Exxonmobil Pipeline Co. v. U.S. Dep't of Transp.

Decision Date14 August 2017
Docket NumberNo. 16-60448,16-60448
Citation867 F.3d 564
Parties EXXONMOBIL PIPELINE COMPANY, Petitioner, v. UNITED STATES DEPARTMENT OF TRANSPORTATION; Pipeline and Hazardous Materials Safety Administration ; Office of Pipeline Safety, Respondents.
CourtU.S. Court of Appeals — Fifth Circuit

867 F.3d 564

EXXONMOBIL PIPELINE COMPANY, Petitioner,
v.
UNITED STATES DEPARTMENT OF TRANSPORTATION; Pipeline and Hazardous Materials Safety Administration ; Office of Pipeline Safety, Respondents.

No. 16-60448

United States Court of Appeals, Fifth Circuit.

Filed August 14, 2017


Reagan William Simpson, Esq., Yetter Coleman, L.L.P., Houston, TX, Richard Bernard Farrer, Attorney, Houston, TX, Colin G. Harris, Faegre Baker Daniels, L.L.P., Boulder, CO, Robert Elling Hogfoss, Esq., Atlanta, GA, for Petitioner.

Catherine H. Dorsey, Matthew Miles Collette, U.S. Department of Justice, Civil Division, Appellate Section, Paul Maitland Geier, Esq., Assistant General Counsel, U.S. Department of Transportation, Washington, DC, for Respondents.

Christopher Jay Walker, Ohio State University, College of Law, Columbus, OH, Amicus Curiae for CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA.

Before ELROD, SOUTHWICK, and GRAVES, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

ExxonMobil Pipeline Company petitions for review of a Pipeline and Hazardous Materials Safety Administration order following the release of several thousand barrels of crude oil from a pipeline it owned and operated. ExxonMobil specifically challenges Items 1–4, 7, and 8 of the agency's final order. We vacate Items 1–4 and 7 and affirm the agency with regard to Item 8 but remand with an instruction to reevaluate the basis for the penalty associated with this violation.

I. Background

The 859-mile long Pegasus Pipeline transports crude oil from Patoka, Illinois to Nederland, Texas. In March 2013, the Pegasus Pipeline ruptured, spilling several thousand barrels of oil near Mayflower,

867 F.3d 568

Arkansas. The pipeline is owned and operated by ExxonMobil Pipeline Company. In the wake of the oil spill, the Pipeline and Hazardous Materials Safety Administration (the "agency"), an operating administration of the United States Department of Transportation, conducted an investigation. The agency ultimately issued a final order, concluding that ExxonMobil violated several pipeline safety regulations. The agency assessed a $2.6 million civil penalty and ordered ExxonMobil to take certain actions to ensure compliance with those regulations.

A. Regulatory Framework

The Pipeline Safety Act, 49 U.S.C. § 60101 et seq ., gives the Secretary of Transportation regulatory and enforcement authority to take actions to protect the public against risks to life and property posed by pipeline transportation and pipeline facilities. The statute provides that the Secretary of Transportation "shall prescribe minimum safety standards for pipeline transportation and for pipeline facilities." 49 U.S.C. § 60102(a)(2). Pursuant to this authority, the agency has promulgated regulations establishing minimum safety standards. See 49 C.F.R. pts. 190–199.

The Pipeline Safety Act and the agency's integrity management regulations require each pipeline operator to create what is known as an integrity management program ("IMP") for all pipelines that could affect a high consequence area. High consequence areas include populated areas, areas that are unusually sensitive to environmental damage, or commercially navigable waterways. 49 C.F.R. § 195.452. A pipeline operator's IMP is to be specific to its own pipeline systems. The purpose of developing an IMP is to assist the operator in "address[ing] the risks on each segment" of its pipelines. Id. § 195.452(b)(1).

An IMP must include a written plan to conduct periodic integrity assessments of each of the operator's pipelines and to address any problematic conditions discovered by those assessments. Id. §§ 195.452(b)(3), (f)(2)–(5). The pipeline integrity regulations require operators to "establish an integrity assessment schedule that prioritizes pipeline segments for assessment." Id. § 195.452(e)(1). This integrity assessment schedule is informed by the pipeline operator's threat identification and risk assessment process. See id. §§ 195.452(e), (j)(5). As part of this process, operators are tasked with evaluating numerous risk factors for each pipeline segment, including, inter alia , the results of the previous integrity assessment; pipe material, manufacturing, and seam type; and leak history. Id. § 195.452(e). The regulations state that the pipeline operator "must consider" these factors in establishing an assessment schedule. Id. § 195.452(e)(1). Based on the results of an operator's risk assessment analysis, the operator must prioritize its pipeline segments for reassessment on five-year intervals. Id. § 195.452(j)(3).

The pipeline integrity regulations also set forth the available methods by which the operator may conduct the periodic integrity assessments. The regulations list three assessment methods available to operators: (1) in-line inspections; (2) hydrostatic pressure testing;1 and (3) external corrosion direct assessment. Id. § 195.452(j)(5). An additional requirement may apply to pipelines constructed of a certain type of pipe known as pre-1970 low-frequency electric resistance welded steel ("LF-ERW") pipe because this type

867 F.3d 569

of pipe is known to have a higher risk of seam failure than other types of pipe due to manufacturing defects. According to the regulations, if—and only if—the LF-ERW pipeline segment is shown to be "susceptible to longitudinal seam failure," the methods an operator selects to assess that segment "must be capable of assessing seam integrity and of detecting corrosion and deformation anomalies." Id.

The pipeline integrity regulations are silent as to how operators must determine whether LF-ERW pipe is susceptible to longitudinal seam failure. However, in 2004, the agency commissioned and published a third-party report, referred to here as the Baker Report, which extensively discusses pipeline metallurgy. Section 4 of the Baker Report contains a methodology for determining seam-failure susceptibility. This methodology, illustrated by a decision tree, considers, inter alia , pipe and seam characteristics, in-service and hydrostatic test failures, the cause of those failures, and operating stress levels to determine whether a given segment of LF-ERW pipe is susceptible to seam failure. As outlined in the Baker Report decision tree and as testified to by Dr. John F. Kiefner, one of the authors of the Baker Report, "seam related in-service failures and/or hydrostatic test breaks or leaks by themselves do not indicate that a pipeline is susceptible to seam failure." Rather, according to the decision tree and the Baker Report's co-author, whenever a seam-related in-service failure or hydrostatic test failure occurs, these failures should be analyzed for two primary causes that would indicate susceptibility to seam failure: pressure-cycle induced fatigue and selective seam corrosion.

In the event that a pipeline operator fails to comply with the federal Pipeline Safety Act or the integrity management regulations, the agency may issue compliance orders and assess civil administrative penalties after notice and a hearing. 49 U.S.C. §§ 60118(b), 60122.

B. ExxonMobil's Application of the Regulations

Under ExxonMobil's IMP plan, its process for analyzing seam failure susceptibility of LF-ERW pipe is based on the methodology outlined in the Baker Report decision tree. ExxonMobil retained the services of Dr. Kiefner to assist it in applying the pipeline integrity regulations and the Baker Report's guidance to its IMP plan. ExxonMobil has conducted a series of periodic integrity assessments on the Pegasus Pipeline, each time applying the framework provided by the Baker Report decision tree. Following each assessment, ExxonMobil concluded that the Pegasus Pipeline segment at issue in this case was not susceptible to longitudinal seam failure and therefore did not warrant prioritization over other pipeline segments for reassessment.

ExxonMobil first evaluated the Pegasus Pipeline's susceptibility to longitudinal seam failure in late 2004 through early 2005. Its evaluation took into account the pipeline's manufacturing history, pipe materials, operating and maintenance history, leak history, as well as the results of prior pressure tests and integrity assessments. Hydrostatic tests performed in 1969 and 1991 revealed several seam failures and a minor in-service seam leak occurred in 1984.2 However, despite these seam failures, ExxonMobil determined that the pipeline was not susceptible to seam failure

867 F.3d 570

because the past failures were not caused by either pressure-cycling induced fatigue or selective seam corrosion—the two factors enumerated in the Baker Report decision tree.

A year after the initial evaluation of the pipeline, ExxonMobil conducted a hydrostatic test for the Pegasus Pipeline. The test resulted in eleven seam-related failures, and ExxonMobil replaced the failed joints and hired a third-party expert in metallurgy to conduct an analysis on why the joints failed. Because the analysis did not reveal evidence of either pressure-cycling induced fatigue or selective seam corrosion, ExxonMobil once again concluded that the LF-ERW pipe segments were not susceptible to longitudinal seam...

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