 60118, the Po Alies and paine service Come Sange ease releration Propel see Corder Ordere 6#

520085008_nopv pcp pco_04012008_text.pdf, page 7Res 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 5-2008-5008 and for each document you submit, please provide a copy in electronic format whenever possible, Sincerely, Chris oidal Director, Western Region Pipeline and Hazardous Materials Safety Administration cc: PHP-60 Compliance Registry PHP-500 J. Strawn (¹118838) Encl: Proposed Compliance Order Response Options for Pipeline Operators in Compliance Proceedings#

520085008_nopv pcp pco_04012008_text.pdf, page 8PROPOSED COMPLIANCE ORDER Pursuant to 49 United States Code $ 60118, the Pipeline and Hazardous Materials Safety Administration (PHMSA) proposes to issue to Alyeska Pipeline Service Company a Compliance Order incorporating the following remedial requirements to ensure the compliance of Alyeska Pipeline Service Company with the pipeline safety regulations: In regard to Item 1 of the Notice pertaining to Alyeska's failure to conduct pipe-to-soil tests of the mainline pipe on road crossings on TAPS, Alyeska must meet the requirements of $195. 573 (a) (1) by conducting tests of the mainline pipe at road crossings on TAPS once each calendar year, but with intervals not exceeding 15 months to determine whether cathodic protection required by this subpart complies with $ 195. 571 Alyeska must conduct pipe-to-soil tests at the locations indicated in the Notice and provide documentation of such tests within 60 days of receipt of the Final Order. Alyeska shall take such corrective actions as are necessary to raise cathodic protection levels at the specified locations to meet one or more of the criteria within 1 year of receipt of the Final Order, and in the case of newly discovered inadequate cathodic protection, within 1 year of discovery of such inadequacy. In regard to Item 2 of the Notice pertaining to Alyeska's failure to meet the criteria in NACE Standard RPO-169, based on cathodic protection coupon test data taken at the locations specified in the Notice on TAPS, for the years 2004, 2005 and 2006, Alyeska shall evaluate the cathodic protection levels at the locations specified in the Notice and take appropriate action to bring the cathodic protection into compliance with one or more of the applicable criteria and other considerations for cathodic protection contained in paragraphs 6. 2 and 6. 3 of NACE Standard RP0169-96 (incorporated by reference, see Sec. 195, 3). Alyeska shall conduct cathodic protection coupon testing at the locations indicated in the Notice and provide documentation of the testing within 60 days of receipt of the Final Order. Alyeska shall take such corrective actions as are necessary to raise cathodic protection levels at the specified locations to meet one or more of the criteria within 1 year of testing. In regard to Item 3 of the Notice pertaining to Alyeska's failure to meet the criteria in NACE Standard RPO-169, based on close interval survey data taken at the locations specified in the Notice on TAPS, for the years 2004, 2005 and 2006, Alyeska shall evaluate the cathodic protection levels at the locations specified in the Notice and take appropriate action to bring the level of cathodic protection at the specified locations into compliance with one or more of the applicable criteria and other considerations for cathodic protection contained in paragraphs 6. 2 and 6. 3 of NACE Standard RP0169-96 (incorporated by reference, see Sec. 195. 3). Alyeska shall evaluate the cathodic protection at the locations indicated in the Notice and provide documentation of the testing within 60 days of receipt of the Final Order. Alyeska shall take such corrective actions as are necessary to raise cathodic protection levels at the specified locations to meet one or more of the criteria within 1 year of testing. 8#

520085008_nopv pcp pco_04012008_text.pdf, page 9In regard to Item 4 of the Notice pertaining to Alyeska's failure to provide cathodic protection records for the incoming and residual lines at the North Pole metering facility, Alyeska shall provide cathodic protection records, or shall conduct testing of the cathodic protection at this location and provide documentation of the testing within 60 days of receipt of the Final Order. Within 1 year of testing, Alyeska shall take such corrective actions as are necessary to raise cathodic protection levels at the specified location to achieve compliance with one or more of the applicable criteria and other considerations for cathodic protection contained in paragraphs 6. 2 and 6. 3 of NACE Standard RP0169-96 (incorporated by reference, see Sec. 195. 3). In regard to Item 5 of the Notice pertaining to Alyeska's failure to provide corrosion effects records for TAPS, Alyeska shall develop and implement a program to investigate the corrosive effect of the hazardous liquids transported in TAPS according to the requirements of )195. 579. This program shall include a chemical analysis of the hazardous liquid being transported on TAPS. Such analysis shall include, at a minimum, an analysis of the water, organic/inorganic, calcium carbonate and iron sulfide composition. Alyeska shall conduct any additional analyses of the corrosive effects of the hazardous liquids transported in TAPS, as are necessary to characterize and understand such corrosive effects. Alyeska shall develop and implement the program, conduct the analyses, and provide documentation of these activities within 180 days of receipt of the Final order. In regard to Item 6 if the Notice pertaining to Alyeska's failure to provide records to show that it has taken adequate steps to mitigate internal corrosion on the TAPS mainline, Alyeska shall develop and implement an internal corrosion mitigation program The program shall include a provision for testing to demonstrate the effectiveness of all mitigative actions. Alyeska shall develop and submit the program for review within 180 days of receipt of the Final Order. Alyeska shall implement the program, and provide documentation of implementation, within 180 days of approval or modification by the Director, Western Region. In regard to Item 7 of the Notice pertaining to Alyeska's failure to provide atmospheric corrosion control records for TAPS to PHMSA personnel, Alyeska shall develop and implement a program to monitor atmospheric corrosion on TAPS according to the requirements of $195. 583. Alyeska shall develop and implement the program and submit documentation of this activity within 180 days of receipt of the Final Order. APSC must maintain documentation of the safety improvement costs associated with fulfilling this Proposed Compliance Order and submit the total to Chris Hoidal, Director, Western Region, Pipeline and Hazardous Materials Safety Administration. Alyeska shall report costs in two general categories: 1) total cost associated with preparation of studies, analyses, plans and procedures, and 2) total cost associated with replacements, additions and other changes to pipeline infrastructure#