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Ahead of court date, Exxon fighting spill fine, mandates

by Debra Hale-Shelton | September 5, 2016 at 3:08 a.m. | Updated September 5, 2016 at 3:08 a.m.

As Exxon Mobil and a federal regulatory agency prepare for oral arguments before a federal appeals court this fall, the oil giant is challenging the agency's authority to order certain safety measures and to levy much of the $2.6 million fine the company paid earlier this year.

Oral arguments in the case resulting from the Pegasus pipeline's March 2013 rupture in Mayflower are tentatively scheduled in the 5th U.S. Circuit Court of Appeals in New Orleans the week of Oct. 31. The court will set a specific date later.

Late last week, Exxon Mobil Pipeline Co., a subsidiary of Exxon Mobil Corp., filed two documents totaling 159 pages in an effort to persuade the court to overturn the fine and a compliance order levied by the federal Pipeline and Hazardous Materials Safety Administration, often called PHMSA.

The safety administration, a division of the U.S. Department of Transportation, is due to respond Sept. 16.

[DOCUMENT: Read more about the case.]

[DOCUMENT: Click here to read Exxon's response.]

Exxon Mobil is especially concerned about a compliance-order requirement directing the company to revise its seam-failure susceptibility process for all pre-1970 electric-resistance-welded pipe in all of the pipelines it operates. Such pipe is no longer made, and industry experts have known for decades that it is prone to manufacturing defects, or hook cracks.

Exxon Mobil has said it operates more than 1,000 miles of pipeline that is similar in condition to the Pegasus, built in 1947-48, and that is subject to the federal agency's safety regulations. In its newly filed documents, the company said the same kind of pipe is used in 25 percent of the nation's oil pipelines.

Such cracks caused the Pegasus to break open in Mayflower's Northwoods subdivision on a Good Friday afternoon and send tens of thousands of gallons of thick crude into the neighborhood, drainage ditches and a cove of Lake Conway.

"[Exxon Mobil] complied with the [safety administration's integrity-management program] regulations. In fact, it did more than it was required to do," the company argued.

But Exxon Mobil said the safety administration has reinterpreted its own regulations since the pipeline accident and "now claims that [a pipeline] operator must take specific actions in order to comply" with the agency's integrity-management program. "Yet the regulations do not state what those actions are," Exxon Mobil said.

"PHMSA issued a Compliance Order in this case, requiring that [the company] assess seams at least every five years, regardless of risk, on all [low-frequency, electric-resistance-welded pipe] in the Company's system, not just the pipeline involved in this incident," the company added.

"The regulations require no such actions, and the Agency has not asked any other operator in the industry to take such steps," Exxon Mobil said. "Further, the Pipeline Safety Act and PHMSA's own rules limit the scope of Compliance Orders to violations found, and the entire Compliance Order far exceeds that limit."

Exxon Mobil argued that the federal case against it is largely based on a 2005-06 water-pressure test the company had done on the Pegasus. That test revealed 11 seam failures in the pipeline.

"PHMSA -- and its counsel -- would have this Court believe that [Exxon Mobil] simply ignored that test data," the company said. "This is incorrect."

"PHMSA found violations in this case only after a release occurred," Exxon Mobil wrote. "Over the preceding decade, the Agency failed to raise any objection about [the company's] engineering analyses that the Pegasus Pipeline was not susceptible to seam failure. The Agency also knew a ... seam/crack tool run just months before the incident did not identify the defect that caused the Mayflower release, even though the tool run results were reviewed after the incident when they were under significant scrutiny.

"Finally, the Agency was well aware that a study commissioned by PHMSA ... had recently concluded that at present there is no [in-line inspection] tool available that can reliably and perfectly detect all [low-frequency, electric-resistance-welded] seam failure anomalies."

Exxon Mobil said Congress has given the safety administration the authority to take enforcement action against a company based on a violation of a federal statute or rule. But Congress has not given the agency the power to take such action based solely on an incident such as an oil spill.

Even if the court finds the federal agency acted within its authority, the company said the civil penalty is too high.

"Any 'related series of violations' cannot exceed $1 million," Exxon Mobil argued.

The company paid the fine, which totaled $2,630,400, earlier this year.

In July, Exxon Mobil Corp. reported its weakest quarterly profit in nearly 17 years but still earned $1.7 billion in the second quarter. That was down 59 percent from a year earlier.

Residents evacuated 22 homes on a long-term basis, and many never moved back. Exxon Mobil has since bought more than half of the subdivision's 62 homes, demolished two because of oil beneath them, and sold more than 20 of the homes it bought.

Government attorneys have said the accident caused more than $57 million in property damage.

The roughly 650-mile section of the Pegasus, running from Patoka, Ill., to Corsicana, Texas, has been shut down since the accident. Only the remaining 211-mile section in Texas has resumed service.

Metro on 09/05/2016

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