Pipeline Safety Bill Enacted: Reformers Gain Ground

PROPERTY OWNERS UNITE TO STOP DUKE ENERGY'S PIPELINE
REGULATORS FAIL TO SANCTION OR STOP LEAKING ALASKA PIPELINE
OLYMPIC PIPELINE COMPANY WANTS CASE DISMISSED
PARENTS WIN $75 MILLION SETTLEMENT
2001 PIPELINE COMPANY PROFITS: ANOTHER BREATHTAKING YEAR!
SMALLEY FOUNDATION SAFETY INITIATIVES
INDUSTRY AND REGULATORS LAX
EL PASO PIPELINE DISASTER UPDATE

NEWS STORY ARCHIVES

Property Owners Unite to Stop Duke Energy's Pipeline

Duke Energy's $289 million Patriot Extension would transmit natural gas from an existing pipeline in Tennessee across the backbone of the Blue Ridge down to Martinsville, VA. Over its 93 miles, the Extension would cut across the Blue Ridge Parkway, Jefferson National Forest and New River Trail State Park in a 50-foot-wide swath cleared of trees, using a total of more than 1,320 acres. It would burrow beneath a state-owned campground and the New River, as well as nearly 400 other bodies of water. The pipeline would be laid within 25 feet of 202 houses and within 50 feet of 80 others. The average depth of the pipe would be about 3 feet, but it would go much deeper in some sections. People who, live in the pipeline's path face the prospect of either selling right-of-way to Duke or having their land taken through eminent domain.

Supporters say that it will bring new industry and sorely needed jobs. Opponents say that the pipeline would make money for Duke at the expense of local landowners, the environment and public safety and would transmit natural gas from Tennessee to markets in North Carolina, with little benefit to those along the way. The debate has in some cases pitted neighbor against neighbor - commissioners in Wythe and Carroll counties support the project; boards in Henry and Patrick are opposed. Washington heavyweights such as Sen. Jesse Helms, Sen. John Edwards and Rep. Richard Burr, the vice-chairman of the House Energy and Commerce Committee, have written federal regulators urging Patriot's speedy approval. North Carolina Gov. Mike Easley also supports the project. Duke, like many energy companies, is a generous political contributor. Among the industry's powerful friends is President Bush, a former oil man himself. MORE: http://www.journalnow.com/wsj/specialreports/pipeline/index.html

Pipeline Safety Bill Enacted: Reformers Gain Ground

President George Bush and Congress ended a nearly three-year standoff between reformers and the pipeline industry about reauthorizing the Pipeline Safety Act on December 17, when he signed the reauthorization bill into law, without comment or other fanfare. "For the first time in a decade, Congress has put people and environmental protections before the profit of pipeline companies," said Rep. John Dingell (D-Mich.), who with Rep. James Oberstar (D-Minn.), were primary authors of the bill, H.R. 3609, titled "The Pipeline Infrastructure Protection to Enhance Security and Safety Act." The Senate last year approved S. 235 by Sen. John McCain (R-Ariz.), which was less stringent than what reformers wanted, and a similar bill passed in April 2002 as part of the Senate energy bill.

While several Congressional leaders like Sens. Patty Murray (D-Wash.) and Pete Domenici (R-N.M.) praised the new law, Rep. Lloyd Doggett (D-Texas) was not pleased. "Adopted in the middle of the night without debate, this is largely the same modest bill previously approved by the House," Doggett told the Austin American-Statesman. Businessman Frank King, father of one of the victims of the 1999 Olympic Pipeline explosion in Bellingham, Wash., criticized the bill more strongly. "There is nothing about the legislation that would have prevented the accident in Bellingham from happening," he said. "Why would you pass a bill if it wouldnít prevent an accident? However, other pipeline reformers stated that it was an important step forward.

These amendments to the Pipeline Safety Act enhance federal enforcement powers and increase penalties, expand research programs in pipeline safety, protect pipeline company "whistleblowers," strengthen integrity management requirements and inspections, provide technical assistance grants to communities and non-profit organizations, expand the state regulatory role, increase funding authorization levels, and require a new study of land use practices and zoning ordinances that can limit population encroachment on pipeline rights of way.

Regulators Fail to Sanction or Stop Leaking Alaska Pipelines

Some 1,000 miles of oil and gas pipelines in the Alaska's Cook Inlet Watershed, an area the size of Virginia, had an average of one accident per month from 1997 to 2001. They spilled 261,620 gallons of crude oil, refined product and produced water (a toxic drilling by-product) in 66 accidents in those five years. Yet the federal Office of Pipeline Safety (OPS) proposed and collected only one $5,000 penalty in that period, according to a report issued on September 19, 2002 by the environmental group Cook Inlet Keeper. The statistics did not include pipeline spills in the Anchorage area, which were considerable.

Although the Cook Inlet Watershed is an important oil production center, the pipelines cross national wildlife refuge, national forest lands, state parks and recreation areas. Many are "gathering lines," which carry crude oil short distances from producing wells to storage tanks or another pipeline. The potential for environmental damage is high, with serious consequences for water and wildlife, as well as public safety in populated areas. The top eight spills with known volumes in the period were on pipelines owned by Unocal, which rated a "poor performance" comment in the report.

The report's recommendations include: stricter regulation of gathering lines, many of them exempt from federal pipeline regulations; designation by OPS of the entire watershed as a "high consequence area" governed by more stringent standards; a public "right-to-know" program with more detailed information about safety conditions; and a systematic industry program of more frequent inspections, replacement of high-risk pipelines, and better leak detection and shutdown technologies. Author of the report was the organization's senior engineer Lois Epstein, formerly with Environmental Action in Washington DC. For a complete text of the report, click on http://www.inletkeeper.org/pipelines.htm

Olympic Pipeline Pleads Ignorance of the Law; Federal Regs are "Insufficiently Precise."

Facing federal criminal prosecution for the deaths of two children and a young man in the Bellingham WA explosion of its pipeline on June 10, 1999, Olympic Pipeline earlier this year moved to dismiss charges because of vagueness, amounting to lack of due process. The motion stated, "The language of [Office of Pipeline Safety] regulations . . . does not give fair warning of what conduct is required." It called the prosecution "fundamentally unfair" because "it allows the government to tell the regulated class that it may fulfill its regulatory obligations in any manner consistent with the regulation's aims, yet it permits the government to punish them if it later deems they have not met the unarticulated regulatory requirements. . . . even industry experts cannot say with certainty what is required by these regulations. . . . nor, to the defendant's knowledge, has OPS otherwise provided the industry with interpretive guidance for these regulations."

Olympic Pipeline's brazen excuse — it didn't know that letting fatal accidents happen is a criminal act — is ironic on two counts. First, pipeline safety reformers have observed for years that OPS has failed to promulgate adequate regulatory standards. Second, it was the pipeline industry's deliberate intent, cynical lobbying and campaign contributions to keep regulations vague and ineffective. Most important, it contradicts the industry's repeated public statements that federal pipeline safety regulations should remain "flexible." For example, the Association of Oil Pipelines on March 15, 2002, criticized calls for "overly prescriptive pipeline safety regulations" and advocated "flexibility to implement federally imposed safety measures." For more statements by the AOPL, click on http://www.aopl.org/news/content.html. A related story follows.

Parents Win $75 Million Settlement in Bellingham WA Pipeline Tragedy; Olympic Tries to Pass Costs on to Customers

The parents of Wade King and Stephen Tsiorvas, killed in Olympic Pipeline's Bellingham WA 1999 explosion as they played in their neighborhood, won $75 million in a settlement on April 10 that sent a strong message to the industry about their unsafe practices. The agreement, reached days before going trial, included Olympic's largest shareholder, Equilon Enterprises (now Shell Oil Products US) and other defendants. The parents of the third victim, 18 year old Liam Wood, settled confidentially with Olympic. The parents of King and Tsiorvas announced that they would use the money for pipeline safety reform. "We're not going to go away," father Frank King said. Their attorney, David Beninger, stated, "This is a case about safety, public safety. This is a case that affects us all. For coverage in the Bellingham Herald, click on http://news.bellinghamherald.com/explosion/explosion_front.html.

More recently, Olympic was fined while trying to pass on some costs of the 1999 tragedy to oil refiners shipping fuel on the pipeline by proposing a 62 percent increase in fees they charge. On July 24, Federal regulators proposed a $30,000 fine for Olympic's failing to provide documents justifying the increase. The refiners said they should not have to pay costs of the rupture and poor financial decisions. Olympic countered that the cost of increased safety requirements should be included in its rate base. Left unsaid was that Olympic had earned big profits in the years leading up to the tragedy. In the three years 1996-98, it earned a total of $19.9 million on revenues of $118.4 million — a 16.8 return — according to Oil & Gas Journal's annual reports, "Pipeline Economics," for those years.

2001 Pipeline Company Profits: Another Breathtaking Year!

"Breathtaking" is the word that comes to mind in describing the pipeline industry's profits in 2001 – and even the last two decades. In that year, all interstate oil pipeline companies reported net income, after taxes, totaling $3,006,898,000 — the first time ever profits were over $3 billion — on operating revenues of $7,729,972,000. That's a 38.9 percent rate of return on revenues. The Fortune 500 rate of return on sales was 3.3 percent that same year. The figures are from the September 16, 2002 issue of Oil & Gas Journal, which every year compiles Form 6 reports by interstate pipeline companies to the Federal Energy Regulatory Commission. In case you think the 2001 results are unusual, the 1999 and 2000 returns were 40.6 and 36.2 percent, respectively — and an average 32.2 return over the past 21 years. Interstate natural gas pipeline companies had a 15.6 percent return in 2000. See the Oil & Gas Journal's web site at www.ogj.com.

Some company 2001 profit highlights include:

Troubled Colonial Pipeline had not-so-troubled earnings of $126,865,000 on revenues of $653,398,00, a 19.4 percent rate return;

Koch Pipelines, responsible for the Lively TX explosion that killed Dianne Dawn Smalley and her friend, had earnings of $52,866,000 on revenues of $87,568,000, a 60.4 percent return; and

El Paso Natural Gas, whose explosion near Carlsbad NM killed a family of 12 in 2000, had earnings of $88,779,000 on revenues of $527,444,000, a 16.8 percent return, higher than the natural gas pipeline industry average.

Boring as the pipeline business may be to some investors, it is undeniably profitable and has rewarded its owners handsomely over the years. Most recently, the legendary investor Warren Buffett bought from Entergy the Northern Natural Gas pipeline system that serves much of the upper Midwest. With minimal federal regulations, pipeline companies are free to starve safety and maintenance programs to maximize earnings, a strategy documented repeatedly. (We'll have other articles on this subject in the near future.) As several observers have noted, the U.S. pipeline today resembles the U.S. railroad industry in the 1950s, when it neglected investments in service and safety, instead maximizing current earnings for its owners.

Born of Tragedy, Smalley Foundation Launches Safety Initiatives

Teenage friends Danielle Smalley and Jason Stone died tragically when a Koch Industries Inc. butane pipeline in Kaufman County, TX exploded in flames and burned them to death in August 1996. Her father, Danny Smalley, sued Koch for negligent homicide and won a jury verdict of $296 million in 1969. Testimony showed that Koch executives, to keep profits up, deliberately ignored safety problems, one of which caused the accident. The case was later settled confidentially for an undisclosed sum.

But the story doesn't end there. Much of the proceeds are funding the new "Danielle Dawn Smalley Foundation," founded in Crandall, TX in 2001. Its purpose is to provide financial aid to victims (and their families) of pipeline accidents and to describe the causes of those accidents. It will also help educate people living or working near pipelines of potential dangers, work with regulatory and emergency response organizations, and publicize the location and contents of high-pressure pipelines. Its toll-free phone number is 866-401-2800 and web site is http://64.226.100.73/default.asp.

Cox Newspapers' Series Finds Pipeline Safety Industry and Regulators Lax

The urgent problem of pipeline safety received its most comprehensive media treatment to date when the Austin American-Statesman ran a four-part series on July 22-29, 2001, reported by Cox Newspaper's Jeff Nesmith, a Pulitzer-prize winner, Ralph Haurwitz and others. An accompanying editorial cited "the nation's failure to police pipelines for safety defects. The failure is exacting a huge price in deaths and long-term environmental devastation."

The series consists of nearly 20 articles, editorials and columns, as well as numerous letters to the editor — documenting several recent pipeline disasters, lax federal and state regulators, and careless industry practices. One accident described how a quick-thinking Abilene TX homeowner saved herself by jumping into her backyard pool seconds before a pipeline rupture in 2000 ignited into a huge fireball that consumed her house and killed a police officer. The series is available in printed form or online at http://www.austin360.com/aas/specialreports/pipelines/15pipeweb.html.

Update on El Paso Pipeline disaster in NM

Enforcement proceedings are moving slowly two years after an El Paso Natural Gas pipeline exploded near Carlsbad NM in August 2000, killing 12 members of an extended family that were camped nearby. The cited cause was corrosion-caused failure of the high-pressure transmission pipeline (more than half the wall thickness had rusted away), which had not been inspected since its construction a half-century ago. In fact, the Office of Pipeline Safety (OPS) had inspected the pipeline less than a month before the explosion and found it in compliance with OPS standards. The accident was described in detail in the Austin American-Statesman series in July 2001 (http://www.austin360.com/aas/specialreports/pipelines/15pipeweb.html) and by ABC News (http://abcnews.go.com/sections/us/DailyNews/blast000820.html).

Since then, the OPS in June 2001 announced it was seeking a $2.52 million civil penalty for El Paso's safety violations, including its "failure to minimize the possibility of a failure recurrence following a similar incident in 1996." The National Transportation Safety Board (NTSB) is continuing its investigation, most recently opening a public docket and releasing a series of factual reports in June 2002. The New Mexico's Public Regulation Commission held public hearings in August 2002 on more stringent pipeline safety regulations, in proposed rules in case 02-103-PL (www.nmprc.state.nm.us).