U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

20–974 PDF 2016

S. HRG. 108–1013 

PIPELINE SAFETY AND THE IMPACT OF THE 

KINDER MORGAN PIPELINE ACCIDENT ON 

SAFETY, FUEL POWER, AND CONSUMER COST 

FIELD HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED EIGHTH CONGRESS 

FIRST SESSION 

OCTOBER 9, 2003 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED EIGHTH CONGRESS 

FIRST SESSION 

JOHN MCCAIN, Arizona, Chairman 

TED STEVENS, Alaska 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

SAM BROWNBACK, Kansas 

GORDON H. SMITH, Oregon 

PETER G. FITZGERALD, Illinois 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

JOHN E. SUNUNU, New Hampshire 

ERNEST F. HOLLINGS, South Carolina, 

Ranking 

DANIEL K. INOUYE, Hawaii 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

JOHN B. BREAUX, Louisiana 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

JEANNE BUMPUS, Republican Staff Director and General Counsel 

ROBERT W. CHAMBERLIN, Republican Chief Counsel 

KEVIN D. KAYES, Democratic Staff Director and Chief Counsel 

GREGG ELIAS, Democratic General Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on October 9, 2003 ............................................................................ 1 

Statement of Senator McCain ................................................................................. 1 

WITNESSES

Bannigan, Thomas A., President, Kinder Morgan Products Pipelines ................ 41 

Prepared statement .......................................................................................... 43 

Bonasso, Samuel, Acting Administrator, Research and Special Programs Administration, Department of Transportation; accompanied by Stacy Gerard, 

Associate Administrator for Pipeline Safety ...................................................... 11 

Prepared statement .......................................................................................... 13 

Cowley, David, Director, Public Affairs, AAA Arizona ......................................... 69 

Prepared statement .......................................................................................... 70 

Goddard, Terry, Attorney General, State of Arizona ............................................ 19 

Prepared statement .......................................................................................... 22 

Grijalva, Hon. Rau ́l, U.S. Representative from Arizona ....................................... 5 

Prepared statement .......................................................................................... 7 

Napolitano, Janet, Governor, State of Arizona ..................................................... 3 

Olcott, Jonathan, Esq., Olcott & Shore, PLLC, on behalf of the Silver Creek 

Homeowners Association ..................................................................................... 84 

Prepared statement .......................................................................................... 85 

Spitzer, Marc, Commissioner, Arizona Corporation Commission ........................ 25 

Prepared statement .......................................................................................... 28 

Walkup, Hon. Bob, Mayor, City of Tucson ............................................................ 30 

Prepared statement .......................................................................................... 32 

APPENDIX

Cooper, Dr. Mark, Director of Research, Consumer Federation of America, 

prepared statement .............................................................................................. 91 

Response to written questions submitted by Hon. John McCain to: 

Thomas A. Bannigan ........................................................................................ 150 

Terry Goddard .................................................................................................. 149 

Jonathan Olcott ................................................................................................ 169 

(1) 

PIPELINE SAFETY AND THE IMPACT OF THE 

KINDER MORGAN PIPELINE ACCIDENT ON 

SAFETY, FUEL POWER, AND CONSUMER COST 

THURSDAY, OCTOBER 9, 2003 

U.S. SENATE, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Phoenix, AZ. 

The Committee met, pursuant to notice, at 9:01 a.m. in City 

Hall, City Council Chambers, 200 West Washington Street, Phoenix, Arizona, Hon. John McCain, Chairman of the Committee, presiding. 

OPENING STATEMENT OF HON. JOHN MCCAIN, 

U.S. SENATOR FROM ARIZONA 

The CHAIRMAN. Good morning. I’d like to begin 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’ve 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 and requirements, required operators to help 

educate the public about pipeline safety, and established whistleblower 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’s 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 Arizona residents and businesses, some of whom if they 

2 

could find a station with fuel and had hours to spare waiting in 

line, paid over $4 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 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 pipeline by the Arizona Corporation Commission and the 

identification of various ‘‘items of non-compliance’’ does their seem 

to have been little or no follow up in enforcement by OPS? Why is 

it that OPS’ 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 this aging pipeline before an accident occurred? 

The questions that have arisen from this incident suggest that 

delayed, lax, or worse, non-existent oversight and enforcement by 

OPS and a company that reacts to safety problems after they occur 

instead of taking actions to prevent them. I hope that at today’s 

hearings we will get answers to these questions that either correct 

this impression of real problems with 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 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 needs 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 employment. Our first witnesses 

today, we’re glad to welcome Janet Napolitano, Governor of the 

State of Arizona, and the Honorable Raul Grijalva, who is a Congressman from Arizona. Would you please both come forward? And 

we will begin with Governor Napolitano. Welcome, Governor. Welcome, Congressman Grijalva. 

3 

STATEMENT OF JANET NAPOLITANO, GOVERNOR, 

STATE OF ARIZONA 

Governor NAPOLITANO. Thank you, Senator, and thank you for 

inviting me to testify today about pipeline safety and reliability. I 

commend the Committee for its attention to this important issue, 

and in particular I want to thank you, Senator, for your leadership, 

including your role in the recent passage of the Pipeline Safety Act 

for 2002. 

Arizona has learned a lot about this issue since July 30 when the 

Kinder Morgan pipeline from Tucson to Phoenix ruptured. That 

rupture would splash 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 serious weaknesses in the Federal Government’s investigations and enforcement of pipeline safety. My testimony today will focus on the latter issue. 

In my investigations to date into the cause of the rupture and 

its effects of Arizona, 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 it. 

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 a particular state. 

In the case of the Kinder Morgan east line, the Corporation Commission had 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 maintenance measures. 

In one October 2001 violation report, the inspector warned that 

‘‘this pipeline has been in service for 50 years and has no coating 

problems.’’ The inspector went on to say that lack of maintenance 

could ultimately result in ‘‘pipeline failure, resulting in a loss of 

product, possible 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, and as a result, despite its findings and recommendations for compliance and corrective action, the Corporation Commission was powerless to effectively correct the situation. 

The problem was exacerbated by the fact that OPS itself brought 

only two enforcement actions in response to the Corporation Commission’s reports and never sought a penalty of greater than 

$40,000 against the 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 failure. 

Kinder Morgan asserts that the July 30 rupture was caused by 

stress corrosion cracking as opposed to 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 assessVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\20974.TXT JACKIE
4 

ment by Kinder Morgan that could have averted the July 30 rupture. 

We must have more effective pipeline safety. 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. In Arizona, we are willing to take the responsibility 

of enforcing pipeline safety, but we need the Federal funding and 

authority to do so effectively. 

I urge the 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. 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 one we had here can bring our economy 

to a standstill, but more important, given the volume of fuel that 

flows through these lines, such ruptures are probably a significant 

risk 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 the Department of Weights 

and Measures. They did not notify the Governor nor the Office of 

Homeland Security. I have since given Kinder Morgan numbers 

where they can reach my staff and our Director of Homeland Security 7 days a week on a 24-hour basis. Ultimately, I believe Congress should seriously 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 CEO 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 I am pleased to make it available 

to this Committee upon its completion. 

Arizona was lucky no one was injured in the July 30 rupture. 

Nonetheless, 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 asked our Real Estate Commission to investigate whether developers of property near the pipeline had given adequate notice to 

purchasers of the location of the pipeline. 

Given the growth of communities, as you noted, through the 

country since the date many active pipelines were first installed, 

I would urge this committee to take similar reviews of the requireVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\20974.TXT JACKIE
5 

ments for and enforcement of notification requirements to owners 

and new buyers of property located near pipelines. 

Last, the Arizona Department of Environmental Quality has 

issued a notice of violation to Kinder Morgan arising out of the 

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 with Kinder Morgan that Kinder 

Morgan is in full compliance with the State’s environmental laws. 

Again, we have learned a lot about this subject since July 30. I 

promise the people of Arizona that I will do all I can to help prevent a repeat of what happened here this summer. I’m grateful the 

Committee is taking 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 CHAIRMAN. Thank you very much, Governor. Congressman 

Grijalva, welcome. 

STATEMENT OF HON. RAU ́ L GRIJALVA, 

U.S. REPRESENTATIVE FROM ARIZONA 

Mr. GRIJALVA. Thank you, sir. Thank you, Senator McCain, and 

the Committee for holding this very important hearing and for the 

opportunity to provide some testimony to your Committee. I think 

this hearing on Kinder Morgan is very important. 

The gasoline rupture occurred in Tucson on July 30, and one of 

the things I’d like to do, Senator, is respectfully request the Committee hold a hearing in Tucson where the pipeline rupture occurred as soon as possible. While Phoenix-area residents were inconvenienced, potentially gouged in terms of the price of gas and 

the economic impact statewide, the constituents that I represent in 

that area were subjected to serious environmental health and safety dangers as a result of the pipeline rupture, and now we face we 

must endure the reconstruction and/or realignment of the pipeline. 

And as you stated and as the Governor eloquently stated, I also 

am extremely concerned with the lack of diligent oversight by Federal agencies who are tasked with the monitoring, the safety, and 

security of gasoline pipelines and all other energy infrastructure in 

this country. These responsible agencies with jurisdiction in this 

matter quite frankly have failed to ensure the safety of citizens in 

the area, along with security of gasoline supply. 

Neither the public nor elected officials knew the extent of safety 

risks associated with the pipeline. Our preliminary information indicates the pipeline may have failed safety inspections as far back 

as 1995 and then 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 serious disrupted. The consequences of this event are still ripping through our community 

and will no doubt be an issue of great 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 

6 

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 the 

logical choice, reconstruction along the existing right of way is far 

from a positive solution to the problem. 

The existing pipeline passes close to parks, residences, hospitals, 

schools, and potentially endangering the safety of citizens. All told, 

it runs through 60 residential subdivisions, affecting 782 individual 

residences, eight parks, four schools, and seven public facilities. In 

addition, the right-of-way passes through the area of 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 100 years. 

Using the existing right of way will perpetuate a dangerous situation for area residents and visitors. It 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 two options are available for the location of the pipeline, but 

I do not believe adequate effort have 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 have the adverse impacts on the community and on the 

natural resources of the area. Because neither of the 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. 

Senator, I would 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 on the pipeline’s reconstruction 

wherever it occurs. A variety of alternatives should be proposed 

that would address the health and safety and environmental concerns associated with this project. 

It is a difficult issue and I have tried to narrow my testimony, 

sir, on the after-the-fact situation. As you stated in your opening 

comments, it’s only in a crisis that makes people focus on the situation, and now I’ve narrowed the focus in this testimony to look at 

the realignment and/or relocation of this pipeline. It is of great concern to the people in Tucson, those both directly affected by the 

present alignment or any future alignments. 

I want to thank you for holding this hearing. It’s very important 

to the people of the state and certainly to the people of my district, 

and I offer the support and assistance of myself and my staff, who 

is available to work with your office and all affected and interested 

parties. And again, my thanks for allowing me the time to present 

this testimony, Senator. Thank you. 

7 

[The prepared statement of Hon. Grijalva follows:] 

PREPARED STATEMENT OF HON. RAU ́ L M. GRIJALVA, 

U.S. REPRESENTATIVE FROM ARIZONA

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. 

8 

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. 

CONGRESS OF THE UNITED STATES

HOUSE OF REPRESENTATIVES

Washington, DC, October 8, 2003 

STACY GERARD, 

Administrator, 

Office of Pipeline Safety, 

Department of Transportation, 

Washington, DC. 

Admiral JAMES M. LOY, 

Administrator, 

Transportation Security Administration, 

Department of Homeland Security, 

Arlington, VA. 

RE: Kinder Morgan Pipeline Rupture 

Dear Ms. Gerard and Admiral Loy: 

I am writing to you with regard to the Kinder Morgan gasoline pipeline rupture 

that took place in Tucson, Arizona on July 30, 2003. This disaster is of extremely 

grave concern to me and to the constituents I represent in Arizona. 

The pipeline rupture subjected my constituents to serious environmental, health 

and safety risks. Thankfully, no one was injured in the rupture. Now that the immediate danger of the rupture has passed, however, residents will have to endure the 

impacts of the pipeline’s reconstruction and potential realignment. 

Not only is this situation a danger to the health and safety of our citizens, it is 

also a tremendous risk to our country’s security. When lines are not appropriately 

monitored for leaks, breakages, or weaknesses, it puts our citizens’ lives at risk from 

potential accidents and from possible sabotage. 

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. 

I am dismayed that your agencies, who have jurisdiction over this matter, did not 

ensure that monitoring was taking place, and that you did not act upon reports of 

unsafe conditions on the pipeline. Monitoring and reporting of any problems were 

absolutely crucial in order to ensure the safety of the residents who live along the 

pipeline’s route, and the security of the pipeline itself. I believe this incident could 

have been prevented had your agencies been more diligent in their duties. 

The two options that have been presented to the citizens and City Council of Tucson for reconstruction and/or realignment of the pipeline route are clearly inadequate. The existing route perpetuates a dangerous situation for area residents and 

will cause new disturbance on Tumamoc Hill, a unique and highly valued research 

area ofthe University of Arizona, 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, and subsequently rejected 

by, the Tucson City Council is, unfortunately, not much of an improvement to the 

existing route. The realignment proposal would also put the pipeline in close proximity to schools, homes and public facilities. 

Kinder Morgan and your agencies 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. Your agencies have a responsibility to 

look again, and look more closely this time, to determine the safest location for both 

human health and the environment. 

Your agencies must 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. 

9 

I look forward to working with you and your designees on finding common ground 

on this issue. 

Sincerely, 

RAU ́ L M. GRIJALVA, 

Member of Congress. 

cc: Norman Y. Mineta, Secretary of Transportation 

Tom Ridge, Secretary of Homeland Security 

The CHAIRMAN. Thank you very much, Congressman Grijalva, 

and we appreciate your input on this issue of location of the pipelines, and maybe we could discuss that just for a second. 

Governor, thank you for your recommendation of the shifting of 

the responsibility from OPS to Homeland Security. I think it’s 

probably a very worthwhile consideration, not to mention that 

many view these pipelines as vulnerable to attacks from terrorists, 

and so perhaps it’s something that should be given serious consideration and we’d suggest it. 

Could we discuss just for a minute, Governor and Congressman, 

this issue of the location of pipelines? They’ve got to go somewhere, 

right? They have to go somewhere. Where should they go? Through 

the national forests, through the wilderness areas? It seems to me 

we’ve got a classic nimbi problem here, and it also seems to me 

then that the people who would probably make those decisions or 

have a significant voice in those decisions are the people who are 

directly responsible in many respects, i.e., mayor and city council, 

county supervisors. What’s your thoughts on that, Governor? 

Governor NAPOLITANO. Senator McCain, two points. One is I 

agree with you this should be a matter within local control in 

terms of planning and zoning and also disclosure to property owners. But I think that underlying your question is the point that the 

pipelines have to go somewhere. They cross vast expanses of territory. 

Given particularly the Western States and the growth of population, it is hard to conceive how they can get gasoline to where it 

needs to go without going near a population center and so forth, 

which it why it is so that then says why it is so important that 

there be very strict maintenance schedules, that there be very aggressive oversight, that there be back-up plans should there be a 

rupture, that there be availability to keep the community on notice 

at times when an accident does occur. 

In other words, what I’m saying, Senator, is if the pipeline is to 

go where it will go, it will go near population centers, it will go 

near schools. If it is, that just increases the importance of effective 

oversight. 

Mr. GRIJALVA. Sir, I would associate myself with the comments 

that the Governor just made. I think the issue is appropriately a 

local control issue and elected representatives of a community bear 

that responsibility and they should retain that responsibility. But 

in terms of the local issue, the request for all involved parties to 

fully involve the community in the disclosure and the discussion I 

think would help take and alleviate much of the concern and much 

of the doubt that exists right now, in the sense that everybody is 

getting the information and everybody feels that they’re participating in that information. 

10 

Down the road there are some tough choices, and those choices 

are going to be made. Someone will be affected and impacted negatively, but the process is of great concern to me, and that is the 

more you leave people to advise their own conclusions as to what 

going on without having the direct input into it, the more this issue 

becomes divisive, and as it is now a great concern to the whole 

community. Maintenance, oversight, critical issues, and I would 

concur with the Governor that those have to be part of any longterm reform to this whole issue. 

The CHAIRMAN. Thank you very much. Before you go, Governor, 

I know we’re going to hear more about this issue from the Attorney 

General. Do you want to comment on the gas price issue? And in 

those comments, do you think we ought to change the definition of 

price gouging? 

Governor NAPOLITANO. I think you have to have an effective definition of price gouging, and I draw a contrast between what happened after 9/11 and what happened after the Kinder Morgan shutdown. After 9/11, I was the Attorney General and there were reports of gouging in other States, and we received complaints in the 

Attorney General’s office and we sent investigators out, and in fact 

we didn’t find any gouging going on in Arizona, in contrast to what 

happened this summer. There definitely was gouging. Even at the 

most intense point of the crisis there was no economic justification 

for charging $3.50 and $4 a gallon for gasoline or requiring people 

in one instance, a car wash, gasoline station owner was requiring 

people to buy a $10 car wash in order to fill their tank when it was 

raining, and taking advantage that the market was out of whack. 

The CHAIRMAN. Doesn’t that fit the definition then of gouging? 

Governor NAPOLITANO. Well, Arizona does not have a gouging 

statute. 

The CHAIRMAN. But, apparently it doesn’t fit the FTC’s definition 

either because there has to be some proof of collusion. Is that—— 

Governor NAPOLITANO. That’s the way I understand it, Senator, 

and I think in Arizona, the Attorney General and I are working so 

we would have a state gouging law, which would be triggered by 

the Governor having to make certain findings, but then would give 

you the opportunity to go after those who are taking unfair advantage of a natural shortage of supply. 

The CHAIRMAN. Well, again, I thank you. It just seems to me 

when there was, the instance you talked about that, I don’t know 

why you would have to prove collusion. It just seems to me if it’s 

a unreasonable pricing and unreasonable requirement such as getting a car wash that that in itself should be grounds for some kind 

of violation, but apparently that’s not the case. And I’m sure we’ll 

hear more from the Attorney General on this issue, but perhaps 

there needs to be some kind of change at the Federal level as well 

as at the State level. 

Governor NAPOLITANO. We’ll be happy to share with you our 

draft legislation. 

The CHAIRMAN. Thank you very much. I thank you both for coming today and I appreciate you being here. 

Mr. GRIJALVA. Thank you. 

Governor NAPOLITANO. Thank you, Senator. 

11 

The CHAIRMAN. Our next panel is Mr. Samuel Bonasso, who is 

the Acting Administrator, Research and Special Programs Administration of the Department of Transportation. He’ll be accompanied 

by Ms. Stacy Gerard, who is the Associate Administrator for pipeline safety; the Honorable Terry Goddard, who is the Attorney General of the State of Arizona; Honorable Marc Spitzer, the Chairman 

of the Arizona Corporation Commission; and the Honorable Bob 

Walkup, the Mayor of the City of Tucson. I welcome you here and 

may I be corrected on the pronunciation of your name, sir? 

Mr. BONASSO. You have pronounced it just right, sir. 

The CHAIRMAN. Thank you. Please sit down and please proceed. 

Welcome, Mr. Bonasso. 

STATEMENT OF SAMUEL BONASSO, ACTING ADMINISTRATOR, 

RESEARCH AND SPECIAL PROGRAMS ADMINISTRATION, 

DEPARTMENT OF TRANSPORTATION; ACCOMPANIED BY 

STACY GERARD, ASSOCIATE ADMINISTRATOR FOR PIPELINE 

SAFETY 

Mr. BONASSO. Thank you, Mr. Chairman. I appreciate this opportunity to inform you of our progress to improve the safety of pipelines, to discuss our activities in connection with the Kinder Morgan accident of July 30, and to review some of our progress and 

plans for improving safety in the future. 

Much of the public discussion since the Tucson incident reflects 

confusion over: (A) what caused the pipeline failure, and (B) what 

might have prevented it from happening. I hope that this hearing 

will bring clarity to these questions and other concerns that the 

public has. 

Corrosion of the metal itself was not the cause of the pipeline 

failure in Tucson. This pipeline failure resulted from a cracking 

phenomenon that rarely occurs in liquid pipelines. Regretfully, 

science does not know much about this phenomenon, including how 

to detect it very well. The testimony I have submitted for the 

record covers this in detail and I am prepared to expand. 

The Nation’s pipelines are essential to our way of life. The 2.3 

million miles of natural gas and hazardous liquid pipelines carry 

near two-thirds of the energy consumed by our Nation. Pipelines 

are the safest way to support these enormous quantities of natural 

gas and hazardous liquids. The increased need for pipeline safety 

is rooted in demographic changes taking place in our country. Suburban development in previously rural areas has placed pipelines 

closer to people. This increases the risk that pipeline accidents, although infrequent, will have tragic consequences. The Tucson pipeline incident demonstrates what can happen when communities encroach on pipelines and a failure occurs. Expansion and development also means more construction activity, which is the leading 

cause of pipeline accidents. 

Pipeline safety is more than inspecting pipelines. It involves regulation, technology, information, State government partnerships, 

damage prevention, communication, and public education. We have 

strengthened all of these elements in just a few years thank to the 

attention of the Congress to pipeline safety, specifically by your 

Committee and the Administration. 

12 

We are growing. Ten years ago, the Office of Pipeline Safety consisted of 70 employees with 28 inspectors. Today we are 143 employees and 85 inspectors. Our partnerships with the States, such 

as our agreement with the Arizona Corporation Commission, provide several hundred more inspectors. The growth of our program 

has enabled the Office of Pipeline Safety to clean up most of the 

12-year backlog of outstanding mandates and recommendations 

from Congress, the National Transportation Safety Board, the DOT 

Inspector General, and the General Accounting Office. 

At the same time, the Pipeline Safety Improvement Act of 2002, 

enacted just 10 months ago, has given us many new mandates. 

RSPA has aggressively responded and we are also addressing these 

new mandates. In addition, since 9/11, we have devoted considerable attention to national pipeline security. Mr. Chairman, following your lead with legislation 3 years ago, we took a new, more 

comprehensive, informed approach to identifying and managing 

risks that pipeline operators face and pipelines pose to our communities. 

Today we know more about pipelines, the worlds they traverse, 

and the consequences of a pipeline failure. We finalized 14 regulations and incorporated 30 international consensus standards into 

our safety regulations. We have awarded almost $8 million for 

three dozen research projects to improve pipeline safety. We have 

adopted a tough but fair approach to enforcement, making heavier 

use of large fines, while guiding pipeline operators to meet higher 

safety standards. 

Our inspections are much more rigorous. In 1996, a standard 

pipeline inspection took an inspector up to 3 days to perform. 

Today we spend 20 times that amount on a comprehensive inspection. We have strengthened our partnership with State pipelines— 

State safety agencies such as the Arizona Corporation Commission 

through increased training, information technology communications, and policy collaboration. 

We are achieving results. Comparing the last 5 years to the previous 5, hazardous liquid incidents have decreased by 28 percent. 

Two years ago the volume of oil spilled decreased by 33 percent 

from a 10-year average. Excavation accidents have decreased over 

the past 10 years by 59 percent. This is largely the result of work 

with our State partners and the more than 900 members of the 

damage prevention organization we initiated called the Common 

Ground Alliance. 

Finally, helping communities to know how they can live safely 

with pipelines is a very important goal. We are moving on a number of fronts. Working with others, we created a new standard for 

public education to ensure community officials and citizens have 

essential safety information they need to make informed decisions. 

We have commissioned a study by the Transportation Research 

Board of the National Academy of Sciences to study issues of encroachment and maintenance on pipeline rights of way. We have 

enlisted the help of the Nation’s fire marshals to bring information 

and guidance to communities to build understanding of pipeline 

safety and first responder needs. 

Similarly, to foster safety and environmental protection on tribal 

lands, we’re working toward a partnership with the Council of EnVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00016 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\20974.TXT JACKIE
13 

ergy Resource Tribes. RSPA and the people of the Office of Pipeline 

Safety have the strongest possible commitment to improving safety, 

reliability, and public confidence in our Nation’s pipeline infrastructure. Thank you, sir. 

[The prepared statement of Mr. Bonasso follows:] 

PREPARED STATEMENT OF SAMUEL G. BONASSO, P.E., ACTING ADMINISTRATOR, 

RESEARCH AND SPECIAL PROGRAMS ADMINISTRATION, U.S. DEPARTMENT OF

TRANSPORTATION

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 

14 

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 percent. 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. 

15 

• 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; 

» RSPA awarded more than $7.8 million for approximately 36 research projects. 

16 

» 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 all66 major interstate operators for compliance with 

the initial regulatory requirements. We took enforcement actions on approximately 

80 percent 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 addiVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00020 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\20974.TXT JACKIE
17 

tion 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. 

18 

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 sec 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 

19 

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 onehalf 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 sixinch 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 sec 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 CHAIRMAN. Thank you very much. Attorney General Goddard, welcome. 

STATEMENT OF TERRY GODDARD, ATTORNEY GENERAL, 

STATE OF ARIZONA 

Mr. GODDARD. Mr. Chairman, thank you very much. It’s a pleasure to be here and to speak about the disruption inflicted in our 

state just a very short while ago. I would like to concentrate on the 

part of your invitation to speak which emphasized, as you’ve already alluded to, the effect on consumers, the effect on prices, the 

effect on supply. The Governor has already spoken, I think, very 

eloquently about the safety aspects. I have a little bit to add but 

I’ll leave those in my final comments. 

20 

I think the disruption that we suffered showed a number of 

things about Arizona, many of which were disturbing, not only the 

danger posed by the oil pipeline, but the fragile nature of our economy, and how vulnerable we could be to this kind of a disruption. 

The future depends upon affordable, reliable, and safe supplies of 

both energy, fuel, electricity, and water. Those are our two critical 

elements and they’re both in short supply. Arizona is in a particularly delicate position due to the scarcity of water and the lack of 

crude oil production in the gasoline refining in our State. 

Our gasoline supply in particular in Arizona depends, as has already been noted, on two pipelines, one through the west and one 

through the east, and I think it’s the vulnerability that our economy in our state has that came into very sharp focus during this 

crisis. We didn’t have adequate back-ups, we didn’t have alternatives, we didn’t have a competitive market in this State, and as 

a result we found when the pipeline broke and we suddenly had 

disruption that there wasn’t, for example, storage in Maricopa 

County we can fall back on. There aren’t tank farms except very 

short supply ones in this county. It appears that we have no refineries, that we have no alternative supply. 

The other thing that came in sharp relief was how hard it was 

to replace the pipeline and efforts were made gallant efforts were 

made to bring trucking supplies into Maricopa County, but it simply was inadequate as a result of the time limitations the truck 

drivers have to adhere to under Federal standards. Those were 

waived to a slight degree as a result of the crisis, but nonetheless, 

many trucks were left idle when they could have been producing 

gasoline for our central part of the state. 

There was talk about bringing the railroad into production, but 

that ultimately proved far too difficult with regulator barriers and 

in getting a supply of tank cars mobilized in time. And even the 

National Guard, our biggest tankers were in Iraq and the smaller 

ones turned out to not have qualified drivers for doing commercial 

deliveries and the nozzles used by commercial gasoline distributors 

would not work on our military trucks. So a lot was learned in that 

process and I think we’ll be in better shape in the future, but still 

the vulnerability of the whole system was brought into sharp focus. 

And all that is in the context of the fact that our whole gasoline 

delivery is facing a major shift here in Arizona. 

California has provided approximately 70 percent of the gasoline 

supplies and we know that picture is changing. It’s down to about 

50 percent today and we believe in the next 4 or 5 years it will go 

to almost 0. California’s production is going to be used in California 

or we’re going to have to pay incredible prices to get it back from 

them. So we see major changes coming in our market and we need 

to be better prepared for them. 

As Attorney General in charge of enforcing existing laws and representing State agencies, many of whom have been working tirelessly to ease the damage caused by the Kinder Morgan pipeline 

shutdown, Kinder Morgan has recently turned over voluminous 

documents relating to the spill clean-up to my office, and we’re in 

the process of evaluating and studying those documents. Our antitrust principle of legal authority in this area is under the antitrust 

laws and Senator, as you’ve already described, it requires a conVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00024 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\20974.TXT JACKIE
21 

spiracy in restraint to trade or conspiracy to fix prices to bring an 

antitrust violation in cases like this, and we felt that at least so 

far our investigation has not shown such a conspiracy. However, 

we definitely 

The CHAIRMAN. Why do you think you should have to prove a 

conspiracy? 

Mr. GODDARD. Because that’s the only statutory authority we 

have, sir. 

The CHAIRMAN. But I mean, it doesn’t make sense, does it? 

Mr. GODDARD. Well, I believe given what happened in this case, 

where about a dozen stations out of 1,200 in Maricopa County took 

this opportunity to raise prices, as you and the Governor have 

noted, to exceptional levels $4, in one instance $4.96 was the highest recorded price that we have we’ve investigated our of our office, 

although we didn’t have a legal—we didn’t have a price gouging 

statute. 

Nonetheless, we investigated for the record incidents that had 

been complained of. We verified that it was a very small number 

of stations, rogue stations, who took advantage of this situation 

and took their prices to the highest possible level. Most stations did 

not. Most applied a modest surcharge over wholesale prices because we were monitoring the wholesale during this problem as 

well. And as I said, only about a dozen truly gouged the public. 

I am working very hard with legislators to try to have a gouging 

statute an anti-gouging statute in the next session, because I think 

that’s a critical weapon, as the Governor has described, in times of 

emergency when we don’t have a competitive market, when basically the public is the victim of whatever price is charged because 

they can not competitively shop, I believe some protections are in 

order. 

Now we also had, as you know, major supply interruptions. I did 

want to speak to prices though before I go on. We have a chart 

here, I hope you can see it, Senator, it’s the one on the far right, 

which shows as the lower line national gas prices, and as the upper 

line central Arizona gas prices, reaching a high of $1 excuse me, 

$2.14 for a gallon of regular, clean-burning fuel on August 26. Obviously we went from right about the national average just a few 

days before the disruption to an extraordinary peak, which we are 

still in an area which is above the national average. Our prices obviously have come down faster than the national, but what you see, 

I think, in stark relief from that particular diagram, is just how 

quickly and how severely Arizona consumers, and Arizona law enforcement, I would like to note, were affected by this shortage. Bay 

stations, in fact, ran out of gasoline during this problem and for approximately a week we had shortages within the market, and that 

is detailed in my filed remarks. 

I’m afraid that the August supply destruction could recur, absent 

improvements in our gasoline supply alternatives in Arizona. Additional gasoline supply may come from another pipeline, which is 

nearly complete in Texas. While this new pipeline might help bring 

additional product into Arizona and reduce our dependence on California gasoline, the physical capacity of limitations with the existing pipeline in Arizona, by that I mean the one from El Paso to 

Tucson, reduces the usefulness of this option. Furthermore, FERC 

22 

1Source: Arizona Departments of Commerce Energy Office and Weights and Measures. 

2Some estimates show California’s demand for gasoline exceeding production by 2007. Source: 

Stillwater Associates, April 2002, presented by AZ Dept. of Commerce Energy Office in May, 

2003 report. 3See, e.g., ‘‘Gulf Coast to California Pipeline Feasibility Study,’’ California Energy Commission 

Committee Report, August 2003. 

has a pro-rata policy, which appears to suppress the opportunities 

for new entrance into this market. 

There’s also a possibility of a new refinery here in Arizona, it has 

been widely discussed. Again, although this may appear to be a 

positive solution, I have serious concerns about the physical practicality, the time to completion, pollution controls, and environmental justice issues. My office will continue to assess and evaluate 

potential market manipulation in gasoline supply. If I discover illegal conduct, I will vigorously prosecute. 

I’d like to thank the Committee, Senator McCain, for the opportunity to speak here today. 

[The prepared statement of Mr. Goddard follows:] 

PREPARED STATEMENT OF TERRY GODDARD, ATTORNEY GENERAL, STATE OF ARIZONA

I. Introduction 

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.1 In the future, California’s demand for gasoline will likely exceed its production capacity.2 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.3

Even while Arizona, and Phoenix in particular, move towards improved masstransit, 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. 

23 

4Pursuant to Commissioner’s Rule R4–28-Al203–4 and Arizona Revised Statutes (A.R.S.) 

§ 32–218l(A)(4). 5 Abayta, Oscar and Eric Sagara, ‘‘Ruptured Confidence.’’ Tucson Citizen. Sept. 4, 2003. 

6 Id. 

7 Id. 

8Formerly the Santa Fe Pipeline, bought by Kinder Morgan in 1998. 

9 Cleaner Burning Gasoline (CBG) is the fuel blend used in ‘‘Area A’’ to comply with Federal 

air quality requirements. Area A includes Maricopa County and a small section of Northern 

Pinal County. 10 Average retail gasoline prices. Source: AAA Fuel Gauge Report. 

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.4 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.5 A smoking area 

at the Salvation Army is located directly above the pipeline.6 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 30 rupture.7

• 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 8 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’’ 9 prices in Phoenix skyrocketed 

from an average of $1.54 10 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. 

24 

11Pursuant to A.R.S. § 41–191.02(0). 12Pursuant to A.R.S. § 44–1561. 13Source: Arizona Department of Weights and Measures. August 19, 2003 was the first day 

this survey was conducted. 14 Id. August 27, 2003 was the first date reflecting 100 percent of surveyed gas stations open 

and supplied with gasoline. By August 24, though, 98 percent of stations were open with gasoline. 15Pursuant to A.R.S. § 44–1406. 16Kinder Morgan’s Tucson-Phoenix 8′′ pipeline is 55 years old, while the El Paso-Tucson 8′′ 

and 12′′ lines were built starting in the 1950s, and ‘‘West Line’’ from California, a 20′′ line, was 

constructed in the mid-1980s. 

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 11 as does the Department of Cornmerce 12 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.13 These shortages began on August 

17 and ended on August 27.14

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.15 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 16 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. 

25 

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. 

The CHAIRMAN. Thank you very much. Commissioner Spitzer. 

STATEMENT OF MARC SPITZER, COMMISSIONER, 

ARIZONA CORPORATION COMMISSION 

Mr. SPITZER. Thank you, Mr. Chairman. I appreciate being here. 

As a preparatory remark, I would be in complete agreement with 

the comments of the Governor and the Attorney General, and what 

I think should be very clear for this hearing is that we are all 

working together as a team to protect Arizona interests, and again, 

I would indicate agreement with both the Governor’s remarks and 

those of the Attorney General. 

I’ve divided my remarks into four separate areas. In a transmittal letter I have made eight specific proposals that I think 

would provide some solutions to this problem. The first item is, respect the Federal role for improved pipeline safety through State 

resources. 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 State 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 accusation. The mother who waited in a gas line does not want to 

hear us blame 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 find resolution. 

The transportation of hazardous liquids through interstate pipelines is unquestionably interstate commerce. In the United States 

there is asserted jurisdiction within United States code Title 49. 

That does not mean that the exercise of Federal authority of interstate gasoline pipeline has always been wise. It has not. However, 

I will 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 

26 

must recognize Federal statutory authority and the chaos that 

would ensue if the states enacted 50 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 or 

necessary for the production 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. 

Next section is infrastructure challenges and systemic improvement, and both the Governor and the Attorney General have already alluded to the challenges our state faces. 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 and you, 

Senator, have been extremely helpful in dealing with this capacity 

issue and with the FERC, including the pending litigated case over 

Arizona’s allocation from the El Paso pipeline system. 

However, our 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 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 within Arizona. 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 recVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00030 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\20974.TXT JACKIE
27 

ognizing the merits therein and incorporating them into the Federal vision. 

Arizona’s pipeline inspectors have acknowledged experience and 

expertise. I’ve attached to my remarks 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 at reinstating our commission status. The Federal OPS should enhance rather than undermine the 

agent status of State pipeline inspectors. 

Next issue, information sharing. The keeping of confidences is 

appropriate for doctors, lawyers, and priests, but there should be 

no secrets with pipeline safety. We can not 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, the risks too great, and the 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 for 

pipeline operations. 

In two recent cases, Southwest Gas Corporation requested opinions from the United States Department of Transportation on 

interstate operations with 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 what is known as 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 interstate pipeline was ‘‘pigged’’ at the same time 

and over 5,000 anomalies were found in a 117-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. 

Final issue is 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. Back hoes have been known to rupture or demolish 

even the sturdiest pipe. Heavy construction produces intense vibraVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00031 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\20974.TXT JACKIE
28 

tion and impacts soil composition, both of which jeopardize underground pipe. I understand that some real estate developers seek to 

squeeze every nickel out of entitled land, but residential development within 37 feet of a 50-year-old gasoline pipeline is intolerable. 

The Federal and State governments must step forward with appropriate restrictions where counties and cities do not act. Federal 

OPS should work with the cities to develop excuse me—work with 

the states to develop clear guidance for counties and cities on the 

dangers and locations of pipelines to preclude residential zoning 

within 200 feet thereof. 

In conclusion, Mr. Chairman, on behalf of the Commission and 

its very experienced and aggressive pipeline safety inspectors, I am 

grateful to the Senate for convening this hearing. The many public 

recriminations and press releases since August have not done much 

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. Senator, thank 

you very much. 

[The prepared statement of Mr. Spitzer follows:] 

PREPARED STATEMENT OF MARC SPITZER, CHAIRMAN, 

ARIZONA CORPORATION COMMISSION

Respect the Federal Role but Improve Pipeline Safety through State 

Resources 

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. 

Infrastructure 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 

29 

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 U.S. 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’’ 

30 

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. 

The CHAIRMAN. Thank you very much, Commissioner. Mayor 

Walkup, welcome. 

STATEMENT OF HON. BOB WALKUP, MAYOR, CITY OF TUCSON 

Mr. WALKUP. Thank you. Mr. Chairman, thank you very much 

for the opportunity to testify on behalf of the City of Tucson and 

our over 500,000 city residents and some 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 system, regulatory system, and disaster preparedness system. The rupture itself placed adjacent residents in physical danger. We were very, very lucky that the escaping fuel did not ignite 

and no one was injured. 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, who is here 

today with us. They helped avert a major catastrophe for the City 

of Tucson. Many residents in the vicinity of the pipeline were not 

aware of the pipeline’s existence. There is no consistent or adequate form of disclosure that informed residents or homeowners in 

the proximity to the pipeline. Now some of these residents are demanding that Kinder Morgan build a new pipeline around the developed cities. The City of Tucson lacks the authority to require of 

Kinder Morgan a new pipeline in a remote location, so we request 

that our State and Federal governments work on our behalf. 

The inability of the Tucson Fire Department officials to have access to Federal or State inspection results prior to the pipeline rupture compromised public safety. The sudden and 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 fuel. Therefore, the supply 

problem in Phoenix caused a supply problem in Tucson and a steep 

increase in prices. 

31 

The realization of 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. First, 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 anomalies in the condition of the pipeline. Disaster 

readiness plans that account for a variety of potential situations 

must be developed in partnership with regulatory agencies at various levels and with pipeline companies. 

Second, the relationship between 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 of real estate transactions in proximity to the line. 

Fourth, local government must do more to impose land use restrictions that provide reasonable security to the 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 those 

area. Tucson’s city council has now voted to look at land use restrictions for future development near pipelines, and the city council has expressed interest in the possibility of Kinder Morgan or 

other pipeline companies constructing new pipelines outside the 

city limits. We realize that this wasn’t a reasonable, safe, or timely 

option with the existence pipeline in light of the crisis faced in the 

state and the immediate need to replace the deficient pipeline. 

However, the people of Tucson would like the State and Federal 

assistance in this matter. We understand that the existing pipeline 

must be replaced in its current location if the deficient pipeline is 

to be replaced at all. However, we hope that future pipelines will 

be constructed through undeveloped areas of our State. This may 

allow us to decommission existing pipelines through residential 

neighborhoods. 

And finally, and perhaps the most importantly, the construction 

and operation of more pipelines across the state is critical. Arizona 

can not be solely dependent on a single line. This is an economic 

reality and public safety reality and even a national security reality. Successful construction of new lines designed with sufficient 

security measures would provide more total fuel for the state and 

less dependency on one pipeline. In addition, we would hope and 

expect that new pipelines outside developed areas built with the 

sufficient capacity could make existing pipelines through the city 

neighborhoods obsolete. 

And in closing I would like to thank you, Senator, and the Members of this Committee again for this hearing. I want to also 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. The Governor’s southern Arizona staff led by Jan Lesher, 

32 

was always ready with information and assistance. I would also 

like to thank Tucson area State Representative Phil Lopez and Ted 

Downing and Councilman Steve Leal and other members of the 

Tucson city council. Together we have taken an active role in examining relevant issues. I also want to thank the Arizona Corporation Commission for its participation in a recent City of Tucson 

council meeting. Their staff did a good job in explaining the complexities of this issue. 

And last, I would like to thank Kinder Morgan for working closely with Tucson city staff and Fire Department officials. Now there 

will be more commissions and time between us to really improve 

this situation in Tucson and in the State of Arizona. This has been 

a very difficult situation for all of us that have been involved. However, everyone I have worked with on this issue has been forthright 

and determined to fix what needs to be fixed. Thank you very 

much. 

[The prepared statement of Hon. Walkup follows:] 

PREPARED STATEMENT OF HON. BOB WALKUP, MAYOR, CITY OF TUCSON

Dear Senator McCain and Committee Members: 

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. 

33 

• 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. 

The CHAIRMAN. Thank you very much, Mayor. Maybe we can 

start from the macro aspect of the issue, and maybe Commissioner 

Spitzer and Attorney General Goddard can enlighten us here. Is it 

obvious that Arizona needs a refinery? 

Mr. GODDARD. Senator, I think it’s obvious that we need, as 

many speakers have pointed out, some alternatives, some competition, some different ways to get gasoline supply into Arizona. A refinery is one of those answers. I think that would take some time 

to come online and the problem that I have, just off the top, is that 

if you’re going to build a pipeline to Arizona, it seems to me you’d 

want to put refined gasoline in it, not crude oil, and the refinery 

would need the crude oil. But that’s simply a personal opinion, I’ve 

not had a chance to run it by all of the various energy analysts, 

but I do believe it’s absolutely necessary that the pipeline or some 

other—I know there’s talk about bringing refined fuel from Mexico—the bottom line is that we have to have other ways to get critical energy resources into our State. 

Mr. SPITZER. Senator, for a politician redundancy is a bad thing, 

but in energy I’ve learned on the Commission redundancy is a good 

thing, and I think the analogy would be—— 

The CHAIRMAN. I’ve never known a politician to practice redundancy. 

34 

[Laughter.] 

Mr. SPITZER. Some of us, present company excluded. The way the 

Commission has worked on electricity in creating partnerships of 

all the stakeholders as well as consumer groups to ensure that the 

blackout that happened on the East Coast would not happen—we 

had an episode in August 1996, as you recall, and we created both 

within Arizona and outside entities to oversee reliability, and the 

key is redundancy, redundancy in production with power plants, 

redundancy in transmission, and we’ve done a good job in electricity. If one plant goes down or one transmission line goes down, 

we have back-ups. And we’ve sited power plants and high-voltage 

transmission lines, none of which anybody wants in their backyard, 

and there has been some controversy over some of those decisions, 

but ultimately the public interest was served. 

We have not had that discussion on redundancy that we’ve had 

in electricity in the area of natural gas, nor have we had it in the 

area of gasoline. We need to have that discussion and whether it’s 

a—I think the Attorney General’s right—it will be a collective decision. 

The CHAIRMAN. Do you agree? 

Mr. SPITZER. Whether it’s a refinery or—— 

The CHAIRMAN. Do you agree with his assessment that there will 

be less and less oil coming over from California? 

Mr. SPITZER. That is clear. There is no question that the—— 

The CHAIRMAN. Well, our options then are more pipelines coming 

from the East or constructing our own facilities? 

Mr. SPITZER. That would be the choice. 

The CHAIRMAN. Those are our choice? 

Mr. SPITZER. In my judgment, yes. 

The CHAIRMAN. Do you agree, Mr. Goddard? 

Mr. GODDARD. Mr. Chairman, yes sir. 

The CHAIRMAN. I mean, it just seems to me we ought to be aware 

of what our choices here are because I think we need to take a 

number of measures to prevent a recurrence of this problem, and 

I intend to get this catastrophe and I intend to get into that, but 

it seems to me we ought to look at the overall problem and that 

seems to be that we have some tough choices to make especially 

if—and I agree with the Attorney General that there are going to 

be scarcer supplies coming from the West. I don’t know from the 

East, Commissioner Spitzer, but we’ve got some pretty high growth 

areas to the east of us as well, so I just thought we ought to lay 

that out, because I think our constituents deserve to know that we 

have some pretty tough choices to make. 

Mr. GODDARD. And Senator, if you look at that chart, we have 

global problems nationally with regard to the supply of gasoline. 

Refineries have not been built anywhere, as I understand, in the 

last 20 years, and so it’s a serious supply problem with increasing 

demand, and that when supply is flat and demand increases, we 

know what happens. 

The CHAIRMAN. Well, I’m straying from the subject of the hearing, but it also seems to me that then we ought to have another 

look at nuclear power, Palo Verde. I think you would agree, Commissioner, and I would be glad to hear your assessment, it seems 

to me it’s been a resounding success. We still have the waste probVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00038 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\20974.TXT JACKIE
35 

lem, but we’ve also developed technology that reduces that problem 

significantly, and I think that’s one of the options that we ought 

to look at and I know that scares the daylights out of everybody, 

but the technology is there, and I wonder what your view is on 

that. 

Mr. SPITZER. Well, one of the aspects that we look at in electricity supply and generation is what they call a balance portfolio, 

so we’re not dependent, if natural gas is curtailed, we have not put 

all our eggs in one basket. And I think you pointed out we have 

the nuclear, we have coal facilities in eastern Arizona, we have new 

gas-fired plants. That is this redundancy that we’ve been talking 

about, so you’re not captive to one break, and I think the message 

from all speakers has been infrastructure, information, and somehow how to deal with this very difficult, challenging problem of 

siting pipelines. 

The CHAIRMAN. Well, hopefully—I receive a lot of suggestions 

and I appreciate all of them and maybe I could make a suggestion 

for this task force that the Governor has appointed that maybe 

they should look at the long-term energy requirements and challenges we face as well as the short-term. 

Mr. Bonasso—and I know Ms. Gerard may want to respond to 

some of these questions—how do you respond to the specifics that 

Commissioner Spitzer made, particularly sharing information and 

consultation and encroachment? 

Mr. BONASSO. We fully considered the views of the Arizona Corporation Commission. There’s no question that they are our people 

on the ground in Arizona. We have delegated full responsibility to 

them for doing the inspections of pipelines, interstate pipelines in 

Arizona. We don’t—I’m sort of—since we don’t agree with what Mr. 

Spitzer said, we obviously have a breakdown in communication, 

so—— 

The CHAIRMAN. What do you disagree with? 

Mr. BONASSO. Well, we are sharing information. Our people 

make contact. Our regional inspectors coordinate and communicate 

with the inspectors at the Arizona Corporation Commission. 

They’ve shared information extensively about this accident. The information—they have full authority to do inspections. Now, the 

question about enforcement and the levying of fines, that is something that OPS does. 

So I feel that we need to do a little better communicating here, 

and I would like to ask Ms. Gerard to add whatever she would like 

to that. 

Ms. GERARD. We certainly agree with the principles of everything 

that Commissioner Spitzer put forward, and there are certainly opportunities to improve communication. I think that there is a particular point as it regards the interpretation changes where we 

needed to make an improvement, we took action on that today to 

be able to immediately notify the state when there has been an interpretation made, and certainly there needed to be an improvement made in that area and that was correct. 

The CHAIRMAN. But up until today you never even would tell the 

Corporation Commission how you acted after violations are noted. 

Is that communications? 

36 

Ms. GERARD. I’d have to disagree that that was totally correct. 

I think that there has been considerable information sharing and 

I think that we do act together and I think that we do—— 

The CHAIRMAN. Well let me ask, let me ask Commissioner 

Spitzer if you’ve been told how OPS has acted after violations are 

noted? 

Mr. SPITZER. Senator, let me say that in fairness we’ve had some 

ups and downs between the Commission and OPS and you’re aware 

of that period between 1999 and 2000 where it was a down period, 

it was prior to my tenure on the Commission. But in review of the 

record, there were serious problems. I think the OPS has improved 

since that time. They’re not at the level that we would like, and 

there will be disagreements, there will be legitimate disagreements 

between our inspectors and OPS from time to time. I think our 

frustration was that we did not feel that our views were being it’s 

one thing to, the difference between hearing and listening, and I 

guess that was our concern. 

The CHAIRMAN. Mr. Bonasso, in 1997, as a result of a standard 

inspection performed by the Arizona Corporation Commission, OPS 

issued a corrective order to Kinder Morgan for five items of regulatory noncompliance. Based on the information that you provided 

this Committee, it took over 5 years for this order to finally be 

closed. Why? Ms. Gerard, if you feel more qualified to answer—— 

Mr. BONASSO. Well, I’m going to incorporate her as well, but I 

also want to say that a—there are a number of corrective action 

orders out now that remain open and it’s the policy of OPS to keep 

those orders open even though the specific issues that are identified in those orders are taken care of very early on. It’s mainly a 

process that we use to monitor. Now, about the specific item I will 

ask Ms. Gerard to comment. 

Ms. GERARD. In this particular case there was 52 incidents of 

corrosion that were corrected by the company in the 1996/1997 

timeframe, and in the 5 years that followed our completing the 

writing of the amendment, at no time was the pipeline unsafe. We 

were fully aware of what the condition of the pipeline was and that 

the repairs that were needed to be made were done. We had at the 

same time 11 other corrective action orders that we were working 

on with other pipeline companies where there was a much more 

immediate hazard to the population than there was in this case. 

The immediate hazard had been remedied long before the amendment was formalized. 

In addition to that we were enforcing the integrity management 

regulations and had been inspecting Kinder Morgan under the new 

integrity management regulations and making enforcement actions 

in that case. It also was the time of 9/11. The hearing in question 

was the month before 9/11 and we had an enormous task to evaluate the protection of the critical infrastructure in all the other pipelines at the same time, so our point is that the immediate hazard 

was already remediated long before the amendment was written. 

The CHAIRMAN. Was Kinder Morgan’s voluntary shutdown of the 

line solely due to safety concerns? 

Mr. BONASSO. It appears to us that it was. I know of no other 

reason why they would shut it down. 

37 

The CHAIRMAN. If so, why did Kinder Morgan know—what did 

they know that the Office of Pipeline Safety didn’t, since OPS only 

required the operator to reduce its operating pressure to 80 percent? 

Mr. BONASSO. The requirement to reduce the operating pressure 

to 80 percent was when the initial concept of the failure was that 

it was a seam failure on the pipe. When it was discovered that the 

failure was not a seam failure due to corrosion, Kinder Morgan immediately decided to hydro-test pipe. Once they hydro-tested the 

pipe, they determined that there were other problems that were 

similar to this stress corrosion cracking that had occurred, and at 

that point is when the decision to shut down the pipeline and replace those sections took place. So they actually did some field testing of the equipment to determine whether or not it should be shut 

down. 

The CHAIRMAN. Thank you. Attorney General Goddard, I understand you have to leave to track down some criminals and we appreciate you being here. 

Mr. GODDARD. Thank you very much, Mr. Chairman. I’ll get 

right on it. 

The CHAIRMAN. Thank you very much for your participation and 

we appreciate very much all the work you’ve done. Mr. Bonasso, 

did Kinder Morgan meet the 30-day deadline for submitting a written plan with corrective measures as required by OPS’ corrective 

action order? 

Ms. GERARD. No, they did not, but at the time the order was 

written, we did not know that stress corrosion was the phenomenon that caused the accident, and we contacted the president 

of the company orally and began to give him by phone the guidance 

that we wanted him to use to begin evaluation for stress corrosion 

cracking. At that time incidents of stress corrosion cracking were 

so rare on a pipeline of this type that we really had to consider 

what protocol should be used very thoroughly, because it is a relatively unknown phenomenon on hazardous liquid pipelines. 

The CHAIRMAN. Have they submitted it yet? 

Ms. GERARD. Yes, they have submitted it in pieces and we’re still 

working to make sure the plan meets our standards. 

The CHAIRMAN. Has the plan been completed in its entirety? 

Ms. GERARD. Not entirely to our satisfaction. 

The CHAIRMAN. How can you decide whether it meets your standards if it hasn’t been submitted? 

Ms. GERARD. They’ve submitted it. We find that it needs some 

adjustments still. They have submitted the plan. 

The CHAIRMAN. In reports issued in 2000 and 2001, the General 

Accounting Office criticized OPS’ practice in the 1980s of issuing 

warning letters and letters of concern rather than issuing fines. In 

1998, OPS decreased the proportion of enforcement action in which 

it proposed fines from 49 percent to 4 percent. What fines has 

Kinder Morgan been assessed by OPS? 

Ms. GERARD. I know that there have been four cases following 

Arizona inspections. 

The CHAIRMAN. Are there any fines been imposed on Kinder Morgan? 

Mr. BONASSO. There had been one $3,000 fine imposed in 1998. 

38 

The CHAIRMAN. Is the division of duties between OPS and the 

Arizona Corporation Commission identical to OPS’ relationship 

with all states or do you have different arrangements with other 

States? 

Ms. GERARD. We have interstate agent states. There are 15 of 

them. All of them have identical relationships with us, and the balance of the states have authority for inspecting the intrastate. They 

also the states that are in the intrastate program, which is the vast 

majority of them, also do the enforcement on the intrastate cases. 

The CHAIRMAN. Is it true that you have not issued an order required the dates certain replied and Kinder Morgan had not replied 

by the deadline and OPS didn’t issue any further official document 

or impose a fine or anything? Is that true? 

Mr. BONASSO. Relative to this incident? 

The CHAIRMAN. Yes. 

Ms. GERARD. We amended we amended the corrective action 

order on the 6th to put in the guidance that we thought was necessary for the stress corrosion cracking evaluation. 

The CHAIRMAN. And no fine has been levied? 

Ms. GERARD. And we’ve given them a new deadline. No, no fine 

has been levied. 

The CHAIRMAN. Mayor, I want to thank you. I just want to mention just one other aspect of this problem though. I’m sure you 

have the same thing that I’ve seen here in the valley and that is 

the growth of the valley as it’s going to take place similarly, it’s 

going to happen in Tucson and Pima County. And you mentioned 

that a pipeline was laid in 1995, I believe. 

Mr. WALKUP. 1955. 

The CHAIRMAN. 1955, excuse me, 1955, and it was in a remote 

area. How do you if you lay a pipeline now someplace in a remote 

area, 50 years from now it’s not going to be in a remote area. How 

do you do this? Isn’t it a little more reasonable to talk about Commissioner Spitzer’s proposal that a 200-foot, 400-foot, or whatever 

it is, boundary should be imposed as opposed to trying to find a remote area? Out of the pictures I’ve seen of this valley you’re going 

to have to go a long, long way before you’re in a remote area and 

that remote area is probably Federal land or a wilderness area. 

Mr. WALKUP. There’s kind of two emerging issues, that we have 

about 12 to 13 miles that are currently in the city. The vast majority of the pipeline runs through commercial areas along have sufficient right of ways to keep it away from residential areas. It’s only 

as it gets over into the western side of our community does it really 

start bumping up against residents that are within 30 to 50 feet 

of it. I think—— 

The CHAIRMAN. With all due respect, we used to have all the 

growth to the east too. 

Mr. WALKUP.—I understand. But clearly to me and to the majority of the council, the first order of business is get the pipe repaired 

that is in the ground and you do that by hastily putting in the new 

pipe that is up to modern standards, adjusting the testing and 

maintenance procedure. At that point, that’s why I say I think that 

it’s important that we work with Kinder Morgan, we work with the 

State to see if there’s an alternate location that is away from residential areas, not necessarily, Senator, in the Western desert. 

39 

Maybe there’s the possibility of running it along I–10. Rather than 

bringing it over west, maybe we can take it down I–10. So I haven’t 

excluded personally the opportunity to look at a further location 

that keeps it out of the way of schools and residential areas, and 

in the process we also need to know what is the safe distance that 

any new construction that is going to be done in and around the 

existing pipeline is kept safe. 

So I think we’ve got a number of options, but the first and foremost is get the current 8-inch repaired either through repair of the 

pipe or the replacement of the pipe with the 12-inch. 

The CHAIRMAN. Commissioner Spitzer, I know it’s not it’s out of 

the area of your present expertise—— 

Mr. SPITZER. Lots of things are, Senator. 

The CHAIRMAN. Do you want to comment on that issue again? 

Mr. SPITZER. Well, our process for siting high-voltage transmission lines and power plants is one of attempting to provide as 

much notice in advance to the people where and we have this 

growth issue, so we have power lines that are needed in the north 

part of Phoenix and in the west part, and we mark those lines and 

give notice to the citizens as much as affordable. 

But in that context we still must make tough choices, and in 

those tough choices there—I think the folks that have lived in a 

community for 50 years are entitled to a little bit more respect in 

terms of their property rights and their aesthetic, even if it’s not 

a health and safety issue, it’s aesthetics, due matter. They’re entitled to more protection of the law than, let’s say, a real estate speculator who just wants to build the next Taj Mahal somewhere in 

the west valley and objects to a very necessary power line. 

This is a debate that’s gone on for a long time, but the statutes 

in Arizona I think are instructive. We have a line siting committee, 

the Chair of which is the designee of the Attorney General of Arizona. There are a number of lay people as well as folks from State 

agencies that are in that panel, and the Commission reviews the 

deliberations of that Committee and we’ve been able to achieve our 

objectives. It requires some tough decisions, but notice in advance 

and participation from a wide universe of people has been able 

we’ve been able to get the necessary infrastructure in place, and 

that may be the model that we’d adopt. 

I’d also point out that my proposal is a balance. I’m not proposing that the Federal Government usurp the local zoning authority from the City of Tucson or from Pima County in this particular 

case. I’m suggesting that we establish baseline standards, and it 

doesn’t have to be a formal regulation, it could be a notice that 

would be published that puts the zoning authorities and the developers on notice that building a house 37 feet from a pipeline is not 

a good practice and if something goes wrong there is serious liability. That’s the best deterrent I see. 

The CHAIRMAN. Mr. Bonasso and Ms. Gerard, what is your confidence that we will not see a repeat of this catastrophe here in the 

State of Arizona? 

Mr. BONASSO. Senator, we’re learning more every day about 

what it takes to keep a pipeline safe. We’re sharing that information. We’re doing a study that will offer some guidance to public officials like Mr. Spitzer and the mayor on the issues that they’re 

40 

dealing with. I think that the enhanced level of inspection, the 

greater cooperation we have with Arizona, I believe that the inspection levels that we’re—and the IMP, certainly the integrity management process that you acknowledged and pioneered I think is 

a very, very important tool in doing this. And I think that this is 

like any other aging piece of infrastructure: the more we know 

about, the more we’re able to make sure that accidents don’t occur 

with it. 

The CHAIRMAN. Is the pipeline—do you want to comment, Ms. 

Gerard? 

Ms. GERARD. Yes, I wanted to say that all the inspections in the 

world wouldn’t have helped to stop this particular accident because 

the phenomenon is not one that we currently have a technology to 

be able to find. But as a result of the Pipeline Safety Act and the 

research program which is provided we are funding studies into 

this phenomenon already, and with a better ability to detect and 

a better ability to have criteria to be able to identify this in a risk 

study we’ll be ahead of the game soon. The technology has to be 

there, it isn’t just an inspection function. 

The CHAIRMAN. You’re saying that the reason why all the inspections wouldn’t have handled it is because the cause was a stress— 

was stress crack corrosion? 

Ms. GERARD. Yes. 

The CHAIRMAN. So what are we doing to make sure that we can 

detect? 

Ms. GERARD. We have three different projects underway prior to 

the accident—excuse me two prior to the accident to begin to look 

at modifying internal inspection devices to be able to find this kind 

of a phenomenon. So it’s going to take us a little bit of time to get 

there but that research is necessary in order to improve the technology. A few years ago we couldn’t accurately find the external 

corrosion that we can find today, so the technology is making a big 

difference and it’s very important that it be funded and supported. 

The CHAIRMAN. Well, I did note we have dramatically increased 

the amount of Federal funding, maybe you might want to mention 

that, Mr. Bonasso. 

Mr. BONASSO. Well, I have in my testimony indicated that there 

has been a truly significant increase in funding for the Office of 

Pipeline Safety. It went from $60 million or $47 million to $63 million in the last 5 years and there is an increase to $73 million in 

the 2004 budget. So the Office of Pipeline Safety is the fastest 

growing department in the Department of Transportation. It’s—one 

of the things that we’re challenged by is finding enough people to 

do the work that we’ve been funded to do. 

The CHAIRMAN. What’s the average age of liquid pipelines in the 

United States? 

Ms. GERARD. Off the top of my head I’m going to say the majority 

of them are about the same age as Kinder Morgan, in that they 

were built in the 1950s to 1970s timeframe. 

The CHAIRMAN. Regulations for integrity management require 

that after completion of the initial baseline inspection liquid pipelines be internally inspected every 5 years. It seems to me that the 

intervals between integrity management inspections should be 

based on risk, including the age of the pipeline and other factors. 

41 

Ms. GERARD. That’s exactly what we think and that is how the 

regulation is written. The 5-year is a minimum threshold. 

The CHAIRMAN. All right. I want to thank the witnesses. Thank 

you for being here. Thank you. Please extend our condolences to 

the citizens of Tucson that experienced this catastrophe and our relief that it wasn’t worse, Mayor Walkup. 

Mr. WALKUP. I will certainly do that. 

The CHAIRMAN. Thank you all, thank you very much. Our last 

panel is Mr. Thomas Bannigan, President of Kinder Morgan Product Pipelines; Mr. David Cowley, the Director of Public Affairs, 

AAA Arizona; and Mr. Jonathan Olcott, Attorney at Law, Olcott 

and Shore, on behalf of the Silver Creek Homeowners Association. 

Welcome to the witnesses. We’ll begin with you, Mr. Bannigan. 

STATEMENT OF THOMAS A. BANNIGAN, PRESIDENT, 

KINDER MORGAN PRODUCTS PIPELINES 

Mr. BANNIGAN. Thank you, Mr. Chairman. I appreciate the opportunity to appear before the Committee today and address issues 

involving Kinder Morgan’s pipeline operations in Arizona, including 

the July 30 release from our 8-inch Tucson-Phoenix pipeline. I 

would also like to address our safety record and interaction with 

the Office of Pipeline Safety and the Arizona Corporation Commission. With your permission, Mr. Chairman, I will summarize my 

written testimony, which has been submitted for the record. 

Kinder Morgan owns and operates nearly 10,000 miles of products pipelines transporting 2 million barrels per day of refined petroleum products, including gasoline, diesel, and jet fuel, both commercial and military grades. We own or operate products pipelines 

in 21 states. Kinder Morgan is headquartered in Houston, Texas. 

We acquired the pipelines that serve Arizona markets in March 

1998 as part of our acquisition of Santa Fe Pacific Pipelines Inc. 

Pipelines are the safest and most efficient means of delivering 

petroleum products from refineries to end users. The experience of 

Kinder Morgan and the companies which preceded it in the State 

of Arizona reinforces that fact. In the 48-year history of product 

pipelines serving Arizona, there have been no reported deaths or 

injuries to the public. In the 5 years and 6 months during which 

Kinder Morgan has owned and operated these pipelines, we have 

transported over 440 million barrels of petroleum products to Arizonans. 

During this period there have been three releases from our pipelines. Two were due to damage caused by third parties striking the 

pipelines, and the third the high pH stress corrosion cracking incident on July 30. With respect to that incident, the released was 

identified by our controller in Orange, California. The line was shut 

down within 3 minutes of receiving an indication of abnormal condition through our SCADA system. The volumes not recovered from 

the July 30 release represent one-ten-thousandth of 1 percent of 

the volumes Kinder Morgan has transported over these lines since 

acquiring them in 1998. Nonetheless, one gallon out of our pipelines is one gallon too many. We take seriously our commitment to 

operate a safe and reliable pipeline system and we strive for operational excellence and incident-free operations. 

42 

Protection of our employees, the public, and the environment in 

which we operate creates this drive. Moreover, our financial interests are best served by operating safely. Service disruptions cost 

our business, for we only make money if we can move products 

from point A to point B. Releases bring with them a host of unacceptable consequences, from response cost and environmental remediation expenditures to litigation, which more frequently these 

days can have both civil and criminal components. Injuries or 

death arising from an incident can undermine a company’s reputation, its franchise to do business, as well as impede its ability to 

grow its business in states within which it operates. 

The decision to temporarily shut down the 8-inch pipeline on August 8 was the safe and prudent course of action. A fundamental 

principle that we constantly emphasize to our operations personnel 

is as follows: if in doubt, shut the pipeline down and restart the 

line only after the doubts have been eliminated. High pH stress 

corrosion cracking has never been experienced on a Kinder Morgan 

refined products pipeline and in our judgment the line had to be 

hydrostatically tested to ensure that it could be operated safely. Although the resultant service disruption inconvenienced consumers, 

far greater would have been the criticisms and consequences of continuing to operate the line and having another release such as the 

one on July 30. 

Kinder Morgan demonstrated its flexibility and responsiveness to 

the temporary shutdown of its 8-inch Tucson to Phoenix pipeline. 

During the weekend following the shutdown, we had modified terminal facilities in Tucson to allow Arizona CBG gasoline to be 

trucked to the Phoenix market. That same weekend our shippers 

were notified of the service disruption and we worked with them 

to reschedule additional products into Phoenix over the west line, 

which originates in California. 

In the week following the shutdown, Kinder Morgan’s efforts allowed over 92 percent of the average daily demand in Phoenix to 

be met. Demand, however, had spiked during the service disruption 

and exacerbated the supply shortfall. Nonetheless, despite the service disruptions in August, Kinder Morgan actually transported 13 

million more gallons of gasoline into the Phoenix market than it 

had transported the preceding August. 

Our commitment to safety is highlighted by our integrity management plan. This plan, which involves the assessment of pipeline 

integrity through internal inspection devices known as smart pigs 

was begun by Kinder Morgan’s predecessor and continued by us. 

These pigs are very effective in detecting pipeline defects such as 

external corrosion and dents and gouges on a pipeline. 

Approximately 95 percent of Kinder Morgan’s 3,325 miles of active pipelines in our Pacific operations have been internally inspected to date. Almost 94 percent of these miles were internally 

inspected before the effective date of DOT’s integrity management 

program rules became effective in March 2001. 

We were internally inspecting pipelines in Arizona before such 

actions were ever required by the Government. In fact, all Kinder 

Morgan pipelines in Arizona have been smart-pigged at least once 

before the effective date of the IMP rule and most have been 

smart-pigged at least twice. The 8-inch Tucson to Phoenix pipeline 

43 

was inspected in 1996 and 1999 and the 6-inch Phoenix to Tucson 

pipeline in 1999 and again in 2003. 

It is important to note that while internal inspection tools used 

by Kinder Morgan can detect wall loss due to generalized corrosion, 

these tools are not yet capable of identifying high-pH stress corrosion cracking in small- diameter pipelines. The technology to detect 

SCC phenomenon exists for large-diameter pipelines, but it has not 

yet been miniaturized to accommodate smart pigs in pipelines with 

diameters as small as 6-inch as 8-inch. 

There has been testimony about the existence of generalized corrosion on pipelines and the responses of Federal and State agencies. Several facts bear noting. First, the evidence of generalized 

corrosion was identified by Kinder Morgan as part of its voluntary 

integrity management program just referenced. Operating pressures on the lines were reduced by the decision of the company 

until repairs were made. 

Second, the generalized corrosion identified was not the result of 

active ongoing corrosion, but rather the result of corrosion occurring in a 2-year period after construction in 1956 and before appropriate cathodic protections were installed in that pipeline. Third, 

the absence of active corrosion was demonstrated in over 50 tests 

in research that was submitted to the Department of Transportation and the Office of Pipeline Safety. 

Fourth and finally, the history of corrosion releases on pipelines 

in Arizona provides compelling evidence of the effectiveness of the 

cathodic protection of our pipelines. There has not been a corrosionrelated release on the 8-inch Tucson to Phoenix pipeline since 1980, 

on the 6-inch Phoenix to Tucson pipeline since 1988. There have 

been no reported corrosion releases in the history of the El Paso 

to Tucson 12-inch and 8-inch pipelines, nor the Colton, California 

to Phoenix 20-inch pipeline. 

Although Kinder Morgan believes and understands the respective roles and responsibilities of the Office of Pipeline Safety and 

the Arizona Corporation Commission in regulating our interstate 

pipeline facilities, the company has been caught at times between 

the competing positions of staff members of ACC and the OPS. 

OPS clearly has primacy with respect to interstate pipelines and 

ensuring that a common nationwide framework of safety regulation 

exists. We encourage ACC’s involvement with inspections, public 

education, siting, and notice requirements involving utilities, as 

well as promoting the excellent blue state damage prevention program in Arizona. 

All parties have a role to play in ensuring public safety. We believe we have an excellent safety record in the State of Arizona and 

we look forward to providing the citizens of Arizona with safe and 

efficient pipeline operations for many years to come. Thank you, 

Mr. Chairman. 

[The prepared statement of Mr. Bannigan follows:] 

PREPARED STATEMENT OF THOMAS A. BANNIGAN, PRESIDENT, KINDER MORGAN

ENERGY PARTNERS L.P. PRODUCTS PIPELINES

Introduction 

Mr. Chairman, members of the Committee, my name is Tom Bannigan. I am 

President of Kinder Morgan Energy Partners Products Pipelines. Kinder Morgan 

44 

1On October 1, 2003, Kinder Morgan acquired the former Shell Oil Products U.S. terminals 

at Phoenix and Tucson. 

owns and operates nearly 10,000 miles of products pipelines transporting 2,000,000 

barrels per day (b/d) of refined petroleum products including gasoline, diesel and jet 

fuel (commercial and military). We own or operate products pipelines in 21 states. 

Kinder Morgan is headquartered in Houston, Texas. 

I appreciate the opportunity to appear before the Committee and address issues 

involving Kinder Morgan’s pipeline operations in Arizona, including a July 30, 2003 

release from our 8′′ Tucson to Phoenix pipeline, our safety record and interactions 

with the Office of Pipeline Safety (OPS) and the Arizona Corporation Commission 

(ACC). 

Kinder Morgan Energy Partners, L.P.’s Assets in Arizona 

Kinder Morgan owns and operates interstate common carrier pipelines that serve 

the Arizona market. These assets were acquired from Santa Fe Pacific Pipeline, Inc. 

in March 1998. A map of our Pacific operations is included as Exhibit 1 of this testimony. Phoenix and Tucson are served by pipelines that originate at refining/import 

centers in the Los Angeles basin and West Texas and New Mexico. The West Line 

is a 20′′ diameter pipeline constructed in 1985, 1988 and 1989 which transports 

products from Kinder Morgan’s Colton, CA tank farm to Phoenix, AZ. It has an average daily capacity of 204,000 b/d. A 6′′ pipeline begins in Phoenix and transports 

products originating in Southern California to the Tucson market. This line was 

constructed in 1956 and has an average daily capacity of 14,000 b/d. Two pipelines, 

12′′ and 8′′ in diameter, originate in El Paso, Texas and deliver product to Tucson, 

AZ. The 8′′ line was constructed in 1955 and the 12′′ line in 1964. The lines have 

an average daily capacity of 94,000 b/d. 

The 8′′ line extends from Tucson to Phoenix and it was ‘‘looped’’ (expanded) in several segments so that it is comprised of both 8′′ and 12′′ segments. The 12′′ segments 

were installed in 1992. Kinder Morgan also owns and operates pipelines that deliver 

military jet fuel to Yuma Marine Corps Air Station, Luke AFB and Davis-Monthan 

AFB. 

Kinder Morgan also owns and operates a petroleum terminal and truck rack at 

Phoenix and Tucson. Our market share in Phoenix (based on a percentage of products transported through the pipeline) is 28 percent. Five other oil companies own 

terminals in the Phoenix market. Our market share in Tucson is approximately 37 

percent. Two other oil companies own terminals in the Tucson market.* 1 Kinder 

Morgan only provides transportation and storage services. We do not market or sell 

petroleum products. 

Kinder Morgan charges a tariff for transporting each barrel (42 gallons) of petroleum products through its pipelines. The tariffs are subject to economic regulation 

by the Federal Energy Regulatory Commission. It costs a shipper approximately 2 

cents per gallon to transport a gallon of gasoline from El Paso to Phoenix and approximately 3 cents from Los Angeles to Phoenix. The tariff charged is not linked 

to the price of gasoline. If retail prices are $1.50 per gallon or $2.25 per gallon, 

Kinder Morgan receives no more than the 2 cents or 3 cents FERC tariff for each 

barrel transported. Kinder Morgan does not own the products it transports; it merely assumes custody of the refined product during its transportation. Each month, 

our shippers nominate volumes of product to be transported the following month 

through our various pipelines. In the case of the Arizona markets, shippers can 

nominate products from either, or both, California and West Texas/New Mexico 

sources. It is their choice. 

The average daily demand for all refined products in the Phoenix market is approximately 175,000 b/d. The average daily demand for the Tucson market is approximately 45,000 b/d. Because Phoenix is a non-attainment area under the Clean 

Air Act, boutique gasoline fuels are used in the summer (March–October) and winter (October–March) to reduce ozone precursors. The summer grade gasoline is referred to as Arizona CBG (Clean Burning Gasoline) and the winter grade is called 

AZRBOB (Arizona reformulated blendstock for oxygenate blending). Ethanol is the 

oxygenate used in the Phoenix market in the winter. It is transported by rail or 

truck to the terminals and blended into the gasoline at the local terminals. Tucson 

is not a non-attainment area under the Clean Air Act, so this market uses conventional gasolines. (Conventional gasoline is also delivered to the Phoenix market for 

use outside of Maricopa County.) 

Approximately 70 percent of all products delivered into Phoenix are transported 

through the West Line. The remainder (30 percent) is transported through the East 

Line. Exhibit 2 provides the percentages of boutique gasolines (CBG and AZRBOB) 

and conventional gasolines transported to Phoenix from the West Line and East 

45 

Lines. As the table illustrates, refineries in both California and West Texas/New 

Mexico have produced boutique and conventional fuels for Phoenix. 

Safety Regulation and Safety Record 

Kinder Morgan is proud of our safety and compliance record. Safety and compliance are integral to every decision we make. We take seriously our commitment to 

operate a safe and reliable pipeline system, and we strive for operational excellence 

and incident-free operations. 

Kinder Morgan’s track record in Arizona has been outstanding since we acquired 

these pipelines in March 1998. During this time, we have transported more than 

440 million barrels of fuel into the state, and the recent product release in Tucson 

was the first time we have experienced an incident with one of our Arizona pipelines 

that was not a result of third party damage. We have had two releases due to third 

party damage and the July 30 release, which was due to high pH stress corrosion 

cracking (SCC). There were no injuries or fatalities as a result of any of these incidents. 

Research conducted by Allegro Energy Partners and sponsored by the American 

Petroleum Institute and Association of Oil Pipe Lines (Exhibit 9) demonstrates that 

pipelines are the safest and most efficient form of transportation for refined products. Experience in Arizona reflects these national statistics. For example, for the 

five year period 1996–2000, there were 1104 highway hazardous material incidents, 

102 rail hazardous material incidents, and 2 hazardous liquid pipeline related releases in Arizona. (Source: Bureau of Transportation Statistic; Arizona Transportation Profile; http://www.bts.gov/publications/transportationlprofile/arizona/). 

In the last year of this period 2000, there were two fatalities and four injuries from 

non-pipeline transportation modes. There has never been a death or injury to a 

member of the public as a result of a release from a pipeline owned or operated by 

Kinder Morgan’s products pipeline group. Moreover, to our knowledge, there has 

never been a fatality or injury to the public as a result of pipeline operations in the 

state of Arizona since such accident records have been kept. 

Our safety track record in Arizona is exemplary. Following the July 30 release 

we acted decisively in the interests of pipeline safety as demonstrated by our decision to temporarily shutdown service on the 8′′ Tucson to Phoenix pipeline after we 

became aware of the high pH SCC, a phenomenon never previously experienced on 

our refined products pipelines. 

Our commitment to regulatory compliance is equally as strong. Kinder Morgan 

has a pipeline safety staff that actively participates in regulatory rulemaking, tracks 

all new regulations and ensures that our plans and procedures comply with pipeline 

safety regulations. We have a management of change process that ensures that 

changes are communicated to operations personnel. We have a separate internal auditing division that conducts audits of our field operations to ensure that we are 

complying with all applicable safety regulations. 

We are routinely inspected by the U.S. DOT Office of Pipeline Safety (OPS) and 

State Pipeline Safety Agencies, such as the Arizona Corporation Commission (ACC) 

and the California State Fire Marshall’s office. In Arizona, alone, we have been inspected four times by the ACC since 1998 (1998, 1999, 2001 and 2003; in 1999 the 

OPS participated in the Arizona Audit). The Southwest Region has also audited the 

pipeline section between New Mexico and Texas twice. In addition, we have been 

subject to audits of our Procedural Manuals, Integrity Management Plan and Operator Qualification Program by OPS. These audits have not uncovered any major 

compliance issues. 

A specific example of our commitment to safety and compliance is one of the elements of our preventive maintenance program—our Integrity Management Program 

(IMP). Kinder Morgan Energy Partners (and its predecessor SFPP) have been inspecting pipelines with Magnetic Flux Leakage (MFL) in-line inspection tools 

(‘‘smart pigs’’) since the early 1970s. Approximately 95 percent of Kinder Morgan’s 

3,325 miles of active pipelines in our Pacific operations have been internally inspected to date; almost 94 percent of these miles were internally inspected prior to 

the effective date of DOT’s IMP rule (March 2001). As part of our ongoing preventive maintenance programs, we were internally inspecting pipelines in Arizona before such actions were ever required by the Federal or state government. In fact, 

all Kinder Morgan pipelines in Arizona had been smart pigged at least once before 

the effective date of the IMP rule and most had been smart pigged at least twice. 

The 8′′ Tucson-Phoenix pipeline was inspected in 1996 and 1999 and the 6′′ Phoenix 

to Tucson pipeline in 1999 and 2003. 

Our overall philosophy is that internal inspection is very effective in detecting 

pipeline defects, such as external and internal metal loss, dents, and gouges, allowing us to repair potentially detrimental defects before they result in a release. By 

46 

combining information found during the in-line inspections, cathodic protection surveys and coating surveys, we can identify areas along the pipeline where recoating 

may be necessary and where more cathodic protection rectifiers might be needed. 

We are then able to focus our resources and take the appropriate remedial measures. We believe the existence of such a proactive program is why there has not 

been a leak due to generalized metal loss corrosion on these pipelines in Arizona 

in the last 15 years. 

It is important to note that while internal inspection tools used by Kinder Morgan 

can detect wall loss due to generalized corrosion, these tools are not yet capable of 

identifying high-pH stress corrosion cracking in small diameter pipelines. The technology to detect SCC exists for larger diameter pipelines, but it has not yet been 

miniaturized to accommodate smart pigs in pipelines with diameters as small as 6′′ 

and 8′′. 

Our current IMP has been updated to incorporate DOT’s 2001 regulations. Our 

response, repair and mitigation strategies did not require any major revisions as a 

result of the 2001 DOT regulations; however, as most of the new regulatory requirements were already a part of our previous IMP program. 

July 30 Incident 

On July 30, 2003, Kinder Morgan’s 8′′ pipeline from Tucson to Phoenix failed during normal pipeline operations. The shutdown of the pipeline followed our emergency response procedures. The controller at our Orange, California control center 

initiated the line shut down within three minutes of receiving first indication of an 

abnormal condition from our SCADA system. We contacted the National Response 

Center, Arizona Corporation Commission, Arizona Department of Public Services, 

Arizona Department of Environmental Quality and The Tucson Fire Department. 

(In a post-response debriefing held with state and local agencies on October 2, 

Kinder Morgan received high marks for its response.) 

Kinder Morgan and OPS originally believed the cause of the release was an ERW 

pipe seam failure. Based on the March 8, 1989, Pipeline Safety Alert Notice (ALN– 

89–01) and discussion with the Department of Transportation Office of Pipeline 

Safety Southwest Region (DOT), the pipeline was repaired and restarted on August 

1, 2003, based on the following operating parameters: 

• Operate the pipeline at 50 percent maximum operating pressure (MOP) for five 

(5) days 

• Operate the pipeline at 60 percent MOP for one (1) day 

• Operate the pipeline at 70 percent MOP for one (1) day 

• Operate the Pipeline at 80 percent MOP until further notice. 

As part of Kinder Morgan’s on-going integrity program, the joint of pipe from the 

July 30, 2003, incident was sent to an independent lab for metallurgical analysis. 

On August 8, 2003, Kinder Morgan received the metallurgical report. The report 

concluded that the cause of the rupture was high pH SCC. Kinder Morgan had 

never experienced SCC before on one of its refined petroleum pipelines. Given this 

information and the pipeline’s location near populated areas in the City of Tucson, 

Kinder Morgan determined that the only safe option was to shut down the pipeline 

(which was still operating at 50 percent MOP) and conduct further testing. When 

the line was shut down on August 8, we advised the DOT/OPS—Southwest Region, 

the ACC and the Arizona Department of Weights and Measures. Additionally, on 

August 9, we left messages for a contact person within the Arizona Department of 

Commerce. 

Kinder Morgan immediately began developing hydrostatic test procedures for a 

pipeline that experienced an SCC failure. We used both internal engineering support and consultants with SCC and hydrostatic testing expertise to develop the plan. 

On August 13, 2003, this plan was submitted to OPS. We received initial approval 

of our plan from the DOT on August 14. We immediately began work to prepare 

the testing of approximately 12 miles of 8-inch line pipe. Testing would be done in 

two pipe segments—an 8-mile and 4-mile segment respectively. We received final 

approval of our test plan on August 19. The time between the initial and final DOT 

approvals was fully utilized to prepare this pipeline for hydrostatic testing. On August 20, the 8-mile segment was successfully tested. However, that same day the 

4-mile segment failed the hydrostatic test. During the hydrostatic test, we experienced an SCC failure approximately 40 feet from the original release on July 30. 

Based on the second SCC failure, Kinder Morgan decided to bypass this section of 

pipe by temporarily using a portion of its Phoenix to Tucson 6′′ pipeline. This plan 

was the fastest way to return gasoline deliveries to normal levels in the Phoenix 

market. 

47 

After successfully putting the 8′′ Tucson to Phoenix line back in service through 

the 6′′ bypass on August 24, we continued our efforts to restore normal pipeline 

services. This was accomplished on September 12, by installing 4,600 feet of new 

12-inch pipe through the area where the 8′′ pipe originally failed. Additionally, all 

of the 8-inch pipe through Tucson has been successfully hydrostatically tested. Our 

current plan is to replace all the 8-inch pipe through Tucson with new 12-inch pipe 

by February 2004. 

Responses to Market Disruption 

Immediately after we decided to temporarily take the 8′′ Tucson to Phoenix line 

out of service because of the SCC failure mode, we initiated steps to mitigate the 

impact of the shutdown. Throughout the weekend of August 9–10, modifications 

were made to our Tucson terminal. These modifications involved converting several 

tanks from conventional service to CBG service and connecting a truck rack lane 

to these tanks. These modifications allowed our shippers to transport by truck volumes of CBG gasoline from the East that otherwise would have moved over the 

closed 8′′ pipeline. Approximately 12,000 b/d were trucked to the Phoenix market 

as a result of these facility modifications while the 8′′ pipeline was out of service. 

Kinder Morgan schedulers were also called to work the weekend of August 9–10 

to contact our shippers and initiate the process of nominating additional volumes 

over the West Line to make up for volume shortfalls on the temporarily closed line 

between Tucson and Phoenix. During the week following the shutdown of the 8′′ 

pipeline, Kinder Morgan’s West Line and barrels trucked from Phoenix, were meeting over 92 percent of the average daily demand (175,000 b/d) in the Phoenix market. (See Exhibit 3 which shows total products delivered by day to the Phoenix market in August.) For just over half the days in the month of August, deliveries to 

Phoenix exceeded the average daily demand in Phoenix. 

Kinder Morgan’s deliveries, however, do not tell the entire story. We do not know 

the inventory levels at the five other Phoenix terminals at the start of the month 

of August or for any day thereafter. That information is not in our possession and 

can only be obtained from the owners of those terminals. We do know, however, that 

nationally the trend is to maintain inventories at levels only necessary to meet anticipated demand and avoid the holding costs of excess inventory. When you combine the temporary shutdown of the 8′′ pipeline with current inventory management 

practices and the spike in demand triggered by panic buying and ‘‘topping-off’’ of 

tanks, there were resultant shortages of gasoline. Further complicating the supply/ 

demand picture were logistical difficulties in accommodating increased trucking of 

products from Tucson terminals and outside of the state. (This problem in turn was 

exacerbated by weekly driving hour limits on truck drivers in Arizona. These restrictions were later relaxed.) 

It should be reiterated, however, that the flexibility and responsiveness of Kinder 

Morgan’s employees to the service disruption and the round-the-clock efforts to restore service on the 8′′ pipeline, allowed us to cover over 92 percent of the average 

daily demand in Phoenix. Two facts have special note: Kinder Morgan’s West and 

East Lines delivered 8.4 million more gallons of total products into Phoenix in August of 2003 than it did in August of 2002. Looking solely at gasoline volumes in 

2003 over 2002 for the month of August, Kinder Morgan actually transported 13 

million more gallons of gasoline. Again, a reflection both of the flexibility of our 

pipeline operations in Arizona and the extraordinary demand conditions in the 

Phoenix market. 

Kinder Morgan is not a marketer or retailer of gasoline. Consequently, the Committee should seek guidance from economists or experts from within those industry 

segments on the pricing consequences of the temporary supply/demand imbalance. 

Stress Corrosion Cracking 

The July 30, 2003, failure was not the result of generalized metal loss corrosion. 

Kinder Morgan has not had a metal loss corrosion release on an Arizona pipeline 

since 1988 and on the 8-inch pipeline since 1980. The July 30 failure was caused 

by high pH SCC, a phenomenon that is new to the refined products pipeline industry and involves cracking and not wall loss due to corrosion. 

SCC must be distinguished from generalized petroleum corrosion. Generalized corrosion is the progressive conversion of steel to iron oxide (i.e., rust). This metal loss 

can either be localized pitting or a more widespread uniform corrosion. The rate of 

general corrosion is independent of the pressure (i.e., stress) in the pipe. Generalized 

corrosion can be controlled and eliminated through the application of cathodic protection currents. 

In contrast, SCC is dependent on the pressure in the pipe. If the stress is too low, 

SCC will not occur. Similarly, the presence of cathodic protection does not control 

48 

the rate of SCC damage. SCC does not involve metal loss corrosion. SCC is a cracking phenomenon. The damage involves cracks that propagate at the microstructure 

level between and through the grains in the steel. 

The high pH SCC identified with the July 30 failure is also different from near 

neutral pH SCC in several ways. Foremost is that high pH SCC does not occur in 

the presence of metal loss corrosion. In most cases of high pH SCC, very little to 

no surface corrosion can be observed. For high pH SCC to occur, a very specific set 

of conditions must coexist. For pipeline steels, a specific stress state in a specific 

environment must be present. Our research indicates that prior to our July 30, 

2003, high pH SCC failure, there were no published failures related to high pH SCC 

in hazardous liquid pipelines. Our integrity and maintenance activities will now include plans and procedures for investigating both near neutral pH and high pH 

SCC. 

A comprehensive stress corrosion cracking evaluation was conducted including 

100 percent non-destructive examination by magnetic particle inspection of over 

5,400 feet of pipeline removed from the immediate area of the release. Only two 

areas exhibited surface SCC indications. The first was in the pipe joint immediately 

downstream of the initial release. The other was a few thousand feet upstream. All 

of the initial investigation data from the removed pipe is currently being analyzed 

by the SCC contractor and we expect results in a few weeks. Identifying only two 

sites in almost 5,400 ft of pipe support the belief that the SCC issues are a localized 

phenomena related to specific environmental conditions. Based on the data gathered 

to date, we do not suspect SCC to be a widespread issue. 

Kinder Morgan submitted its Stress Corrosion Cracking (SCC) Field Investigation 

Protocol to DOT on September 29, 2003. This document outlined an analytical method for identifying areas along the pipeline system with the potential for SCC. Plans 

for a field inspection program were presented in which direct knowledge from the 

1-mile area encompassing the July 30, 2003, release site will be used to delineate 

the severity of SCC and establish the contributing characteristics to locate other 

areas along the pipeline system with the potential for SCC. 

Kinder Morgan will use a predictive modeling process to enable the integration 

of physical characteristics and operating history of a pipeline segment with the results of inspection, examination and evaluation in order to determine the integrity 

of the pipeline regarding SCC. 

The key steps in this process are as follows: 

• Gather and integrate pipeline data such as pipe characteristics, construction 

practices, soils/environmental characteristics, corrosion protection, pipeline operations, and historical data. Specialized investigations include a series of cathodic protection surveys, soil characterization activities using specialized terrain classifications and extensive data integration, as well as the non-destructive examination of the 5,400 feet of removed pipe discussed above. 

• Develop an algorithm to predict SCC likelihood in this system. 

• Complete the case study on the removed pipe to delineate the severity of damage and provide a reference for refining the SCC predictability model. 

• Predict terrain conditions conducive to SCC on this pipeline. 

• Conduct the geotechnical survey of the entire Tucson to Phoenix system identifying locations containing SCC susceptible zones. Follow-up with supplemental 

close interval surveys and potential current mapping in these newly identified 

areas. 

• Conduct field excavations using industry proven SCC investigation methods. 

• Reintegrate the excavation findings and calculate the validity of the SCC prediction model. Prepare a report summarizing the findings. 

The key to the success of this approach will be the collection, alignment, and integration of all necessary data into a database such that common characteristics can 

be accurately observed. Using the series of data techniques we propose in the immediate vicinity of the known release, together with the identification of other regions 

meeting similar criteria elsewhere along the Tucson—Phoenix pipeline, we believe 

we will be able to establish the safe operating parameters for this system. In the 

meantime, we are operating the Tucson to Phoenix 8′′ pipeline system at 50 percent 

maximum operating pressure and below 40 percent specified minimum yield 

strength (SMYS) of the pipe. 

The plan we submitted to the DOT/OPS makes use of known experts in the field 

of pipeline SCC. Mr. Jim Marr of Marr Associates has been selected to conduct our 

SCC field investigation. Mr. Marr is the Chairman of the National Association of 

Corrosion Engineers (NACE) committee drafting the recommended practice on SCC. 

49 

The proposed plan exceeds the minimum requirements for field inspection and data 

integration identified in the ASME B31.8S standard. We are testing pipe operating 

at stress levels as low as 40 percent SMYS, whereas the Advisory and B31.8S suggest 60 percent SMYS. In addition, we are testing pipe operating with product 

whose temperatures are much below 100F°. The protocol involves a complete surface environmental characterization in which 

we will identify the soil type, resistivity, pH, drainage potential, slope instability 

and other geotechnical features. We will follow this examination with a close interval survey in which we are measuring the effectiveness of cathodic protection system and the condition of the external coating system. In parallel, we will integrate 

all of our integrity management data into a specialized SCC predictive model that, 

together with our specific field results, will identify the combinations of stress, materials and environment that could contribute to SCC. 

Department of Transportation/Arizona Corporation Commission/Kinder 

Morgan’s 6′′ Pipeline Phoenix to Tucson 

Testimony has been presented about regulatory actions surrounding generalized 

corrosion on the 6′′ Phoenix to Tucson pipeline and a Correction Action Order (CAO) 

issued by OPS. Kinder Morgan requested a hearing to contest some of DOT’s initial 

requirements of the CAO. Nonetheless, Kinder Morgan took all appropriate steps to 

operate and maintain a safe pipeline, prior to the CAO, during the CAO review 

process, following the CAO hearing and after the issuance of the amended CAO. 

This is evident by Kinder Morgan taking the initiative to have an Integrity Management Program in place prior to DOT’s implementation of its Integrity Management Program. This program led to the November 1999 smart pig run. Kinder Morgan had completed repairs of all anomalies that required a pressure reduction by 

February 16, 2001, before DOT/OPS issued its initial CAO. Kinder Morgan followed 

all the DOT reporting requirements for a Safety Related Condition, and during the 

repairs, Kinder Morgan was in contact with both OPS-Southwest Region and ACC, 

keeping them abreast of progress. We implemented an active corrosion testing procedure. During the repairs of the 1999 pig run, Kinder Morgan performed specialized active corrosion tests and not a single test indicated that active corrosion was 

present on LS 53/54. Kinder Morgan also contracted two third-party consultants to 

review Kinder Morgan findings based on the gathered data from anomaly repairs 

and active corrosion tests. Dr. John Kiefner of Kiefner and Associates Inc. and Mr. 

Kevin Garrity of CC Technologies Inc. reviewed Kinder Morgan data and provided 

testimony at Kinder Morgan’s CAO hearing. Mr. Garrity testified that he believed 

that the corrosion on LS–53/54 occurred within the first two years after its initial 

construction and before its then owner applied cathodic protection to the system. Dr. 

Kiefner validated the accuracy of the ILI tool such that the anomalies identified by 

the tool were within 95 percent accuracy of those identified in the field. Further, 

even before receiving the amended CAO dated March 17, 2003, Kinder Morgan ran 

another smart pig through this line. Kinder Morgan had already done so by March 

1 2003. Throughout the adjudication process at DOT/OPS, Kinder Morgan continued 

to conduct cathodic protection tests and its weekly rectifier aerial surveys and quarterly physical inspections. 

In November 1999 Kinder Morgan conducted an in-line inspection of the 6′′ pipeline between Phoenix and Tucson, Line Section 53/54 as part of its preventive maintenance and integrity management program. This in-line inspection predates the 

Federal pipeline safety regulation’s integrity management requirements. This was 

the first time that an in-line inspection was conducted on LS 53/54, however; it was 

not the first time in-line inspections had been conducted on pipelines in Arizona. 

The preliminary report received from the in-line inspection vendor was received by 

Kinder Morgan on February 28, 2000, and indicated several anomalous conditions 

that had the potential to affect the safe operation of the pipeline. Kinder Morgan 

engineers reviewed and analyzed the report data and the safe working pressure of 

the pipeline was calculated based on the indicated anomalies. When these calculations were completed the next day, February 29, 2000, the pressure was immediately reduced. (See Exhibit 8 for chronological sequence of events of LS 53/54.) 

We took appropriate action in the interest of public safety. Maintenance crews 

were dispatched to begin excavating and investigating the anomalies. On March 2, 

2000, maintenance crews discovered a segment of pipeline that had three corroded 

areas close to each other and as such was classified as generalized corrosion. The 

pipeline was repaired and on March 8, a Safety Related Condition report was submitted via fax to the OPS and the ACC. A duplicate was filed with the ACC because 

Kinder Morgan was unaware that the ACC was no longer an interstate agent of the 

Office of Pipeline Safety. (LS 53/54 are part of the interstate pipeline that transports refined products from California to Phoenix and Tucson.) Kinder Morgan 

50 

would later learn that OPS had not renewed the interstate agent agreement with 

ACC. ACC responded to the Safety Related Condition and began a special investigation of the event. 

On March 28, 2000, another area of generalized metal loss corrosion was found 

and Kinder Morgan’s maintenance manager on-site requested that the pipeline be 

shut down while the pipe was inspected and repaired as a precautionary safety 

measure. This was done. Meanwhile, ACC notified Kinder Morgan that they considered LS 53/54 ‘‘intrastate’’ and based on its state authority dictated that the pipeline 

could not be restarted without its approval. Although Kinder Morgan did not accept 

ACC’s position regarding the intrastate classification of the pipeline, we received 

concurrence from ACC to restart the pipeline at a reduced pressure of 52 percent 

of the MOP. The ACC would later attempt to cite Kinder Morgan for violations of 

the Arizona pipeline safety regulations and, under its state authority, conduct a routine safety evaluation of this pipeline. The ACC subsequently dropped both of these 

endeavors. Subsequently OPS wrote an opinion letter clearly identifying these pipelines as interstate. 

During this time, Kinder Morgan understood that OPS granted the ACC temporary interstate agency status and requested that it investigate the Safety Related 

Condition. OPS personnel also participated in the investigation. We cooperated completely with this investigation and complied with every request made by the ACC 

or the OPS. 

By September 15, 2000, Kinder Morgan had addressed all anomalies that required 

a reduction in operating pressure and which were discovered during its November 

1999 in-line inspection of LS 53/54. The only outstanding anomaly after this date 

was one that was located under a concrete embankment under Interstate 10 and 

adjacent to a railroad right of way. This anomaly did not require a reduction in operating pressure, but because of its location, Kinder Morgan decided to replace it 

with new pipe. The delay in making this repair was due to delays in obtaining permits from the Arizona Department of Transportation. The replacement of this pipe 

was completed on February 16, 2001. 

On March 14, 2001, OPS issued a Corrective Action Order (CAO) requiring Kinder 

Morgan to: 

1. Maintain the pressure on the line that is less than or equal to 80 percent of 

the MOP (Maximum Operating Pressure). 

2. Get OPS approval before increasing the operating pressure on the line above 

80 percent. 

3. Develop and implement a work plan and schedule for performing coating evaluation on line LS 53/54. 

4. Develop and implement a work plan and schedule for re-coating, repairing or 

replacing sections of LS 53/54 that are determined by the coating evaluation 

to require remedial measures. 

5. Develop a work plan and schedule for conducting internal inspection tests 

using the same or similar technology which identified the extensive metal loss 

referred to in the preliminary finding. 

6. Submit a report to OPS on all internal inspections that had been conducted 

on pipeline systems within the states of Arizona, New Mexico, and Texas since 

January 1997. 

The basis for these corrective actions were the preliminary findings of OPS and 

the conclusions it drew relative to the role the pipeline coating played in the corrosion indicated on the in-line inspection report. Kinder Morgan disagreed with the 

technical basis of the preliminary finding, the proposed corrective action and thus 

requested a hearing. A hearing was granted and held on August 14, 2001. 

Our disagreement primarily focused on two issues; first, the corrosion discovered 

by the in-line inspection and second, the effect of the coating on the adequacy of 

the cathodic protection. As stated earlier, this was the first in-line inspection conducted on this pipeline. This pipeline was constructed in 1956 without cathodic protection. It was approximately two years later before cathodic protection was applied. 

Based on cathodic protection surveys, more anode ground beds and rectifiers—the 

current source for cathodic protection, were installed along the pipeline. This is important because, although the in-line inspection indicated a number of locations of 

corrosion, there was no way to identify from the report when the corrosion took 

place. In an effort to determine if the corrosion was active or on-going corrosion, 

electrical and chemical test were conducted at each location excavated. These tests 

demonstrated that the line was receiving adequate cathodic protection and that 

there was no active corrosion taking place at the anomaly locations. These tests 

demonstrated that the corrosion that was indicated on the in-line inspection report 

51 

was probably corrosion that occurred in the years prior to cathodic protection being 

installed. 

OPS’s preliminary findings addressed coating, current density requirements and 

rectifier spacing. It concluded that coating degradation was a ‘‘major contributing 

factor in the development of corrosion and external metal loss’’. As demonstrated by 

the electrical/chemical tests, however, there was no evidence of active on-going corrosion on this line. The annual monitoring of the cathodic protection system indicated that the pipeline was adequately cathodically protected. While the condition 

of the coating increases the current requirements and impacts rectifier spacing, 

tests demonstrated that the cathodic protection was effective. More pertinent to the 

adequacy of the cathodic protection is the fact that a corrosion leak has not occurred 

on this pipeline since 1988. 

Kinder Morgan retained the services of Kevin C. Garrity, PE of CC Technologies 

Service Inc and Dr. John Keifner of Keifner and Associates Inc., two leading experts 

in their respective fields, to assist us in the review and analysis of the tests. 

Specifically, Kinder Morgan retained CC Technologies Services, Inc. (CC Technologies) to conduct an integrity and corrosion control review of LS 53/54 and provide a critical assessment of the practices and procedures that Kinder Morgan has 

employed to establish the integrity of this section of 6′′ diameter pipeline. Specific 

emphasis was placed on the analysis of in-line inspection anomaly data; analysis of 

corrosion digs inspection data; and analysis of cathodic protection practices. 

CC Technologies analysis concluded that we could continue to safely manage the 

integrity of the LS53/54 piping through the existing procedures included in the 

Kinder Morgan integrity plan and that we should not proceed with costly and ill 

advised procedures to satisfy a corrective action order that failed to acknowledge the 

preponderance of evidence demonstrating that LS53/54 have been safely managed 

against corrosion integrity threats. 

Dr. John Keifner was retained to review the analysis of the anomaly data, perform a probability analysis of the pipeline corrosion data and a review of the proposed plan of remedial action. Dr. Kiefner concluded that the metal loss anomalies 

that were tested did not appear to be actively corroding and did not appear to be 

associated with MIC. Further, his analysis indicated that effective cathodic protection was being achieved and that the majority of the metal loss on this pipeline occurred during the first few years after construction prior to the establishment of effective cathodic protection. He further concluded that the review of the analysis of 

anomaly data indicated that the anomalies that met the conservative dig criteria 

chosen by Kinder Morgan were repaired or replaced, the remedial actions taken to 

address the anomalies that were detected were conservative and adequate to reduce 

the potential for a pipeline failure due to a detected metal loss or deformation anomaly and that future in-line inspections should be scheduled in accordance with the 

Kinder Morgan IMP. 

The above information was presented at the DOT hearing on August 14, 2001. 

On March 17, 2003, Kinder Morgan received an amended CAO that indicates that 

the Hearing Examiner agreed with our position relative to the need for coating evaluation. The amended order removed the requirements for performing the coating 

evaluation; the requirement to re-coat, repair or replace coating based on the coating evaluation and the requirement to submit a report to OPS on all internal inspections that had been conducted on pipeline systems within the states of Arizona, New 

Mexico, and Texas since January 1997. 

The only requirements in the amended CAO were to limit the operating pressure 

to 80 percent of MOP, develop a work plan and schedule for conducting an internal 

inspection test using the same or similar technology used previously; and submit the 

findings of the in-line inspection to OPS. 

By the time Kinder Morgan received the amended order on March 17, 2003, we 

had already completed the subsequent run of the in-line inspection and were waiting on the inspection report. We received the report in May 2003 and began to take 

the appropriate remedial measures. We furnished a report of the findings to OPS. 

In fact, during the 2003 ACC audit of the Arizona pipelines, ACC visited one of the 

repair sites. 

The 2003 in-line inspection report indicated that: 

• There were no ‘‘Immediate’’ repairs as defined by DOT’s IMP regulation. 

• There were two ‘‘60-day’’ repair conditions. The first was a 3.5 percent dent at 

1:10 o’clock position. The second was a 4.7 percent dent at 11:51 o’clock position. 

Repairs were made. 

• There were no ‘‘180-day’’ repair conditions reported in the Final report. 

52 

We believe that we have fully complied with the amended CAO and are operating 

this pipeline and our other pipelines in Arizona in a safe and reliable manner. 

Conclusion 

Pipelines are the safest and most efficient means of delivering petroleum products 

from refiners to end-users. The experience of Kinder Morgan and the companies 

which preceded it in Arizona is no exception. In the 48-year history of products pipelines serving Arizona, there have been no deaths or injuries to the public. In the 

five years and six months during which Kinder Morgan has owned and operated 

these pipelines, we have transported over 440 million barrels of petroleum product 

to Arizonans. During that period there have been 3 releases from our pipelines. Two 

were due to damage caused by third parties striking the pipeline and the third was 

the high-pH SCC-incident on July 30. 

The volumes released from the July 30 incident represented 1/10,000th of 1 percent of the volumes Kinder Morgan has transported over these lines since acquiring 

them in March 1998. Nonetheless, one barrel out of our pipelines is one barrel too 

many. The simple fact is that Federal or state regulations do not animate our interest in safety. Protection of our employees, the public upon whose lands we operate 

and the environment creates the drive for operational excellence and incident-free 

operations. Moreover, our financial interests are best served by operating safely. 

Service disruptions cost us business, for we only make money if we can move products from origin to destination. Releases also bring with them a host of unacceptable 

consequences from cleanup costs and environmental remediation expenditures to 

litigation, which, more frequently these days, can have both civil and criminal components. Injuries or death arising from an incident can undermine a company’s reputation and its franchise to do business or grow its business in those states in which 

it operates. These are all compelling reasons for operating our pipelines safely. 

The decision to temporarily shut down the 8′′ pipeline on August 8 was the safe 

and prudent course of action. A fundamental principle that we constantly emphasize 

to our operations personnel is: ‘‘If in doubt, shut the pipeline down and restart the 

line only after the doubts have been eliminated.’’ High pH SCC has never been experienced on a Kinder Morgan refined products pipeline and we believed the line 

had to be hydrostatically tested to ensure it could be operated safely. Although the 

resultant service disruption inconvenienced consumers, far greater would have been 

the criticisms and consequences of continuing to operate the line and having another release. Moreover, our flexibility and responsiveness were key to providing petroleum products to Phoenix during the service disruption, a task complicated by the 

surge in demand as ‘‘panic buying’’ set in. 

Testimony has been entered about generalized corrosion issues on the 6′′ pipeline 

between Phoenix and Tucson. The OPS/ACC relationship and the length of time 

OPS took to issue its amended corrective action order cannot obscure several fundamental facts: First, the internal inspection Kinder Morgan ran on the 6′′ pipeline 

was part of a voluntary program began in the early 1970s by SFPP and carried on 

by Kinder Morgan to assess the integrity of its pipelines. This program predated the 

mandatory OPS management plan program by approximately 30 years. Operating 

pressures on the 6′′ line were reduced first to a level acceptable to OPS and again 

to a lower level requested by the ACC despite the lack of authority for ACC to order 

the reduction. Kinder Morgan contested the OPS order because it disagreed with the 

assessment that the pipeline was not adequately protected from generalized corrosion. Nationally renowned experts, who provide their expertise to government and 

industry alike, demonstrated the pipeline was adequately protected from generalized corrosion. Moreover, the March 17, 2003, amended corrective action order implicitly recognizes the effectiveness of the cathodic protection on the 6′′ pipeline 

when it removed the requirement to recoat the pipeline. Additionally, the primary 

action which OPS requested be taken in its amended corrective action order (e.g., 

another internal inspection of the 6′′ line), was completed by Kinder Morgan prior 

to the order being issued. Here too, it was undertaken because it was the prudent 

and sensible course of action. 

Although Kinder Morgan believes it understands the respective roles and responsibilities of OPS and the ACC in regulating our interstate pipeline facilities, the 

company has been caught between the competing positions of certain staff members 

at ACC and the OPS. OPS clearly has primacy with respect to interstate pipelines 

and ensuring that a common nationwide framework of safety regulations exists. We 

encourage ACC’s involvement with public education, siting and notice requirements 

involving utilities as well as promoting the excellent ‘‘blue stake’’ damage prevention 

program in Arizona. All parties have a role to play in ensuring public safety. 

53 

Kinder Morgan has built an excellent safety record in the state of Arizona. We 

look forward to providing the citizens of Arizona with safe and efficient pipeline operations for many years to come. 

EXHIBIT 1—PACIFIC REGION SYSTEM MAP

EXHIBIT 2—PHOENIX GASOLINE DISTRIBUTION (EAST/WEST LINE) 

2003 January–July 

Phoenix Total Gasoline Volumes 

East Line 11,020,535 47.3% 

West Line 12,279,044 52.7% 

Total 23,299,579 100.0% 

2003 January–July 

Phoenix Conventional Gasoline Volumes 

East Line 2,154,359 60.8% 

West Line 1,387,466 39.2% 

Total 3,541,825 100.0% 

2003 January–July 

Phoenix CBG/AZBOB Gasoline Volumes 

East Line 8,866,176 44.9% 

West Line 10,891,578 55.1% 

Total 19,757,754 100.0% 


1009THOM1.eps
54 

EXHIBIT 3—PHOENIX BARRELS DELIVERED IN AUGUST

EXHIBIT 4—TUCSON TO PHOENIX TEMPORARY BYPASS LINE


1009BARREL1.eps 1009EXH4.eps
55 

EXHIBIT 5—EAST LINE EXPANSION/MAXIMUM EAST LINE CAPACITIES

East Line Expansion 

SFPP is considering installing approximately 160 miles of 16′′ pipe between El 

Paso and Tucson and replacing the remaining 84 miles of 8′′ pipe between Tucson 

and Phoenix with 12′′ pipe. Sixty miles of 16′′ pipe would be installed downstream 

of El Paso and 100 miles downstream of Deming. This would result in one 16′′/l2′′ 

line at El Paso and one 12′′/8′′ line between El Paso and Tucson and pump stations—with new pumps—at El Paso and Deming on both lines. New pumps would 

also be required at Tucson but initially it would not be necessary to run Toltec. 

Phase I would increase the current East Line capacity by about 56 percent (from 

94,000 BPD to 147,000 BPD). If the 16′′ line were eventually completed all the way 

from El Paso to Phoenix (Phase II), the capacity of the 12′′ line to Tucson would 

be 77,000 BPD and the capacity in the 16′′ line feeding the 12′′ TU-PX line would 

be 120,600 BPD. With Toltec Booster (Phase III) this capacity would increase to 

155,600 BPD. 

This proposal would include a break-out facility west of El Paso to gather product 

from various shippers and pump to Tucson and Phoenix. Several operational and 

design issues have to be resolved to finalize the cost estimate and evaluate the feasibility of the break-out facility. Because of the level of detail required to prepare an 

accurate scope of work, these issues will not be finalized in time to include in the 

feasibility study. Estimated budget for the break-out facility is $30,000,000. 

A cost estimate for this proposal (Phase I only) is $180MM. 


1009EAST2.eps
56 

Tucson to Phoenix 8′′ Timeline 

July 30, 2003—Initial Release 

August 1, 2003—Pipeline Repaired and Line Restarted 

August 6, 2003—DOT Corrective Action Order Issued on Initial Release 

August 8, 2003—Received Metallurgical Report and Shutdown Pipeline—DOT/ACC 

Notified 

August 9, 2003—Additional Discussions with DOT/ACC re Line Shutdown 

August 9, 2003—Initiated discussions with Shippers on nominating additional Phoenix grade gasoline from the LA Refineries 

August 11, 2003—First discussions with Governor’s Office regarding Line Shutdown 

August 12, 2003—Completed Tucson Terminal tank and loading rack modifications 

for loading of Phoenix grade gasoline 

August 13, 2003—Submission of Hydrostatic Test/SCC Investigation Plan 

August 14, 2003—Received Initial Approval from DOT on Hydrostatic Test/SCC Investigation Plan 

August 15–19, 2003—Prepare line for hydrostatic test in advance of DOT Final Approval 

August 19, 2003—Received Final Approval from DOT on Hydrostatics Test Plan 

August 20, 2003—Section 1 Hydrotest Complete 

August 20, 2003—Section 2 Hydrotest Unsuccessful 

August 24, 2003—Start-up of Tucson to Phoenix Pipeline with Bypass 

September 12, 2003—Completed installation of 4,600 feet of new 12′′ pipeline. Tucson to Phoenix line operating normally at 50 percent maximum operating condition. Phoenix to Tucson 6′′ pipeline operating normally. 


1009EAST3.eps
57 

EXHIBIT 7 

LS 53/54 Phoenix to Tucson 6′′ 

1999 Internal Inspection and Repairs 

• November 24, 1999—Ran a high resolution smart pig through LS 53/54. This 

was the first in line inspection for LS 53/54. 

• February 28, 2000—Received ‘‘Preliminary Report’’ listing anomalies having an 

indicated maximum pit depth greater than or equal to 50 percent of wall thickness. 

• February 29, 2000—After analysis on the preliminary report, operating pressure 

was lowered to 1735 psi from 2000 psi. 

• March 2, 2000—Anomaly at MP 71.52 was excavated and evaluated. No additional pressure reduction was required at this time. 

• March 3, 2000—Installed three full encirclement split steel reinforcement 

sleeves over areas of general corrosion. 

• March 28, 2000—LS 53/54 was shutdown to replace 120-feet of pipe at MP 

47.06 in which generalized corrosion was identified. 

• April 3, 2000—Further reduced operating pressure to 1050 psig, 52.5 percent 

of MOP in order to restart pipeline. 

• September 15, 2000—All pressure affecting anomalies found by the November 

1999 In Line Inspection of LS 53/54 are repaired. 

• February 16, 2001—The last outstanding anomaly (not pressure affecting) was 

replaced with new pipe. The delay in making this repair was due to delays in 

obtaining permits from the Arizona Department of Transportation. 

EXHIBIT 8—LS 53/54 CAO, HISTORY & TIMELINE FROM 1999–MAY 29, 2003 

1) On November 24, 1999, as part of KM’s Integrity Management Program, KM 

ran a high-resolution smart pig through LS–53/54. This was the first In Line 

Inspection (ILI) for LS–53/54. 

2) On February 28, 2000, KM’s ILI vendor submitted a ‘‘Preliminary Report’’ to 

KM. 

3) After doing an analysis on the preliminary report for Safe Operating Pressure, it was determined that the pressure should be lowered to 1735 psi from 

its original operating pressure of 2000 psi. The pressure was lowered on February 29, 2000. 

4) On March 2, 2000, an anomaly at MP 71.52 was excavated and evaluated. 

No additional pressure reduction were required. 

5) On March 8, 2000, KM submitted a Safety Related Condition (SRC) report 

to DOT per the requirements of 49 CFR 195.56. A copy of this report was also 

faxed to the ACC. The SRC was submitted because KM classified one of the 

anomaly areas as general corrosion. This classification along with the pressure reduction met the definition of a SRC under 49 CFR 195.55(a)(1) which 

states: ‘‘General corrosion that has reduced the wall thickness to less than 

that required for the maximum operating pressure’’. It was determined ‘‘general’’ because 3 different in areas in close proximity were affected. 

a) KM indicated on their SRC that the discovery date was March 2, 2000, 

and the repair completion date was March 3, 2000. KM installed 3 full encirclement split steel reinforcement Sleeves (26′′, 21′′ and 12′′) over areas 

of general corrosion. 

6) On March 28, 2000, KM shutdown LS–53/54 at the request of the Maintenance Manager in order to safely replace 120-feet of pipe at MP 47.06 in 

which generalized corrosion was identified. 

7) By letter dated March 29, 2000, ACC informed KM that LS–53/54 was an 

intrastate pipeline and that KM could not restart the line without first obtaining ACC’s approval. 

58 

8) On March 31, 2000, KM responded to ACC’s Letter dated March 29, 2000 informing the ACC of KM’s belief that all their pipeline operations within the 

state of Arizona are interstate as none of the commodity is transported 

through these lines originates in Arizona. KM also stated ‘‘. . . in an effort 

to work cooperatively with Arizona, we have agreed to take certain steps to 

ensure the safety of the line in exchange for Arizona’s concurrence that we 

may restart and continue to operate the line. In addition, ACC was informed 

that the line pressure on LS–53/54 would be maintained at 1500 psi, which 

would produce an additional safety factor above the original 1735 psi. 

9) On April 3, 2000, KM further reduced it operating pressure to 1050 psig (52.5 

percent of MOP). 

10) On April 7, 2000, Kinder Morgan (KM) submitted a letter to DOT requesting 

their assistance in clarifying with ACC the interstate/intrastate delineation 

for LS–53/54. 

11) By letter dated April 11, 2000, ACC informed KM that they would be inspecting KM facilities on May 15, 2000. ACC wanted to conduct this audit under 

their intrastate authority. 

12) By letter dated May 4, 2000, the ACC informed KM that during a ‘‘Specialized audit of a Safety Related Condition on the six inch (6′′) hazardous liquid 

pipeline from Phoenix to Tucson’’ the ACC noted seven (7) probable non-compliances during the audit. 

a) 195.214(b) Each welding procedure must be recorded in detail including 

the results of the qualified tests. Finding: ACC indicated that ‘‘The specifics for rods or rod size to be used to make the weld are not correct. Procedures use two (2) different schedules’’. Their note was that this probable 

noncompliance is common throughout the welding procedures submitted. 

b) 195.222: Each welder must be qualified in accordance with section 3 of API 

Standard 1104. Finding: ACC indicated that ‘‘The welder using KM welding procedures are not qualified. All welders must be re-qualified because 

the welding procedures are not qualified. All welders must be qualified 

after procedures have been qualified. All new welders must be qualified 

under the 18th edition of API 1104. 

c) 195.244: Test leads used for corrosion control or electrolysis testing must 

be installed at intervals frequent enough to obtain measurements indicating adequacy of cathodic protection. ‘‘Findings: The potentials measured 

on the pipeline exposed on March 29, 2000 do not meet the requirements 

of the –850 mV criteria. The current applied potential was –1.184 volts and 

–0.750 volts (current off). Potential measured at MP 60.63 were –.634 volt 

current applied and -.608 volt current off. KM failed to confirm the adequacy of CP. 

d) 195.402: A manual of written procedures shall be developed for conducting 

normal operations and maintenance. Findings: The KM procedure titled: 

Administrative Policy for CP Rectifier Quarterly Maintenance located in 

the KM Corrosion Manual fails to instruct employees to inspect rectifiers 

six times each calendar year not to exceed two and one half months. The 

current KM procedure requires that the rectifiers be inspected at least four 

times a year at intervals not to exceed four months (see exhibit No. 2). 

e) 195.416(c): Each rectifier must be inspected at least six time each calendar 

year at intervals not to exceed two and one half months. Findings: Records 

indicate that rectifiers were not inspected six times a year at intervals not 

exceeding two and one half months. 

f) Arizona Administrative Code R–14–5–202(J): Cathodic protection systems 

must meet –850 mV criteria. Findings: KM is currently utilizing an alternative criteria and must apply for a waiver to continue to use any criteria 

other that the –850 mV criteria. 

g) Arizona Administrative Code R–14–5–202(Q): All welding procedures and 

welder qualifications will be in accordance with API 1104. Findings: KM 

is using API 1107 when making repairs to the pipeline. State code does 

not allow any other standard then API 1104 with out a waiver authorizing 

the use. 

13) By letter dated May 19, 2000, ACC informed Mr. Jay Shapiro of Fennemore 

Craig, Phoenix, AZ, outside legal counsel for KM, that the intrastate code 

compliance audit scheduled for June 15, 2000 was indefinitely postponed. In 

59 

addition, the request for response to the non-compliance items listed in their 

May 4, 2000 letter was rescinded. However, KM is put on notice that these 

non-compliances have been identified. 

14) KM received a carbon copy letter, dated June 1, 2000, of an inspection report 

from the ACC addressed to Mr. Rod Seeley with the U.S. Department of 

Transportation, Houston, TX. Within this letter, ACC indicated that KM violated the following regulations: (NOTE: the following violation are the same 

as cited in the May 4, 2000 letter excluding the Arizona Administrative Code 

violations) 

a) 195.222 Welder Qualifications: ACC indicated that welder were qualified 

to a procedure that was not qualified. ACC position is that procedures 

need to be qualified in accordance with API 1104. 49 CFR 195.214 Welding 

General does not require welding procedures to be qualified in accordance 

with API 1104. This section just requires that the procedures must be 

qualified. ACC intrastate regulation do stipulate that welding procedures 

need to be qualified in accordance with API 1104 but since KM in an interstate operator, this restriction does not apply. KM believes that all its 

welding procedure, which were previously qualified under the supervision 

of an ACC inspector, continue to meet the Federal requirements. 

b) 195.244 Test Leads: ACC indicated that corrosion control test leads must 

be installed at intervals frequent enough to obtain electrical measurements 

indicating the adequacy of the cathodic protection. KM could not achieve 

adequate cathodic protection between test stations. ACC related the low 

potentials list below as the cause of ‘‘The thousands of anomalies identified 

by the pipeline inspection tool clearly indicate a lack of cathodic protection 

test stations used to determine the adequacy of cathodic protection on the 

pipeline. ACC indicated that on March 29, 2000, the pipe to soil potentials 

at 

i) MP 71.52 were –1.184 volts, current applied and –0.740 volts current off. 

ii) MP 60.63 were –0.634 volts current applied and –0.608 volts current off. 

c) 195.402 Procedural Manual for Operations, Maintenance and Emergencies: 

ACC indicated KM rectifier inspection procedure fails to instruct employees to inspect rectifiers six times each calendar year not to exceed two and 

one half months. KM procedure requires that the rectifiers be inspected at 

least four times a year not to exceed four months. The ACC did not take 

into account KM’s practice of evaluating rectifiers on a weekly bases based 

on utilizing aerial patrols that observe aerial indicators that KM has installed on its rectifiers. These aerial indicators monitor the output of the 

rectifier. When the output of the rectifier drops a certain predetermined 

percentage, the aerial indicator stops operating. This in turn is observed 

by our aerial pilots which fly KM pipelines on a weekly bases. These pilots 

then inform ground personnel to go and inspect the rectifier in question. 

KM believes that this practice far exceeds the minimum requirement of six 

inspection. Under the Federal requirement, a rectifier can stop operating 

the day after one of our inspection and would not be aware of this situation 

until the next inspection two and one half months later. Under KM’s current practice, the longest time period a rectifier can go with out operator 

is approximately one week. The four inspections that ACC referenced are 

KM physical inspections of the rectifier and the calibration inspections of 

the aerial indicators. 

d) 195.416(c) External Corrosion Control: ACC indicated that KM records indicated that rectifiers were not inspected six times. Based on item c) 

above, this is correct since our physical inspections are conducted quarterly and our aerial inspections are conducted weekly. We believe this 

practice goes above and beyond the six inspection requirement of the Federal regulation. 

15) By letter dated, June 9, 2000, OPS responded to KM request for interpretation of jurisdictional delineation. OPS concurred with KM position that LS– 

53 should be considered interstate. The following people were sent a carbon 

copy of this letter: 

a) ACC Robert J. Metli and Terry Fonterhouse and 

b) OPS–SW, Rod Seeley. 

60 

16) By September 15, 2000, KM had addressed all anomalies requiring pressure 

reduction found by its November 1999 In Line Inspection of LS–53/54. The 

only outstanding anomaly after this date was one that was located under a 

concrete embankment under Interstate 10 and adjacent to a railroad right of 

way. This anomaly was not pressure related but because of its location, KM 

decided to replace it with new pipe. The delay in making this repair was due 

to delays in obtaining permits from the Arizona Department of Transportation. The replacement of this pipe was completed on February 16, 2001. 

17) By letter dated March 14, 2001, OPS issued KM a Corrective Action Order, 

CPF 4–2000–5010–H. 

a) The Order placed a 80 percent of MOP pressure restriction on two line segments (LS–53 & LS–54) of Phoenix-Tucson pipeline, and 

b) The Order proposed additional corrective measures with respect to the 

Phoenix to Tucson line, and required additional information about the condition of KM’s entire pipeline system in Arizona, New Mexico, and Texas. 

On LS–53 and LS 54, KM was required to: 

i) Develop and implement a work plan and schedule for performing 

coating evaluations on the line using Coating Mapper or Direct 

Current Voltage Gradient. The plan was to be submitted to OPS 

within 15 days of receipt of the amended CAO. KM was also required to submit a report of the data collected and findings made 

as a result of the work plan within 15 days of the completion date 

established by the approved work plan. 

ii) Develop and implement a work plan and schedule for re-coating, 

repairing or replacing sections of the line that are determined by 

the coating evaluation to require remedial measures. The work 

plan and schedule was to be submitted to OPS within 15 days of 

submission of the report required by (b)(i) above. KM was to submit a progress report of all remedial actions taken 120 days after 

approval of the work plan and then every 120 days thereafter 

until the work plan was completed. KM was to submit a final report on all remedial actions taken under the plan within 30 days 

of completion of the final action required by the work plan. 

iii) Develop a work plan and schedule for conducting internal inspection tests of the line using the same or similar technology used 

in the 1999 internal inspection. KM was to submit the work plan 

to the OPS within 30 days of receipt of the amended CAO. KM 

was to implement the work plan upon completion of the final action described in item (b)(ii) above, and submit a report on the 

results of the internal inspection tests within 30 days of completion of the testing. 

c) With respect to lines in Arizona, New Mexico, and Texas, KM was required 

to submit a report to the OPS on all internal inspection tests that had been 

performed on lines in Arizona, New Mexico, and Texas since January 1, 

1997 within 60 days of receipt of the amended CAO. The report was to include the final results of all internal inspection tests, the repair criteria established for each internal inspection test conducted, and all other information relevant to repairs made including a complete description of the repair criteria and repair methods. 

18) By letter dated March 28, 2001, KM clarified the receipt date of the Corrective Action Order CPF 4–2000–5010–H as being March 26, 2001. There were 

some mail routing problems in getting the CAO to Bill White. DOT’s original 

letter went to Orange, CA when Bill White was in Houston. KM wanted to 

clarify this because of response time constraints that were stated in the CAO. 

19) By letter dated April 3, 2001, KM requested a hearing with DOT to discuss 

CAO for LS–53/54. 

20) By letter dated April 26, 2001, OPS informed KM that CPF 4–2000–5010–H 

was renumbered to CPF 4–2001–5010–H. 

21) By letter dated August 9, 2001, KM provided OPS an advance copy of our 

written response to the CAO. 

22) On August 14, 2001, the CAO hearing was held in the OPS–SW Region Office 

in Houston, Texas. By revised letter dated August 14, 2001 and hand carried 

to the hearing, KM responded to OPS Corrective Action Order, CPF 4–2000– 

61 

5010–H. KM requested DOT to rescind the Corrective Action Order. KM believed that it was in full compliance with all DOT regulations and that the 

proposed requirements of the CAO were not supported by relevant facts or 

applicable regulations. KM was represented by outside counsel from 

Bracewell & Patterson. 

23) By letter dated August 27, 2001, KM outside counsel, Bracewell & Patterson, 

relayed information to DOT’s Hearing Examiner addressing the request for 

additional information made during the hearing. 

24) By letter dated September 7, 2001, DOT’s Presiding Officer submitted a request for additional information. 

25) By letter dated September 28, 2001, KM outside counsel responded to DOT’s 

September 7, 2001 request for more information. The information was submitted to DOT through our outside counsel, Bracewell & Patterson, LLP. 

26) By letter dated March 17, 2003, DOT issued KM an Amended CAO. The 

amended CAO requires the following from KM: 

a) Maintain reduced operating pressure on its Phoenix—Tucson –Davis 

Monthan AFB line 

b) Develop a work plan and schedule for conducting internal inspection tests 

using the same or similar technology which identified the extensive metal 

loss instances referred to in preliminary Finding 2 

i) Submit the work plan described in this action item to the Director, 

Southwest Region, for approval within 30 days of receipt of an 

amendment to this Order. 

ii) Submit a report on the results and findings of the internal inspection tests to the Director, Southwest Region, within 30 days of 

completion of the testing. 

27) By letter dated April 14, 2003, KM acknowledges to DOT the receipt of their 

Amended CAO: 

a) KM makes some information corrections such as Davis Monthan AFB pipeline is a separate line and is not directly connected to LS–53/54.. 

b) KM informs DOT that LS–53/54 had been subsequently internally inspected utilizing a Electronic Geometry Pig (EGP) and a Corrosion Detection Pig (CDP). These runs were completed on March 1, 2003, and that the 

final report was to be received around May 2003 and that a report would 

be submitted to DOT within 30 days of receiving the final report. KM believed this met the requirements of the Amended Corrective Action Order, 

dated March 17, 2003 to internally inspect this line. 

28) By letter dated May 29, 2003 (date error on letter), KM informed OPS–SW 

that is was complying with the requirement of the Amended CAO dated 

March 17, 2003 and informs DOT that KM received a Final report on April 

29, 2003, KM informs DOT of the Following findings: 

a) There were no ‘‘Immediate’’ repairs as defined by DOT’s IMP regulation. 

b) There were two ‘‘60-day’’ repair conditions. The first was a 3.5 percent 

dent at 1:10 o’clock position. The second was a 4.7 percent dent at 11’’51 

o’clock position. KM projects to have both anomalies investigated and necessary repairs before the end of June 2003. 

c) There were no ‘‘180-day’’ repair conditions reported in the Final report 

d) KM continues to review the Final Report to determine if additional excavations are warranted. 

e) KM addressed ‘‘two corrosion anomalies from the Final report. 

f) This update met the requirements of the Amended CAO. 

62 

EXHIBIT 9—SAFETY RECORD STATISTICS


1009EXH91.eps
63 


1009EXH92.eps
64 


1009EXH93.eps
65 


1009EXH94.eps
66 


1009EXH95.eps
67 


1009BTS1.eps 1009BTS2.eps
68 


1009BTS3.eps
69 

The CHAIRMAN. Thank you, Mr. Bannigan. Mr. Cowley. 

STATEMENT OF DAVID COWLEY, DIRECTOR, PUBLIC AFFAIRS, 

AAA ARIZONA 

Mr. COWLEY. Thank you, Senator. Thank you for the opportunity 

to testify. AAA Arizona’s role in the automotive and transportation 

arena is familiar to most people. We have over 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, AAA 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 at the 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’s situation from a media contact on 

August 11, 3 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 take just 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, Senator, let me say that the difference between a gasoline shortage and a transportation disruption was 

more than merely semantics. We felt it was very important to assure the public that gasoline inventories were normal, this was not 

another 1973. On Thursday, August 14, 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 had 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 18, 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 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. First, 

we, and by that I mean those in the oil industry, AAA, 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. 

70 

Second, 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 close to the number we had been doing and we had not issued a press release since 

our Thursday fuel gauge report. Now could we have prevented a 

run on gas stations had we been out there in the media more heavily? I can’t say. But I can say that communication, the lack thereof, 

contributed to the severity of this gas crisis. 

What have we learned? First, it’s time to acknowledge that gasoline is an essential commodity similar to utilities. The principles of 

free enterprise and competition should be allowed to establish gas 

pricing, but we also believe the refining industry has an obligation 

to practice restraint in pricing, especially during emergencies. 

Third, as has been said before, we need to take steps to ensure 

adequate supplies of gasoline to our state with redundancy built 

into the system. Third, the industry should have practical, practical 

back-up plans 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 AAA and the Government. We can then inform the public. 

That said, I must point out that AAA 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, hearings such as these are an important means of assessing the pipeline closure and subsequent events and preventing 

a recurrence. AAA hopes there will be a communications component in your recommendations, encouraging managers of essential 

infrastructure to speak candidly about disruption. 

Thank you, Senator McCain. That concludes my statement. 

[The prepared statement of Mr. Cowley follows:] 

PREPARED STATEMENT OF DAVID COWLEY, PUBLIC AFFAIRS MANAGER, AAA ARIZONA

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 11, 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 disrupVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00074 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\20974.TXT JACKIE
71 

tion—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 14, 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 18. 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. 

72 

PIPELINE CLOSURE TIMELINE

July 31, 2003—Kinder Morgan pipeline ruptures. Line is closed, Federal authorities 

and the Arizona Corp. Commission is notified. Phoenix unleaded: $1.541 

August 1, 2003—Kinder Morgan reopens the pipeline and runs it at reduced capacity. 

August 6, 2003—Federal Office of Pipeline Safety determines the pipeline can be 

run safely at 80 percent capacity. A failed seam thought to be the origin of the problem. 

August 8, 2003—Kinder Morgan decides the problem is more serious and shuts the 

line down completely. Phoenix unleaded: $1.536 

August 11, 2003—AAA Arizona learns of closure from a media contact. AAA issues 

first press release explaining the closure. AAA stated that gas supplies were plentiful, transportation issues were holding up supplies, motorists should conserve gas. 

Phoenix unleaded: $1.558 

August 12, 2003—Extensive media interviews. AAA Arizona sends an update on the 

closure to the media. Phoenix unleaded: $1.613 

August 13, 2003—Napolitano holds a news conference and predicts no widespread 

outages based on information from Kinder Morgan. AAA attends this news conference by invitation from the governor’s office. AAA Arizona sends another press 

release update to the media. Phoenix unleaded: $1.639 

August 14, 2003—Kinder Morgan delivers testing plan to the Office of Pipeline Safety. AAA sends pipeline update press release. Phoenix unleaded: $1.684 

Sunday, August 17, 2003—Gas lines form at stations in afternoon. AAA Emergency 

Road Service reports a spike in members asking for fuel service. Flurry of media 

interviews in afternoon and early evening. Phoenix unleaded: $1.767 

Monday, August, 18, 2003—Gov. Napolitano meets with Valley mayors and other 

public officials. AAA issues press release calling for calm and advising motorists not 

to buy gas unless it is needed. Phoenix unleaded: $1.767 

Tuesday, August 19, 2003—Government approves Kinder Morgan’s plan to start 

testing. Napolitano asks for, receives a temporary waiver to the Valley’s CBG requirement. AAA sends an update press release. Phoenix unleaded: $1.866 

Wednesday, August 20, 2003—Pipeline fails hydrostatic test. Lines at gas stations 

start to subside. Fuel is being delivered to the Valley by truck. Phoenix unleaded: 

$1.926 

Thursday, August 21, 2003—Kinder Morgan announces plans to bypass section of 

pipeline that failed test, gas should be flowing to Phoenix by the weekend. Unleaded 

gas in Phoenix: $2.038 

Sunday, August 24, 2003—Kinder Morgan completes bypass of the closed section of 

pipeline. Gas begins flowing toward Phoenix. Phoenix unleaded: $2.098 

Thursday, August 28, 2003—AAA issues Fuel Gauge Report, noting that high gas 

prices are not expected to deter motorists from traveling over Labor Day. Phoenix 

unleaded: $2.125 

August 2003 Gas Prices During Pipeline Closure 

AAA Arizona, 2003 

AAA’s Fuel Gauge reports are usually done weekly, on Thursdays. When we became aware of the pipeline situation, webegan keeping a daily report. The green 

rows are weekly reports done before and after the pipeline was closed.Where prices 

for a particular grade are missing, it is because we generally base our discussions 

with the press on regular unleaded.Thus, we often skip other grades in our notes. 

For purposes of discussion during the crisis, we used Phoenix as the 

benchmarkprice, rather than going into all the different prices around the Valley. 

73 

Statewide East Valley Phoenix 

Regular Mid-Grade Premium Diesel Regular Mid-Grade Premium Diesel Regular Mid-Grade Premium Diesel 

8/7/03 1.570 1.636 1.731 1.625 1.513 1.578 1.670 1.622 1.536 1.602 1.694 1.638 8/11/03 1.550 1.546 1.612 1.705 1.617 1.558 1.625 1.718 1.636 8/12/03 1.550 1.591 1.659 1.755 1.621 1.613 1.682 1.779 1.643 8/13/03 1.640 1.633 1.704 1.802 1.635 1.639 1.709 1.808 1.654 8/14/03 1.650 1.679 1.751 1.852 1.643 1.684 1.756 1.857 1.662 8/15/03 1.709 1.708 1.781 1.884 1.668 1.726 1.801 1.904 1.681 weekend 8/18/03 1.741 1.754 1.830 1.935 1.687 1.767 1.843 1.949 1.698 8/19/03 1.813 1.843 1.922 2.033 1.715 1.866 1.946 2.058 1.709 8/20/03 1.855 1.906 1.988 2.103 1.736 1.926 2.009 2.125 1.728 8/21/03 1.885 1.961 2.045 2.163 1.778 1.981 2.066 2.185 1.747 8/22/03 1.928 2.041 2.129 2.252 1.781 2.038 2.125 2.248 1.762 weekend 8/25/03 1.966 2.117 2.208 2.335 1.787 2.098 2.188 2.314 1.770 8/26/03 2.008 2.120 2.211 2.339 1.783 2.146 2.238 2.367 1.782 8/27/03 2.005 2.130 2.221 2.349 1.779 2.131 2.222 2.350 1.797 8/28/03 1.998 2.124 2.215 2.342 1.775 2.125 2.216 2.344 1.793 8/29/03 1.994 2.118 2.209 2.337 1.785 2.111 2.202 2.329 1.788 weekend 9/3/03 1.980 2.076 2.165 2.289 1.759 2.070 2.159 2.284 1.734 9/4/03 1.980 2.065 2.184 1.757 2.080 2.170 2.295 1.760 2.081 2.170 2.295 1.769 9/11/03 1.927 2.010 2.125 1.730 2.008 2.094 2.214 1.713 2.012 2.098 2.219 1.745 9/18/03 1.882 1.963 2.076 1.69 1.956 2.040 2.157 1.665 1.96 2.043 2.161 1.723 

74 

Scottsdale Tucson Flagstaff 

Regular Mid-Grade Premium Diesel Regular Mid-Grade Premium Diesel Regular Mid-Grade Premium Diesel 

1.582 1.650 1.745 1.675 1.513 1.578 1.670 1.651 1.610 1.679 1.776 1.666 1.549 1.616 1.709 1.694 1.691 1.768 1.864 1.622 1.660 1.731 1.831 1.695 1.563 1.630 1.724 1.685 1.690 1.763 1.863 1.644 1.673 1.745 1.845 1.651 1.572 1.640 1.734 1.682 1.722 1.797 1.899 1.668 1.709 1.782 1.885 1.688 1.608 1.677 1.773 1.699 1.728 1.805 1.906 1.658 1.774 1.851 1.957 1.691 1.630 1.700 1.798 1.703 1.736 1.813 1.914 1.668 1.814 1.892 2.001 1.703 1.648 1.718 1.817 1.710 1.760 1.838 1.941 1.701 1.887 1.968 2.081 1.695 1.710 1.783 1.886 1.749 1.783 1.863 1.966 1.735 1.952 2.036 2.154 1.703 1.722 1.795 1.899 1.723 1.856 1.937 2.047 1.739 1.994 2.079 2.199 1.761 1.728 1.802 1.906 1.732 1.863 1.945 2.055 1.780 2.069 2.158 2.282 1.800 1.750 1.825 1.930 1.731 1.862 1.946 2.054 1.773 2.134 2.226 2.354 1.797 1.766 1.842 1.948 1.733 1.889 1.973 2.082 1.776 2.165 2.258 2.388 1.838 1.809 1.887 1.995 1.757 1.919 2.005 2.117 1.807 2.187 2.281 2.412 1.820 1.824 1.902 2.011 1.746 1.949 2.035 2.149 1.800 2.173 2.267 2.397 1.785 1.826 1.904 2.014 1.732 1.938 2.024 2.137 1.786 2.147 2.239 2.368 1.786 1.819 1.897 2.006 1.735 1.927 2.013 2.124 1.802 2.137 2.228 2.357 1.751 1.821 1.899 2.008 1.739 1.880 1.960 2.073 1.839 2.127 2.218 2.346 1.784 1.819 1.897 2.006 1.738 1.901 1.985 2.096 1.822 2.047 2.135 2.258 1.813 1.794 1.871 1.979 1.729 1.865 1.947 2.057 1.764 1.981 2.066 2.185 1.700 1.763 1.838 1.944 1.687 1.807 1.887 1.993 1.741 

75 

Yuma National 

Regular Mid-Grade Premium Diesel Regular Mid-Grade Premium Diesel 

1.528 1.594 1.686 1.578 1.542 1.637 1.697 1.533 

1.583 1.651 1.746 1.569 

1.605 1.674 1.771 1.565 

1.607 1.676 1.773 1.589 

1.668 1.739 1.840 1.600 1.571 1.667 1.728 1.556 

1.708 1.781 1.884 1.638 

1.758 1.834 1.939 1.654 

1.812 1.890 1.999 1.649 

1.820 1.898 2.008 1.659 

1.835 1.914 2.024 1.666 1.635 

1.883 1.963 2.077 1.666 1.648 

1.903 1.985 2.100 1.680 1.664 

1.988 2.073 2.192 1.667 1.718 

1.993 2.079 2.199 1.670 1.733 

1.964 2.049 2.167 1.670 1.735 

1.944 2.028 2.144 1.683 1.736 

1.945 2.028 2.145 1.661 1.731 

1.947 2.031 2.148 1.689 1.730 1.837 1.903 1.580 

1.929 2.012 2.128 1.657 1.693 1.797 1.862 1.566 

1.870 1.951 2.063 1.630 1.673 1.775 1.840 1.554 

AAA ARIZONA

Phoenix, AZ 

For Immediate Release 

AAA REPORTS: FUEL PRICES HOLDING STEADY AT THE MIDPOINT OF THE SUMMER

DRIVING SEASON

Phoenix, AZ—July 31, 2003—Gasoline prices have held steady as the summer 

driving season continues. The statewide average price for self-serve unleaded gasoline inched 1.3 cents lower from last week to $1.570 per gallon, according to AAA 

Arizona’s Weekly Fuel Survey. The current average price is 11.8 cents higher than 

a year ago when the average was $1.452 per gallon. However, this week’s average 

is 9 cents cheaper than last month’s average of $1.660 per gallon. 

The national average for gasoline remained unchanged at $1.523 per gallon. 

OPEC’s meeting earlier today helped pin crude oil prices to $28.43 per barrel, following their decision to maintain current production levels. OPEC’s decision will 

help keep gasoline prices stable unless major refinery or pipeline problems occur in 

the U.S. Meanwhile, U.S. gasoline inventories are returning to normal levels following the aftermath of Hurricane Claudette. 

AAA found the most expensive average price in California at $1.747, followed by 

Nevada, $1.684 and Montana: at $1.662 per gallon. The least expensive states to 

fill up are: South Carolina: $ 1.386, Georgia: $1.401 and New Jersey: $1.413 per gallon. 

Arizona pump prices are in concert with the rest of the Nation and are holding 

ground. Gasoline prices in the southwest region of the state held steady with the 

exception of Yuma where the average pump price plunged 2.3 cents to $1.552 per 

gallon. Prices in the Valley experienced the highest decreases than the rest of the 

state. Gasoline prices in the West Valley and Scottsdale edged 2.5 cents lower to 

$1.525 and $1.578 per gallon, respectively. This week’s survey shows the East Valley’s average fuel price as the cheapest in the state at $1.508 per gallon. Other Arizona prices are shown below. Motorists can visit AAA’s website at www.aaa.com, 

then click on News for the latest fuel price information. 

Unleaded Mid-Grade Premium Diesel 

Phoenix (city) 1.541 1.607 1.700 1.632 

East Valley 

(Mesa,Gilbert, Chandler, Tempe, Ahwatukee, Apache Queen 

Crk.) 

1.508 1.572 1.663 1.616 

West Valley 

(Peoria, Glendale, Sun City) 

1.525 1.591 1.682 1.637 

Scottsdale 

(Scottsdale, Fountain Hills) 

1.578 1.646 1.741 1.663 

76 

Unleaded Mid-Grade Premium Diesel 

Tucson (city) 1.523 1.588 1.680 1.650 

Pima County 1.530 1.595 1.687 1.656 

Flagstaff 1.685 1.760 1.858 1.626 

Yuma 1.552 1.618 1.711 1.541 

Statewide 1.570 1.637 1.731 1.618 

National 1.523 1.617 1.675 1.520 

AAA continues to advise motorists to practice fuel conservation and continue to 

maintain their normal fuel purchasing patterns. AAA Arizona recommends the following fuel conservation tips to motorists: 

• If you own more than one car—especially if one of your vehicles is a less fuelefficient truck or SUV—use the more energy-conserving vehicle as often as possible. 

• Car pools, van pools and public transit are other potential ways to cut driving 

expenses and fuel consumption. 

• Consolidate trips and errands. 

• Find one location where you can take care of all banking, grocery shopping and 

other chores. 

• Slow down. The faster a vehicle travels, the more gas it burns. 

• Avoid quick starts and sudden stops, this wastes fuel. 

• Routinely maintain your vehicle. 

• Lighten the load. A heavier vehicle uses more gasoline, so when packing for a 

road trip—pack light—and try to pack everything inside the vehicle if possible. 

Strapping items to the top of a vehicle can create wind resistance. 

• Check your vehicle owner’s manual. If your vehicle does not require premium 

or mid-grade fuel, then buy regular unleaded gasoline. 

These and other fuel conservation tips and information can be found in AAA’s Gas 

Watcher’s Guide. These guides are free to the public and can be picked up at any 

AAA Arizona office throughout the state. 

AAA ARIZONA

Phoenix, AZ 

For Immediate Release 

AAA REPORTS: GASOLINE RETAIL PRICES UNSETTLED

Phoenix, AZ—August 7, 2003—Gasoline prices inched upward in many regions of 

the state this week, sliding downward in others, and ending with the statewide average price for self-serve unleaded gasoline unchanged from last week at $1.570 per 

gallon, according to AAA Arizona’s Weekly Fuel Survey. This week’s average price 

is 12.9 cents higher than a year ago when the average was $1.440 per gallon. 

The national average cost for gasoline rose to $1.542 per gallon, 1.9 cents higher 

than last week. Crude oil prices moved above $32 per barrel earlier this week due 

to recent terrorist attacks that bolstered worries among the oil industry. This recent 

turn of events has created a run-up in wholesale gasoline prices, which will eventually lead to higher retail prices. There are several theories behind the sudden price 

hike including recent terror attacks in Indonesia and the cancellation of a summit 

meeting between Israeli and Palestinian leaders. 

AAA found the most expensive average price in California at $1.743, followed by 

Nevada, $1.690 and Montana: at $1.674 per gallon. The least expensive states to 

fill up are: South Carolina: $1.395, Georgia: $1.404 and New Jersey: $1.418 per gallon. 

Locally, pump prices in Southern Arizona inched downward marginally. Tucson’s 

average price dropped by a penny to $1.513 per gallon, from last week. Prices in 

the Valley climbed upward with the exception of Phoenix where the average price 

barely budged by dropping .5 cents to $1.536 per gallon. Other Arizona prices are 

shown below. Motorists can visit AAA’s website at www.aaa.com, then click on 

News for the latest fuel price information. 

77 

Unleaded Mid-Grade Premium Diesel 

Phoenix (city) 1.536 1.602 1.694 1.638 

East Valley 

(Mesa,Gilbert, Chandler, Tempe, Ahwatukee, Apache Queen 

Crk.) 

1.513 1.578 1.670 1.622 

West Valley 

(Peoria, Glendale, Sun City) 

1.528 1.593 1.685 1.642 

Scottsdale 

(Scottsdale, Fountain Hills) 

1.582 1.650 1.745 1.675 

Tucson (city) 1.513 1.578 1.670 1.651 

Pima County 1.522 1.587 1.678 1.660 

Flagstaff 1.713 1.790 1.890 1.630 

Yuma 1.528 1.594 1.686 1.578 

Statewide 1.570 1.636 1.731 1.625 

National 1.542 1.637 1.697 1.533 

AAA continues to advise motorists to practice fuel conservation and continue to 

maintain their normal fuel purchasing patterns. AAA Arizona recommends the following fuel conservation tips to motorists: 

• If you own more than one car—especially if one of your vehicles is a less fuelefficient truck or SUV—use the more energy-conserving vehicle as often as possible. 

• Car pools, van pools and public transit are other potential ways to cut driving 

expenses and fuel consumption. 

• Consolidate trips and errands. 

• Find one location where you can take care of all banking, grocery shopping and 

other chores. 

• Slow down. The faster a vehicle travels, the more gas it burns. 

• Avoid quick starts and sudden stops, this wastes fuel. 

• Routinely maintain your vehicle. 

• Lighten the load. A heavier vehicle uses more gasoline, so when packing for a 

road trip—pack light—and try to pack everything inside the vehicle if possible. 

Strapping items to the top of a vehicle can create wind resistance. 

• Check your vehicle owner’s manual. If your vehicle does not require premium 

or mid-grade fuel, then buy regular unleaded gasoline. 

These and other fuel conservation tips and information can be found in AAA’s Gas 

Watcher’s Guide. These guides are free to the public and can be picked up at any 

AAA Arizona office throughout the state. 

AAA ARIZONA

Phoenix, AZ 

For Immediate Release 

AAA ADVISES MOTORISTS ON TEMPORARY DISRUPTIONS

TO THE PHOENIX GASOLINE SUPPLY

Phoenix, AZ.—August 11, 2003—Today, Kinder Morgan, the company operating 

an 8-inch pipeline between Tucson and Phoenix, temporarily shut down the pipeline 

as a precautionary measure in connection with an ongoing investigation into a recent rupture. The company is working to get the line back up and running as quickly as possible. 

There will be adequate supplies of fuel to meet demand in the Tucson area. In 

Phoenix, supplies of regular unleaded gasoline will not be impacted in the short 

term, but there may be temporary shortages of premium gasoline. Motorists are advised not to panic—gasoline is in plentiful supply at the company’s Tucson terminal 

and can be trucked into Phoenix. It is also important to note that the pipeline from 

78 

Tucson only carries about 30 percent of the Valley’s gas. Seventy percent of Kinder 

Morgan’s gasoline volume to Phoenix will continue normally. 

AAA says, don’t rush out to buy gas. The surest way to shortages is panic buying. 

The disruption may well be over before many Phoenicians need to fill up. 

Here are some tips on fuel conservation: 

• If you own more than one car—especially if one of your vehicles is a less fuelefficient truck or SUV—use the more energy-conserving vehicle as often as possible. 

• Consolidate trips and errands. 

• Find one location where you can take care of all banking, grocery shopping and 

other chores. 

• Slow down. The faster a vehicle travels, the more gas it burns 

• Avoid quick starts and sudden stops—this wastes fuel. 

• Routinely maintain your vehicle. 

• Lighten the load. A heavier vehicle uses more gasoline. 

• Check your vehicle owner’s manual. If your vehicle does not require premium 

or mid-grade fuel, then buy regular unleaded gasoline. 

Remember, gas conservation should be practiced even when there is no disruption 

in gasoline supplies. 

AAA ARIZONA

Phoenix, AZ 

For Immediate Release 

UPDATE FROM AAA ON PIPELINE CLOSURE

Phoenix, AZ.—August 12, 2003—The Kinder Morgan pipeline that runs between 

Tucson and Phoenix is still shut down. 30 percent of the fuel that comes into Phoenix every day is transported through this pipeline. Despite the closure, gasoline is 

still being distributed to Valley gas stations by fuel trucks. David Cowley, director 

of AAA Public Affairs says, ‘‘A slow down in distribution does not mean we are facing a gasoline shortage. It’s just taking longer to get here.’’ 

Because of the closure, consumers are seeing price increases at the pump. AAA 

Arizona reports an average price hike of 5 to 6 cents at Valley gas stations. In the 

Phoenix metro area, the average price of regular unleaded is $1.61 compared to 

$1.55 yesterday. East Valley gas prices shot up 5 cents from $1.54 to $1.59. Scottsdale gas prices jumped 5 cents from $1.61 to $1.66 compared to yesterday. Flagstaff 

gas prices remain unaffected by the pipeline close because gasoline has always been 

trucked into this area. 

Gasoline is now being trucked into Phoenix from Tucson. However this is slower 

and more expensive. More trucks are being devoted to the transportation of regular 

unleaded fuel because it is more widely used. If there is a ‘shortage’, premium fuel 

will be harder to find because it is used less than regular. 

Kinder Morgan has not been able to determine when the pipeline from Tucson to 

Phoenix will be operational again but AAA predicts gas prices will continue to increase the longer it is down. Here are some fuel saving tips for motorists: 

• If you own more than one car—especially if one of your vehicles is a less fuelefficient truck or SUV—use the more energy-conserving vehicle as often as possible. 

• Consolidate trips and errands. 

• Find one location where you can take care of all banking, grocery shopping and 

other chores. 

• Slow down. The faster a vehicle travels, the more gas it burns 

• Avoid quick starts and sudden stops—this wastes fuel. 

• Routinely maintain your vehicle. 

• Lighten the load. A heavier vehicle uses more gasoline. 

• Check your vehicle owner’s manual. If your vehicle does not require premium 

or mid-grade fuel, then buy regular unleaded gasoline. 

79 

AAA ARIZONA

Phoenix, AZ 

For Immediate Release 

PIPELINE CLOSURE FUELS PUMP PRICE INCREASE

Phoenix, AZ. August 13, 2003—The pipeline between Tucson and Phoenix remains 

closed with no indication from Kinder Morgan as to when it will be repaired. AAA 

Arizona has received numerous calls from angry motorists about the price of gas, 

but AAA predicts pump prices will continue to climb the longer the pipeline is down. 

Gas prices have skyrocketed since last week. Since last week, the average price 

increase rose 9 to 12 cents in the Phoenix area. However some gas station’s prices 

have gone beyond that, increasing the price per gallon as much as 20 cents since 

last week. Since yesterday, gas prices have jumped 3—9 cents around Phoenix. 

Today, AAA reports that Phoenix and the East Valley have an average price of 

$1.63 per gallon. Scottsdale drivers are paying about $1.67 a gallon and Tucson is 

up to $1.57 a gallon. 

Flagstaff and other parts of northern Arizona may also see their prices start to 

rise. Yesterday the average price in Flagstaff was $1.69 a gallon. However it’s 

jumped three cents to $1.72. With the pipeline closed, gasoline distribution is slower 

throughout the state and some gas stations are raising prices. Although there is NO 

gasoline shortage, transporting fuel by truck is slower and more expensive. This is 

one of the contributing factors to the price increase around the state. To meet demand, the amount of fuel being pumped into Arizona has increased by 15 percent 

since Tuesday. 

Kinder Morgan, owner of the closed pipeline, is meeting with regulators this week 

to present a plan to fix the pipeline. Until the pipeline is repaired, AAA advises 

drivers to practice fuel conservation and give suppliers time to work out these transportation problems. 

AAA ARIZONA

Phoenix, AZ 

For Immediate Release 

AAA WEEKLY FUEL GAUGE REPORT: FUEL PRICES SOAR AFTER 6 WEEKS OF PRICE

STABILITY

Phoenix, AZ—August 14, 2003—Gasoline prices skyrocketed this week, ending a 

six-week honeymoon of downward trickling gas prices. This week’s statewide average for regular unleaded gasoline hit $1.646 per gallon, 7.6 cents higher than last 

week. This is the highest price in the last six weeks since July 2nd when prices 

were $1.650 per gallon. Prices a year ago this month averaged $1.434 per gallon, 

21.2 cents lower than the current price. 

The temporary shutdown of an 8-inch pipeline between Tucson and Phoenix by 

Kinder Morgan Partners is partially to blame for the recent rise in prices. The pipeline was closed after a rupture on July 30th spewed 10,000 gallons of gasoline near 

a new housing development in Tucson. The shutdown has forced KMP to distribute 

gasoline by truck, which is slower and more expensive. KMP officials are scheduled 

to meet today with the Office of Pipeline Safety and the Arizona Corporation Commission to present a plan to fix the pipeline. 

Prices have also been influenced by recent events on the national front. The national average price for gasoline rose to $1.571 per gallon, 2.9 cents higher than last 

week. The recent surge in retail prices reflect crude oil prices that have remained 

above $31 per barrel, some refinery problems in the mid-west, and a drop in European gas exports to the U.S. 

Gas prices have risen in other parts of the country. AAA found the most expensive 

average price in California at $1.808, followed by Nevada, $1.729 and Washington: 

at $1.696 per gallon. The least expensive states to fill up are: South Carolina: $ 

1.420, Georgia: $1.445 and New Jersey: $1.446 per gallon. 

Locally, average prices in the state shot up 1.5 to 16.7 cents. Average prices in 

the East Valley jumped to $1.680 per gallon, up 16.7 cents from last week. Pump 

prices in Phoenix rose by 14.8 cents to $1.684 per gallon. Tucson’s average price is 

$1.608 per gallon, 9.5 cents higher than last week. Other Arizona prices are shown 

below. Motorists can visit AAA’s website at www.aaa.com, then click on News for 

the latest fuel price information. 

80 

Unleaded Mid-Grade Premium Diesel 

Phoenix (city) 1.684 1.756 1.857 1.662 

East Valley 

(Mesa,Gilbert, Chandler, Tempe, Ahwatukee,Apache Queen 

Crk.) 

1.680 1.751 1.852 1.643 

West Valley 

(Peoria, Glendale, Sun City) 

1.680 1.752 1.853 1.664 

Scottsdale 

(Scottsdale, Fountain Hills) 

1.709 1.782 1.885 1.688 

Tucson (city) 1.608 1.677 1.773 1.700 

Pima County 1.611 1.681 1.777 1.700 

Flagstaff 1.728 1.805 1.906 1.658 

Yuma 1.668 1.740 1.840 1.600 

Statewide 1.646 1.717 1.816 1.641 

National 1.571 1.667 1.728 1.556 

AAA continues to advise motorists to practice fuel conservation and continue to 

maintain their normal fuel purchasing patterns. AAA Arizona recommends the following fuel conservation tips to motorists: 

• If you own more than one car—especially if one of your vehicles is a less fuelefficient truck or SUV—use the more energy-conserving vehicle as often as possible. 

• Car pools, van pools and public transit are other potential ways to cut driving 

expenses and fuel consumption. 

• Consolidate trips and errands. 

• Find one location where you can take care of all banking, grocery shopping and 

other chores. 

• Slow down. The faster a vehicle travels, the more gas it burns. 

• Avoid quick starts and sudden stops, this wastes fuel. 

• Routinely maintain your vehicle. 

• Lighten the load. A heavier vehicle uses more gasoline, so when packing for a 

road trip—pack light—and try to pack everything inside the vehicle if possible. 

Strapping items to the top of a vehicle can create wind resistance. 

• Check your vehicle owner’s manual. If your vehicle does not require premium 

or mid-grade fuel, then buy regular unleaded gasoline. 

These and other fuel conservation tips and information can be found in AAA’s Gas 

Watcher’s Guide. These guides are free to the public and can be picked up at any 

AAA Arizona office throughout the state. 

AAA ARIZONA

Phoenix, AZ 

For Immediate Release 

AAA ADVISES MOTORISTS TO CONSERVE FUEL AS GASOLINE SHORTAGES LEAVE

PHOENIX MOTORISTS IN DISARRAY

Phoenix, AZ—August 18, 2003—The recent pipeline closure has led to temporary 

disruptions in gasoline supplies to the Phoenix area causing many gas stations to 

temporarily run out of fuel. There is an adequate supply of gasoline being delivered 

into the state, but it must be trucked from a Tucson terminal into Phoenix. Trucking gas is slower and more expensive. 

Kinder Morgan, the owners of the pipeline, presented a plan for testing it to the 

Office of Pipeline Safety. They estimate that testing will take 7–10 days from the 

time they get approval on their plan. The pipeline that runs between Tucson and 

Phoenix supplies about 30 percent of the fuel used in Phoenix. 

Gasoline prices have pushed upward by the closure. The statewide average has 

jumped nearly ten cents within the last week to $1.741 per gallon. Average prices 

81 

in the Valley have soared between 7 to 10 cents higher than last week. Some gasoline stations in Phoenix have reported prices above $2.00 per gallon. Flagstaff gas 

prices have risen slightly to $1.760 per gallon as tank trucks are redirected from 

there to the Phoenix area. The average price in Tucson rose 4 cents from $1.608 

to $1.648 per gallon. 

‘‘This situation has prompted motorists to hurry to their local gas station in fear 

that supplies are dwindling,’’ said David Cowley, AAA Public Affairs Manager. ‘‘But, 

that’s not what is happening. We have plenty of gas. Trucking into Phoenix is the 

bottleneck.’’ 

AAA’s advice: 

• If you have more than half a tank, don’t buy gas. Panic buying or constantly 

topping off your tank puts undue stress on gasoline supplies and makes the 

supply problem worse. 

• Conserve fuel and stay calm. 

• Don’t drive unless you absolutely must. 

• Carpool with neighbors (do your grocery shopping together, start a carpool to 

get the kids to school. . .or walk them to school, etc.) 

• Combine errands. Run as many errands as possible in one trip. 

• Drive the most fuel-efficient car you have. 

‘‘We are not running out of gas,’’ said Cowley. ‘‘Such fears are unjustified. If folks 

will calmly go about their business, conserve fuel, and buy gas only when they need 

it, we’ll get through this situation without serious problems. But, folks have got to 

calm down.’’ 

AAA ARIZONA

Phoenix, AZ 

For Immediate Release 

AAA ARIZONA REPORTS: GAS SHORTAGES CONTINUE TO PLAGUE VALLEY BUT NOT

STATEWIDE

Phoenix, AZ—August 19, 2003—Gasoline shortages are plaguing motorists in 

Phoenix, largely due to an unpredicted upsurge in gas buying that began last Sunday night. Today, motorists are lining up at gasoline stations as soon as a tank 

truck delivers gas. 

‘‘We are not running out of gas,’’ said David Cowley, Public Affairs Manager at 

AAA Arizona. ‘‘Such fears are unjustified. If folks will calmly go about their business, conserve fuel, and buy gas only when they need it, we’ll get through this situation.’’ 

Motorists in other parts of the state should not experience gas shortages in their 

area, although they will see higher gas prices. Gas supplies are plentiful in rural 

Arizona and there is no reason not to travel there. Sedona, Flagstaff, and the White 

Mountains all report adequate gas supplies. 

The pipeline closure has sent the statewide price of regular unleaded soaring up 

7 cents since the weekend with Arizona’s average hitting $1.813 per gallon. The average price in Tucson jumped 6 cents from yesterday to $1.710 per gallon. Average 

prices in Flagstaff climbed 2.3 cents at $1.783 per gallon from yesterday. Fuel prices 

in Nogales and Sierra Vista remained stable at $1.732 and $1.789 per gallon, respectively. Gas prices in Phoenix have surged 9.9 cents to $1.866 per gallon from 

yesterday. 

Price hikes are partially blamed on the shutdown of the pipeline that has created 

distribution bottlenecks throughout the state. The pipeline has been temporarily 

down since August 8th and normally supplies 30 percent of fuel shipped into Phoenix. Kinder Morgan officials reported they will begin testing the pipeline tonight 

with hopes to restart the line as early as this weekend, pending government approval. Testing involves pumping pressurized water through the pipeline and checking for leaks. 

AAA’s advice: 

• If you have more than half a tank, don’t buy gas. Panic buying or constantly 

topping off your tank puts undue stress on gasoline supplies and makes the 

supply problem worse. 

• Conserve fuel and stay calm. 

• Don’t drive unless you absolutely must. 

82 

• Carpool with neighbors (do your grocery shopping together, start a carpool to 

get the kids to school. . .or walk them to school, etc.). Check out Valley Metro’s 

Ride Matching site: www.ShareTheRide.com 

• Combine errands. Run as many errands as possible in one trip. 

• Drive the most fuel-efficient car you have. 

AAA ARIZONA

Phoenix, AZ 

For Immediate Release 

AAA Arizona: More Gas Headed for Arizona as Motorists Reduce Consumption 

Phoenix, AZ—August 20, 2003—Lines are easing at Phoenix area gas stations 

upon news from Governor Napolitano that additional gasoline is now reaching the 

Valley. The Governor also announced yesterday that the EPA has granted a 30-day 

waiver allowing Phoenicians to use ordinary unleaded gas until the supply crunch 

ends. That, plus additional gasoline arriving in the pipeline from Southern California, means the supplies expected to reach Phoenix in the next few days are much 

closer to normal. 

Kinder Morgan officials are optimistic that gas will begin to flow in their shutdown pipeline by the weekend—this in spite of a failed test yesterday. A 4-mile section of the pipeline suffered a leak during yesterday’s testing, but it is expected that 

the additional repairs will be completed quickly. There was also news of damage to 

the Western Pipeline when a truck fell on it. That pipeline, which delivers gas to 

Arizona from Southern California, has been closed but is expected to re-open later 

tonight. No disruptions are expected from this minor closure. 

‘‘The best news is that motorists are taking the gas conservation message seriously,’’ said David Cowley, Public Affairs Manager at AAA. ’’Governmental agencies 

and businesses, including AAA, have employees telecommuting. Traffic is reduced 

on city streets and, while there are gas lines, they are shorter and fewer. We are 

getting a handle on this.’’ 

The supply slow-down has affected prices statewide, however. Here are the latest 

average prices for regular unleaded gasoline throughout the state: 

• Arizona Statewide $1.85 

• Tucson $1.72 

• Phoenix $1.92 

• Phoenix East Valley $1.90 

• Flagstaff $1.85 

• Nogales $1.76 

• Sierra Vista $1.81 

• Scottsdale $1.95 

• Yuma $1.82 

AAA is continuing to ask motorists to conserve gas by following these basic tips: 

• If you have more than half a tank, don’t buy gas. Panic buying or constantly 

topping off your tank puts undue stress on gasoline supplies and makes the 

supply problem worse. 

• Don’t drive unless you absolutely must. 

• Carpool with neighbors (do your grocery shopping together, start a carpool to 

get the kids to school. . .or walk them to school, etc.). Check out Valley Metro’s 

Ride Matching site: www.ShareTheRide.com 

• Combine errands. Run as many errands as possible in one trip. 

• Drive the most fuel-efficient car you have. 

AAA ARIZONA

Phoenix, AZ 

For Immediate Release 

AAA SAYS CONSERVATION KEY TO GAS CRUNCH

Phoenix, AZ. August 21, 2003—AAA notes that gas prices continue to rise as the 

state ends week two of the pipeline closure. Arizona had the third highest gas prices 

in the Nation this week, with an average of $1.885 for regular unleaded. The increase, just over 31 cents in two weeks is largely due to the pipeline problem. At 

a news conference on Wednesday, Governor Napolitano said Kinder Morgan, the 

pipeline’s owners, assured her they would ‘‘move heaven and earth’’ to get the pipeline up and running by Sunday night. Furthermore, additional gas supplies are 

being brought to the Valley by Kinder Morgan’s second pipeline and by truck. 

Even so, AAA Arizona strongly urges motorists to practice fuel conservation 

throughout the weekend. 

83 

‘‘This might be a good weekend to stay home by the pool,’’ said David Cowley, 

Public Affairs Manager at AAA Arizona. ‘‘We all need to save gas any way we can 

to let distributors build gas inventories back up.’’ 

Gas prices have risen in other parts of the country, as well. AAA found the most expensive average price in California at $2.022, where prices were driven upward 

by Arizona’s problems. In Oregon, regular unleaded was selling for $1.889. Prices 

rose slightly in the Eastern U.S. as well, in part due to refinery outages caused by 

the Northeast’s power blackout. 

A. Unleaded B. Mid-Grade C. Premium D. Diesel 

Phoenix (city) 1.981 2.066 2.185 1.747 

East Valley 

(Mesa,Gilbert, Chandler, Tempe, Ahwatukee,Apache 

Queen Crk.) 

1.961 2.045 2.163 1.778 

West Valley 

(Peoria, Glendale, Sun City) 

1.970 2.055 2.174 1.718 

Scottsdale 

(Scottsdale, Fountain Hills) 

1.994 2.079 2.199 1.761 

Tucson (city) 1.728 1.802 1.906 1.732 

Pima County 1.732 1.806 1.910 1.742 

Flagstaff 1.863 1.945 2.055 1.780 

Yuma 1.835 1.914 2.024 1.666 

Statewide 1.885 1.966 2.079 1.739 

National 1.635 1.736 1.799 1.569 

It is difficult to predict when Arizona’s gas supply will stabilize, so it is essential 

that drivers continue to conserve fuel: 

• If you have more than half a tank, don’t buy gas. Panic buying or constantly 

topping off your tank puts undue stress on gasoline supplies and makes the 

supply problem worse. 

• Don’t drive unless you absolutely must. 

• Combine errands. Run as many errands as possible in one trip. 

• Drive the most fuel-efficient car you have. 

AAA ARIZONA

Phoenix, AZ 

For Immediate Release 

GAS PRICES EXPECTED TO HOLD STEADY FOR LABOR DAY WEEKEND

Phoenix, AZ. August 28, 2003—Gasoline prices around the state are holding 

steady, as motorists prepare for the Labor Day weekend. Although the pipeline was 

reopened Sunday, Arizona continues to have the third highest gas prices in the Nation this week, with an average of $1.998 for regular unleaded. Arizona hit record 

highs earlier this week when the average price hit $2.008 per gallon, according to 

AAA Arizona. 

Prices are rising rapidly all throughout the country due to ongoing refinery outages caused by the electrical blackout two weeks ago. AAA’s weekly report shows 

a nationwide average price of $1.735 per gallon, the highest recorded price in AAA 

history. Refineries serving Chicago, Detroit and San Francisco were reported shutdown. AAA believes that if the United States would address the insufficient domestic gasoline refining capacity and the need for gasoline companies to maintain higher reserve inventories then it would be able to minimize the exorbitant price spikes 

that have adversely affected consumers and the economy for several years. 

But high prices are not expected to deter motorists from traveling during the 

Labor Day Holiday. In fact, AAA projects 33.4 million Americans to travel this 

weekend with 84 percent traveling by car. AAA Arizona urges motorists to drive 

carefully and remember these tips in case of a breakdown: 

• Carry extra water for your radiator and drinking water for passengers. 

84 

• Bring a light blanket and jacket –the desert is cold after the sun goes down. 

• Carry a first aid kit, flashlight, flares, jumper cables, duct tape for short-term 

repairs and a cell phone. 

Motorists preparing for a Labor Day trip can expect these prices across the country; Las Vegas: $1.962, Denver: $1.653, San Diego: $2.177, Los Angeles: $2.137, Dallas: $1.605 and Santa Fe: $1.762 per gallon. 

Other regional prices are shown below. 

Unleaded Mid-Grade Premium Diesel 

Phoenix (city) 2.125 2.216 2.344 1.793 

East Valley 

(Mesa,Gilbert, Chandler, Tempe, Ahwatukee,Apache Queen 

Crk.) 

2.124 2.215 2.342 1.775 

West Valley 

(Peoria, Glendale, Sun City) 

2.124 2.215 2.343 1.758 

Scottsdale 

(Scottsdale, Fountain Hills) 

2.173 2.267 2.397 1.785 

Tucson (city) 1.826 1.904 2.014 1.732 

Pima County 1.836 1.915 2.025 1.740 

Flagstaff 1.938 2.024 2.137 1.786 

Yuma 1.964 2.050 2.167 1.670 

Statewide 1.998 2.084 2.204 1.763 

National 1.735 1.842 1.910 1.582 

The CHAIRMAN. Thank you very much. Mr. Olcott, welcome. 

STATEMENT OF JONATHAN OLCOTT, ESQ., OLCOTT & SHORE, 

PLLC, ON BEHALF OF THE SILVER CREEK HOMEOWNERS 

ASSOCIATION 

Mr. OLCOTT. Thank you, Senator. I am a homeowner association 

attorney and I represent the Silver Creek community. It’s a community of approximately 288 homes. There are 240-some in the 

phase one, which has been completed. The closest home in phase 

one is about 300 feet from the pipeline. Phase two is not yet completed and not yet occupied, especially the homes that are adjacent 

to the pipeline. Mr. Spitzer testified that the homes were 37 feet, 

and that’s approximately correct for the building envelope for the 

actual structures on the lot, but the block wall, the back yard of 

those homes, is only about 10 feet from that pipeline. 

The builder is Monterey Homes, and there has been a lot of discussion today about disclosure and the pipeline was not disclosed 

in the subdivision public report for phase one. It was disclosed in 

the subdivision public report for phase two. Who can guess how 

many people read them? It’s a thick document but it is required by 

the Department of Real Estate. 

Shortly after the rupture occurred we had a board meeting and 

invited the residents to come and discuss the rupture. I met with 

Kinder Morgan representatives on the site before that meeting and 

they were frankly rather candid about what had occurred. They 

didn’t try to blame Monterey’s grading or any of the dirt movement 

that had occurred shortly before the rupture. It was interesting at 

the first meeting that no homeowners in phase one came to discuss 

85 

the rupture. There was press at this meeting, but no homeowners 

came. We had a later meeting in September and Kinder Morgan attended this meeting and also representatives from ADEQ. We 

hand-delivered invitation cards to all of the homeowners and only 

35 to 40 chose to come, and Kinder Morgan at this second meeting 

explained pipeline safety and disclosures. ADEQ talked about the 

contamination reporting and remediation plans. 

So I can—I can say in my opinion I was quite surprised at the 

reaction of the residents. I can divide them into two categories. The 

majority is not overly concerned, and it may be the proximity of 

these people to the pipeline. Let’s keep in mind that the area of 

phase two is completely unoccupied and those homes that were 

sprayed with the gasoline have been demolished but no one lived 

in them. The minority is concerned. They’re concerned about property values. There was no disclosure again in phase one. They’re 

concerned about safety and the overall feeling I would say is relief 

that nobody was in the homes that were doused and having a 

barbeque when it occurred. 

There is an ingress and egress issue at Silver Creek. There’s only 

one means of getting in and out of the community and if there were 

a calamity and emergency vehicles were coming into the community, it may be difficult for people in the community to leave, and 

there is a concern and we’re working with the board and with Monterey in trying to address that. 

I’ve talked about the disclosure. I’m not aware of any regulations 

relating to the proximity of structures to gasoline pipelines. Here 

the block walls are only 10 feet. There were obviously large grading 

construction equipment right next to the pipeline and in one of the 

written comments that’s been submitted and I also have anecdotal 

corroboration that there are structures built right over pipelines in 

certain instances and some in Tucson, so the encroachment issue 

as a homeowner association attorney representing all these homeowner associations all over the state is something I think that absolutely should be addressed. Thank you, Senator. 

[The prepared statement of Mr. Olcott follows:] 

PREPARED STATEMENT OF JONATHAN OLCOTT, ESQ., OLCOTT & SHORE, PLLC; ON

BEHALF OF THE SILVER CREEK HOMEOWNERS ASSOCIATION

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 

86 

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. 

The CHAIRMAN. Thank you, Mr. Olcott. Do you think that we 

ought to do whatever we can to increase the regulations that we 

have concerning disclosure? 

Mr. OLCOTT. I think so based on the reaction of the people that, 

oh my goodness, my property values have decreased, I wouldn’t 

have purchased here had I known it been so close to the gasoline 

pipeline. 

The CHAIRMAN. In other words, how obscure is that information? 

Mr. OLCOTT. It’s in the public report. I think most people read 

it, but it certainly did not indicate that the pipeline is 10 feet from 

your house. The public report says there is a pipeline, see the plat, 

if the consumer wants to bother to do that. I frankly doubt that 

anyone really did. 

The CHAIRMAN. Maybe we ought to work on getting regulations 

so that it’s far more prominent. Would you agree, Mr. Cowley? 

Mr. COWLEY. Yes. I think we have to accept human nature and 

it happens—with this whole thing we’ve accepted things the way 

that they’ve been for many years, and when this event occurred we 

all learned something, and we discovered that we should have read 

87 

what we didn’t read or we should have prepared for something that 

we didn’t prepare for. And I think those are the very kinds of conversations that we ought to be having here in the state subsequent 

to this event. 

The CHAIRMAN. Mr. Cowley, do you believe that there was do you 

agree with the Attorney General’s assessment that there was like 

only a dozen cases of price gouging? 

Mr. COWLEY. Yes. Once again I point out that we don’t have a 

price gouging statute, but had we had one there are probably no 

more cases than that that would have qualified for it. 

The CHAIRMAN. And that’s—most of the gas station owners and 

operators ought to be appreciated for that, for the small number. 

There must be thousands. 

Mr. COWLEY. Well, at AAA we—with the amount of information 

that we have is somewhat limited. Of course, we have no information on wholesale margins and so on but I agree there’s no indication that most retailers were doing anything except reacting to the 

normal price hikes that were coming to them. Now it’s true that 

margins—it’s true that margins rose during that period of time. 

They started at about 6 cents 

The CHAIRMAN. I can see that. 

Mr. COWLEY. But that’s part of the—in AAA’s view, that’s also 

part of the pricing problem of gasoline nationwide. It becomes very 

volatile and it does that because of the nature of things like OTQs 

and regulations and so on. Anything that could calm that would 

perhaps make it easy for us and for consumers to accept these 

price changes. 

The CHAIRMAN. Mr. Bannigan, serious questions can be raised 

about the continuity of OPS’ oversight of your operations, but to me 

it’s clear that for a number of years Kinder Morgan has been aware 

of corrosion issues that raise serious concerns on both of its pipelines that transport fuel between Tucson and Phoenix. Why did it 

take until now for you to move expeditiously to replace the problem 

pipe? 

Mr. BANNIGAN. Well, let me address that in several pieces. First, 

with regard to the general corrosion issues that you reference, on 

two separate occasions with regard to both the 6-inch pipeline and 

the 8-inch pipeline we had presented information to the Department of Transportation Office of Pipeline Safety with respect to the 

effectiveness of the cathodic protection on both those systems. 

Those reports were delivered to the Government and they were discussed and in fact, with regard to the 6-inch pipeline action order 

that was received, the Government concurred with our opinion with 

regard to the effectiveness of the cathodic protection. 

Now, with regard to the replacement of the pipeline, Kinder Morgan has been looking at expanding its capacity from the east since 

well over a year and a half ago. In October of last year we submitted to the Federal Energy Regulatory Commission a petition for 

a declaratory order that would allow us to charge a regulatory 

structure, rate structure that we could use to fund this investment, 

which would be somewhere between $180- and $200 million in cost. 

So that effort was well under way, Mr. Chairman, before this incident occurred. We decided that in light of the fact we were moving 

forward with this project and the nature of the incident that ocVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00091 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\20974.TXT JACKIE
88 

curred on July 30, that we would proceed with replacing the 8-inch 

pipe in the Tucson area with 12-inch pipe. But I will add that all 

that pipeline has been hydrostatically tested, so there is not a safety issue with that 8-inch pipeline. 

The CHAIRMAN. You conducted an internal inspection on a portion of your 6-inch jet fuel pipeline in November 1999 but the results, which revealed significant corrosion, were not known until 

the following March. Why would it take so long? 

Mr. BANNIGAN. The answer to that is very simple. The information that you get from a smart pig run has to be processed and you 

take the download from the smart pig and it goes to technicians 

that we retain through our consultants that actually do that effort. 

That is not uncommon to have a 2- to 3-month lag between the 

time that a smart pig is run and the time that the data is made 

available to the company. 

The CHAIRMAN. Well, it seems to me some bad things could happen in the interim. 

Mr. BANNIGAN. Well, sir, I think as the record demonstrates we 

have not had bad things happen with regard to generalized corrosion issues on any of our pipelines in the State of Arizona. 

The CHAIRMAN. You publicly committed to replacing the remaining 8-inch line between Tucson and Phoenix. It’s my understanding 

that you have yet to provide OPS with a plan to ensure the overall 

public safety of the pipeline as required by OPS’ corrective action 

order that they issued on August 6. When do you intend to provide 

OPS with a plan? 

Mr. BANNIGAN. Let me clarify for the record exactly that time sequence. You are correct we did receive the corrective action order 

from the Office of Pipeline Safety on August 6. We responded to 

that on August 13, and in our response on August the 13th, we 

made clear to the Office of Pipeline Safety that the nature of the 

problem we were dealing with was no longer a seam failure but 

rather it was stress corrosion cracking incident and that we were 

going to have to modify our plans, including a hydrostatic test of 

the pipeline. 

That plan was submitted and approved by the DOT on the 14th 

of August. The smart pig run was conducted on the 19. Following 

that, on September 29, we submitted to the Department of Transportation Office of Pipeline Safety our plan with regard to stress 

corrosion cracking. We received from them on October 6, the 

amended corrective action order with regard to stress corrosion 

cracking. So as a matter of fact our plan was in the hands of the 

Federal Government before they sent us the amended order. 

The CHAIRMAN. How many miles of pipeline do you own? 

Mr. BANNIGAN. We own or operate about 10,000 miles of pipeline 

in the United States. 

The CHAIRMAN. How secure is that? 

Mr. BANNIGAN. Are you talking from a terrorist threat? Candidly, 

Senator, there are miles and miles of open stretches of pipeline in 

this country and it’s very difficult to survey all those lines on a constant basis. I think that fact of the matter is is that if there were 

to be a problem from the terrorist incident, the industry can respond very quickly to restoring service. Most service disruptions 

89 

can be responded to in anywhere from an 18- to a 36-hour time period. 

As you may be aware, there’s a crude oil line in the Nation of 

Colombia that gets attacked by terrorists some 200 times a year 

and they have crews that just run up and down that pipeline responding to those terrorist threats. 

The CHAIRMAN. I want to thank the witnesses. Thank you very 

much for being here. Mr. Cowley, thank you for everything that 

AAA does. A lot of our citizens not only here in the valley but 

throughout America are very much assisted by your good works, including me. Mr. Olcott, thank you very being here. Thank you, Mr. 

Bannigan. This hearing is adjourned. 

[Whereupon, at 10:55 a.m., the hearing was adjourned.] 

(91) 

A P P E N D I X 

PREPARED STATEMENT OF DR. MARK COOPER, DIRECTOR OF RESEARCH, CONSUMER FEDERATION OF AMERICA

Mr. Chairman and Members of the Committee, 

My name is Dr. Mark Cooper. I am Director of Research of the Consumer Federation of America. The Consumer Federation of America (CFA) is a non-profit association of 300 pro-consumer groups, which was founded in 1968 to advance the consumer interest through advocacy and education. I greatly appreciate the opportunity 

to appear before you today to discuss the problem of rising gasoline prices and gasoline price spikes. 

The Upward Spiral of Gasoline Prices 

Although gasoline prices have traditionally risen during the summer driving 

months of June-August, in the past three years the seasonal upswing has turned 

into a much more violent price spiral—a sharp price spike followed by a modest decline with stabilization at a higher level than previous years. We have also had out 

of season price spikes, which exhibit the same roller coaster and ratchet. 

A refinery fire here, a pipeline break there, a blackout somewhere else, and prices 

go through the roof and stay high, because stocks are low and capacity is constrained. Stockpiles and capacity are determined by business decisions, not Mother 

Nature. How many times does this have to happen before policy makers do something about it? Perhaps policy cannot prevent accidents, although safety regulations 

could lower their likelihood, but it can definitely diminish the negative impact these 

accidents have on the public when they happen. 

The underlying driver of this gasoline price ratchet has been an increase in the 

refiner/marketer share of the pump price, called the domestic spread, not foreign 

crude oil price increases. The domestic price ratchet has resulted from a combination of inadequate capacity and inadequate competition in the industry. The underlying tight market condition is the result of both increasing demand and business 

decisions that slowed the growth of long-term capacity. The price spiral occurs because suppliers who face weak competition find they can take unilateral actions in 

tight markets to quickly increase prices and do not have to respond quickly to increase supplies that might lower prices. The result is an increase in profits and an 

upward spiral of prices. 

Energy markets are highly complex. Their volatility poses particular challenges 

for policy and economic analysis. The key elements are the supply-side difficulties 

of inadequate competition, insufficient production, transportation and storage interacting with the demand side challenges of providing for a continuous flow of energy 

to meet inflexible demand, which is subject to seasonal consumption patterns. Public 

policy must recognize all three factors—supply, demand and competition, if the price 

ratchet is to be broken in a consumer-friendly fashion. 

Supply-Side Fundamentals 

On the supply side of the gasoline market, because of the nature of the underlying 

molecules, the production, transportation and distribution networks are extremely 

demanding, real time systems. Energy is handled at high pressure, high temperature and under other physical conditions that are, literally, explosive. These systems 

require perfect integrity and real time balancing much more than other commodities. 

Transportation and distribution infrastructure is extremely capital intensive and 

inflexible. Many sources of energy are located far from consumers, requiring transportation over long distances. The commodities are expensive to transport and store 

delivered over a network that is sunk in place with limited ability to expand in the 

short and medium term. 

Refineries and pipelines, two key parts of the gasoline distribution chain, are not 

only capital intensive, but they take long lead times to build. They have significant 

environmental impacts. In the short term, their capacity is relatively fixed. RefinVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00095 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\20974.TXT JACKIE
92 

eries must be reconfigured to change the yield of products. Although oil pipelines 

have largely depreciated their historic, sunk costs, expansion would be capital intensive. Thus, pipeline capacity is generally fixed capacity. 

Accidents have a special role in networks such as these. Because of the demanding physical nature of the network, they are prone to happen. Because of the volatile 

nature of the commodity, accidents tend to be severe. Because of the integrated nature of the network and demanding real time performance, accidents are highly disruptive and difficult to fix. 

Given the basic infrastructure of supply in the industry, the availability of stocks 

to meet changes in demand is the critical factor in determining the flexibility of supply. Under all circumstances, since output is slow to respond to price changes because of its inelasticity, stockpiles, storage and importation of product become a critical element of the gasoline market. Stocks are the key factor in policy responses 

to market power where supply is inelastic. 

Every investigation of every product price spike in the past several years’ points 

to ‘‘unusually low stock’’ as a primary driver of price shocks. Who decides how much 

capacity to build, how much product to refine and how much gasoline to have on 

hand? Oil companies. They make those decisions to maximize their profits, given the 

industry fundamentals that they face. 

Business Decisions Keep Markets Tight 

There are two clearly identifiable trends affecting the supply side of the gasoline 

market—a reduction in capacity relative to demand and an increase in concentration. 

In 1985 refinery capacity equaled daily consumption of petroleum products. By 

2000, daily consumption exceeded refinery capacity by almost 20 percent. The problem is not simply that no new refineries have been built, but that in the past 15 

years about 75 refineries were closed. Reductions in storage capacity and the number of gasoline stations of over ten percent have also taken place in just the past 

half-decade. 

These reductions in capacity have been driven in part by a merger wave that has 

resulted in a significant increase in the concentration of ownership of refinery capacity and gasoline outlets. Four-fifths of regional refinery markets have reached levels 

of concentration that trigger competitive concerns, even by the standards adopted 

by the antitrust division of the Reagan administration’s Department of Justice. In 

these markets, the largest four firms account for at least one-half and as much as 

three quarters of the refined product output. A similar trend has been in evidence 

at the level of gasoline stations. 

Even more ominous for short-term price volatility is the fact that stockpiles have 

declined dramatically. Storage capacity has been reduced and economic reserves— 

reserves above what is needed just to keep the system running—have been slashed. 

The industry now typically has no more than a day or two of gasoline supplies above 

its operational minimum, compared to a week or so in the 1980s. Thus, there is little reserve capacity to dampen price increases. 

The previous discussion focuses on horizontal concentration. Vertical integration 

between the segments of the industry may have an impact as well. Vertical integration by dominant firms may create a barrier to entry requiring entry at two stages 

of production, or foreclosing critical inputs for competitors in downstream markets. 

Vertical arrangements may restrict the ability of downstream operators to respond 

to local market conditions, 

Vertical integration not only removes important potential competitors across 

stages of production, but also may trigger a wave of integrative mergers, rendering 

small independents at any stage extremely vulnerable to a variety of attacks. 

Gasoline markets are vulnerable to these negative effects of vertical integration. 

Product must move downstream from the refinery or the tanker to the pump. 

Vertically integrated operations are closed to independent sources of supply. They 

may impose zonal pricing formulas or restrictions of sources of supply on their distribution outlets. 

With vertical integration the market may be less responsive than it could be both 

in the short term, since competing product has difficulty getting into individual markets at the end of a vertically integrated chain and in the long term because new 

competitors in any market may have to enter at several stages of the business. The 

FTC found this to have had a substantial impact on the market in its study of the 

midwestern gasoline market. 

The mergers and reduction of capacity have been driven by business decisions. 

Larger, more vertically integrated companies may be more efficient, but they can 

also exploit tight markets. Gasoline markets have been slow to respond to price inVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00096 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\20974.TXT JACKIE
93 

creases. The price differentials that build up before product imports are used to increase supplies are far larger than the transportation cost of imports. 

The tightening of supply reflects private business decisions in other ways. As suggested by the Federal Trade Commission report, individual companies now may 

have pricing power, not through collusion but through individual action. That is, 

with supply and demand tight and a small number of suppliers in each market, individual suppliers recognize that they can influence the price, at least for short periods of time, by withholding supplies. They are no longer the price takers we find 

in competitive markets; they become price makers in oligopolistic markets. 

Demand 

The demand side of the market creates additional pressures and vulnerabilities 

to price spirals. The demand for gasoline does not respond quickly to price in the 

short term. When demand is ‘‘inelastic’’ as it is in the gasoline market, suppliers 

have a better chance of making price increases stick when there is little spare capacity. Increasing demand has reduced spare capacity. 

The continuous flow of large quantities of product to meet highly seasonal demand 

is the central characteristic of the demand side of the market. Many discussions of 

the gasoline market start from the premise that people drive a lot, perhaps too 

much. But in order to design proper policies to deal with gasoline demand and how 

it affects the market, we must have an appreciation for why people drive as much 

as they do. Examining price and income elasticities leads to the conclusion that energy is a necessity of daily life. Recognizing this fact leads to policy choices that can 

have the greatest impact while imposing the least cost and inconvenience on consumers. 

Gasoline consumption is determined by the physical and economic structure of 

daily life. People need to drive on a daily basis because of the way our communities 

are built and our transportation systems designed. Stores are far from homes. 

Homes are far from work. Social and after-school activities are dispersed. In most 

communities, mass transit is scarce and inconvenient. It is necessary to drive to get 

from here to there. We own more cars and drive more miles on a household basis 

over time. These trends and patterns have become stronger and more deeply entrenched as our society has become wealthier and the tendency for two-earner 

households has grown. For the past three decades there has been an almost perfect, 

one-to-one correspondence between economic growth and the growth of total miles 

driven. 

The result of the underlying socioeconomic determinants of automobile travel is 

to render demand ‘‘inelastic.’’ The low elasticity of demand is the critical factor in 

rendering the gasoline market volatile and vulnerable to abuse. When demand is 

inelastic, consumers are vulnerable to price increases, since they cannot cut back 

on or find substitutes for their use of the commodity. When the most important market force in disciplining market power, demand elasticity, is as low as observed for 

gasoline, there are many opportunities to exercise market power. 

Over the 1990s, gasoline consumption grew by a total of almost 20 percent, compared to the 1980s when it grew by only 10 percent. The number of drivers and passenger vehicles increased, as the driving age population expanded. Gasoline consumption per passenger vehicles grew by about 7 percent. About three quarters of 

that increase was caused by an increase in the number of miles driven and one 

quarter was caused by the shift to SUVs. 

While the shift to SUVs was one striking feature of the 1990s, an equally striking 

and more important feature of the demand side was the failure of fuel efficiency to 

improve. If the fuel efficiency of autos had increased as rapidly in the 1990s as it 

did in the 1980s, autos would have been 20 percent more efficient, getting about 

4 miles per gallon more, in 2000. (If there had not been a shift to SUVs, the average 

fleet efficiency would have been about 1 mile per gallon higher.) 

Consumer-Friendly Policies to Break the Price Spiral 

In summary, this analysis demonstrates that gasoline markets are volatile and 

suffer competitive problems. Market fundamentals (inadequate capacity and inelastic supply and demand), market structures (ownership concentration and vertical integration), corporate conduct (capacity and production decisions), and market performance (price and profits) all point toward the potential for the abuse of market 

power. 

Vigorous and broad based public policies should be pursued to implement permanent institutional changes that reduce the chances that markets will be tight and 

reduce the exposure of consumers to the opportunistic exploitation of markets when 

they become tight. To achieve this reduction of risk, public policy should be focused 

on achieving five goals. 

94 

Restore reserve margins by developing both efficiency and production. 

(1) Increasing fuel efficiency at the rate achieved in the 1980s in the decade 

ahead would save about 1.5 million barrels per day. That rate of progress 

could be sustained over several decades. 

(2) Increasing refinery capacity by 10 percent, either through expansion at existing refineries or redevelopment of less than one half the refineries closed in 

the past decade, would add another 1.5 million barrels per day. 

(3) To the extent investments to meet clean air standards are a barrier to capacity expansion, public policy should find a way to lower the cost of compliance, 

directly through subsidies or indirectly through research on new technologies, rather than lower the standards. 

Increase market flexibility. 

(4) Expand stockpiles with tax incentives to hold and draw down supplies in the 

face of price increases, and/or mandatory stocks requirements as a percentage of sales, and/or government owned/privately operated supplies could add 

to existing stockpiles. 

(5) Larger, more uniform product markets should be developed to expand to increase supply responsiveness, without lowering clear air standards. 

Promote a more competitive industry 

(6) Further concentration of the petroleum industry should be resisted by vigorous enforcement of the Department of Justice Merger Guidelines. 

(7) Restrictive marketing practices, such as zonal pricing and franchise restrictions on supply acquisition should be investigated and discouraged. 

Deter private actions that make markets tight or exploit market disruptions. 

(8) Withholding of supply should draw immediate and intense public and governmental scrutiny through a joint Federal state task force of attorney’s general. 

(9) The task force or some other entity should develop ongoing databases and 

information for evaluating industry structure and conduct. 

(10) The incentives to manipulate markets can be reduced by imposing a windfall 

profits tax that triggers when specific circumstances raise prices and profit 

sharply. 

(11) Ultimately, market manipulation could be made illegal. 

Provide adequate energy assistance for low-income households. 

(12) Assistance policies directly targeted at transportation expenditures should be 

considered. 

(13) Energy assistance programs should be indexed to energy prices. 

95 

ATTACHMENT


1009CFA1.eps
96 


1009CFA2.eps
97 


1009CFA3.eps
98 


1009CFA4.eps
99 


1009CFA5.eps
100 


1009CFA6.eps
101 


1009CFA7.eps
102 


1009CFA8.eps
103 


1009CFA9.eps
104 


1009CFA10.eps
105 


1009CFA11.eps
106 


1009CFA12.eps
107 


1009CFA13.eps
108 


1009CFA14.eps
109 


1009CFA15.eps
110 


1009CFA16.eps
111 


1009CFA17.eps
112 


1009CFA18.eps
113 


1009CFA19.eps
114 


1009CFA20.eps
115 


1009CFA21.eps
116 


1009CFA22.eps
117 


1009CFA23.eps
118 


1009CFA24.eps
119 


1009CFA25.eps
120 


1009CFA26.eps
121 


1009CFA27.eps
122 


1009CFA28.eps
123 


1009CFA29.eps
124 


1009CFA30.eps
125 


1009CFA31.eps
126 


1009CFA32.eps
127 


1009CFA33.eps
128 


1009CFA34.eps
129 


1009CFA35.eps
130 


1009CFA36.eps
131 


1009CFA37.eps
132 


1009CFA38.eps
133 


1009CFA39.eps
134 


1009CFA40.eps
135 


1009CFA41.eps
136 


1009CFA42.eps
137 


1009CFA43.eps
138 


1009CFA44.eps
139 


1009CFA45.eps
140 


1009CFA46.eps
141 


1009CFA47.eps
142 


1009CFA48.eps
143 


1009CFA49.eps
144 


1009CFA50.eps
145 


1009CFA51.eps
146 


1009CFA52.eps
147 


1009CFA53.eps
148 


1009CFA54.eps
149 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN MCCAIN TO

TERRY GODDARD

Question 1. Was your office notified that Kinder Morgan was planning to voluntarily shut down the pipeline or did you find out after the fact? 

Answer. The Attorney General’s Office was not contacted directly by Kinder Morgan about the shut down. We were informed by other government agencies afterwards. 

Question 1a. What recommendations can you offer to ensure sufficient communication regarding a matter of this significance is adequately communicated to all 

of the state and local authorities that should be apprized of such an event? 

Answer. The Governor created an Essential Services Task Force that is addressing this question, and we support the direction of the Task Force. As long as those 

agencies that must be notified immediately are so notified by industry, and other 

agencies are informed promptly on an intra-governmental basis, we believe this will 

be sufficient. 

Question 2. What type of communication efforts currently exist between the Arizona Corporation Commission and your office? 

Answer. Both the Attorney General’s Office and the Arizona Corporation Commission are members of the Governor’s Gasoline Working Group. This facilitates some 

communication on gasoline and pipeline issues. The Commission is not regularly 

represented by this office, but other communication on a variety of issues is conducted on an ad hoc basis. 

Question 3. All of us are familiar with the horror stories of long lines and exorbitant gas prices in August. Has your office found any evidence that consumers where 

subject to price gouging by gas station operators following the shutdown of the 

Kinder Morgan pipeline? 

Answer. Yes. We received approximately one thousand inquiries and complaints 

mostly relating to pricing, shortages, and tying arrangements (in which gasoline retailers were demanding the purchase of additional products/services, e.g., a carwash 

before consumers could purchase gasoline). There were some extremely high retail 

gasoline prices in the Phoenix area (up to $4.97 per gallon regular CBG). 

Question 3a. Does your office currently have the authority to protect consumers 

and take action against those suspected of price gouging? If not, what specific authority is needed and what actions is your office taking to be provided such authority? 

Answer. Arizona does not have a price gouging statute. While over twenty states 

have laws protecting consumers, the Arizona Attorney General does not currently 

have the authority to prosecute those suspected of price gouging. 

The Attorney General supports a state price gouging statute, and is working with 

state legislators to propose price gouging legislation in the upcoming legislative session. 

Question 4. While Arizona currently has no regulation or law to address the alleged price-gouging during the pipeline shutdown, the Federal Trade Commission 

(FTC) does have some authority to protect consumers against price fixing. The FTC 

requires evidence of collusion or coordinated effort in order to begin a formal investigation. What actions has your agency taken to coordinate with other state and 

Federal agencies to determine whether collusion or coordinated efforts existed? 

Answer. The Antitrust Unit at the Attorney General’s Office is constantly monitoring the gasoline industry in Arizona for evidence of antitrust violations, such as 

price fixing or other market manipulations, pursuant to Arizona Revised Statutes 

sections 44–1401 et seq. 

The Attorney General’s Office, Antitrust Unit, issued a Civil Investigative Demand to Kinder Morgan for information on gasoline deliveries and inventories, 

through both the pipeline and in their storage facilities, from July—October 2003. 

That information is being analyzed. The Attorney General’s Office, Antitrust Unit 

has information from this and other antitrust investigations that can be shared with 

government employees upon receiving a written confidentiality agreement pursuant 

to Arizona Revised Statutes § 44–1406 (F). 

The Antitrust Unit participates with the FTC’s Gasoline Price Monitoring Project, 

by regularly sending the FTC data on consumer complaints received by the Attorney 

General’s Office relating to gasoline prices. 

The Antitrust Unit participates in the Governor’s Gasoline Working Group to 

monitor the gasoline industry in Arizona. In particular, the Antitrust Unit works 

closely with the Governor’s Office, the Department of Weights and Measures, the 

Department of Commerce—Energy Office, and the Department of Transportation. 

150 

The Attorney General’s Office has been in contact with the FTC specifically relating to the August 2003 pipeline shutdown. The FTC has offered technical support 

(economic analysis) as needed. We have not yet requested that support on the pipeline shutdown issue since we have an in-house economist in the Antitrust Unit examining these issues. The Attorney General’s Office is unaware of any independent 

investigation by the FTC on the pipeline shutdown and gasoline shortages. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN MCCAIN TO

THOMAS A. BANNIGAN

Question 1. There appear to have been problems with the pipeline used to transport gasoline since at least 1997. According to documentation provided to the Committee, an inspection conducted in July 1997 by the Office of Pipeline Safety (OPS) 

revealed numerous instances of external corrosion. OPS followed up on August 15, 

1997, by requesting that then owner Santa Fe Pacific Pipeline Partners (SFPP) submit a plan for recoating the line. A second request for the plan was sent in October 

1997. Yet it does not appear Santa Fe Pacific Pipeline ever submitted a plan. 

(a) What did OPS do to enforce its request? 

(b) Was the line recoated? 

(c) What, if any, action did OPS take regarding this requirement when the pipeline changed ownership? 

Answer. In December 1997, the OPS Southwest Regional Director met with SFPP 

to evaluate corrosion on the 8-inch gasoline pipeline and determine a corrosion protection plan. Through his evaluation, the OPS Southwest Regional Director satisfied 

concerns over whether the pipeline was operating in a safe condition and approved 

the SFPP corrosion protection plan. Safety is often managed by keeping the pipeline 

at an operating pressure that will maintain an adequate safety margin even if there 

are instances of corrosion. Pipelines are designed in accordance with conservative 

standards to provide for safe operation with some corrosion. The approved plan was 

based on cathodic protection, monitoring and internal inspection, rather than a general recoating of the pipeline. We enforced the plan by ensuring through inspections, 

both by the OPS and the Arizona Corporation Commission (ACC), that the operator 

managed corrosion within acceptable levels through corrosion protection, corrosion 

monitoring, maintenance and pipeline repair. 

After Kinder Morgan Energy Partners (KMEP) assumed ownership of the gasoline 

pipeline, it followed the plan established by SFPP and approved by OPS. The OPS 

Southwest Region and ACC continue to monitor KMEP corrosion protection of the 

gasoline pipeline during standard inspections. The ACC inspects the pipeline in Arizona and OPS inspects the pipeline in New Mexico. There have been no significant 

corrosion issues identified in these inspections. 

Question 2. According to records supplied to the Committee, an internal inspection 

by Kinder Morgan on March 2, 2000, of its 6-inch jet fuel pipeline from Phoenix to 

Tucson revealed significant external corrosion, significant enough in fact that 

Kinder Morgan reduced the pipeline’s operating pressure to 87 percent of the line’s 

maximum operating pressure. OPS was made aware of KMEP’s report 6 days later, 

on March 8. By April 15, OPS was aware that corrosion had eaten away over 50 

percent of the pipe wall in some locations. Why, then, did take OPS until March 14, 

2001—a full year after it was notified of what sound like significant safety concerns—to issue a Corrective Action Order? 

Answer. After KMEP informed OPS of the significant external corrosion on its 6- 

inch jet fuel pipeline from Phoenix to Tucson, OPS met with KMEP and reviewed 

its inspection data, corrosion protection system and its plans to address the external 

corrosion issues. As a result of this meeting, and the OPS determination of necessary protection actions to provide a greater level of safety, KMEP reduced operating pipeline pressure further to 50 percent maximum allowable operating pressure. OPS agreed to the KMEP plan to correct significant corrosion defects. The 

plan was based on a very high safety standard for repair that included criteria more 

stringent than the industry standard. Because KMEP had taken responsible action, 

OPS did not issue a corrective action order at that time. In February 2001, KMEP 

completed repair of the pipeline in 52 locations and the replacement of one-half mile 

of pipeline. This completed the correction of all significant corrosion defects. At no 

time did OPS allow the operator to operate the pipeline in an unsafe manner. 

Question 3. Why was the Corrective Action Order issued after Kinder Morgan had 

made 52 repairs to the line? 

Answer. OPS issued the corrective action order (CAO) on the 6-inch jet fuel pipeline to address the long-term corrosion protection of the pipeline. OPS took this acVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00154 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\20974.TXT JACKIE
151 

tion because of concerns with KMEP long-term corrosion protection and management plan for this pipeline. 

Question 4. What additional protective measures were taken by Kinder Morgan 

as a result of the Corrective Action Order? 

Answer. The CAO placed the pipeline under a pressure restriction, required a 

coating evaluation and a plan to recoat, repair or replace sections shown by the 

coating evaluation to require remedial measures. Among other requirements, the 

CAO also required KMEP to again conduct internal inspection of the pipeline. 

Question 5. Why did it take OPS two years after the Corrective Action Order was 

issued to issue an amended Order? What happened during these two years to improve the safety of the pipeline? 

Answer. During the period of time before the CAO was amended, OPS was satisfied that the pipeline was in a safe condition as a result of the repairs and replacements completed in 2001 and the operator’s implementation of provisions of the 

original CAO. The process evolved as follows: KMEP requested a hearing on the 

CAO. OPS/RSPA held the hearing and amended the CAO in consideration of new 

information offered by KMEP. In the amendment, OPS eliminated the recoating requirement because the pipeline was adequately protected from corrosion by aggressive cathodic protection. Further, OPS added to the amended CAO inspection and 

analysis requirements to verify that corrosion on the pipeline was not active. KMEP 

has performed a second in-line corrosion inspection of the pipeline and is working 

on the analysis of the state of active corrosion on the pipeline. 

OPS’s top priority is to first assure the public safety and security and to subsequently complete the necessary administrative activities in as timely a manner as 

possible, which was the case in this circumstance 

Question 6. In 1997, as a result of a Standard Inspection performed by the Arizona Corporation Commission (ACC), OPS issued a Corrective Order to Kinder Morgan for 5 items of regulatory non-compliance. Based on the information OPS has 

provided the Committee, it took over 5 years for this Order to finally be closed. 

Why? 

Answer. RSPA legal staff finalize orders in as timely a manner as possible. In recent years, the rapidly growing number of inspectors has led to a significant increase in the number of cases proposed. 

Question 7. Almost every year since 1994, the Arizona Corporation Commission 

has performed a Standard Inspection of Kinder Morgan’s Arizona pipelines. And almost every year, the Commission has found the company in ‘‘probable non-compliance’’ with respect to certain Federal requirements. Yet it appears that OPS has 

routinely dismissed ACC’s findings as not valid. 

Question 7a.. How do you explain this pattern? Dismissing ACC’s inspection results gives the appearance that OPS is letting Kinder Morgan off the hook for violations of Federal safety regulations. 

Answer. As with OPS’ inspectors, the ACC inspectors propose findings of violations as the first step in the enforcement process. The OPS Regional Director reviews proposed violations and supporting evidence to determine if a violation has 

occurred, if the case is adequately documented, and if there are extenuating circumstances, such as a waiver or interpretation in effect. OPS processed some violations; and, some ACC proposed findings did not prove to be valid. For example, ACC 

proposed a violation for not reading cathodic protection devices in accordance with 

a schedule specified in the regulation. However, KMEP was using an alternate process that provided a greater level of safety and is allowed by regulatory interpretation. OPS’ Southwest Region orally informed ACC that the KMEP alternate process 

was not a violation. In the future, OPS will use a written procedure to provide information in a form more useful to all of our state partners. 

Question 7b. Are the ACC’s inspections being conducted with more scrutiny than 

OPS? 

Answer. No, to assure a consistent quality of inspection, OPS had gone to considerable effort to provide Federal and state inspectors the same training, procedures 

and information systems. We take state input in the development of these procedures and materials to harmonize our approach. Our goal is for inspections to be 

uniform across the Nation, whether performed by an OPS or state inspector. 

Question 7c. Given this pattern, do state inspectors need additional training to 

better understand OPS’ inspection criteria? 

Answer. Yes, training for state and OPS inspectors is a continual process. As new 

regulations and programs are developed, new training programs are prepared and 

delivered to each inspector. OPS routinely meets with state program directors to 

communicate information on new policies and programs. OPS has made much of 

152 

this information available to state inspectors via the Internet and computer based 

training to provide more flexible learning opportunities. 

Question 7d. I can’t understand how violations can be subjective determinations— 

they should be black or white. How does OPS decide what is and is not a safety 

violation and how is this communicated to ACC and the pipeline owner? 

Answer. Pipeline systems vary in complexity, design, operations and maintenance 

so many pipeline safety regulations are written as performance standards and require judgment to determine compliance. OPS provides training and guidance to inspectors to prepare them to make these judgments. OPS also makes interpretations 

available to inspectors and industry to guide them in compliance with the regulations. In addition, OPS routinely meets with state program directors to communicate information on new policies and programs and sponsors seminars across the 

Nation to keep inspectors and operators current on program changes. 

Question 8. According to the time line developed using OPS data, there are extended gaps between actions taken by OPS to address the safety concerns identified 

with Kinder Morgan’s pipelines in Arizona. It appears that OPS is often lax in follow-up enforcement on identified safety problems. For example, it took OPS a year 

and seven months just to revise its corrective action order against Kinder Morgan 

following an August 2001 hearing on safety issues. No action was taken in the interim. How do you explain these enforcement gaps? 

Answer. As explained in Q/A5 above, OPS places its greatest priority on assuring 

that protections are put in place to assure safety and security and subsequently undertakes the appropriate administrative actions. OPS has placed priority on investigating pipeline accidents, developing corrective action orders to manage pipelines 

that present a hazard to the public and on developing, implementing and enforcing 

the new operator qualification and integrity management regulations that have a 

great potential to substantially improving pipeline safety. 

During the period of time before the CAO was amended, OPS was satisfied that 

the pipeline was in a safe condition as a result of the repairs and replacements completed in 2001 and the operator’s implementation of provisions of the original CAO. 

The process evolved as follows: KMEP requested a hearing on the CAO. OPS/RSPA 

held the hearing and amended the CAO in consideration of new information offered 

by KMEP. In the amendment, OPS eliminated the recoating requirement because 

the pipeline was adequately protected from corrosion by aggressive cathodic protection. Further, OPS added to the amended CAO inspection and analysis requirements to verify that corrosion on the pipeline was not active. KMEP has performed 

a second in-line corrosion inspection of the pipeline and is working on the analysis 

of the state of active corrosion on the pipeline. 

Question 9. Was Kinder Morgan’s voluntary shut down of the line due solely to 

safety concerns? If so, what did Kinder Morgan know that the Office of Pipeline 

Safety did not, since OPS only required the operator to reduce its operating pressure 

to 80 percent? 

Answer. Once the preliminary metallurgical analysis on the cause of failure was 

completed, and pointed to an exceedingly rare instance of stress corrosion cracking 

(SCC), Kinder Morgan shut down the Tucson-Phoenix hazardous liquid pipeline. As 

was evident in our testimony, SCC is not a very well understood phenomenon on 

hazardous liquid pipelines. Therefore, Kinder Morgan took the cautious approach 

and shut down the pipeline to enable them to draft a plan to better respond to OPS’ 

Corrective Action Order and prevent a recurrence of the July 30 failure. 

For pipelines that rupture suddenly, the cause unknown, or the suspicion exists 

that other potential flaws reside in the pipeline, OPS normally directs operators to 

reduce operating pressure 20 percent below the pipeline pressure at the time of failure. This has been proven by pipeline engineers and scholars to provide an adequate 

safety margin and prevent failures, while the operator prepares and implements a 

plan to prove the integrity of the pipeline segment that failed. The terms in our Corrective Action Orders are the minimum that a company has to adhere to; pipeline 

operators are free to take a more conservative approach. Often an operator will operate at a lower pressure sufficient to meet its market demands. 

Question 9a. Is it typical for an operator to shutdown a line even though OPS has 

only required Kinder Morgan to reduce the operating pressure to 80 percent of maximum pressure? 

Answer. To comply with OPS’ Corrective Action Orders, operators resort to a variety of options as long the safety factors that OPS prescribes are upheld. Operators 

must at least reduce the pressure to the amount mandated in the Order; they sometimes reduce it further, or shut down the pipeline, depending on conditions of the 

failure. There have been occasions when some pipeline operators have entirely shut 

down the affected segment because supply to their markets can be serviced by anVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00156 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\20974.TXT JACKIE
153 

other pipeline. End user contracts, nominations, needs, and the weather conditions 

determine strategies for operators. As long as public and environmental safety is not 

compromised, OPS has not intervened in these decisions. 

Question 10. Once Kinder Morgan shut down its line, why did it take 5 days— 

from August 14 to August 19, 2003—for OPS to approve Kinder Morgan’s plan for 

hydro-static testing? 

Answer. The Corrective Action Order required Kinder Morgan to submit a plan 

to mitigate the effects of the stress corrosion cracking-failure before returning the 

pipeline to normal operation, i.e., lifting the pressure restriction on the TucsonPhoenix gasoline pipeline. At a meeting on Thursday, August 14, to discuss the 

terms of the Order, Kinder Morgan submitted its hydrostatic test plan to OPS. OPS 

gave KMEP the approval to start preparing the pipeline for hydrostatic test; a process that often takes 3 to 4 days. 

OPS evaluated Kinder Morgan’s proposed hydrostatic test plan and found it inadequate to remove the ordered pressure restriction for a stress corrosion cracking failure. On Friday, August 15, OPS notified Kinder Morgan that OPS would not grant 

approval to remove the pressure restriction only on the basis of a successful hydrostatic test at the pressure proposed. Because SCC is exceedingly rare on hazardous 

liquid pipelines, there was little precedent for determining the pressure level for a 

hydrostatic test. 

In a meeting on the morning of Tuesday, August 19, Kinder Morgan explained 

to OPS that the purpose of the proposed hydrostatic test was only to allow the pipeline to operate at 80 percent of the failure pressure, as described in OPS’ Order and 

not return to full operating pressure. This had not been clear in Kinder Morgan’s 

proposed hydrostatic test plan. OPS’ Order already permitted operation at 80 percent of failure pressure; there was no requirement for KMEP to submit a plan. OPS 

considered the test as an additional mitigation effort that increased confidence that 

the pipeline could operate safely at 80 percent of the pre-failure pressure and immediately approved Kinder Morgan’s hydrostatic test. Kinder Morgan began 

hydrostatically testing the pipeline segment late in the evening on August 19. The 

Tucson-Phoenix pipeline is now operating at 50 percent of the pre-failure pressure. 

Question 11. Did Kinder Morgan meet the 30-day deadline for submitting a written plan with corrective measures as required by OPS’ Corrective Action Order? [no] 

Answer. By the 30-day deadline, KMEP had submitted its hydrostatic test plan, 

a pipeline replacement plan and portions of its stress corrosion cracking (SCC) plan 

to OPS. Because the cause of the pipeline failure was determined to be SCC, a rare 

cause of failure for hazardous liquid pipelines, the operator and OPS had additional 

considerations to address in completing a comprehensive SCC plan within 30 days. 

Question 11a. Did OPS take any official action when the plan was not submitted 

and if so, when? 

Answer. Yes, OPS continuously communicated with KMEP during this period of 

time. On September 12, 2003. OPS’ leadership team had a conference call with the 

president of Kinder Morgan Liquid Pipelines to discuss its plan. During that meeting, OPS notified Kinder Morgan that it had not met the 30-day deadline on its SCC 

plan and that OPS had issues with parts of the plans that had been submitted. 

Kinder Morgan conveyed the complexity of the SCC issue and the need for more 

time to develop a comprehensive SCC plan. Each CAO has a provision that allows 

the OPS Regional Director to grant additional time for compliance with the CAO 

for good cause. On October 3, OPS amended the CAO to specifically address SCC, 

grant additional time to develop a SCC plan, and to require the SCC plan to address 

the 6-inch jet fuel line as well as the gasoline pipeline. 

Question 11b. What signal does that send Kinder Morgan, let alone the public, 

about OPS’ commitment to strong and unwaivering enforcement? 

Answer. We see our enforcement policy as, ‘‘tough, but fair.’’ We believe our policy 

sends the message to operators and the public that OPS is focused on safety, the 

enforcement of the pipeline safety regulations and justice. 

Question 12. I understand that a metallurgical exam by Kinder Morgan showed 

that the cause of the rupture in Tucson was stress crack corrosion, which is more 

commonly found in gas pipelines, not liquid pipelines. Does OPS or Kinder Morgan 

or even the ACC know what caused the corrosion in this case? 

Answer. Stress Corrosion Cracking, an environmentally assisted cracking phenomenon, is a generic term that describes all types of cracking in pipelines where 

the surrounding environment, the pipe material, and stress act together to reduce 

the strength or load-carrying capacity of a pipe. Other types of environmentally assisted cracking have been found in other industries: boilers have developed caustic 

cracking, nuclear reactor carbon steel coolant piping systems have developed stress 

154 

corrosion cracking, and stainless steel piping in ammonia units in chemical plants 

have cracked, as have down-hole pipes in sour oil wells. 

None of the parties, OPS, ACC or Kinder Morgan, know exactly what caused the 

stress corrosion cracking in the Tucson-Phoenix pipeline. It is known that the union 

of environment, material, temperature and stress play a role in stress corrosion 

cracking; but at what concentration and what exactly was the catalyst for this failure is unknown. This is why OPS’ Corrective Action Order plainly states that 

Kinder Morgan’s plan must provide for the verification of the integrity of the affected segment, must address all known or suspected factors in the July 30 failure, 

and must include description of the assessment criteria and methods that will be 

used in the evaluation and prioritization of any integrity threats that are identified 

in the pipeline section. Furthermore, Kinder Morgan must also evaluate the adjacent Phoenix-Tucson hazardous liquid pipeline to ensure that stress cracking corrosion signatures are not evident on the other pipeline. This will enable OPS, Kinder 

Morgan, and ACC determine the stimuli for the stress corrosion cracking on the 

Tucson-Phoenix pipeline. 

Question 12a. Are older liquid pipelines more susceptible to problems associated 

with stress crack corrosion? 

Answer. Pipeline age, alone, is not a factor in the formation of stress corrosion 

cracking. The formation of stress corrosion cracking depends upon the proper combination of pipeline material, soil condition (environment), temperature and local 

stress. Various inquiries into the stress cracking phenomenon show that stress corrosion cracking in not a widespread problem. OPS is sponsoring research and 

hosting a public workshop in Houston on December 2, 2003 to share information between experts and practitioners about how to better understand and manage stress 

corrosion cracking. 

Question 12b. What actions do Kinder Morgan and other pipeline operators need 

to take to halt stress corrosion cracking and prevent future ruptures? 

Answer. As mentioned previously, stress corrosion cracking is a relatively new 

and evasive phenomenon on hazardous liquid pipelines. The factors associated with 

SCC are known, but the relationship among these factors has not been scientifically 

established. On October 2, 2003, OPS issued an Advisory Bulletin to pipeline operators on how to evaluate their pipeline systems for stress corrosion cracking. Replacement of long sections of pipeline to stave off SCC would be economically impractical, 

but pipeline operators can try to reduce the stresses or change the environment immediately in or adjacent to the pipeline. For example, SCC is a more common phenomenon in natural gas pipelines, and it has been found that stress corrosion cracking usually occurs within 20 miles of a compressor station where operating temperature are the highest. So, natural gas operators have reduced the discharge temperatures of the natural gas to reduce the risk that SCC will form. 

Pipeline operators that have already experienced stress corrosion cracking can 

perform predictive soil modeling to understand the soil characteristics that promoted stress corrosion cracking. Questions to be answered include: Are those soil 

properties unique to that region where stress corrosion cracking was manifested? 

What processes can be implemented to improve the drainage characteristics of soil 

enveloping the pipeline? What role does the topography play in contributing to 

stress corrosion cracking? OPS is prodding pipeline companies to answer these questions to curb the role that soil plays in contributing to stress corrosion cracking. 

As stresses imparted into the pipeline during installation may promote SCC, operators should also be cognizant of the construction practices. They must also be familiar with the flaws in their pipelines, because stress corrosion cracking has been 

shown to occur in areas, such as dents, where stresses increase. Pipeline companies 

must also be familiar with the geometry of their pipeline throughout its route to 

enable them to better identify areas susceptible to stress corrosion cracking as a result of pipeline stress. Stress irregularities can be caused by internal operating pressure, residual stress during manufacture, bending stresses during installation or 

out-of-roundness and secondary stresses which can be due to soil settlement or land 

slides, and stresses due to temperature differences. 

Hazardous liquid pipeline operators should re-evaluate the pipeline operations to 

minimize pipeline cycling. By reducing pressure and fatigue cycling, the likelihood 

of growing existing stress corrosion cracks is reduced. Thus, there is a very large 

range of operations, maintenance, and integrity enhancement activities that pipeline 

operators can take to stem the growth of stress corrosion cracking. 

Question 12c. What actions are being taken by OPS to ensure pipeline operators 

take the appropriate steps to address the increased risk of ruptures due to stress 

corrosion cracking? 

155 

Answer. At this time, OPS does not believe that there is an increased risk of ruptures due to stress corrosion cracking relative to other modes of failure. Latent flaws 

resulting from third-party damage continue as the major cause of failure, followed 

by external galvanic corrosion, internal corrosion, operator error, and other factors. 

From 1985–2001, there were only two instances of stress corrosion cracking failures in hazardous liquid pipelines: 1998 in Missouri and 2001 in Kansas. Both these 

failures occurred on pipeline facilities owned by Mid-America Pipeline Company. 

Metallurgical reports revealed that the 1998-accident was caused by circumferentially-oriented SCC and the 2001-accident was caused by longitudinally oriented 

SCC. 

Since those two failures, RSPA/OPS has learned of three more longitudinally oriented stress corrosion cracking failures that occurred in 2003: July 10 on a CITGO 

pipeline in Cook County, Illinois; July 16 on a Dome Pipeline Corporation pipeline 

in Barnes County, North Dakota; and July 30 on the KMEP pipeline in Pima County, Arizona. 

OPS has also seen indications of SCC on facilities of Enbridge Pipelines, Inc. in 

Minnesota and Wisconsin. But Enbridge Pipelines, Inc. has not experienced a failure 

due to stress corrosion cracking. 

Even given the scarcity of pipeline ruptures due to stress corrosion cracking, OPS 

has taken significant action to ensure that pipeline operators take the appropriate 

steps to discover, manage, mitigate, and remedy stress corrosion cracking indications on their pipelines. 

On October 2, 2003, OPS issued an Advisory Bulletin to alert natural gas and 

hazardous liquid pipeline operators about the threats from SCC, and to fully consider SCC when developing and implementing integrity management plans. OPS advised operators to determine whether their pipelines are susceptible to SCC and assess the impact of SCC on pipeline integrity. Based on this evaluation, an operator 

should prioritize additional in-line inspection and hydrostatic testing and take actions to re-mediate problem areas. 

During the week of October 6, 2003, OPS senior engineers convened to discuss 

the threats posed by SCC and to revise the Hazardous Liquid Integrity Management 

Plan protocols and guidance to enable inspectors to better evaluate SCC risks. OPS 

is also preparing a strategy to tackle this issue on natural gas pipelines. 

OPS senior inspectors and corrosion specialists have also begun developing a series of questions as an addendum to the standard inspection forms. These forms will 

be available early next calendar year and will complement OPS’ suite of inspection 

protocols. 

Because SCC detection technology is not yet fully adequate OPS initiated two 

R&D programs directed toward identifying and quantitatively measuring SCC: 

• BAA #1 award announcement on November 15, 2002 to Southwest Research Institute, San Antonio, TX, and Pipeline Research Council International, Inc., 

Washington, DC, to modify in-line inspection tools to detect stress measurements that identify corrosion, mechanical damage, cracks, wrinkles, etc. (OPS 

$80,000 Industry $80,000) 

• BAA#3 Award announcement on September 8, 2003 to Battelle Corporation of 

Columbus, Ohio, and Pipeline Research Council International, Inc., Washington, 

DC, to develop quantitative measures to assess corrosion defect severity and determine failure pressure of pipelines (OPS $196,000, Industry $221,000) 

OPS also commissioned a technical stress corrosion cracking study. OPS is currently preparing a synthesis study that will be informed by the wide range of work 

currently underway within OPS, companies and trade associations, and research organizations. The purpose of the synthesis study is to publicly develop a consensus 

that accurately characterizes what is known (e.g., frequency and consequence of 

SCC, susceptibility parameters, technological/procedural approaches to detecting 

and characterizing it, best practices in managing SCC, consensus standards development, regulatory approaches to SCC in the U.S. and elsewhere, appropriate postSCC failure event response, etc.) and identify knowledge gaps. The results of the 

study will be made public for researchers and for pipeline companies and regulators 

to use in controlling risks from SCC. 

To complement the technical study on stress corrosion cracking, OPS is also 

hosting a technical workshop on December 2, 2003, in Houston, Texas to address 

this important safety issue. The experts in the workshop will review the framework 

and draft contents of OPS’ technical stress corrosion cracking study. Any deficiencies identified within the workshop with the study framework will be fixed and 

the currency of all information will be validated. This workshop will be hosted by 

the OPS and its State pipeline safety partners, as well as by standards organizations and pipeline trade associations. 

156 

Question 12d. I understand that several other recent liquid pipeline ruptures have 

been attributed to stress corrosion cracking. How serious is this rise in cases and 

should we be concerned that liquid pipelines nationwide are going to rupture from 

stress corrosion cracking? 

Answer. OPS is concerned about stress corrosion cracking, although is has not 

been a major cause of pipeline failure to date. During the past five years, only five 

of 740 reported accidents on hazardous liquid pipelines were caused by stress corrosion cracking. The recent set of pipeline failures caused by SCC is an alert to OPS, 

state pipeline safety agencies, and the pipeline industry that SCC is a viable threat 

to pipeline safety. As described above, OPS’ strategy to improve the management 

of SCC is to increase our understanding of SCC, improve detection technology and 

expand the emphasis on SCC management in integrity management programs. 

Question 13. Following the shut down of the Kinder Morgan pipeline, I asked the 

Secretary of Transportation, Norman Mineta, to work to ensure the operational 

safety of the pipeline as soon as possible and to take any appropriate Administrative 

action to address the obstacles to the timely transportation of available gas supply 

throughout the affected Arizona communities. I also asked him what, if any, additional action Congress should take now to further address this important public 

safety issue. In his response, the Secretary indicated that the population encroachment is a major issue for pipeline safety nationwide. 

Question 13a. What is your office doing to address the safety problems associated 

with population encroachment? 

Answer. OPS is providing leadership in managing the public risks of encroachment of communities and other development on pipeline rights-of-way. In conjunction with the Federal Energy Regulatory Commission, OPS asked the Transportation Research Board (TRB) of the National Academy of Sciences to begin a study 

to address issues of encroachment and maintenance on pipeline rights-of-way. OPS’s 

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. 

In enacting the Pipeline Safety Improvement Act of 2002 (PSIA), Congress also 

recognized the need for this information and mandated that we complete this study, 

and that we also include consideration of how best to preserve natural resources 

(i.e., trees) that can pose a problem for thorough monitoring of activity or problems 

along the pipeline. 

The TRB met on this issue for the first time in September 2003 and expects to 

deliver its draft report to OPS by March 2004. This study is an important step in 

informing local officials and others involved in managing the risks of encroachment 

and in assessing the feasibility of developing better guidance. OPS is committed to 

advancing the work done by TRB in this short time-frame in a follow-up study. 

In the meantime, to further our objective to educate communities adjacent to pipelines about the consequences of pipeline releases, OPS has hired a completely new 

cadre of engineers, called Community Action and Technical Support (CATS) engineers. Their primary task is to meet with community representatives to listen to 

their concerns and provide information about: 

• the hazards posed by pipelines, 

• operators, and the commodities their pipelines transport 

• what measures exist in our Code of Federal Regulations for their protection; 

and, 

• how to prevent damages to pipelines and how to respond to pipeline accidents. 

Question 13b. Does OPS have any authority to stop encroachment? If not, what 

Federal or state agency does? 

Answer. OPS does not have authority to stop encroachment. The Federal Energy 

Regulatory Commission (FERC) is responsible for the siting of interstate gas transmission lines. Aside from the interstate gas pipeline siting, decisions about land use 

are primarily under the control of local governments. 

Question 14. In reports issued in 2000 and 2001, the U.S. General Accounting Office (GAO) criticized OPS’ practice in the 1990s of issuing warning letters and letters of concern rather than issuing fines. From 1990 to 1998, OPS decreased the 

proportion of enforcement actions in which it proposed fines from about 49 percent 

to about 4 percent. What fines has Kinder Morgan been assessed by OPS? 

Answer. OPS has fined Kinder Morgan for violations ranging from failure to inspect and test relief valves to failure to establish a written anti-drug plan. Since 

1990, OPS has assessed Kinder Morgan a total of $176,700 in fines. In 1998, OPS 

157 

fined Kinder Morgan (Santa Fe) $3,000 for failure to install valves on its 6-inch and 

8-inch pipelines in Tucson, Arizona where the pipeline crosses the Santa Cruz River. 

OPS also fined Kinder Morgan (Santa Fe) $12,700 in 1994 for failing to provide adequate cathodic protection on their 8-inch pipeline that extends from Steins Pass, Arizona to Tucson. 

Question 14a. Has OPS changed its policy of issuing warnings and started imposing fines? Why or why not? 

Answer. Since 2000, OPS has refocused its efforts to achieve compliance with the 

pipeline safety regulations through enforcement actions and use of civil penalties. 

We take a ‘‘tough, but fair’’ approach in dealing with operators. In the years 1995– 

1999 prior to our change in policy, the yearly average number of civil penalties was 

19 and the average penalty was $19,000. In 2000–2003, the years our new policy 

has been in effect, the average number of civil penalties was 42 and the average 

penalty was $45,000. These numbers do not include the very large proposed civil 

penalties as a result of the Olympic and El Paso pipeline accidents. Including the 

proposed civil penalties for Olympic and El Paso pipelines, the average propose civil 

penalty for the 2000–2003 period would be $91,000. 

Question 14b. The new pipeline safety law, enacted last year, requires that GAO 

issue a report on OPS’ assessment of the impact on pipeline safety of issuing warning letters rather than assessing fines. Since this study is on-going, I am concerned 

that OPS may still not know how to judge the impact of different approaches on 

safety. Does OPS have a clear understanding of the safety impact from warnings 

versus fines? 

Answer. OPS does have qualitative understanding of the value of each of our enforcement tools, which range from a warning letter, to a notice of probable violation 

with a civil penalty, to a corrective action order. Each tool has a valid purpose and 

use. To better quantify our understanding of the impacts of enforcement tools and 

to improve enforcement policy, OPS has created the position of enforcement policy 

director. This director will develop enforcement policy, guidance material and performance measures for enforcement. This is intended to provide, for example, more 

detailed guidance on some inspection types, penalty-setting, and on collecting and 

presenting evidence. 

Question 14c. When OPS issues a warning letter or letter of concern, what does 

it do to follow up if the pipeline owner does not respond? 

Answer. Warning letters, letters of concern and other enforcement action are recorded in OPS enforcement records. A standard procedure in OPS’ compliance manual requires an inspector to prepare through review the history of the operator e.g., 

accidents, enforcement actions, including warning letters and letters of concern. 

During the inspection, the inspector is required to follow up on warning letters and 

letters of concern and to prepare a notice of probable violation and civil penalty if 

the operator has not corrected the issue. We specifically look for instances of repeated violations in targeting our inspections. 

Question 15. OPS’ regulations for integrity management require that, after completion of the initial baseline inspection, liquid pipelines be internally inspected 

every five years. Why 5 years and not 2 or 3 or 7? 

Answer. The maximum interval allowed in regulation is the five-year interval 

within which pipelines must be re-inspected in high consequence areas. Based on 

the risk factors pipelines experience, some pipelines may have to be re-inspected 

more frequently. 

In setting this interval, OPS considered the rate of growth of corrosion, technology 

and expertise available to detect corrosion, and the current rate of inspection of 

pipeline ongoing prior to our issuance of regulation. OPS set an aggressive goal that 

more than doubled the rate of inspections at the time. We knew that most pipeline 

operators whose pipelines can be internally inspected with an intelligent tool (pig) 

prefer to deploy pigs for inspection because they cull more information from the pipe 

body. Pigging, however, is a complex operation requiring careful preparation and 

scheduling. Operators must consider such factors as availability of pigging equipment, weather conditions, and whether service interruptions to perform the test can 

be tolerated. In considering testing frequency, OPS considered availability of inspection tools and especially skilled personnel for interpreting test data. Our consultation with pigging experts in the industry revealed that the five year interval was 

the most aggressive standard we could realistically set, based on available capacity 

to serve the market. Many of the pipelines in high consequence areas are operated 

by smaller companies. If the demand for internal inspection tools exceeds available 

supply, the smaller companies will not be able to compete with the larger companies 

who can offer larger contracts to the pigging vendors. 

158 

Question 15a. It seems to me that the intervals between integrity management 

inspections should be based on risk, including the age of the pipeline and other factors that affect the integrity of the pipeline. Are these factors that OPS takes into 

consideration? 

Answer. Yes. The intervals between integrity management inspections must take 

risk into consideration. The five-year re-inspection frequency is an upper limit that 

pipeline operators must adhere to on pipelines in high consequence areas. In many 

cases OPS expects pipeline operators to re-inspect their facilities more frequently 

with different tools to ensure that all risks are covered and mitigated. 

OPS’s integrity management rule clearly states that an operator must base the 

frequency of evaluation on risk factors specific to each pipeline segment and must 

consider the results of the baseline and periodic integrity assessments, information 

analysis, and decisions about remediation, preventive, and mitigative actions to arrive at a re-inspection interval. The risk factors that a pipeline operator must consider are results of the previous integrity assessment, defect type and size that the 

assessment method can detect, defect growth rate, pipe size, metallurgy, coating 

type, seam type, age, leak history, cathodic protection history, commodity transported, and the terrain’s susceptibility to geo-technical hazards, to name a few. 

Question 15b. What is the average age of liquid pipelines in the U.S.? 

Answer. OPS does not collect data on the age of liquid pipelines, but we have 

worked with the American Petroleum Institute (API) to sponsor studies on age. OPS 

is in rulemaking on a requirement for hazardous liquid pipeline operators to provide 

information on integrity management program performance measures. This effort 

will be realized through the collection of data from Hazardous Liquid Pipeline Operators via the Annual Report (RSPA Form 7000.1). Collection of miles of pipe by 

nominal pipe size by location will commence in FY05 for calendar year 2004, and 

will lend itself to review and analysis of age of pipe issues. 

Based on the API work, in 2001, Trench & Kiefner reported in Oil Pipeline Characteristics and Risk Factors: Lessons From the Decade of Construction, that pre-1930 

pipe represents 2 percent of the share; pipe constructed in 1930–1939 represents 7 

percent; 13 percent was constructed between 1940–1949; 22 percent in 1950–1959; 

23 percent from 1960–1969; 17 percent from 1970–1979; 9 percent from 1980–1989; 

and 8 percent was constructed in 1990 or later. 

Thus the majority of hazardous liquid pipeline is between 23 and 53 years old. 

The characteristics of the pipe vary by the manufacturing and construction techniques in use at the time of construction. The ‘‘average’’ age therefore, would not 

necessarily provide a clear indicator for understanding pipeline performance. 

Question 16. You indicate in your statement that OPS inspects Kinder Morgan’s 

facilities about every three years. How does an OPS inspection compare with the 

inspections performed by ACC? 

Answer. OPS’ goal is to perform a standard inspection on each pipeline unit every 

two to three years. These inspections are performed by either OPS or state inspectors. A pipeline unit is an identifiable section of pipeline such as Kinder Morgan’s 

pipelines in Arizona. ACC and OPS inspections should be essentially the same. OPS 

provides state and OPS inspectors with the same training, procedures and guidance 

materials. Our goal is for inspections to be uniform across the Nation whether performed by an OPS or state inspector. 

Question 17. In your opinion, should older pipelines such as Kinder Morgan pipelines in Arizona be subject to more stringent requirements or more frequent inspections? 

Answer. OPS’s integrity management rule clearly states that an operator must 

base the frequency of evaluation on risk factors, including age, specific to each pipeline segment and must consider the results of the baseline and periodic integrity 

assessments, information analysis, and decisions about remediation, preventive, and 

mitigative actions to arrive at a re-inspection interval. The risk factors that a pipeline operator must consider are results of the previous integrity assessment, defect 

type and size that the assessment method can detect, defect growth rate, pipe size, 

metallurgy, coating type, seam type, age, leak history, cathodic protection history, 

commodity transported, and the terrain’s susceptibility to geo-technical hazards, to 

name a few. 

Question 18. In background information provided to the Committee prior to this 

hearing, your office stated that hazardous liquid pipelines tend to be located in rural 

areas. That is certainly not true in this case. What action is being taken at the Federal level to identify where pipelines pose the greatest risk to public safety? 

Answer. To protect communities and the environment from pipelines, OPS published the integrity management rules that apply to and increase testing and safety 

standards for all hazardous liquid pipelines. The integrity management regulations 

159 

apply to high consequence areas that include commercially navigable waterways, 

high population areas, other populated areas, and unusually sensitive areas like 

drinking water or ecological areas that are unusually sensitive to environmental 

damage from a hazardous liquid pipeline spill. These regulations also require pipeline operators to develop and follow a safety program including continuous evaluation of pipelines including mandatory testing with a five-year interval for retesting. 

As a joint government-industry effort between the OPS, other Federal and state 

agencies, and the pipeline industry, the National Pipeline Mapping System (NPMS) 

is a full-featured geographic information system database that contains the locations 

and selected attributes of natural gas transmission lines, hazardous liquid trunk 

lines, and liquid natural gas facilities operating in onshore and offshore territories 

of the U.S. The NPMS is created from mandatory submissions of pipeline and LNG 

facility data by pipeline operators. The NPMS National Repository is responsible for 

collecting, processing, and building a national seamless pipeline database from the 

submitted data. 

OPS maps, maintains, and updates these areas periodically on the National Pipeline Mapping System (NPMS). Nonetheless, pipeline operators are responsible to ensure that they have identified all high consequence areas that could be affected by 

a pipeline segments. Operators are also responsible for periodically evaluating pipeline segments to look for population or environmental changes that may have occurred around their pipelines and to keep programs current with this information. 

The rule also requires operators to include a process for identifying which pipeline 

segments could affect high consequence areas, and to take measures to prevent and 

mitigate the consequences of a pipeline failure that could affect a high consequence 

area. Thus, operators need to consider how each of their pipeline segments could 

affect high consequence areas. 

Question 18a. Do different safety standards apply to pipelines depending on where 

they are located? 

Answer. Yes, different safety standards apply to pipelines depending on where 

they are located. Pipelines in areas defined as unusually sensitive areas, that include populated areas and ecologically sensitive areas, must be maintained according to more stringent standards than other pipelines. NPMS maps are a starting 

point to determine sensitivity, but operators are required to look further. Operators 

must account for the impact of the commodity, the topography, and geological conditions of the terrain it traverses and ascertain if a spill ‘‘could affect’’ a high consequence area. In this ‘‘could affect’’ analysis, operators must also consider the 

amount of product that could be released, possibility of a spillage in a farm field 

following the drain tile into the waterway, ditches or ruts parallel or perpendicular 

to the pipeline that assist the migration of a spill into farther reaches, and exposure 

of the pipeline segment to operating pressure exceeding established maximum operating pressure. 

The regulation requires that operators of pipelines in, and that could affect, high 

consequence areas must: 

• Conduct a baseline assessment plan meeting very stringent requirements, and 

must perform an analysis that integrates all available information about the integrity of the entire pipeline and the consequences of a failure; 

• Perform an analysis that integrates all available information about the integrity 

of the entire pipeline and the consequences of a failure; 

• Develop criteria for remedial actions to address integrity issues rated by the assessment methods and information analysis; 

• Create a continual process of assessment and evaluation to maintain a pipeline’s integrity; 

• Identify preventive and mitigative measures to protect the high consequence 

area 

• Develop methods to measure the program’s effectiveness; and, 

• Create a process for the review of integrity assessment results and information 

analysis. 

Question 18b. Should there be a greater focus placed on pipelines in populated 

areas? 

Answer. Yes. There is a greater focus placed on pipelines in high consequence 

areas that include populated areas, other populated areas, and ecologically sensitive 

areas. Moreover, the integrity management rule, for example, requires pipeline operators to incorporate newly identified high consequence areas into their baseline 

assessment plans. Pipeline operators are also required to have communication systems with fire, police, and other public officials during emergency conditions includVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00163 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\20974.TXT JACKIE
160 

ing natural disasters. Liquid pipeline operators, for example, are required to patrol 

their pipelines at least 26 times per year. Our analyses of patrolling procedures 

show that in populated areas, pipeline operators patrol their systems much more 

frequently. 

Question 19. The Pipeline Safety Improvement Act of 2002, which reauthorized 

Federal pipeline safety programs through Fiscal Year 2006, contains several new 

initiatives to improve pipeline safety. One such initiative requires the Secretary of 

Transportation to study land use practices, zoning ordinances, and preservation of 

environmental resources with regard to pipeline rights-of-way and their maintenance. 

Question 19a. What is the status of this study? 

Answer. RSPA/OPS established a cooperative agreement with the National Academy of Science’s Transportation Research Board (TRB) to conduct a study of encroachment risks and how they can be managed. This agreement was finalized on 

September 26, 2002. The TRB met on this issue for the first time in September 2003 

and expects to deliver its draft report to OPS by March 2004. This study is an important step in informing local officials and others involved in managing the risks 

of encroachment and in assessing the feasibility of developing better guidance. 

Question 19b. Why has it taken DOT so long to initiate and complete this important study as required by Congress? 

Answer. OPS actually finalized an agreement with the TRB to perform the study 

prior to the signing of the Pipeline Safety Improvement Act of 2002. The TRB experienced some delay in initiating the study because of a turnover of key staff. The 

TRB has worked very carefully with congressional staff and stakeholders to define 

the study and select a study committee. The committee established to conduct this 

study is comprised of senior representatives with national-level expertise from interested organizations including all levels of government, environmental organizations, 

pipeline companies, academia, and technical consultants. Further, the Committee 

has set forth three public meetings for which presentations have been solicited from 

other interests, experts and others who share responsibility for ensuring the protection of communities (e.g., emergency responders) and reliability of critically needed 

energy supplies. 

Question 19c. When will it be completed? 

Answer. The TRB plans to deliver a draft report to OPS by March of 2004. 

Question 20. How many violations of Federal pipeline safety laws and regulations 

have been identified by OPS or its state partners in the last year? 

Answer. Between October 2002 and October 2003, OPS initiated 109 enforcement 

actions against operators for violating minimum Federal pipeline safety regulations 

as promulgated by 49 CFR Part 190 thru Part 199 and Part 40. Typically, each enforcement action will address one to five violations. 

Question 20a. How many of those violations resulted in the issuance of a corrective action order by OPS? How many fines were issued as a result of these violations? 

Answer. OPS does not typically issue violations as part of a Corrective Action 

Order (CAO). A CAO is an enforcement tool that allows OPS to manage actively the 

risk of a pipeline that may be a hazard to the public. A CAO allows OPS to impose 

certain restrictions on an operator’s pipeline, including a reduction in operating 

pressure, and generally requires the operator to take corrective action on their pipeline. 

OPS does however, issue Compliance Orders (CO) to operators as a result of a 

violation. Between October 2002 and October 2003, OPS initiated one CO against 

an operator for violating the minimum Federal pipeline safety regulations. OPS did 

not issue a fine as a result of this CO. 

As a result of the 109 enforcement actions initiated, OPS fined operators a total 

of $863,500. 

Question 20b. Has OPS ever fined Kinder Morgan, and if so, what violation was 

involved? Has Kinder Morgan ever been fined for problems associated with the two 

pipelines that run between Tucson and Phoenix? 

Answer. OPS has fined Kinder Morgan for violations ranging from failure to inspect and test relief valves to failure to establish a written anti-drug plan. Since 

1990, OPS has assessed Kinder Morgan a total of $176,700 in fines. In 1998, OPS 

fined Kinder Morgan (Santa Fe) $3,000 for failure to install valves on its 6-inch and 

8-inch pipelines in Tucson, Arizona where the pipeline crosses the Santa Cruz River. 

OPS also fined Kinder Morgan (Santa Fe) $12,700 in 1994 for failing to provide adequate cathodic protection on its 8-inch pipeline that extends from Steins Pass, Arizona to Tucson. 

161 

Question 21. OPS has established an on-line system for residents nationwide to 

use to determine what pipelines are operated in the vicinity of their homes. The site 

asks for your zip code and then provides a list of operators in your area and how 

to contact them for additional information. However, a recent test by Committee 

staff showed the information was in several cases incomplete or non-existent. One 

zip code within the Nation’s capital showed no pipeline data available. Another 

showed no contact information available for BP Pipeline North America, even 

though Committee staff was able to get contact information on-line from BP within 

minutes. Do you believe this system is adequate to inform the general public on the 

risk associated with living near a major pipeline? 

Answer. OPS does believe that the public access tool will be sufficient in meeting 

its goal of providing operator contact information to the public. The tool is based 

on contact information for pipeline operators that is required by law to be submitted 

by operators to the National Pipeline Mapping System (NPMS). The database of 

pipeline operator contact information is not yet complete. While nearly 99 percent 

of all pipeline mileage under OPS jurisdiction has been submitted to the NPMS, approximately 45 percent of pipeline operators have not submitted their contact information. Any current deficiencies in the public access tool are due to noncompliance 

on the part of pipeline operators. OPS believes that pipeline operators have overlooked the requirement to submit contact information. OPS is pursuing compliance 

orders against operators that have not submitted their contact information. 

Question 21a. What actions are you going to take to address the problems identified by Committee staff? 

Answer. OPS has made concerted efforts to contact pipeline operators regarding 

their statutory requirement to submit pipeline and operator contact data to the 

NPMS. OPS posted an Advisory Bulletin for all jurisdictional pipeline operators 

(http://ops.dot.gov/notices/AdvisoryBulletin/03–2449.pdf) on February 3, 2003, 

which appeared in the Federal Register (i.e., FR, Vol. 68, No. 22, Monday, 

February 3, 2003, page 5338). OPS also conducted NPMS public meetings and operator conferences via various industry groups and forums. Two weeks before the submission deadline date of June 17, 2003, OPS e-mailed operators to remind them of 

the approaching deadline for submission of pipeline and operator contact data. Unfortunately, most operators have focused on submitting their pipeline data and 

many neglected to submit their operator contact information. 

OPS is preparing notices proposing compliance orders to order operators who have 

not provided the mapping and contact information required by Section 15 of the 

Pipeline Safety Improvement Act of 2002, to submit the information. This is the 

limit of authority granted to OPS under the PSIA. The PSIA does not allow OPS 

to assess penalties for violations of the statutory requirements added by the Pipeline 

Safety Improvement Act of 2002. In addition, administrative civil penalties are not 

available to enforce the requirements to review the effectiveness of public education 

programs (Section 5), to have an employee qualification program meeting statutory 

requirements in the absence of standards regulations (Section 13), and the requirements for gas integrity management programs (Section 14). 

The compliance order will also provide instructions for accessing an online form 

where operators can submit their contact information. OPS will aggressively work 

with the pipeline operators to ensure that they are in compliance. Additionally, OPS 

is pursuing the ability of states to similarly enforce compliance by intrastate pipeline operators. 

Question 22. Please describe the relationship between the Office of Pipeline Safety 

and the state pipeline safety officials, in this case, the Arizona Corporation Commission. In particular, please explain which agency is responsible for what, including 

inspections and the subsequent enforcement against violations of safety regulations. 

Answer. OPS administers the national regulatory program to assure safe transportation of natural gas, petroleum, and other hazardous materials by pipeline. The 

Federal/State partnership is the cornerstone for assuring uniform implementation of 

the pipeline safety program nationwide. Most states have supported the concept of 

common stewardship in pipeline safety. The Federal/State partnership allows 

leveraging of resources to deliver a cost-effective program that has one of the best 

safety records in transportation. OPS and their state partners regularly participate 

in joint government-industry-public committees and task forces to discuss and address concerns related to risk management, compliance, emerging technology, damage prevention, and environmental protection. 

While the Federal Government is primarily responsible for developing, issuing, 

and enforcing pipeline safety regulations, the pipeline safety statutes provide for 

state assumption of the intrastate regulatory, inspection, and enforcement responsibilities under an annual certification. Federal pipeline statutes, on the other hand, 

162 

provide for exclusive Federal authority to regulate interstate pipelines. But, OPS 

may authorize a state to act as its agent to inspect interstate pipelines, but retains 

responsibility for enforcement of the regulations. 

The ACC, along with five other states, participates in the interstate hazardous 

liquid program. Similarly, Arizona is one of 13 ‘‘certified’’ states with the authority 

to inspect and enforce regulations on intrastate hazardous liquid pipeline facilities. 

For natural gas pipelines, Arizona is one of nine ‘‘agreement’’ states with the authority to inspect and report on interstate natural gas pipeline facilities. Arizona is 

also one of 50 ‘‘certified’’ states with the authority to inspect and enforce regulations 

on intrastate natural gas pipeline facilities. 

Since this incident in Arizona, we have learned that there were opportunities to 

improve communication which would have increased the efficiency of our oversight. 

We are taking many actions to improve communications through increased written 

follow-up in enforcement actions, more immediate distribution of interpretations, 

more informal group interaction, and tracking state by state involvement in policy 

making activities. 

Question 23. Is the division of duties between OPS and ACC identical to OPS’ relationship with all states or does each state have a different agreement? 

Answer. OPS’s relationship with each state and the division of duties between 

OPS and its agents are similar to the one with ACC. The agreements OPS crafts 

with the states are also the same based on the type of certifications that each state 

possesses. 

Question 24. When was the last time the KM pipelines that run through AZ were 

inspected? When will KM’s baseline inspections, as required by the integrity management requirements, be completed? Have you considered expediting this inspection given the rupture and the other problems that OPS had been concerned about 

on the six inch line? 

Answer. The last time ACC requested to inspect Kinder Morgan’s pipelines in Arizona was in 2001. In 2002, ACC requested to inspect Kinder Morgan’s facilities once 

again. In 2003, ACC continued inspection on all safety-related condition reports that 

Kinder Morgan had submitted to OPS. 

In 2002 and 2003, OPS and ACC also conducted the integrity management inspections on Kinder Morgan’s pipeline facilities. This series of inspection began in January 2002. The ‘‘quick-hit’’ inspection was performed from January 15–17, followed 

by two weeks of comprehensive inspections that were conducted from April 7–11 

and April 21–25. The California State Fire Marshal and Virginia State Corporation 

Commission also participated in these two weeks of comprehensive inspections. On 

July 24 and 25, 2003, OPS continued with the comprehensive inspections to review 

records. 

Kinder Morgan has subdivided their pipelines in Arizona into eight sections for 

purpose of inspection. This year Kinder Morgan completed the baseline inspections 

on the Yuma Marine Corps Air Station lateral, the Luke Air Force Base in Phoenix, 

and the 6-inch Phoenix to Tucson line. In 2004 Kinder Morgan plans to complete 

the baseline inspections on the eight-inch pipeline south of Tucson and the 8-inch 

line from Tucson to Phoenix. Another 12-inch line south of Tucson was initially 

scheduled for baseline inspections in 2007, but after the July 30-incident OPS directed Kinder Morgan to schedule it sooner, and we expect baseline assessment of 

this line to be completed in 2004. 

The 12-inch Phoenix to Tucson line and the 20-inch Yuma to Phoenix line were 

installed within the past 20 years. Therefore, its baseline inspections are planned 

to occur in 2006 and 2007. OPS will determine if these two pipelines baseline inspections need to be expedited based on the findings on the other lines that will 

have a completed baseline inspection by 2004. 

Question 25. Should inspection results or potential public safety concerns be disclosed to the public? 

Answer. OPS believe that plans for inspection, the technology used and the 

progress with those inspections should be shared, including repairs identified and 

completed. New regulations will be issued soon to address required performance reporting and additional regulation on other communication requirement may follow. 

Question 26. How many corrective action orders has OPS issued this year? What 

accountability features are included in these orders? For example, I understand that 

many times they do not have a date certain for responding to the order. Further, 

and I believe it was with the very case we are discussing today, even though OPS’ 

order required a date certain reply, KM had not replied by that deadline and OPS 

did not issue any further official document or impose a fine or anything. What signal do you think such lax oversight sends to pipeline operators, let alone, the public? 

163 

Answer. OPS has issued 18 Corrective Action Orders (CAO) this year, more than 

three times the combined total for the previous three years. 

All CAOs issued by OPS have time limits within which the pipeline operator must 

respond to the Regional Director. A provision of each CAO gives the OPS regional 

directors the authority to grant an extension of time for compliance with the term 

of the CAO for good cause. The regional directors are given this authority to provide 

flexibility because CAOs deal with unknown causes of failure, complex technical 

issues that often do not have immediate solutions, complex testing and inspection, 

and lengthy state and local permit processes needed for testing and repair. The plan 

must provide for the verification of the integrity of the affected segment, and must 

address all known or suspected factors in the failure. All of these factors can add 

substantial time to completing the requirement of a CAO. Pipeline operators have 

an incentive to submit and execute their remedial action plans promptly because the 

pressure restriction prevents them from meeting their contractual delivery volumes. 

Granting additional time for good cause is not lax oversight. It is necessary to 

achieving quality in resolving safety issues. 

We do not agree that a delay in the submittal or execution of the remedial action 

plan sends a signal of lax oversight to the operator or the public. First, OPS, 

through the pressure restriction, eliminates the immediate hazard to the public and 

the environment. The pressure restriction is not lifted until all elements of the remedial action plan are completed and reports are made available to OPS and its 

state partners within whose jurisdiction the failure occurred. Second, OPS and its 

agent, if any, follow up closely on all the activities that the operator is implementing 

on its pipeline. 

OPS’s record in issuing CAOs and resolving safety issue sends a strong message 

that we are applying thorough oversight over the pipeline industry. We are achieving results. Comparing the last five years to the previous five, hazardous liquid incidents have decreased by 28 percent. Two years ago, the volume of oil spilled decreased by 33 percent from the ten-year average. Last year there was a 57 percent 

decrease. 

Question 27. Following the initial rupture of your pipeline in a residential area 

of Tucson, the OPS ordered Kinder Morgan to reduce the operating pressure to 80 

percent of maximum pressure. However, instead of reducing the operating pressure, 

Kinder Morgan chose to shut down operations for repairs. Why did you take the extreme action of shutting down all operations of the pipeline, which was counter to 

OPS’s recommendations? 

Answer. On July 30, 2003, Kinder Morgan’s 8′′ pipeline from Tucson to Phoenix 

failed during normal pipeline operations. Kinder Morgan and OPS originally believed the cause of the release was an ERW pipe seam failure. Based on the March 

8, 1989, Pipeline Safety Alert Notice (ALN–89–01) and discussion with the Department of Transportation Office of Pipeline Safety Southwest Region (DOT), the pipeline was repaired and restarted on August 1, 2003, based on the following operating 

parameters: 

• Operate the pipeline at 50 percent maximum operating pressure (MOP) for five 

(5) days 

• Operate the pipeline at 60 percent MOP for one (1) day 

• Operate the pipeline at 70 percent MOP for one (1) day 

• Operate the Pipeline at 80 percent MOP until further notice. 

As part of Kinder Morgan’s on-going integrity program, the joint of pipe from the 

July 30, 2003, incident was sent to an independent lab for metallurgical analysis. 

On August 8, 2003, Kinder Morgan received the metallurgical report. The report 

concluded that the cause of the rupture was high pH SCC. Kinder Morgan had 

never experienced SCC before on one of its refined petroleum pipelines. Given this 

information and the pipeline’s location near populated areas in the City of Tucson, 

Kinder Morgan determined that the only safe option was to shut down the pipeline 

(which was still operating at 50 percent MOP) and conduct further testing. 

Question 27a. What factors did you consider in deciding to shut down the pipeline? 

Answer. Kinder Morgan considered public safety, the pipeline’s location near populated areas in the City of Tucson and the uniqueness of the SCC phenomenon on 

a refined products pipeline. These were the driving factors in making the decision 

that the only safe option was to shut down the pipeline and conduct further testing 

to ensure the integrity of the pipeline. 

As stated above, Kinder Morgan originally thought the failure was an ERW seam 

failure, and restarted the pipeline at a reduced MOP. However, on August 8, 2003, 

Kinder Morgan received a metallurgical report indicating that the cause of the failVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00167 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\20974.TXT JACKIE
164 

ure was high pH Stress Corrosion Cracking (SCC), a failure mode never before experienced on a Kinder Morgan liquids pipeline. The metallurgical report and subsequent conversations between our technical staff and the third party metallurgical 

consultant did not provide technical justification for allowing our line to operate at 

reduced pressure without further testing. Given this information and the pipeline’s 

location near populated areas in the city of Tucson, Kinder Morgan determined that 

the only safe option was to shut down the pipeline (which was still operating at 50 

percent MOP) and conduct hydrostatic testing of the pipeline. 

Question 27b. Was Kinder Morgan’s voluntary shut down of the line due solely 

to safety concerns? If so, what did Kinder Morgan know that the Office of Pipeline 

Safety did not, since OPS only required the operator to reduce its product to 80 percent? 

Answer. Yes. Kinder Morgan decided that in order to ensure public safety, the 

line needed to be hydrostatically tested before service resumed. 

Question 27c. Considering that you believed shutting down the pipeline was the 

best course of action, and OPS believed the pipeline could continue to operate at 

reduced pressure, should one assume that OPS should have ordered you to shut 

down the pipeline? Was OPS wrong? 

Answer. OPS’s original corrective action order was premised on the assumption 

that the failure mode was due to an ERW seam failure. The order’s timeline for 

gradual resumption of operating pressure reflects that fact. As the owner and operator of these pipelines, it is Kinder Morgan’s ultimate responsibility to operate its’ 

system safely. 

Question 27d. Considering the overall impact on safety and gas supply, did Kinder 

Morgan take the right course of action by shutting down the pipeline? 

Answer. The decision to temporarily shut down the 8′′ pipeline on August 8 was 

the safe and prudent course of action. A fundamental principle that we constantly 

emphasize to our operations personnel is: ‘‘If in doubt, shut the pipeline down and 

restart the line only after the doubts have been eliminated.’’ High pH SCC has 

never been experienced before on a Kinder Morgan refined products pipeline and we 

believed the line had to be hydrostatically tested to ensure it could be operated safely. Although the resultant service disruption inconvenienced consumers, far greater 

would have been the criticisms and consequences of continuing to operate the line 

and having another release. Moreover, our flexibility and responsiveness were key 

to providing petroleum products to Phoenix during the service disruption, a task 

complicated by the surge in demand as ‘‘panic buying’’ set in. 

Kinder Morgan is proud of our safety and compliance record. Safety and compliance are integral to every decision we make. We take seriously our commitment to 

operate a safe and reliable pipeline system, and we strive for operational excellence 

and incident-free operations. Kinder Morgan’s track record in Arizona has been outstanding since we acquired these pipelines in March 1998. During this time, we 

have transported more than 440 million barrels of fuel into the state, and the recent 

product release in Tucson was the first time we have experienced an incident with 

one of our Arizona pipelines that was not a result of third party damage. We have 

had two releases due to third party damage and the July 30 release, which was due 

to high pH stress corrosion cracking (SCC). There were no injuries or fatalities as 

a result of any of these incidents. 

Immediately after we decided to temporarily take the 8′′ Tucson to Phoenix line 

out of service because of the sec failure mode, we initiated steps to mitigate the impact of the shutdown. Throughout the weekend of August 9–10, modifications were 

made to our Tucson terminal. These modifications involved converting several tanks 

from conventional service to CBG service and connecting a truck rack lane to these 

tanks. These modifications allowed our shippers to transport by truck volumes of 

CBG gasoline from the East that otherwise would have moved over the closed 8′′ 

pipeline. Approximately 12,000 b/d were trucked to the Phoenix market as a result 

of these facility modifications while the 8′′ pipeline was out of service. 

Kinder Morgan schedulers were also called to work the weekend of August 9–10 

to contact our shippers and initiate the process of nominating additional volumes 

over the West Line to make up for volume shortfalls on the temporarily closed line 

between Tucson and Phoenix. During the week fo11owing the shutdown of the 8′′ 

pipeline, Kinder Morgan’s West Line and barrels trucked from Phoenix, were meeting over 92 percent of the average daily demand (175,000 b/d) in the Phoenix market. For just over half the days in the month of August, deliveries to Phoenix exceeded the average daily demand in Phoenix. 

Kinder Morgan’s deliveries, however, do not tell the entire story. We do not know 

the inventory levels at the five other Phoenix terminals at the start of the month 

of August or for any day thereafter. That information is not in our possession and 

165 

can only be obtained from the owners of those terminals. We do know, however, that 

nationally the trend is to maintain inventories at levels only necessary to meet anticipated demand and avoid the holding costs of excess inventory. When you combine the temporary shutdown of the 8’’ pipeline with current inventory management 

practices and the spike in demand triggered by panic buying and ‘‘topping-off’ of 

tanks, there were resultant shortages of gasoline. Further complicating the supply/ 

demand picture were logistical difficulties in accommodating increased trucking of 

products from Tucson terminals and outside of the state. (This problem in turn was 

exacerbated by weekly driving hour limits on truck drivers in Arizona. These restrictions were later relaxed.) 

It should be reiterated, however, that the flexibility and responsiveness of Kinder 

Morgan’s employees to the service disruption and the round-the-clock efforts to restore service on the 8′′ pipeline, allowed us to cover over 92 percent of the average 

daily demand in Phoenix. Two facts have special note: Kinder Morgan’s West and 

East Lines delivered 8.4 million more gallons of total products into Phoenix in August of 2003 than it did in August of 2002. Looking solely at gasoline volumes in 

2003 over 2002 for the month of August, Kinder Morgan actually transported 13 

million more gallons of gasoline. Again, a reflection both of the flexibility of our 

pipeline operations in Arizona and the extraordinary demand conditions in the 

Phoenix market. 

Question 28. It is clear from information provided to the Committee by OPS that 

Kinder Morgan should have been aware of corrosion problems on both the 6-inch 

and 8-inch pipeline prior to purchasing the lines in 1998.What was the condition 

of Santa Fe Pacific’s pipelines in Arizona when they were acquired by Kinder Morgan in 1998? 

Answer. Santa Fe Pacific had internally inspected the following lines prior to 

Kinder Morgan’s acquisition: the EP–TU 8′′ in 1988 and 1996 (approximately 304 

miles), the EP–TU 12′′ in 1995 (approximately 165 miles) and the TU-Weymouth 8′′ 

in 1996 (approximately 12 miles). There had been no generalized corrosion leaks on 

the TU–PX 8′′ pipeline since 1980, on the PX–TU 6′′ since 1988, and no recorded 

corrosion leaks on the EP–TU 12′′ and EP–TU 8′′ pipeline. In addition, there were 

no outstanding DOT Corrective Action Orders on these pipelines. 

Question 28a. What repairs and safety improvements has Kinder Morgan made 

to the lines since acquiring them? 

Answer. Kinder Morgan’s track record in Arizona has been outstanding since we 

acquired these pipelines in March 1998. Our commitment to regulatory compliance 

is equally as strong. Kinder Morgan has a pipeline safety staff that actively participates in regulatory rulemaking, tracks all new regulations and ensures that our 

plans and procedures comply with pipeline safety regulations. We have a management of change process that ensures that changes are communicated to operations 

personnel. We have a separate internal auditing division that conducts audits of our 

field operations to ensure that we are complying with all applicable safety regulations. 

We are routinely inspected by the U.S. DOT Office of Pipeline Safety (OPS) and 

State Pipeline Safety Agencies, such as the Arizona Corporation Commission (ACC) 

and the California State Fire Marshall’s office. In Arizona, alone, we have been inspected four times by the ACC since 1998 (1998, 1999, 2001 and 2003; in 1999 the 

OPS participated in the Arizona Audit). The Southwest Region has also audited the 

pipeline section between New Mexico and Texas twice. In addition, we have been 

subject to audits of our Procedural Manuals, Integrity Management Plan and Operator Qualification Program by OPS. These audits have not uncovered any major 

compliance issues. 

A specific example of our commitment to safety and compliance is one of the elements of our preventive maintenance program-our Integrity Management Program 

(IMP). Kinder Morgan Energy Partners (and its predecessor SFPP) have been inspecting pipelines with Magnetic Flux Leakage (MFL) in-line inspection tools 

(‘‘smart pigs’’) since the early 1970s. As part of our ongoing preventive maintenance 

programs, we were internally inspecting pipelines in Arizona before such actions 

were ever required by the Federal or state government. In fact, all Kinder Morgan 

pipelines in Arizona had been smart pigged at least once before the effective date 

of the IMP rule and most had been smart pigged at least twice. The 8′′ Tucson-Phoenix pipeline was inspected in 1996 and 1999 and the 6′′ Phoenix to Tucson pipeline 

in 1999 and 2003. In each case, we took appropriate action in the interest of public 

safety. Maintenance crews were dispatched to excavate and investigate the anomalies, and where necessary, appropriate repairs were made. 

Our overall philosophy is that internal inspection is very effective in detecting 

pipeline defects, allowing us to repair potentially detrimental defects before they reVerDate Nov 24 2008 07:32 Aug 03, 2016 Jkt 075679 PO 00000 Frm 00169 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\20974.TXT JACKIE
166 

sult in a release. By combining information found during the in-line inspections, cathodic protection surveys and coating surveys, we can identify areas along the pipeline where recoating may be necessary and where more cathodic protection rectifiers 

might be needed. We are then able to focus our resources and take the appropriate 

remedial measures. We believe the existence of such a proactive program is why 

there has not been a leak due to generalized metal loss corrosion on these pipelines 

in Arizona in the last 15 years. 

Another example of our commitment to safety and compliance is Kinder Morgan’s 

corrosion control program. This program conforms to DOT and National Association 

of Corrosion Engineers (NACE) Standards. Cathodic Protection inspection tests in 

include 

1. Annual inspections of all CP test leads and rectifiers 

2. Six times per year inspection of all rectifiers, bonds & other devices 

3. Minimum 26 times per year aerial patrol of rectifier indicator systems (in most 

cases this is weekly) 

4. Inspection of pipe coating and pipe, if coating is removed, whenever the pipe 

is uncovered 

Our current IMP has been updated to incorporate DOT’s 2001 regulations. Our 

response, repair and mitigation strategies did not require any major revisions as a 

result of the 2001 DOT regulations; however, as most of the new regulatory requirements were already a part of our previous IMP program. 

Question 28b. Why has it taken so long, and I note only after a rupture that put 

the lives of local residents at risk, for you to replace some of the pipeline? 

Answer. As stated above, Kinder Morgan is proud of our safety and compliance 

record. Safety and compliance are integral to every decision we make. Kinder Morgan’s track record in Arizona has been outstanding since we acquired these pipelines in March 1998. The recent product release in Tucson was the first time Kinder 

Morgan experienced an incident with one of our Arizona pipelines that was not a 

result of third party damage. 

The decision to replace some of the pipeline follows on the heels of the favorable 

outcome of a petition filed by Kinder Morgan at the FERC regarding an overall expansion project involving our East Line. This filing was necessary to ensure that 

an economically acceptable rate methodology would be approved in advance of 

spending approximately $200 million on this project. Included in that project is the 

replacement of the 8′′ pipeline between Tucson and Phoenix. 

Question 29. When the Office of Pipeline Safety issued a Corrective Action Order 

on Kinder Morgan’s jet fuel line, Kinder Morgan objected to recoating the line, arguing that cathodic protection was sufficient to prevent corrosion. Had Kinder Morgan 

made improvements to the cathodic protection since it was initially installed in 

1957? 

Answer. In our review of the cathodic protection history for LS–53/54, Kinder 

Morgan believes that actions were taken in the past to enhance the cathodic protection system for these pipeline systems. LS–53/54 was constructed in 1956 without 

cathodic protection. It was approximately two years later before cathodic protection 

was applied. Based on cathodic protection surveys, more anode ground beds and rectifiers—the current source for cathodic protection, were installed along the pipeline. 

This is important because, although the November 1999 in-line inspection indicated a number of locations of generalized corrosion, there was no way to identify 

from the report when the corrosion took place. In an effort to determine if the generalized corrosion was active or on-going corrosion, electrical and chemical tests were 

conducted at each location excavated. These tests demonstrated that the line was 

receiving adequate cathodic protection and that there was no active generalized corrosion taking place at the anomaly locations. These tests demonstrated that the generalized corrosion that was indicated on the in-line inspection report was most likely 

generalized corrosion that occurred in the years prior to cathodic protection being 

installed. 

Question 30. Kinder Morgan conducted an internal inspection on a portion of its 

6-inch jet fuel pipeline in November 1999, yet the results, which revealed significant 

corrosion, were evidently not known until the following March. Why does it take so 

long to get the results of these inspections? It would seem that there could be some 

serious pipeline accidents while pipeline operators are awaiting inspection results. 

Answer. Internal inspection surveys are performed by electronic devices called 

‘‘smart pigs’’, which are inserted into the pipeline and conveyed by the moving product through the pipeline. Kinder Morgan typically uses two types of ‘‘smart pigs’’ 

167 

in these inspection surveys. The most common type is the Magnetic Flux Leakage 

(MFL) pig. 

MFL pigs contain powerful magnets that saturate the steel pipe walls with magnetic flux. MFL pigs also contain numerous sensing elements spaced around the circumference of the inside diameter of the pipeline. If the pipe wall contains a defect 

the magnetic field in the pipe wall will change, and this change will be detected by 

the sensing elements in the pig. The smart pig records the 0’ Clock position of the 

pipe defect, as well as the lineal distance along the pipeline -by use of odometer 

wheels located on the pig. The length of each joint of pipe is also recorded, along 

with the location of valves, tees, shop bends, etc. All of this data, which is recorded 

and stored in electronic format in the memory module of the smart pig, is later 

down-loaded to a computer for thorough analysis. 

In addition to MFL pigs, Kinder Morgan typically runs an Electronic Geometry 

pig (EGP) that uses the vendor’s proprietary eddy current technology to identify 

changes in the pipeline diameter and geometry. With this data, the vendor can infer 

the existence of possible dents and other pipeline features. 

Smart pig vendors have developed algorithms to assist in converting the raw MFL 

and EGP signals to determine what type of defect exists and the size of the defect. 

The process of converting the raw MFL and EGP data signals is a phased approach. 

Initially, the MFL data is analyzed to provide a preliminary report that identifies 

areas of immediate concern but lacks much of the detailed analysis found in the 

final report. For the final report, MFL data is combined with EGP data to identify 

the location of possible dents and other pipeline features. In addition, detailed calculations are performed to grade the discovered features and provide additional information of use to the operator. More thorough analysis is performed, and the EGP 

data is incorporated to provide a very detailed report of the pipeline condition. 

Question 31. While you have publicly committed to replacing the remaining 8-inch 

line between Tucson and Phoenix, it is my understanding that you have yet to provide OPS with a plan to ensure the overall public safety of the pipeline as required 

by OPS’s Corrective Action Order issued on August 6, 2003. 

Answer. We have been in communications with OPS and ACC since the initial 

release and have been coordinating with them our plans of initial repairs and subsequent investigation and corrective actions. We have submitted several plans to OPS 

and are currently reviewing and revising our field investigation plan based on their 

review and amended corrective action order. Moreover, the 8’’ pipeline continues to 

operate at 50 percent of its maximum allowable operating pressure and will do so 

until the sec investigation is completed. 

KMEP submitted our first investigation plan to OPS on August 14, 2003. On September 5, 2003, we submitted an overview of our plans to replace the 8 inch pipeline 

within Tucson. On September 29, 2003, we submitted our initial version of our field 

investigation protocol for the remainder of our Tucson to Phoenix pipeline. In October 3, 2003 OPS issued KMEP an amended corrective action order. In response, we 

modified our September 5, 2003 plan and submitted it on November 3, 2003. OPS 

reviewed this plan and requested some additional information on November 14, 

2003. We are currently working on modifications per their request that will be submitted by December 19, 2003. Meanwhile, we have been actively implementing the 

SCC investigation plan for the 8’’ pipeline. 

Question 31a. When do you intend to provide OPS with a plan for review? 

Answer. Kinder Morgan submitted its Stress Corrosion Cracking (SCC) Field Investigation Protocol to DOT on September 29, 2003. This document outlined an analytical method for identifying areas along the pipeline system with the potential for 

SCC. Plans for a field inspection program were presented in which direct knowledge 

from the 1-mile area encompassing the July 30, 2003, release site will be used to 

delineate the severity of SCC and establish the contributing characteristics to locate 

other areas along the pipeline system with the potential for sec. 

Question 32. While published reports indicate that Kinder Morgan has committed 

to replacing the remaining 8-inch sections of the gasoline pipeline between Tucson 

and Phoenix, I would like know what actions Kinder Morgan is taking to ensure 

the safety of the 12-inch portions of that line, as well as the safety of the 6-inch 

product line, that has been subject to the same corrosion problems. 

Answer. The July 30, 2003, failure in an 8′′ portion of the pipeline between Tucson 

and Phoenix was not the result of generalized metal loss corrosion. Kinder Morgan 

has not had a metal loss corrosion release on an Arizona pipeline since 1988 and 

on the 8-inch pipeline since 1980. The July 30 failure was caused by high pH Stress 

Corrosion Cracking (SCC), a phenomenon that is new to the refined products pipeline industry and involves cracking and not wall loss due to corrosion. As noted elsewhere, our pipelines are effectively protected from corrosion by cathodic protection 

168 

systems. Moreover, these pipelines are also incorporated into our Integrity Management Plan which is discussed in answers to questions 2, 3 and 4. 

Question 32a. Is Kinder Morgan going to replace that line as well? 

Answer. The currently proposed East Line Expansion would not affect the 6′′ pipeline. The 6′′ pipeline is connected to the 20′′ West Line bring product to Arizona 

from west coast refineries. 

Question 32b. How can the citizens of Arizona be assured that Kinder Morgan is 

acting with their safety in mind? 

Answer. The decision to temporarily shut down the 8′′ pipeline on August 8 reflects the company’s commitment to public safety. In the face of a unique failure 

mode on a line operating in a metropolitan area, we shut the line down for additional testing. Public safety trumps public wrath. We regret, and have apologized 

publicly, for the inconveniences occasioned by this incident, and we took immediate 

and decisive steps to address the temporary shortfall and to get the line back up 

and operating. This focus on safety is part of our operating philosophy and as our 

safety record demonstrates, the citizens of Arizona can expect that we will continue 

to operate our facilities safely and reliably. 

Question 33. Recent reports have indicated the Federal Energy Regulatory Commission (FERC) has already approved a special tariff to pay for improvements in 

Kinder Morgan’s El Paso to Phoenix pipeline. How much will the tariff cost your 

customers and the consumers of Arizona? When did Kinder Morgan ask FERC to 

approve a special tariff to improve the pipeline? 

Answer. On September 19, 2002, Kinder Morgan (SFPP, L.P.) submitted a ‘‘Petition for Declaratory Order’’ to the FERC requesting the ‘‘Commission issue a Declaratory Order that (1) SFPP will be permitted, pursuant to 18 C.P.R. 342(a) (2001), 

to charge cost-of-service tariff rates on its East Line in the event its proposed expansion described in the Petition (the ‘‘East Line Expansion’’) goes into service, provided 

that there is a difference of 20 percent or more between such cost-of-service tariff 

rates and tariff rates calculated pursuant to 18 C.F.R. 342.3 (2001), the Commission’s indexing regulation; and (2) if, in response to a protest concerning the level 

of the tariff rates, the Commission suspends East Line cost-of-service tariff rates 

filed by SFPP following the East Line Expansion, those rates will be accepted for 

filing and made effective as of the date proposed by SFPP, subject to refund.’’ 

The Petition was assigned Docket No. OR02–13–000, Timely interventions and 

protests were filed by Chevron Products Company, Tosco Corporation, Valero Marketing and Supply Company and the Navajo Refining Company. 

Question 33a. Do you know why it took FERC so long to act on your application 

for a special tariff? 

Answer. In its Petition, SFPP requested ‘‘that the Commission issue an expedited 

decision on this Petition no later than the end of December 2002.’’ 

On January 30, 2003, the FERC issued an ‘‘Order on Petition for Declaratory 

Order’’ in Docket No. OR02–13–000. The Order said that cost-of-service rates should 

be not be incremental, that a Declaratory Order is appropriate and that a minimal 

suspension is appropriate. Thus, FERC had granted the relief requested. 

Navajo Refining Company filed a request for rehearing of this Order, which 

caused the FERC to review its January 30, 2003 Order. 

On July 12, 2003, the FERC issued a draft ‘‘Order on Rehearing’’ which was then 

officially issued on August 1, 2003. TI1e Order denied Navajo’s request for rehearing 

and ‘‘affirmed the assurances requested by SFPP to facilitate construction of the 

needed expansion of its East Line.’’ 

Question 33b. Do you believe FERC would have approved the tariff if the rupture 

had not occurred? 

Answer. As the above time line indicates, FERC’s decisions were in no way the 

result of, or influenced by, the July 30 incident in Tucson. 

Question 34. While serious questions can be raised about the continuity of OPS’s 

oversight of your operations, it is very clear that for a number of years Kinder Morgan has been aware of corrosion issues that raise serious safety concerns on both 

of its pipelines that transport fuel between Tucson and Phoenix. Why did it take 

you until now, after a rupture that put the residents of Tucson in harms way, to 

move expeditiously to replace the problem pipe? 

Answer. Again, it is important to note that the July 30, 2003, failure was not the 

result of generalized metal loss corrosion. Kinder Morgan has not had a metal loss 

corrosion release on an Arizona pipeline since 1988 and on the 8-inch pipeline since 

1980. The July 30 failure was caused by high pH SCC, a phenomenon that is new 

to the refined products pipeline industry and involves crackjng and not wall loss due 

169 

to corrosion. As for the replacement of the 8-inch pipe within the City of Tucson, 

this project had been in the planning phase prior to this incident. 

Question 35. It was recently announced that Kinder Morgan is purchasing a number of refined petroleum product terminals from Shell Oil, including terminals in 

Tucson and Phoenix. Given what we have learned regarding the maintenance and 

operations of your existing pipelines in Arizona, what assurances can you give the 

residents of Tucson and Phoenix regarding the continued safe operation of these facilities? 

Answer. We take seriously our commitment to operate a safe and reliable pipeline 

and terminal system and please refer to the answer to the third subpart of question 

6. 

Question 35a. The Pipeline Safety Improvement Act, enacted last December, requires operators to carry out a public education effort. What, specifically, has Kinder 

Morgan done in meeting this statutory requirement? What additional actions to you 

plan to take based on what you learned following the rupture? 

Answer. Kinder Morgan has had a public education program in place that met 

all of the requirements of the applicable regulation and meets the majority of the 

elements now specified in the Act. We utilize a direct mail out campaign to mail 

safety brochures to the general public, schools, hospitals, and a pre-selected group 

public officials identified by SIC codes, and any entity that receives mail located 

within l/8 of mile radius of our pipeline at two year intervals. We also mail these 

brochures to emergency response organizations and persons involved in excavation. 

In addition, we offer to meet with the emergency response organizations and have 

met with many of them. Our safety brochure instructs recipients how to: notify us 

if they intend to dig, identify our pipelines, recognize a leak, take appropriate steps 

if they notice a leak, and immediately report a leak. It also outlines emergency action procedures for public Safety Officials. 

Kinder Morgan has been an active participant in the API Task Force developing 

RP 1162 ‘‘Public Awareness Programs for Pipeline Operators’’ the guidance document referenced by the OPS: OPS was also on this task force. In addition, we participated in the OPS Workshop, as a presenter, on September 16 and 17, 2003 in 

Baltimore Maryland. 

We began reviewing our Plan shortly after the enactment of the act. We attended 

the Public Workshop in Houston, Texas on September 4 and 5, 2003. We have completed the self assessment and filed the certification with the OPS. Based on the 

assessment, we are adding Mayors and School District Administration officials in 

areas that we traverse to our list of recipients, and adding verbiage regarding the 

benefit of pipelines to our brochure. 

Regarding additional actions, we have participated in numerous public meetings 

discussions the July 30 incident and our current pipe replacement project. 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. JOHN MCCAIN TO

JONATHAN OLCOTT

I am the attorney for the Silvercreek Homeowners Association in Tucson, Arizona. 

You have asked me to comment on five questions. My answers follow: 

Question. Were the residents of Silver Creek aware of the Kinder Morgan pipeline 

before the rupture? 

Answer. For the most part, the residents were not aware of the pipeline. Phase 

1 of the development is approximately 400 feet from the pipeline. The existence of 

the pipeline was not disclosed in the Subdivision Public Report. There are 288 

households in Phase 1. There are signs that indicate the presence of the pipeline. 

The residents of Phase 1 would have little reason to observe the signage. Only one 

homeowner in Phase 1 indicated she saw the signage. 

Phase 2 immediately adjoins the pipeline easement. Phase 2 consists of only approximately 40 households. Phase 2 is still under construction. Only a few homes 

are occupied. The pipeline is disclosed in the Public Report for Phase 2. Whether 

any purchaser read and understood the document is doubtful. No purchaser in 

Phase 2 has indicated whether the purchaser knew the location of the pipeline before the rupture. 

To summarize the answer to this question, only one homeowner indicated she was 

aware of the pipeline before the rupture. 

2. Evacuation. There was no evacuation. The homes that were doused with gasoline were under construction, and not occupied. Were the homes occupied, there 

would have been evacuations. 

3. Legal Action. This subject is privileged. Only my client can waive the privilege. 

170 

I am concerned about two elements of damage. The first is the contamination to 

the common area. A contractor dumped contaminated dirt on the common area. 

Kinder Morgan has yet to provide us with contamination reports. Neither has 

Kinder Morgan provided us with remediation plans. Next, the recent revelation of 

leaking is a concern. I have previous experience with gasoline pipeline cases. Old 

pipelines leak. We are evaluating the extent of the contamination in the aquifer and 

groundwater. 

4. On-line Information. No homeowners indicated they were aware of the pipeline 

through a website. It strains credulity that a purchaser would scour the Internet 

for that information. I represent more than 1,000 homeowners associations in Arizona. I cover at least 300,000 households. I have been doing this for 16 years. 

The vast majority of homeowners do little investigation before they purchase. 

They rarely read the Public Report, Declaration of Covenants, Conditions and Restrictions, or the other 12 inches of papers they are provided in connection with the 

purchase. There is little possibility they would search the Internet for proximate 

utility pipelines. 

I do not believe a website could ever provide adequate disclosure of a pipeline that 

conveys hazardous materials. 

5. Recommendations for Proper Disclosure. If a new subdivision encroaches on a 

formally remote haz mat pipeline, there should be conspicuous signage. The signage 

should be located such that prospective purchaser would view it before the sale. In 

the alternative, developers should be required to display a conspicuous disclosure 

on sales materials. 

6. Caveats. The homes that were doused were not occupied. There was little reaction in the community from the rupture. The reaction would likely have been terror 

had the homes been occupied. Kinder, Morgan is fortunate that the homes were not 

occupied. Kinder, Morgan is fortunate that a homeowner was not barbequing a 

steak when the rupture occurred. 

The feeling in the community is that the rupture is more of an issue of pipeline 

safety, rather than encroachment. The community understands that utilities are 

proximate and necessary for modern life. With proper testing, I do not believe the 

thousands of households I represent would be concerned about proximate haz mat 

pipelines. Of course that feeling would dramatically change were a rupture to occur 

that caused fatalities. 

Æ 

171 

This page intentionally left blank.