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U.S. Department of Energy 

Office of Inspector General 

Office of Audit Services 

Audit Report 

The Department of Energy's Use of 

the Strategic Petroleum Reserve in 

Response to Hurricanes Katrina and 

Rita 

DOE/IG-0747 December 2006 
Department of Energy 

Washington, DC 20585 

December 5, 2006 

MEMORANDUM FOR THE SECRETARY 

FROM Greg . Friedman 

lnspector General 

SUBJECJT: INFORMATION: Audit Report on "The Department of 

Energy's Use of the Strategic Petroleu~n Reserve in Response to 

Hurricanes Katrina and Rita" 

BACKGROUND 

The De!,a~t~nent of Energy's Strategic Petrole~~m R~=serve consists of ~~nderground 

caverns currently holding nearly 700 million barrels of crclde oil. The Reserve's primary 

energy sec!.~rity mission is to maintain drawdv~n readirless to mitigate the impact of a 

severe crudt-. oil supply disruption. To achieve this goal, ihe Reserve must be prepared to 

pronlp!y restore operations and schedule the flow of crude oil to refineries, even in the 

midst or a major disaster. The Reserve sites are located in the heart of the Gulf Coast 

region of the United States, an area prone to hurricanes and major storms. ln such an 

en\ironnien~, continuity of operations is especially challenging. 

In tlug~~st arld September 2005, Hurricanes Katrina and R~ta devastated the Gulf Coas: 

region. The hurricanes caused significant damage to petroif.:um industry production 

platt'o~.ms. terrriinals, pipelines. and refineries, leaving many facilities inoperable. The 

supply levels of gasoline and other ref~ned products were seqerely impacted, directly 

affecting recovery efforts. Further, petroleum product prices spiked nationwide. 

Immediately after learning of Hurricane Katrina's devastating impact, you approved 

emergency loan requests from crude oil refiners whose scheduled deliveries had been 

disrupted. ln addition, the Pre5ident issued a Finding of a Severe Energy Supply 

Intel-ruption, directing the Department to sell oil from the Reserve's stockpile. 

Because of the significant ~mpacthe hurr~canes had on the petroleum industry and the 

importance of successfully responding to future energy emergencies, we conducted th~s 

audit to determine whether the Slrateg~c Petroleum Reserve met its energy security 

mission in response to Hurricanes Katrina and Rita. 

RESULTS OF AUDIT 

We found that the Department used the Reserve and its assets with great effectiveness to 

address emergency energy needs in the crisis surrounding Katrina and Rita. Despite 

being in the path of the hurricanes' destruction, the Reserve promptly fulfilled requests 

for oil from refineries suffering from storm-induced supply shortages. Within four days 

of Hurricane Katrina's landfall, oil was sent to requesting refineries. Overall, the Reserve 

provided almost 21 million barrels of crude oil to refiners through loans and sales. To 

their credit, the Reserve's management and staff reacted magnificently under extremely 

difficult circumstances. 
Whilc the tindings of our audit were generally positive, we did identify an opportunity to 

provide greater assurance that operations coc~ld continue in future emergency situations. 

Specifically, we Ihund that as a result of the hurricanes, the Reserve's business recovery 

capabilities were impaired when mission-essential computer networks at both the primary 

and alternate sites were rendered inoperable. The Reserve's primary and secondary 

facilities are located within 55 miles of each other. As bas evident with llurricane 

Katrina. both were in Katrina's path and both suffered related service interruptions. 

While the alternate computer facility's location -- 55 miles northeast of the primary site -- 

appeared acceptable under most circumstances, the far-reaching impact of Katrina proved 

that the proximity of the alternate site to the primary facilities was less than optimal. 

This atti-cted the prompt restoration of computer network services vital to continuity of 

operations of the Reserve. Given the relative frequency of major hurricanes in the 

vicinity of thc Keservc's primary facility, we concluded that management should consider 

moving the alternate site to a more remote location. In making this recommendation, we 

were mindI'~11 of the cost of such a move. Yet, a change in the alternate operations site 

could substantially improve the Reserve's ability to respond to future natural disasters and 

other emergencies. 

During our review, we noted the dedication and perseverance of the Reserve's en~ployees 

in lilll?lling the mission under tragic and difficult circumstances. Many of the employees 

were personally affected by the disaster, but reported to work not knowing the extent of 

the human tragedy or if their personal belongings survived the hurricanes. In fact, almost 

700 employees were displaced by the storms and over 120 employees were unable to 

reoccupy their homes because of severe damage. In recognition, you awarded the 

Reserve the highest honorary award of the Department, the Secretary's Gold Medal, for 

outstanding achievement in energy security under the extreme conditions after Hurricane 

Katrina. 

This audit was conducted as part of a broader effort by my office to identify ways the 

Department can improve its emergency response capabilities. 

MANAGEMENT REACTION 

Management agreed with the recommendations and plans to reevaluate the alternate 

operating facility as part of its planning for emergency conditions. We consider 

management's comments to be responsive to our recommendations. 

Attachment 

cc: Deputy Secretary 

Under Secretary of Energy 

Under Secretary for Science 

Chief of Staff 

Assistant Secretary, Office of Fossil Energy 
REPORT ON THE DEPARTMENT OF ENERGY'S USE OF THE 

STRATEGIC PETROLEUM RESERVE IN RESPONSE TO HURRICANES 

KATRINA AND RITA 

TABLE OF 

CONTENTS 

Response to Hurricanes Katrina and Rita

Details of Finding 1 

Recommendations 3 

Comments 4 

Appendices

1. Objective, Scope, and Methodology 5 

2. Other Matters 7 

3. Related Audit Reports 8 

4. Management Comments 9 
RESPONSE TO HURRICANES KATRINA AND RITA 

Page 1 Details of Finding 

Energy Security The Strategic Petroleum Reserve (Reserve) met its energy security 

Mission mission during the response to Hurricanes Katrina and Rita. 

Despite being in the path of the hurricanes' destruction, the 

Reserve fulfilled immediate requests for emergency oil from 

refineries suffering from storm-induced supply shortages. Within 

four days of Hurricane Katrina's landfall, oil was on its way to 

requesting refineries. The Reserve's total response was almost 21 

million barrels of crude oil being made available to refiners 

through loans and sales. 

Emergency Loans

After the hurricanes, the Reserve immediately responded to 

industry's request to borrow from the stockpile, providing crude oil 

to refiners whose scheduled deliveries had been disrupted. The 

Department of Energy (Department) began receiving requests from 

industry on August 29, 2005, resulting in the approval of six loans 

for a total of 9.8 million barrels of oil. Oil deliveries commenced 

on September 2, 2005, four days after Hurricane Katrina's landfall. 

Without the loans, the refineries faced severe reductions in 

processing rates or shutdown of their operations. The loans 

enabled them to continue refining crude oil into products such as 

gasoline, heating oil, and jet fuel. Recipients are required to return 

crude oil to the Reserve under the terms of the loan agreements. 

By the spring of 2006, all but 1.7 million barrels had been returned 

to the stockpile. In April 2006, the President directed the 

Department to defer filling the stockpile due to oil market 

conditions, and as a result, the Reserve now expects to receive the 

remaining repayment barrels in 2007. 

Competitive Sales

The Reserve also delivered petroleum by conducting a competitive 

sales program. On September 2, 2005, the President authorized 

and directed the Secretary of Energy to draw down and sell crude 

oil. On September 6, 2005, the Department issued a Notice of 

Sale, offering 30 million barrels of crude oil for sale. The 

competitive sales program was conducted online for the first time 

using the Crude Oil Sales Offer Program. The Department 

evaluated the offers received and determined that five companies 

had submitted acceptable offers for the purchase of 11 million 

barrels of crude oil. Although deliveries began on September 26, 

2005, and were originally expected to be completed in October, the 

arrival of Hurricane Rita along the Gulf coasts of Louisiana and 

Texas on September 24, 2005, caused significant damage to 
 

Page 2 Details of Finding 

refineries, terminals, and distribution systems that hindered 

companies' abilities to take delivery of the oil. Final deliveries 

were made on January 4, 2006. 

Alternate Operating While the Reserve responded to immediate requests for emergency 

Facility oil, we identified an opportunity to improve operations during 

future emergency responses. The Reserve successfully completed 

its mission despite the fact that both the primary and alternate 

computer networks became inoperable. It was our judgment that 

the effectiveness of future emergency responses could be further 

assured if the alternate operating facility was located in an area less 

likely to be impacted if hurricanes strike the Reserve's primary 

operating facility in New Orleans. 

Continuity of Operations

The Reserve's primary operating facility in New Orleans was 

evacuated early during Hurricane Katrina's timeline. However, the 

Reserve could not use its alternate computer facility at the Stennis 

Warehouse in Mississippi when Hurricane Katrina's landfall 

required it to be evacuated as well. In accordance with Federal 

requirements, the Reserve's Continuity of Operations Plan 

contained the plans, procedures, and responsibilities to ensure the 

performance of essential functions in the event of an emergency. 

The Stennis Warehouse, located about 55 miles east of New 

Orleans at the Stennis Space Center in Mississippi, is designated as 

the Reserve's alternate operating facility. While the Stennis 

Warehouse is primarily used to maintain drawdown equipment, it 

also serves as an alternate Emergency Operations Center, a data 

systems "warm" site with redundant network restoration 

capabilities, and an alternate business recovery worksite with a 

network of over 100 dedicated workstations. Hurricane Katrina's 

direct hit on the Stennis Warehouse prevented it from being fully 

utilized for this purpose and forced the Reserve to reestablish its 

computer network capabilities elsewhere. 

Site Selection

When selecting alternate operating facilities, Federal Preparedness 

Circular 65 states that organizations should perform an all-hazard 

risk assessment for any facility considered for Continuity of 

Operations use. This assessment should consider the distance of 

alternate operating facilities from the primary facility and from the 

threat of natural disasters such as hurricanes. However, Strategic 

Petroleum Reserve planning documents indicated that the alternate 

operating facility was included as part of a larger plan to relocate 
 

Page 3 Recommendations 

the Reserve's drawdown equipment from its existing storage site, a 

warehouse in New Orleans, to the Stennis Space Center in 

Mississippi. Although examples of cost-savings were included as 

justification for the plan, we could not locate any documentation to 

support a risk analysis examining the impact of the distance 

between the alternate and primary operating facilities and possible 

consequences in the event of a hurricane. Thus, the use of the 

Stennis Warehouse as the alternate operating facility was not, in 

our view, fully justified. 

Federal Preparedness Circular 65 also states that alternate 

operating facilities must be reevaluated for suitability and 

functionality to ensure that alternate operating facilities continue to 

meet agency needs. In March 2006, the Reserve identified 66 

recommendations in response to lessons learned during the 

hurricanes. Although the Reserve plans to conduct a feasibility 

study on the cost of establishing another "warm" site to enable 

network redundancy in the absence of both the Stennis Warehouse 

and New Orleans facility capabilities, there were no plans to 

reevaluate Stennis as an alternate operating facility. 

Future Emergencies

While the impact of Katrina and Rita was exceptional, hurricanes 

are fairly routine in the Gulf Coast region. Based on the most 

recent experience, the Reserve may not be able to rely on the 

alternate operating facility capabilities at the Stennis Warehouse if 

another hurricane hits the Gulf Coast region. Although the 

Reserve took commendable action during Hurricanes Katrina and 

Rita to reestablish computer network capabilities when both the 

primary and alternate computer facilities became inoperable, a 

reevaluation of the alternate operating facility site selection is 

warranted. 

RECOMMENDATIONS To improve the Strategic Petroleum Reserve's continuity planning 

and capability to continue essential functions during emergencies 

such as hurricanes, we recommend that the Project Manager, 

Strategic Petroleum Reserve: 

1. Reevaluate the location of the designated alternate 

operating facility, factoring in the distance from the 

primary operating facility and the threat of a hurricane 

impacting both locations; and,
 

Page 4 Recommendations and Comments 

2. Based on the results of the evaluation, take appropriate 

actions regarding the location of the alternate operating 

facility. 

MANAGEMENT AND Management agreed with the recommendations and plans to 

AUDITOR COMMENTS reevaluate its alternate operating facility. Although the Stennis 

facility suffered only minor damage from Hurricane Katrina, the 

loss of communications connectivity rendered the computer 

network inaccessible. Therefore, management agreed that it is 

entirely appropriate to reevaluate the role of the Stennis facility in 

its planning for emergency conditions. 

Management's comments are responsive to our recommendations 

and are included in their entirety in Appendix 4. 
Appendix 1 

Page 5 Objective, Scope, and Methodology 

OBJECTIVE The objective of this audit was to determine whether the Strategic 

Petroleum Reserve (Reserve) met its energy security mission 

during the response to Hurricanes Katrina and Rita. 

SCOPE The audit was performed between January and October 2006. 

Audit work was conducted at the Department of Energy 

(Department) Headquarters in Washington, D.C.; the Project 

Management Office in New Orleans, Louisiana; the Bryan Mound 

and Big Hill storage sites in Texas; the Bayou Choctaw and West 

Hackberry storage sites in Louisiana; and, the Stennis Warehouse 

in Mississippi. 

 

METHODOLOGY To accomplish the audit objective, we: 

• Determined the Reserve's energy security mission and 

assessed whether the mission was met during the 

response to the hurricanes; 

• Reviewed and analyzed loans and sales transactions; 

• Analyzed the Reserve's Continuity of Operations Plan 

and identified the designated primary and alternate 

operating facilities; 

• Examined Stennis Warehouse planning and justification 

documents; 

• Determined the federal requirements for Continuity of 

Operations planning; 

• Reviewed the lessons learned that were compiled as a 

result of the Reserve's response during the hurricanes; 

and, 

• Held discussions with the Department and contractor 

personnel. 

We conducted the audit in accordance with generally accepted 

Government auditing standards for performance audits and 

included tests of internal controls and compliance with laws and 

regulations to the extent necessary to satisfy the audit objective. 

Because our review was limited, it would not necessarily have 

disclosed all internal control deficiencies that may have existed at 
Appendix 1 (continued) 

Page 6 Objective, Scope, and Methodology 

the time of our audit. We did not rely on computer processed data; 

therefore, we did not conduct reliability assessments on the data. 

Finally, we assessed the Department's compliance with the 

Government Performance and Results Act of 1993 and found that 

performance measures specifically related to the operational 

readiness of the Reserve had been established. 

Management waived the exit conference. 
Appendix 2 

Page 7 Other Matters 

OTHER MATTERS

Handling of Classified Materials 

In the aftermath of Hurricane Katrina, the Strategic Petroleum Reserve (Reserve) did not 

adequately secure classified matter or report the security incident to the Department of Energy 

(Department) Headquarters in a timely manner. Shortly after the hurricane, it became 

apparent that the facilities housing the classified materials would remain uninhabitable for an 

extended period of time, and the decision was made to relocate the materials to an alternate 

Department site. During the relocation, one box of classified documents became separated 

and was temporarily left unattended in an unclassified area at a different Department location. 

According to Reserve personnel, the team recovering the classified materials faced difficult 

and potentially dangerous conditions, including possible criminal activities in the area and the 

lack of electricity in the building. While these adverse conditions most certainly contributed 

to the mishandling, the Reserve did not have procedures in place to relocate classified 

materials during such emergencies. While it cannot be said with absolute certainty, it appears 

that there was no compromise of classified information. 

During our review, the Reserve updated its Classified Matter Emergency Plan to include 

relocating procedures and provided the required reporting documentation of the incident to 

Department Headquarters. In addition, the Department's Office of Special Operations is 

conducting an inquiry and will provide a report of its findings to the Reserve. Therefore, we 

did not pursue additional audit work in this area. 
Appendix 3 

Page 8 Related Audit Reports 

RELATED AUDIT REPORTS 

Office of Inspector General Reports 

• Follow-Up Review of The Department of Energy's Response to Hurricanes Katrina and 

Rita (DOE/IG-0733, July 2006). The follow-up review found that the Department of 

Energy (Department) had made significant progress toward implementing prior Office 

of Inspector General recommendations to enhance its Emergency Support Function-12 

mission capabilities. Specifically, the Department clarified communications processes, 

addressed responder equipment needs, and augmented staffing levels. The review also 

found that the Department could improve its efforts to identify emergency response 

assets in advance of events such as natural disasters. 

• The Department of Energy's Response to Hurricanes Katrina and Rita (DOE/IG-0707, 

November 2005). The review found that the Department met its responsibilities under 

the National Response Plan by taking aggressive actions to restore energy systems in 

response to Hurricanes Katrina and Rita. While the Department's response mechanism 

was effective, the review identified opportunities to improve the Department's response 

in future Emergency Support Function-12 missions. These opportunities include: 

streamlining communications, leveraging Department assets, adequately provisioning 

emergency response teams, and determining appropriate emergency support staffing 

levels. 

• The Department's Continuity Planning and Emergency Preparedness (DOE/IG-0657, 

August 2004). This report concluded that five field sites had not developed 

comprehensive plans to continue essential functions during an emergency and had not 

corrected a number of weaknesses identified during prior emergency preparedness 

exercises. Specifically, these sites had not fully identified essential functions or 

alternate facilities in case of an emergency. Additionally, the Department did not 

specifically require sites to validate the effectiveness of corrective actions for addressing 

recognized emergency preparedness weaknesses or to share complex-wide lessons 

learned about common problems. As a result, the Department may face increased risks 

to its operations, employees, and surrounding communities during an emergency 

situation. 
Appendix 4 

Page 9 Management Comments 
IG Report No. DOE/IG-0747

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