Opening Remarks

• The Honorable John McCain
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  Opening Remarks

  The Honorable John McCain

  Good Morning. I am pleased to call to order this field hearing of the Senate Committee on Commerce, Science, and Transportation. • Today, we meet to consider issues related to pipeline safety, specifically, the Kinder Morgan pipeline rupture and its impact on public safety, fuel supply, and gasoline prices. • During the past several years, I have chaired a number of hearings on pipeline safety. Last December, after three long years of debate, Congress passed legislation to reauthorize and strengthen federal pipeline safety programs. While pipelines have historically been the safest way to transport fuel, serious and often preventable pipeline accidents with devastating consequences make clear that more still needs to be done to make them safer. The law enacted last year imposed many new mandates intended to improve pipeline safety, and required every pipeline operator to develop comprehensive integrity management plans, imposed mandatory inspections requirements, required operators to help educate the public about pipeline safety, and established whistle blower protections for pipeline employees. Enacting laws, however, is not in and of itself a solution to pipeline safety problems. Strong, swift, and consistent enforcement is also essential. • It is unfortunate but true that it often takes a crisis to focus public interest on an issue. While the Kinder Morgan rupture thankfully did not result in any deaths or personal injuries, its economic consequences, compounded by many factors including an understandable public run on gas stations and alleged price gouging, were dramatic. The rupture and subsequent shutdown of the pipeline for 16 days affected millions of Arizonan residents and businesses, some of whom, if they could find a station with fuel and had hours to spare waiting in line, paid over $4.00 for a gallon of gasoline. • The Kinder Morgan rupture has been a wake-up call for many–including Kinder Morgan. The company’s pipelines that run through Arizona are nearly 50 years old, and its line from El Paso supplies about one-third of Phoenix’s gasoline. The rupture has raised serious questions about the condition of Kinder Morgan’s pipelines, our state’s dependence on that company to transport fuel, the adequacy of safety regulations and their enforcement by federal and state agencies, and the extent to which these agencies do or do not work together. • Why, for example, did it take the Office of Pipeline Safety (OPS) nearly a year to issue a Compliance Action Order after receiving information from Kinder Morgan about serious external corrosion on its 6-inch jet fuel pipeline? Why, despite frequent inspections of Kinder Morgan’s pipelines by the Arizona Corporation Commission (ACC) and the identification of various “items of noncompliance”, does there seem to have been little or no follow-up and enforcement by OPS? Why is it that OPS’s orders following the July 30 rupture imposed less stringent requirements on Kinder Morgan than the company ultimately took itself? And, why did it take a rupture and loss of 10,000 gallons of fuel for Kinder Morgan to inspect and replace the pipeline instead of having taken action to identify the risks associated with its aging pipeline before an accident occurred? • The questions that have arisen from this incident suggest a delayed, lax, or worse – nonexistent – oversight and enforcement by OPS, and a company that reacts to safety problems after they occur instead of taking action to prevent them. I hope that at today’s hearing we will get answers to these questions that either correct this impression of real problems within both the private and public sectors, or answers that inform us about what more needs to be done to ensure that an accident of this sort and consequence does not happen again. • Much of our nation’s energy infrastructure was built years ago, in remote areas, away from our population centers. The fact that the Kinder Morgan rupture occurred in a housing development provides a good example of how the population centers have shifted, and highlights the problem of encroachment on pipeline rights-of-way. Clearly, we must ensure that local planning and zoning laws take into account public safety and the need for such rights-of-way. • I look forward to hearing from our witnesses, getting their accounts of what went wrong and who was responsible, and receiving their recommendations on what more can be done to further strengthen pipeline safety and enforcement.

• The Honorable Janet Napolitano
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  Opening Remarks

  The Honorable Janet Napolitano

  Members of the Committee, thank you for inviting me here today to testify about pipeline safety and reliability. I commend this Committee for its attention to this important issue and in particular would like to thank Senator McCain for his leadership, including his pivotal role in the recent passage of the Pipeline Safety Improvement Act of 2002. Arizona has learned a lot about this subject since July 30, 2003, when the Kinder Morgan pipeline from Tucson to Phoenix ruptured. That rupture, which splashed over 10,000 gallons of gasoline on five newly-constructed homes, exposed not only our state’s vulnerability arising from its reliance on just two pipelines to supply gasoline for 5 million people, but also some serious weaknesses in the federal government’s investigations and enforcement of pipeline safety. My testimony today will focus on this latter issue. In my investigations to date into the cause of the rupture and its effects on this state, I have been perhaps most disturbed by the recent discovery that state regulators, acting on behalf of the federal Office of Pipeline Safety, discovered and reported numerous instances of general corrosion problems on Kinder Morgan’s East Line, but OPS took no effective action to address them. As you may know, OPS contracts with certain state bodies, including the Arizona Corporation Commission, for inspections of the portions of interstate pipelines that run within the particular state. In the case of Kinder Morgan’s East Line, the Corporation Commission inspected it no fewer than six times between 1996 and 2003. In every one of those inspections, the Corporation Commission reported concerns about general corrosion along the line, including specific concerns about Kinder Morgan’s failure to take adequate preventative measures. In one October 2001 violation report, the inspector warned that “this pipeline has been in service for fifty years and has known coating problems.” The inspector went on to say that lack of maintenance could ultimately result in “pipeline failure, resulting in a loss of product, possibly injury, loss of life, and severe damage to property and the environment.” Unfortunately, although OPS contracts out its investigative authority, it gives the Corporation Commission virtually no enforcement authority. As a result, despite its findings and recommendations for fines and corrective action, the Corporation Commission was powerless to effectively correct the situation. The problem was exacerbated by the fact that OPS brought only two enforcement actions in response to the Corporation Commission’s reports and never sought a penalty of greater than $40,000 against a multi-million dollar carrier. This, coupled with the fact that Kinder Morgan had not inspected the portion of the line where the rupture occurred since 1996—despite the pipeline’s age, contributed to the pipeline’s ultimate failure. Kinder Morgan has asserted that the July 30 rupture was caused by “stress corrosion cracking” as opposed to the “general corrosion” reported each year by the Corporation Commission. Nevertheless, I can’t help but think that, at a minimum, more aggressive enforcement by OPS would have fostered a more vigilant pipeline safety assessment by Kinder Morgan that could have averted the July 30 rupture. We must have more effective pipeline safety enforcement. If states are to be given investigative authority over the portions of interstate lines that cross their jurisdiction, they must also be given both the authority and resources necessary to enforce their findings and recommendations. Here in Arizona, we are willing to bear the responsibility of enforcing pipeline safety, but we need the federal funding and authority to do so effectively. I urge this Committee to reform the federal pipeline safety laws in a manner that delegates both investigative and enforcement authority to states that are willing to undertake it, and fully funds their ability to do so effectively. And while we’re on the subject of reform, I offer another thought: Does it still make sense to house the Office of Pipeline Safety within the Department of Transportation? Today, critical energy infrastructure is a homeland security concern. Disruptions like the July 30 rupture can bring our economy to a standstill. But more importantly, given the volume of fuel that flows through these lines, such ruptures pose significant risks to the safety of our citizens and environment. At a minimum, state and federal homeland security officials must be much more knowledgeable about pipeline routes, security procedures and threats. Operators of these lines should know how to reach relevant homeland security personnel 24 hours a day and should be required to report all ruptures and known threats immediately. By way of example, on August 8, 2003, when Kinder Morgan decided to shut down the East Line completely, it notified only our state’s Corporation Commission and our Department of Weights and Measures. They did not notify my office or the Office of Homeland Security. I have since given Kinder Morgan numbers where they can reach my staff and the state’s Director of Homeland Security on a 24-hour basis. Ultimately, I believe Congress should strongly consider moving OPS to the federal Department of Homeland Security so that pipeline safety issues can be assessed at the outset from a public safety perspective. Finally, I’d like to address some actions that Arizona is taking on this issue. In the aftermath of the Kinder Morgan rupture, I have appointed a Task Force, led by former Tosco executive Robert Lavinia, to review the July 30 rupture, recommend measures to prevent such occurrences in the future, and address Arizona’s vulnerability to similar supply disruptions. I look forward to receiving the Lavinia Group’s report and would be pleased to make it available to this Committee upon its completion. Arizona was lucky no one was injured by the July 30 rupture. Nevertheless, the rupture justifiably alarmed a number of homeowners who live near the pipeline or send their kids to schools on the pipeline’s right of way. In several instances, these homeowners never knew their property abutted the pipeline. For this reason, I have also asked our Real Estate Commissioner to investigate whether developers of property near the pipeline have given adequate notice to purchasers of the location of the pipeline. Given the growth of communities throughout the country since the date many active pipelines were first installed, I would urge this Committee to undertake similar reviews of the requirements for, and enforcement of, notification requirements to owners and new buyers of property located near pipelines. Lastly, the Arizona Department of Environmental Quality has issued a notice of violation to Kinder Morgan arising out of the July 30 rupture, including the proposed assessment of the maximum civil environmental penalty allowed by Arizona law. The Department’s investigation of the July 30 rupture is continuing and will proceed until the Department is satisfied that Kinder Morgan is in full compliance with the state’s environmental laws. CONCLUSION Again, we have learned a lot about this subject since July 30. I have promised the people of Arizona that I would do all I can to help prevent a repeat of what happened here this summer. I am grateful that this Committee has taken up this issue and for the opportunity to share with you my ideas for what the federal government can do to improve pipeline safety. Thank you.

• The Honorable Raul Grijalva
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  Opening Remarks

  The Honorable Raul Grijalva

  Thank you for holding a hearing on the Kinder Morgan gasoline pipeline rupture that occurred in Tucson on July 30. Thank you for allowing me to speak at the hearing and I submit this written statement on the record. I request that the Senate Committee on Commerce, Science and Transportation hold a hearing in Tucson, where the pipeline rupture occurred, as soon as possible. While Phoenix residents were inconvenienced by long lines at gas stations, my constituents have been subjected to serious environmental, health and safety dangers as a result of the pipeline rupture, and now must endure reconstruction and/or realignment. I am extremely concerned with the lack of diligent oversight by federal agencies who are tasked with monitoring safety and security of gasoline pipelines and other energy infrastructure in this country. I admonish all responsible agencies with jurisdiction in this matter who should have been examining the line to ensure the safety of the citizens of the area, along with the security of the gasoline supply. Neither the public nor elected officials knew the extent of the safety risks associated with the pipeline. Our preliminary information indicates that the pipeline may have failed safety inspections from 1995 on, however, this information was not made public, nor made available to elected officials or emergency personnel. Thankfully, no one was injured during the rupture in July; however, many residents had their lives seriously disrupted. The consequences of this event are still rippling through our community, and will no doubt be an issue of grave concern for a long time to come. Now that the current immediate danger has passed, plans for reconstruction or realignment of the pipeline are beginning to formulate. Recently, the Tucson City Council was presented with two options for the pipeline: allowing Kinder Morgan to repair the line in its existing locale, or instead realign the pipeline to another route. The Tucson City Council voted to allow reconstruction of the pipeline in the existing right of way with slight modifications. While under some circumstances, this option may have seemed like a logical choice, the reconstruction along the existing right of way is far from a positive solution to the problem. The existing pipeline route passes close to parks, residences, hospitals and schools, endangering the safety of citizens. All told it runs through 60 residential subdivisions, affecting 782 individual residences, 8 parks, 4 schools, and 7 public buildings. In addition, the right of way passes through the area known as Tumamoc Hill. Tumamoc Hill is a highly valued and extremely important research area for the University of Arizona, who has conducted research on the hill for over a hundred years. Using the existing right of way will perpetuate a dangerous situation for area residents and visitors, and will cause new disturbance on Tumamoc Hill because the old pipeline will have to be abandoned and a new trench dug to accommodate a larger pipe. The alternative for alignment which was presented to the Tucson City Council is, unfortunately, not much of an improvement to the existing route. The realignment proposal would also put the gasoline pipeline in close proximity to schools, homes and public facilities. Kinder Morgan and the agencies involved have indicated that only these two options are available for location of the pipeline, but I do not believe adequate effort has been expended to determine a safe and environmentally responsible location for the pipeline. The community is now faced with a no-win situation because both options will have the adverse impacts on the community and on the natural resources of the area. Because neither of the two proposed routes is a tenable solution, the community must be given a broader range of options. Kinder Morgan and the agencies involved in this issue should look again, and look more closely this time, to determine the safest location for both human health and the environment. I strongly urge the agencies to initiate a broad public process that would take the community’s interests and concerns into account, and would closely examine the possible public health and environmental impacts of the pipeline’s reconstruction, wherever this occurs. A variety of alternatives should be proposed that would address the health, safety and environmental concerns associated with this project. Thank you for holding this hearing. I offer the support and assistance of myself and my staff who are available to work with the Senator’s office in order to address this complex issue.

Testimony

• The Honorable Bob Walkup
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  Testimony

  The Honorable Bob Walkup

  Thank you for the opportunity to testify on behalf of the City of Tucson, our over 500,000 city residents and the 900,000 residents of the Greater Tucson area. The rupture of the Kinder Morgan pipeline on July 30, 2003 exposed a number of shortcomings in Arizona’s fuel delivery systems, regulatory systems and disaster preparedness systems: · The rupture itself placed adjacent residents in physical danger. We were very, very lucky that the escaped fuel did not ignite and no one was hurt. A number of homes were doused with fuel and had to be demolished. I want to recognize the professionalism and dedication of the Tucson Fire Department, led by Chief Dan Newburn. They helped avert a major catastrophe. · Many residents in the vicinity of the pipeline were not aware of the pipeline’s existence. There was no consistent or adequate form of disclosure that informed residents and homeowners of their proximity to the pipeline. Now some of these residents are demanding that Kinder Morgan build a new pipeline around the developed city. · The inability of Tucson Fire Department officials to have access to federal or state inspection results prior to the pipeline rupture compromised public safety. · The sudden, dramatic increase in gasoline prices in Tucson was caused in part by the traffic at the Tucson terminal. Both Phoenix and Tucson delivery trucks had to wait long periods of time to receive their supply. Therefore, the supply problem in Phoenix caused a supply problem—and steep price increase—in Tucson. · The realization for Tucsonans and many Arizonans that the state is mostly served by one major pipeline was—and still is—a cause of great concern. We now see that accidental or intentional shutdown of this one pipeline can disable our state. With these situations in mind, the following courses of action should be pursued: · More disclosure of pipeline integrity test results between government agencies is needed. At the very least, local public safety agencies must be notified if federal or state regulators discover abnormalities in the condition of a pipeline. Disaster-readiness plans that account for a variety of potential situations must be developed in partnership with regulatory agencies at various levels and pipeline companies. · The relationship between the Arizona Corporation Commission and the U.S. Department of Transportation should be clarified. Both entities should have access to test results and maintenance schedules regardless of which agency is doing the actual testing of the pipelines. · The State Department of Real Estate should develop consistent and clear disclosure requirements on real estate transactions in proximity to the line. · Local governments must do more to impose land use restrictions that provide reasonable security to area homes and businesses. In Tucson’s case, the 8-inch pipeline was placed in 1955 in an area that was mostly undeveloped at the time. Since then, previous mayors and city councils allowed development in the area. The Tucson City Council has now voted to look at land-use restrictions for future development near pipelines. And the entire City Council has expressed interest in the possibility of placing new pipelines outside the city limits, even though we realize that this wasn’t a reasonable, safe or timely option in light of the crisis facing the state. · Finally, and perhaps most importantly, the construction and operation of more pipelines across the state is critical. Arizona cannot be solely dependent upon a single line. This is an economic reality, a public safety reality and even a national security reality. These new pipelines should be constructed outside populated urban areas and should be designed with sufficient security measures. Successful construction of new lines would provide more total fuel for the state and less dependence on any one pipeline. In addition, we would hope and expect that new pipelines outside developed areas could make existing lines through city neighborhoods obsolete. In closing, I want to thank Senator McCain and the members of the Committee again for this hearing. I want to commend the work of Governor Napolitano and her staff in addressing the crisis as soon as it happened. Her quick and appropriate response to the crisis made a very difficult situation better for all Arizonans. And Governor Napolitano’s Southern Arizona staff, led by Jan Lesher, was always ready with information and assistance throughout the most difficult periods. I want to thank Tucson area state representatives Phil Lopes and Ted Downing, Councilmember Steve Leal and all the members of the Tucson City Council. Together, we have taken an active role in discovering and examining the relevant issues. I also want to thank the Arizona Corporation Commission for their participation at recent Tucson City Council meetings. Their staff did a good job explaining the complexities of these issues to our governing body. And I would like to thank Kinder Morgan for working closely with Tucson city staff and Fire Department officials. Now there will be more communication between us, in addition to an improved pipeline. This has been a difficult situation for all involved. However, everyone I have worked with on this issue has been forthright and determined to fix what needs fixing. I would be happy to answer questions from the committee at this time. Respectfully Submitted, Mayor Bob Walkup City of Tucson

• The Honorable Mark Spitzer
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  Testimony

  The Honorable Mark Spitzer

  When I teach government classes I refer to the “healthy tension” created by our Founding Fathers between the branches of government as well as between the States and the National Government. When this tension becomes unhealthy, government becomes dysfunctional. As a four-term state legislator and now as a state regulator, I have occasionally chafed under unfunded federal mandates. However, as an elected official asserting state prerogatives my efforts must be productive rather than destructive. Mindless rants against Washington, whether from the left or the right, and feigned ignorance of Article VI of the Constitution serve no purpose. One of our tasks today is to contribute in a meaningful way. The people whose homes were doused with gasoline do not care to hear us shout accusations. The mother who waited in a gas line does not want to hear us blaming each other like children. The public expects solutions from us. I will offer my suggestions to that end, in the hopes that they add to the discussion and perhaps help us all to find a resolution. The transportation of hazardous liquids through interstate pipelines is unquestionably interstate commerce, and the United States has asserted jurisdiction within United States Code Title 49. That does not mean that the exercise of federal authority over interstate gasoline pipeline has always been wise—it has not. I offer herein suggestions for the Federal Office of Pipeline Safety to work more openly and collaboratively with our Commission’s pipeline safety inspectors and other state agencies. But we must recognize federal statutory authority and the chaos that would ensue if the states enacted fifty different interstate pipeline codes. For example, were California to mandate annual hydrostatic testing of all interstate pipelines, Arizona’s perilous supply of vital commodities would be shut down. Such caprice is neither sound nor necessary for the protection of public safety. My proposals reflect the healthy tension between the Federal OPS and the State of Arizona to accommodate all interests, the most important being public safety and the free flow of goods in commerce. INFTRASTRUCTURE CHALLENGES AND SYSTEMMIC IMPROVEMENT Arizona has virtually no crude oil production and refines no gasoline. Similarly, Arizona has no known deposits of natural gas and, as of this date, no natural gas storage facilities. Arizona is dependent on two pipeline systems for natural gas and but one pipeline system for gasoline. These circumstances are unacceptable and all parties, state and federal, public and private, and the people of Arizona must collectively resolve this problem. The Corporation Commission convened a series of workshops and public meetings to deal with our natural gas infrastructure, or more precisely our lack thereof. For several years now the Commission has spent time and resources seeking additional natural gas pipeline capacity. Arizona’s Congressional delegation has been extremely helpful in dealing with the FERC, including the pending litigated case over Arizona’s allocation from the El Paso pipeline system. However, the Commission has zero regulatory authority with regard to gasoline prices and supply. Much more must be done to ensure redundancy of energy capacity and proper repair and maintenance of existing pipelines. The Federal government through its agencies must recognize the need to enhance Arizona’s energy infrastructure. Arizona’s utter dependence on gasoline and natural gas pipelines, and the imperative of public safety, require that the Commission’s pipeline safety inspectors be allowed to participate more openly in the oversight and inspection of pipelines. The Integrity Management Program (“IMP”) is an example where more could be done. Under IMP, states are permitted to observe the Federal OPS and the pipeline operator. Observation is not participation – as Teddy Roosevelt once famously pointed out. Each state has a cadre of trained experts at the ready, prepared to assist and support the federal OPS in its task of ensuring interstate pipeline safety – The Federal OPS should integrate the states into the IMP. States submit detailed ‘Work Plans’ to the Federal OPS every year, in which they propose a plan of action for the review and inspection of interstate pipelines in the state. More often than not, what is received back from the Federal OPS is an entirely different plan. This is not consultation - it is not cooperative to ask for a plan and respond with an entirely different proposal. Each state has a unique understanding of its geography, climate, soil and development – The Federal OPS should base its work plans on the proposals submitted by the states, not adopting them blindly, but recognizing the merits therein and incorporating them into the federal vision. Arizona’s pipeline inspectors have acknowledged experience and expertise. Attached as Exhibit A is a summary of the intrastate and interstate pipeline inspections performed by Commission employees. Between December 27, 1999 and August 31, 2000 the Federal OPS “revoked” the Arizona Corporation Commission’s “agent status” and undermined our inspection of interstate pipelines. I thank the Senator for his efforts reinstating our Commission’s status. The Federal OPS should enhance rather than undermine the agent status of state pipeline inspectors. INFORMATION SHARING The keeping of confidences is appropriate for doctors, lawyers and priests, but there should be no secrets with pipeline safety. We cannot ensure the safety of the public and protect the integrity of our nation’s pipelines if state and local officials are not provided timely information. Critical facts are too voluminous, risks too great and potential impacts of terror too substantial not to insist on cooperation and a sharing of information. The Federal OPS and pipeline operators must share operational data with State officials, and immediately notify those officials of any potential danger to public health and safety from pipeline operations. In two recent cases, Southwest Gas Corporation and the City of Mesa requested opinions from the US Department of Transportation on intrastate operations occurring in Arizona. In neither case did the Federal agency notify or communicate with the Commission. The Federal OPS should timely notify the states when requests for opinions concerning pipelines within their boundaries are received – states must be allowed to submit their comments on those requests before the OPS renders its opinion. In the case of Kinder Morgan, in 1996 the 8-inch and 12-inch pipelines were inspected with a ‘smart pig’ device that is run through the pipeline inspecting for cracks, obstructions and evidence of corrosion. The Arizona Corporation Commission was never informed of that inspection and never received a copy of the results – solely because the pipelines were interstate. A Kinder Morgan 6-inch intrastate pipeline was ‘pigged’ in 1999 – over 5,000 anomalies were found in a 139-mile section. There is no justifiable reason for failing to share the results of inspections within a state – The Federal OPS should provide timely copies of all inspection reports to the states. ENCROACHMENT Entitlements relative to real estate construction in the vicinity of intrastate and interstate pipelines are governed by county and local zoning authorities. However, public safety demands that we address this issue and not simply “pass the buck” to cities, towns and counties. No residences should be built within 200 feet of a high pressure 8-inch or 12-inch gasoline pipeline. In Tucson, the homes were 37 feet from the pipeline. Within minutes over 6,000 gallons of gasoline had soaked several residences. We can only thank God that the homes were unoccupied – but we must recognize the danger. Real estate construction involves the use of heavy machinery and excavation. Backhoes have been known to rupture or demolish even the sturdiest pipe. Heavy construction produces intense vibration and impacts soil composition, both of which jeopardize underground pipe. I understand some real estate developers seek to squeeze every nickel out of entitled land, but residential development within 37 feet of a fifty-year old gasoline pipeline is intolerable. The federal and state governments must step forward with appropriate restrictions where counties and cities act irresponsibly. The Federal OPS should work with states to develop clear guidance for counties and cities on the dangers and locations of pipelines to preclude residential zoning within 200 feet thereof. CONCLUSION On behalf of the Commission and its pipeline safety inspectors I am grateful to the Senator for convening this hearing. The many public recriminations and press releases since August have done nothing to protect public safety nor improve Arizona’s energy infrastructure. Beginning with this hearing, Senator, the stakeholder process for solving these problems commences. My recommendations today are designed to address those solutions in collaboration with federal, state and local governments and the private sector. The needs are great, and this moment is the time to act.

• Mr. Samuel Bonasso
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  Testimony

  Mr. Samuel Bonasso

  I would like to thank Chairman John McCain for the invitation to speak to the Committee today. My name is Samuel Bonasso and I am Acting Administrator of the Research and Special Programs Administration (RSPA), of the U.S. Department of Transportation. Accompanying me today is Stacey Gerard, Associate Administrator for the Office of Pipeline Safety (OPS). RSPA’s Office of Pipeline Safety has been engaged in the past three years to rebuild the nation’s pipeline safety program. Today, I will speak to the considerable challenges to this effort, many of which we have surmounted, others which remain ahead. I will also address our oversight of the pipelines of Kinder Morgan Energy Partners, LLP, operators of the pipeline that failed in Tucson. Finally, I will discuss the pipeline failure that threatened a community in Tucson and led to gasoline shortages in the Phoenix area. The nation’s pipelines are essential to our economy and our way of life and are a significant part of our nation’s critical infrastructure. The 2.3 million miles of natural gas and hazardous liquid pipelines carry two-thirds of the energy consumed by our nation. As the people of Phoenix must understand, you cannot replace even an eight-inch pipeline with gasoline tank trucks. Moreover, there is no way to transport the enormous quantities of natural gas and hazardous liquids that is safer than pipelines. We are working aggressively to make pipelines safer, to attain a fundamental goal: that is, to build public confidence in the safety of the nation’s pipelines. We are here today because that public confidence was shaken in Tucson in the early afternoon of July 30. As you know, the pipeline that ruptured sprayed thousands of gallons of gasoline on homes under construction –some only 40 feet away. Fortunately, no one died; no one was injured. Certainly lives were disrupted and property was badly damaged, and we understand the fear that this incident has left in its wake. As many will learn today, pipeline safety is a very complex, technical matter. Much of the discussion we have heard in the weeks since the Tucson incident reflects confusion over what caused the failure of the pipeline and what might have been done differently to have prevented it from happening. I hope that the information presented by all witnesses today will bring clarity to the questions and concerns of the public. Safety is the top priority of the U.S. Department of Transportation. Secretary Norman Mineta has given us a simple but profoundly important goal: to improve safety and save lives. Safety is at the core of RSPA’s mission. We are the Federal agency that regulates the movement of hazardous materials by all modes of transportation, including pipelines. RSPA also provides emergency support for transportation during emergencies. Also, across all modes of transportation, RSPA develops transportation technology and provides training for transportation professionals. To be clear, our pipeline mission is safety – it does not encompass the regulation of energy supplies delivered by pipelines. While we consider the impacts safety activities can have on the supplies of natural gas or liquids delivered by pipeline, our sole focus is safety. That said, there is a direct correlation between pipeline safety and pipeline reliability; pipelines that fail do not deliver fuel. Pipeline safety is more than inspecting pipelines: it involves regulation, technology, information, state government partnerships, damage prevention, communication, and public education. All of these elements have been strengthened in only a few years, thanks to the attention that the Congress, specifically your committee and the Administration have devoted to improving pipeline safety. We have significantly improved our overall ability to oversee and enforce pipeline safety. The relatively new emphasis on pipeline safety has emerged from the confluence of a number of trends. Transmission pipelines were once found mostly in rural areas, away from population centers, people and activity. Until 1970, pipeline safety was not a Federal responsibility. However, as suburban sprawl has expanded, pipelines that were once in rural areas now pass along the edges of communities, increasing the risk that pipeline accidents, as infrequent as they are, will have tragic consequences. The Tucson pipeline incident is a clear example of what can happen when communities encroach on pipeline rights-of-way. We have seen worse examples of encroachment, with buildings and communities built right over pipelines. There are no Federal laws that govern land use in the areas near pipelines. The Chairman of the Federal Reserve Board noted earlier this year that domestic natural gas supplies are not expected to keep up with increases in demand and that the nation will have to rely on increased imports of natural gas. This demand, combined with the expansion of our cities and suburban areas requires expansion of the pipeline infrastructure, although the increased construction activity can lead to pipeline accidents, as backhoes and other equipment dig into the ground, and the pipelines. The economic boom of the nineties brought greater risk of construction equipment striking pipelines. While the damage to pipelines by construction equipment often results in instant and deadly consequences, it is not always so. Damage to pipelines from construction may remain undetected and leave the potential for a future rupture. Our national appetite for energy has increased, and will continue to do so. There will be more pipelines. Increased demands for energy, along with a consolidation of the pipeline industry and increased competition over the past decade are putting more strain on the pipeline infrastructure. For example: changes in patterns of energy consumption of natural gas have led to decreased pipeline down-time for the natural gas industry. Operators once had six months a year of pipeline off-peak time to repair and maintain pipelines and to refill storage capacity. Today, electric power requirements for natural gas have reduced down-time to a maximum of two months a year. Gas operators must balance the need to fill up gas storage with time for testing and repair. Increased inspections and testing of pipelines will take more pipelines out of service and could impact the delivery of energy. Congressional reauthorizations of the pipeline safety program in the late eighties and nineties provided this very small agency with many complex tasks. Further, the Oil Pollution Act of 1990 provided new environmental responsibilities and in 1998, the One Call Notification Act added damage prevention tasks that extended RSPA’s sphere of influence to the entire community of underground utilities. While RSPA successfully completed the mandates of the latter two statutes in a timely manner, a backlog of mandates from the reauthorizations of 1988 and 1992 had built up. In March 2002, RSPA made a commitment to clean up our record. By May 2002, our actions led to the NTSB removing the Office of Pipeline Safety from its “Most Wanted List of Safety Recommendations,” for the first time in a dozen years. Today we have reduced the backlog by 63%. As a result of recent emphasis on the need to improve pipeline safety, RSPA’s Office of Pipeline Safety (OPS) has expanded. In 1994, the OPS consisted of 70 employees, including 28 inspectors; our budget was $17 million. Today, OPS has 143 employees, with 85 inspectors and a budget of $63 million. For 2004, we requested to increase the inspectors to 109 and a budget of $67 million. Moreover, our partnerships with States, such as our agreement with the Arizona Corporation Commission, expand our capabilities by hundreds of inspectors. In current day terms, we have better resources to address our responsibilities, and appreciate the Congress allocating increased funding. In addition to completing the mandates and recommendations of the past, RSPA is addressing the many new requirements and responsibilities of the Pipeline Safety Improvement Act of 2002 (PSIA) enacted almost 10 months ago. We moved aggressively to respond to all the regulatory requirements: · We completed operator qualification standards and expect to meet the statutory deadline for completing inspections. · We defined alternative mitigation measures when operators cannot complete repairs in time with regulatory requirements. · We presented a gas Integrity Management proposed rule to the technical advisory committee in May, have acted on their recommendations, and we expect to publish the final rule on schedule. · We assisted operators with meeting public education requirements by providing workshops on a newly developed consensus standard and an approach to self-assessment. · We enforced the mapping requirement and achieved 98 percent compliance within 6 weeks of the statutory deadline. As to longer term program development requirements, we have begun all of the major studies and plans: · We are meeting with operators on our plan to implement the controller study. · We drafted the required memorandum on research roles and a five year plan, including the comments of many experts we consulted. · We continue to implement the damage prevention requirements associated with the one-call provisions and have a new cooperative agreement with the Common Ground Alliance. · We petitioned the Federal Communications Commission to establish 3-Digit dialing and the FCC is moving to the required rulemaking. · We continue to work with the Council on Environmental Quality to improve the coordination of permits needed to repair pipelines in accordance with our new Integrity Management standards, and · We have appointed an ombudsman as required by law. The rupture of the pipeline in Tucson was all the more dangerous because development had encroached so close to the pipeline right of way that houses were only about 40 feet away. One of the most significant aspects of the new law is the requirement to study land use practices, zoning ordinances and preservation of environmental resources. In conjunction with the Federal Energy Regulatory Commission, we have asked the Transportation Research Board of the National Academy of Sciences to begin a study to address issues of encroachment and maintenance on pipeline rights-of-way. Our goal is to identify promising approaches for local government for managing land use near pipeline rights-of-way – guidelines on what development is compatible with pipelines, and what development to avoid. The study we have commissioned brings together all key stakeholders – including representatives from local government, developers, pipeline companies, environmental groups and others. RSPA and our Office of Pipeline Safety are working diligently to improve pipeline safety, as societal and economic changes make the challenge more complex. To manage the risks inherent in pipeline transportation, we have been building a new, more comprehensive and informed approach to pipeline safety. Ours is a multi-phase strategy which leaves no stone unturned in identifying and addressing pipeline risks. Our efforts are consistent with legislation you proposed in 1999 and the Pipeline Safety Improvement Act of 2002. We believe this approach is working. Comparing the last five years to the previous five years, hazardous liquid incidents have decreased by 28 percent. Two years ago, the volume of oil spilled decreased by 33 percent from a ten-year average. Last year, saw a 57 percent decrease. Excavation accidents have decreased over the past ten years by 59 percent, even while housing starts, which bring construction risk near pipelines, were on the rise. Over the past three years, we have built a more comprehensive approach to identifying and managing the risks that pipeline operators face and that pipelines pose to communities. Basing our efforts on the solid foundation of pipeline regulation: · We revitalized our approach to oversight of compliance by operators and Integrity Management efforts. · We required better data about pipelines, the world they traverse and consequences in the event of a pipeline failure. · We raised the standards for safety in the testing and repair of pipelines, corrosion control, operator qualification, public education and damage prevention, both through promulgation of regulations and adoption of national consensus standards. In three years: · We finalized 14 regulations · We incorporated about 30 new national consensus standards in our regulations (and will shortly be finalizing six more regulations); these join 80 national consensus standards embodied in our regulations. · We started a research program to improve technology for the detection, diagnosis and remediation of safety problems; o RSPA awarded more than $7.8 million for approximately 36 research projects. o The General Accounting Office recently gave a favorable review of our approach to research program management. Central to RSPA’s more comprehensive safety strategy is a more systemic management of risk: Integrity Management. In past regulatory and oversight practices, we prescribed specific measures for specific modes of pipeline failure. Today, we add another level of protection by requiring operators to address every way a pipeline could fail using the best tools and practices that apply. In our enforcement orders, we require operators to provide a plan of response that we evaluate for adequacy. In Integrity Management planning, we require operators to set priorities based on the consequences of failure. Operators must identify areas along their pipelines where consequences of a failure would be severe. In these areas, they must provide even further protection. Under Integrity Management, pipeline operators must make better use of new and existing information on pipeline operation, history, and potential failure. Higher standards for testing and repair are key components for Integrity Management. Integrity Management provides a sound scientific and technical basis for strengthening the pipeline system segment by segment, where people and important environmental resources cohabit with pipelines. Overseeing and enforcing Integrity Management poses a challenge to regulators to develop a much better understanding of the condition of a pipeline and the technologies and tools that are best suited to address conditions that may be unique to a pipeline system. Our new regulations have both prescriptive and performance aspects, so Federal and state regulators will need detailed training and inspection protocols. GAO gave RSPA a favorable review for our preparation to oversee the Integrity Management Program. Integrity Management is a concept that has evolved as the Office of Pipeline Safety has revamped enforcement policy over the past 13 years (1990- 2003), through three major phases. Each phase corresponded with major program developments and built upon the lessons learned of the previous years. From 1990 -1995, OPS focused on standard inspections that addressed compliance with the then prescriptive pipeline safety regulations. From 1995-2000, risk management principles were incorporated in the regulatory programs; oversight relied on more informal written communication about safety improvements. Following the Bellingham, Washington and Carlsbad, New Mexico accidents in 1999 and 2000, OPS returned to more traditional and formal enforcement tools, such as corrective action orders. Our current focus is system-wide improvement, evolving from risk management principles and emergence of new Integrity Management standards. OPS now makes heavier use of large fines as appropriate. Average penalties since 2000 were ten times higher than the previous ten years. For example, within 100 days of the liquid Integrity Management regulation becoming effective, OPS inspected all 66 major interstate operators for compliance with the initial regulatory requirements. We took enforcement actions on approximately 80% of the operators. Of these, Kinder Morgan was one in which OPS took a more serious enforcement action. OPS inspected Kinder Morgan in mid-January 2002. On May 2, 2002, we issued a Warning Letter and Notice of Amendment about deficiencies in their identification of High Consequence Areas. We received a response from the company within one month, in June 2002 that was satisfactory. In February 2003, we followed through with a site visit to the company, and in April conducted two weeks of comprehensive Integrity Management inspection. We conducted further follow-through Integrity Management review in June 2003. We issued a final order on the Notice of Amendment in August 2003. These actions were ongoing at the same time as OPS addressed enforcement in a separate matter with Kinder Morgan. When we are concerned about the potential for hazardous conditions discovered by tests or following pipeline accidents, we use formal and enforceable Corrective Action Orders (CAOs). Through CAOs, we can compel operators to reduce operating pressure in order to prevent additional failure, to determine the cause of an accident, to assess where similar conditions exist across the pipeline system and to develop and implement a plan for remediation. These actions often cost pipeline operators many million of dollars in assessment, testing, repair and replacement expenses. Since the Carlsbad accident in August 2000, we have issued 29 CAOs as compared to 21 in the prior 11 years, a 500 percent increase in the use of a formal enforcement tool. As another point of comparison, in 1996, a standard inspection took an inspector two and half to three days to perform. Today, a comprehensive inspection takes a team of four OPS staff and two contract experts two weeks each to execute, in addition to weeks of prior preparations and weeks of follow-on analysis – a twenty-fold increase in the resources applied. Extensive resources go into training our inspectors and provide the information support systems needed to track inspection and enforcement. For Integrity Management inspections, our enforcement tracking system, readily available through the internet to and state regulators, captures all relevant information on an operator and our oversight process, critical to gauging progress during future inspections. A significant influence on our enforcement program has been the necessary focus on pipeline security that emerged quickly after the terrorist attacks of 9/11. We assessed the readiness of the most critical pipeline systems to withstand attack, prioritized the criticality of the individual pipeline systems, and then worked with industry and state agencies to develop security standards. We have developed a system that enables pipeline operators to increase their security in synchronization with the Homeland Security Advisory System. We executed our security measures jointly with the Department of Homeland Security. To more thoroughly understand and address pipeline integrity issues and regional concerns, we improved partnerships with state and local agencies. Through increased training, information technology, communications, and policy collaboration, we have strengthened our partnership with state pipelines safety agencies. They share oversight responsibilities with us and inspect over 90 percent of the pipeline infrastructure. By way of example, the Arizona Corporation Commission (ACC) has been in the pipeline safety program since 1983. ACC became an interstate agent in 1987, taking responsibility for inspecting interstate gas pipelines and interstate hazardous liquid lines in 1988. Our distribution of state grant funds is based on performance and Arizona has consistently received the highest possible rating – 100 percent. The ACC has always been in the forefront of pipeline safety policymaking, participating in the Local Distribution Company Risk Assessment Feasibility team, the System Integrity Inspection Program (the sole state participant) and as faculty to our training programs. RSPA added to this already good pipeline safety corps the more than 900 members of the Common Ground Alliance (CGA), a voluntary damage prevention organization we initiated in 1999. With our state partners and the CGA, we share responsibility for preventing damage to pipelines and other utilities by advocating and adopting practices of the Common Ground Report, required by the Transportation Equity Act. This alliance provides the synergy of common safety actions in the “underground” by other utilities, railroads, insurance companies, public works and other municipal organizations. Through a new program with the National Association of State Fire Marshals, we add the capability of first responders to the ranks of allies helping us with damage prevention and community education. We are also working to establish a partnership with the Council of Energy Resource Tribes to foster safety and environmental protection on Tribal Lands, as well as improved communications between each of the tribes, OPS, the National Association of Pipeline Safety Representatives and the pipeline industry. This effort will help to identify high consequence areas on Tribal Lands and provide pipeline emergency response and inspection awareness training. We have energized our efforts to reach the public with messages about how citizens can protect themselves and the pipelines. Working with the pipeline industry and state agencies, we created a new public education standard for operators to acquaint citizens and public officials with the essential safety information and to make informed decisions about living safety with and minimizing damage to pipelines. This year alone, we have solicited public involvement in 15 public meetings addressing Integrity Management, operator qualification, public education, research, and mapping. The mapping of the nation’s pipelines has been a major endeavor of the Office of Pipeline Safety for several years. While submission of data by operators for the National Pipeline Mapping System (NPMS) had been voluntary, the PSIA made it mandatory. The NPMS, a multi-layered Geographic Information System (GIS), contains information about the pipelines as well as the locations of populated areas and unusually sensitive areas, such as sources of municipal drinking water. OPS collected these data over a period of years and created a unique national database. OPS launched the NPMS on the World Wide Web in April of 2001, offering a sophisticated resource to enable Federal, state, and local officials industry and others to understand the extent of the pipeline infrastructure and its relationship to environments. The terrorist attacks of 9/11 made clear that access to this database, which contains information that could facilitate terrorists’ plans, could no longer be completely available to the public. We have now restructured the NPMS to make the information again available to officials with a need to know. Today, Federal, state and local officials can register to have access to pipeline data within their realm of responsibility. The public may also use a tool on the NPMS to obtain information on operators with pipelines in their vicinity. By searching within a county or Zip code, an individual is provided with contact information for the pipeline operator, so that information may be obtained, for example, on the proximity of a pipeline to a community. The NPMS is at http://www.npms.rspa.dot.gov/ I will now discuss our enforcement of the pipelines of Kinder Morgan Energy Partners, LLP, operators of the pipeline that failed in Tucson. Kinder Morgan’s 10,000 miles of pipelines transport more than two million barrels per day of gasoline and other petroleum products. We inspect Kinder Morgan’s facilities on a rotational basis usually in a three-year cycle. The Arizona Corporation Commission and the California State Fire Marshall, our hazardous liquid interstate agents, assist in our inspection of Kinder Morgan’s vast hazardous liquid pipeline infrastructure. OPS records show that Kinder Morgan has managed its hazardous liquid pipeline infrastructure as well as other companies with similar pipeline mileage. Besides Corrective Action Orders in 2001 and 2003, OPS has issued five enforcement letters to Kinder Morgan since 1996. Most of the problems on Kinder Morgan’s hazardous liquid pipeline facilities in Arizona have been due to external corrosion. The 2001 Corrective Action Order directed Kinder Morgan to manage the external corrosion on the 6-inch Phoenix to Tucson refined products pipeline. The 2003 Corrective Action Order, issued following the July 30 accident, addressed stress corrosion cracking (SCC) on the Tucson to Phoenix refined products pipeline. There has been much public discussion and often-misleading speculation about corrosion following the July 30 accident. This has contributed to some concluding that external corrosion found on the pipeline was responsible for the rupture. It was not. Based on metallurgical analysis, the cause of the rupture was stress corrosion cracking. SCC on pipelines is a lesser-known phenomenon that is vastly different from galvanic corrosion and rarely found to cause failure in hazardous liquid pipelines. There have been only five reported SCC failures on hazardous liquid pipelines since 1985. Galvanic corrosion, also known as pitting corrosion or general corrosion, is very easily distinguished from SCC. In galvanic corrosion there is metal loss in the form of small pits, much like rust. Traditional corrosion is very easily controlled with the application of cathodic protection, which applies electric current to the pipeline surface. Today, technologies enable discovery of pipeline sections that are not adequately protected, and our statistics have shown a gradual decrease in pitting corrosion. Most pipeline companies are now also using in-line inspection devices to assess the integrity of their pipelines to understand the nature of the resident and long-term corrosion threats on the infrastructure. Over the last decade, in-line inspection devices have proven their ability to recognize and measure pitting corrosion on the inside and outside surfaces of pipelines. Thus, it is now very easy to discover, control and manage general corrosion.. SCC, also known as environmentally assisted cracking, is a relatively new phenomenon. Instead of pits, SCC manifests itself as cracks that are minute in length and depth. Over time, individual cracks coalesce with other cracks and become longer. The rate of growth of these cracks is very slow; in the neighborhood of one one-hundred-thousandth (1x10-6) of an inch per year. SCC is caused by the union of three factors: stress regime, pipeline metallurgy and coating, and environment. Thus, SCC is cracking induced from the combined influence of tensile stress and a corrosive medium. In the pipeline industry, SCC first revealed itself in natural gas pipelines. In Canada, for example, the ratio of failures on natural gas pipelines versus failures on hazardous liquid pipelines is 4:1. The failures in hazardous liquid pipelines can be more random and more catastrophic because of the phenomenon known as cycling, pressure surges that cause cracks to grow. Currently, there are no tools or mechanisms available to confidently identify the susceptibility of pipeline sections to SCC. Science has not yet discovered the boundary conditions, or the intersection, at which the three factors interact to cause SCC. Questions have been raised about inspections of the six-inch pipeline now operated by Kinder Morgan. This pipeline has not ruptured, and is now being used to supplement the delivery of gasoline to Phoenix. Kinder Morgan started operating the six-inch Santa Fe Pacific Pipeline refined products pipeline that extends from Phoenix to Tucson in 1998. The ACC conducted inspections in 1996 and 1997. After another inspection in 1998, OPS directed Kinder Morgan to conduct a close-interval survey on about 30 miles of pipeline. Because of persistent external corrosion problems, in 1999 Kinder Morgan launched an in-line inspection tool to understand the extent of external galvanic corrosion on the pipeline. In 2000 as a result of this inspection, Kinder Morgan decreased the operating pressure to about one-half of regular pressure. In 2001, Kinder Morgan also repaired about 52 locations and replaced about one-half mile of pipeline where the corrosion was extensive. During the repair and replacement process, OPS conducted inspections to review data from the internal inspection to assure that repairs were taking place at all the sites of major corrosion. We determined that Kinder Morgan was taking proper action. Following this remedial work, ACC’s standard inspection revealed that this Kinder Morgan pipeline needed continued monitoring for galvanic corrosion. Immediately thereafter, OPS issued Kinder Morgan a Corrective Action Order (CPF No. 4-2001-5010H) to address the long-term integrity of the six-inch refined products pipeline. The hearing on this CAO was conducted in August 2001 and the Order was amended in March 2003. The delay in amending the Order never compromised public and environmental safety because the immediate threats on the six-inch pipeline were remedied by the close-interval survey and the repairs before the Order was issued. As well, the standards that Kinder Morgan used to repair the pitting anomalies exceeded requirements in the regulations at that time and subsequent regulations now in effect. OPS’s interest was in the long-term health of the pipeline and our strategy was to maintain Kinder Morgan’s attention on this facility. We intentionally keep orders open to continuously evaluate pipeline conditions until we are satisfied that the pipeline does not merit special attention. Regarding the Kinder Morgan refined products pipelines extending from Tucson to Phoenix (the pipeline that ruptured): we have revised the August 6, 2003 Corrective Action Order. We are now directing Kinder Morgan to conduct systemic tests on the extent of SCC on the 8-inch and 12-inch pipeline using the most current knowledge and evaluation techniques. We are also broadening this evaluation include the six-inch pipeline, to ensure that SCC has not migrated on to the six-inch pipeline in areas where it shares the same subsurface environment as the 8/12-inch pipeline. We have issued an industry-wide advisory on this matter. We will be conducting a public workshop on these techniques in December to assure broad dissemination and discussion of these issues. The RSPA effort to rebuild the pipeline safety program is well under way and the results of our strategy are evident in data and organizational improvements in the companies we regulate. Through expanded partnerships with state and local officials, we expect to strengthen the effectiveness of our safety and prevention efforts. We have requested additional resources to help enable us to execute our strategy and we are appreciative of the priority that Congress has placed on pipeline safety. RSPA continues to have the strongest possible commitment to addressing outstanding mandates and recommendations to us, and we believe that the record of our recent performance should serve as an indication of our resolve to improve the safety, reliability, and public confidence in our nation’s essential pipeline infrastructure. ##

• The Honorable Terry Goddard

  Arizona Attorney General

  Office of the Attorney General
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  Testimony

  The Honorable Terry Goddard

  Thank you for the opportunity to present testimony on the important issues relating to gasoline in Arizona. I intend to focus my remarks on fuel supply and consumer costs, with a brief note about pipeline-related public safety. Arizona’s bright economic future depends on affordable, reliable and safe supplies of both energy (fuel and electricity) and water. Arizona is in a delicate position due to the scarcity of water and the lack of crude oil production or gasoline refining in our state. For gasoline supply in particular, Arizona depends on two pipelines, one from the West and one from the East. Affordability of gasoline is crucial for many Arizonans on fixed incomes and those workers with incomes lower than the national average who are hardest hit by rising gasoline prices. A reliable fuel supply is essential for maintaining a stable economy. Safety in supply is of the utmost importance for Arizonans’ health and our environment. Fuel spills and other gasoline-related pollution affect the air, water, and land. We have seen that increased fuel costs can also affect public safety. During the price spike of Spring 2003, several Arizona law enforcement agencies faced curtailing patrols and other activities because of budgetary constraints combined with gasoline price increases. Arizona is facing a major shift in gasoline supply. Where Arizona traditionally received seventy percent of its gasoline from California and thirty percent from Texas, in recent years the trend is towards an even fifty-fifty split. In the future, California’s demand for gasoline will likely exceed its production capacity. Not only will Arizona no longer be able to receive gasoline from California, but California may begin to compete with Arizona for gasoline from Texas. Even while Arizona, and Phoenix in particular, move towards improved mass-transit, energy conservation, and other fuel sources, Arizona’s dependence on gasoline increases daily due to enormous population growth. Both government and industry must continue to address and plan for this growth. As Attorney General, I am charged with enforcing existing laws and representing state agencies, many of which have been working tirelessly to ease the damage caused by the recent Kinder Morgan pipeline shutdown. My office continues to work closely with the Governor’s Office, the Governor’s Gasoline Working Group, and other state agencies to evaluate what led to the gasoline shortage, and to develop long-term policy solutions. The Arizona Department of Environmental Quality (ADEQ) is investigating the July 30, 2003 gasoline spill in northwest Tucson. Kinder Morgan has recently turned over voluminous documents relating to the spill and clean-up. The Attorney General’s Office and ADEQ’s investigation into this matter is ongoing. ADEQ also worked with the Governor and the Environmental Protection Agency (EPA) to obtain a waiver allowing conventional fuel to be used in Maricopa County during the shortages. The Department of Weights and Measures has been instrumental in monitoring supply and fuel quality, with particular attention to the time period during the gasoline shortage. The Department of Commerce, Energy Office is working on long-term gasoline supply policy issues facing Arizona. The Department of Real Estate is investigating whether residential subdivision developers properly disclosed the location of the pipeline. If violations are found, these developers could face civil penalties and future difficulties in obtaining licenses to sell property. Further, home buyers who were not informed of pipeline proximity may have recourse either through private legal action or through the Department. The Attorney General’s Antitrust Unit continually monitors the market for evidence of anticompetitive behavior, including price fixing, supply manipulation, and other antitrust violations. I am also working with legislators on proposed price gouging legislation to deter and punish those who would take advantage of consumers during a state of emergency. Prices as high as $4.96 per gallon of regular CBG were reported to and investigated by my office. Consumer feedback from about 1,000 complaints and inquiries demonstrated overwhelming popular support for price gouging legislation. BACKGROUND: • As the pipeline enters South Tucson, it carries fuel to Phoenix through residential areas, past Mission View Elementary School and within feet of the Salvation Army Adult Rehabilitation Center on South Sixth Avenue. A smoking area at the Salvation Army is located directly above the pipeline. The pipeline travels along Starr Pass Boulevard behind residential areas and angles to the north near Cholla High School, the west side of Tumamoc Hill and “A” Mountain. The pipeline passes within a quarter-mile of buildings on Pima Community College’s West Campus and residential areas along North La Cholla Boulevard. As the pipeline heads north toward Interstate 10, it runs along a wash that splits the Silver Creek subdivisions, the site of the July 30th rupture. • July 30, 2003: The Kinder Morgan (KM) gasoline pipeline between Tucson and Phoenix ruptured, and KM reported spilling approximately 10,000 gallons of fuel in northwest Tucson over a residential construction site. After an initial repair, subsequent testing by KM revealed stress corrosion cracking, leading KM to shut down the entire Tucson-Phoenix line on August 8, 2003. • Mid-August: Severe gasoline shortages developed in Maricopa County as a direct result of the pipeline shutdown. Gasoline prices skyrocketed. Independent dealers lobbied the Governor, the EPA and ADEQ to waive the Clean Air Act requirements, allowing the use of conventional gasoline in Maricopa County, which normally requires Cleaner Burning Gasoline (CBG). • From 1988 to 2001: The Arizona gasoline pipeline had forty-six probable non-compliance violations noted by the Arizona Corporation Commission, including failures to comply with rules concerning corrosion control (1991, 1992, 1995). Since 1993, the Office of Pipeline Safety issued two non-compliance letters and one corrective action. The corrective action was in response to the July 30, 2003, pipeline rupture. II AFFORDABILITY OF FUEL Gasoline (Cleaner Burning Gasoline, or “CBG”) prices in Phoenix skyrocketed from an average of $1.54 per gallon of CBG regular on July 30, before the pipeline rupture, to a record-breaking average high of $2.14 per gallon on August 26. Phoenix prices are now at an average of $1.77 per gallon. These dramatic price increases caused lost income to businesses and consumers. Hardest hit were the working poor, those on fixed incomes, and gasoline-dependant businesses. To address rising gasoline prices and severe price spikes, I recently sent surveys to every retail gasoline station in Arizona, requesting information on supply and pricing. As a result, we have a better understanding of the Arizona gasoline market structure and possible areas of further inquiry. My office continually monitors and maintains a database of Arizona gasoline prices, as does the Department of Commerce. I am working with other state Attorneys General, the Federal Trade Commission, and Arizona state agencies to deter and investigate market manipulation and to promote policies to ensure safe, reliable and affordable gasoline for Arizona’s future. As I discussed earlier, I also support a Price Gouging statute to protect consumers from exploitative pricing of gasoline (and other products) during a declared state of emergency. III RELIABILITY OF FUEL SUPPLY As a result of the July 30, 2003 Kinder Morgan pipeline shutdown, many gasoline stations ran out of gasoline. On August 19, sixty five percent of Maricopa County retail gasoline stations were without gasoline. These shortages began on August 17 and ended on August 27. The gasoline shortages resulted in lost revenues due in part to transportation difficulties. Working Arizonans could not get to work. Others did not drive for recreational purposes. Although difficult to quantify, Arizona likely experienced significant losses from tourism declines and event cancellations due to the instability the fuel shortage caused. The August supply disruption could reoccur absent improvements in gasoline supply alternatives to Arizona. Additional gasoline supply may come from another pipeline, which is nearly completed, from Texas. While this new pipeline may help bring additional product into Arizona, and reduce our dependence on California gasoline, the physical capacity limitations of the existing pipeline in Arizona reduces the usefulness of this option. Further, FERC pro-ration policy needs to be reviewed as it applies to new entrants. There is also the possibility of a new refinery here in Arizona. Again, although this may appear to be a positive solution, I have serious concerns about fiscal practicality, time to completion, pollution controls and environmental justice issues. I am investigating issues surrounding the gasoline supply shortage. My office is obtaining supply volumes from Kinder Morgan through a Civil Investigative Demand. That information is currently being evaluated. The confidential nature of the documents I am receiving precludes me from discussing this in detail. My office will continue to assess and evaluate potential market manipulation in gasoline supply. If I discover illegal conduct, I will vigorously prosecute, as in the El Paso Natural Gas case. IV PIPELINE SAFETY The Corporation Commission and the Federal Department of Transportation, Office of Pipeline Safety (OPS) share the responsibility of inspecting the pipeline and enforcing proper maintenance and repairs. Some sections of Arizona’s KM pipeline are fifty-five years old and have numerous leaks and safety violations. I am concerned that improper inspection of this aging pipeline, coupled with lax to non-existent enforcement put Arizonans at risk of serious injury. As Arizonans have recently learned, the KM pipeline traverses highly populated areas, running near schools and homes. In addition to areas I previously outlined in the Tucson area, the pipeline runs close to two schools in Maricopa County. I am concerned about the loss of life, injuries, and severe damage experienced in Washington and New Mexico. I want to see that property owners near the pipeline are properly informed, and all feasible and reasonable steps are taken to minimize risk to our citizens. I am also concerned that there is inadequate pipeline security, including lack of physical barriers to protect the pipeline from inadvertent and intentional damage. My recommendations for the future include increased frequency and thoroughness of inspections, stronger enforcement of violations, increased federal financial support for interstate pipeline inspections, increased authority for state inspectors, and a more aggressive approach to pipeline security. V CONCLUSION My office continues to work with other state and federal agencies to ensure pipeline safety, reliable gasoline supply and affordable pricing. I am optimistic that increased partnerships between the federal and state pipeline enforcement authorities will aid in more effective inspections and corrective actions, as necessary. My office will continue to monitor and prosecute any illegal, anti-competitive behavior in the gasoline industry. I will continue to support price gouging legislation to protect Arizona’s consumers. Thank you for the opportunity to testify about this important, far-reaching matter.

Witness Panel 2

• Mr. David Cowley
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  Witness Panel 2

  Mr. David Cowley

  Senator McCain. Members of the Committee. I am David Cowley, Public Affairs Manager at AAA Arizona. Thank you for the opportunity to testify. AAA Arizona’s role in the automotive and transportation arena is familiar to most people – we have 600,000 members in Arizona alone. AAA advocates with the government and the automotive industry on behalf of the motoring public. We also strive to educate motorists about the transportation, automotive and oil industries. Our goal is to provide clarity, common sense and balance to these issues. For many years, Triple A has tracked and reported gasoline supplies and prices. The media and public turn quickly to AAA for explanations whenever gasoline issues arise, as with the August pipeline closure. We’ve learned that Americans react strongly to bad news about gas prices and availability. What’s more, the public is quick to assume that price hikes are the result of greed at the supplier or retail level, and are skeptical about the legitimacy of external pressures forcing gas prices up. Communicating promptly and clearly about unusual supply or pricing issues is critical. We learned of the pipeline situation from a media contact on August 11th, three days after the actual closure – hardly an example of prompt communication from the pipeline industry. There was some initial confusion about the nature of the disruption – again due to an absence of information -- but once that was cleared up, we issued our first press release explaining the closure. We stated that gas supplies were plentiful – it would just take a little longer to get gasoline into the Valley by truck. That was on a Monday. We issued press releases on Tuesday, August 12, and Wednesday, August 13, each time reporting the price of gas and assuring the public that supplies were plentiful – it was a transportation disruption. (Parenthetically, let me say that the difference between a gasoline shortage and a transportation disruption was more than merely semantics -- we felt it important to assure the public that gasoline inventories were normal – this was not another 1973.) On Thursday, August 14th, we issued our weekly Fuel Gauge Report, again calling on motorists to conserve fuel and offering tips on doing so. During this time, my staff and I held many interviews with the television, radio and print media…always with that same message. The panic-buying that led to long lines and station closures began Sunday afternoon, August 18th. As motorists attempted to refuel after their weekend activities, stations began running out of gas, panicked motorists searched for open stations, and eventually, even motorists who didn’t need to fill up joined the lines to top off their tanks. Why did it happen? Why, when the disruption had been no more than an inconvenience for almost a week, did it suddenly escalate into panic-buying? In AAA’s view, there are two reasons: 1. First, we -- by that I mean those in the oil industry, Triple A, and the government -- should have cautioned the public to curtail their weekend activities in order to accommodate the gasoline supply problem. In my recollection, no one specifically said that. 2. Secondly, we who had been in the media all week explaining the situation, took the weekend off. Although my staff held half-a-dozen interviews on Saturday and Sunday, that was not even close to the number we had been doing. And, we had not issued a press release since our Thursday Fuel Gauge report. Could we have prevented the run on gas stations had we been ‘out there’ in the media more heavily? I can’t say. But, I can say communication – the lack thereof – contributed to the severity of the gas crisis. What have we learned? · First, it is time to acknowledge that gasoline is an essential commodity, similar to utilities. The principles of free enterprise and competition should be allowed to establish gasoline pricing, but we also believe the refining industry has an obligation to practice restraint in pricing, especially during emergencies. · Secondly, we need to take steps to insure adequate supplies of gasoline to our state, with redundancy built into the system. · Third, the industry should have practical – practical -- backup plans in place in the event of infrastructure problems. · Fourth, if the industry won’t speak to the public about supply or pricing issues -- as seems to be the case -- they should, at least, speak candidly to Triple A and the government. We can then inform the public. (That said, I must point out that Triple A will NOT act as a Public Relations firm for the oil, or any other, industry. We value our reputation as a balanced source of information for motorists. And, if we think it is necessary, we won’t hesitate to point out inconsistencies.) · Finally, AAA believes all Americans should recognize that fossil fuels are a finite energy resource. We should practice conservation, including the use of carpooling and mass transportation. And, we should buy the most energy efficient vehicles that are practical for our needs. Senator; Members of the Committee; hearings such as this are an important means of assessing the pipeline closure and subsequent events...and preventing a recurrence. AAA hopes there will be a communication component in your recommendations encouraging managers of essential infrastructure to speak candidly about disruptions. That concludes my statement. I’ll be happy to answer your questions.

• Mr. Thomas Bannigan
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  Witness Panel 2

  Mr. Thomas Bannigan

  Click here for a Microsoft Word version of Mr. Bannigan's remarks.

• Mr. Jonathan Olcott
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  Witness Panel 2

  Mr. Jonathan Olcott

  My law firm is known as Olcott & Shore, PLLC. We are located in four cities in Arizona: Tucson, Oro Valley, Phoenix and Goodyear. We represent the Silvercreek Homeowners Association (“Silvercreek”). That is the community in which the rupture of Kinder Morgan’s pipeline occurred. A contractor quickly began removing the contaminated dirt. Some of the dirt was piled on the Association’s common area. Kinder Morgan is working with us to ensure the soil is remediated. Silvercreek does not own the tract in which the pipeline is located. The reaction by the community has been surprising. I can divide the community into two classes: 1) the majority is not overly concerned about the rupture and the fact they live near a gasoline pipeline; and 2) the minority are concerned about safety, and a decline in property values. 1. Majority On August 19, the Board of Directors of Silvercreek (“Board”) held a Board meeting. In the notice of the meeting to the community, the Board indicated that a topic of deliberation would be the rupture. The media attended the meeting, but the only homeowners who attended did not comment on the rupture. I met with Kinder, Morgan personnel before the meeting. The Kinder, Morgan representatives invited themselves to the impending Board meeting. We declined the invitation as premature. They were open and cooperative. They accepted full responsibility for the rupture. They did not blame any other entity for the rupture. They promised to cooperate with Silvercreek to ensure the remediation would be effective. I requested Kinder Morgan to forward to me a copy of the contamination report. I have yet to receive it. Kinder, Morgan has otherwise been cooperative in providing literature on the pipeline location, testing procedures and hazards of living near a gasoline pipeline. Later we invited Kinder, Morgan to attend another community meeting to update the community on Kinder, Morgan’s activities. It occurred in September. Invitation cards were hand-delivered to each household. Silvercreek has 288 households. Approximately 35 to 40 homeowners chose to attend. Many were husband and wife; so less than 35-40 households were represented. Kinder, Morgan continues to stay in contact with Silvercreek. The President of Silvercreek is Ramie Fisher. She indicated that the majority of the community appears to accept the rupture of, and proximity to, the pipeline as an acceptable hazard of modern living. Many have indicated to me that they understand that there are hazards involved with the proximity of natural gas and electrical utilities throughout the community. They have seen the signs that disclose the presence of the gasoline pipeline. 2. Minority Silvercreek is a relatively new community. Most homeowners are original owners. The minority has expressed frustration with the lack of disclosure of the pipeline in the Subdivision Public Report. The second phase of Silvercreek is adjacent to the pipeline, and closer to the pipeline than Phase I. The homes in Phase II are still under construction. The Developer did disclose the pipeline in the public report for Phase II. The committee should know that the homes that are immediately adjacent to the pipeline are in Phase II and are not occupied. Were they occupied, I suggest the homeowners would have substantial concerns about the pipeline. It is possible that the minority are those who live closest to the pipeline in Phase I. The minority has expressed concern about safety. Silvercreek has only one roadway access. The Board is crafting an evacuation plan in the event of a calamity. The minority has also expressed concern that their property values have declined. They are probably correct. I have not confirmed this proposition with an appraiser. Additional Observations I maintain households in both Tempe and Oro Valley. I was traveling back and forth frequently after the rupture. When the shortage and gas lines occurred in Phoenix, I filled my tank in Tucson, Eloy or Casa Grande. The pipeline rupture had little effect on the public in Tucson. Because I am counsel to Silvercreek, I followed the media coverage closely. The rupture received substantially more media coverage in Phoenix than in Tucson. Jonathan Olcott, Esq. 190 W. Magee Road, Suite 122(B) Oro Valley, Arizona 85704 520-229-9075