IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 16-60448

EXXONMOBIL PIPELINE COMPANY, 

 Petitioner, 

v. 

UNITED STATES DEPARTMENT OF TRANSPORTATION; PIPELINE 

AND HAZARDOUS MATERIALS SAFETY ADMINISTRATION; OFFICE 

OF PIPELINE SAFETY, 

 Respondents. 

Petition for Review of a Final Order Issued by the 

Pipeline and Hazardous Materials Safety Administration 

Before ELROD, SOUTHWICK, and GRAVES, Circuit Judges. 

JENNIFER WALKER ELROD, Circuit Judge: 

 ExxonMobil Pipeline Company petitions for review of a Pipeline and 

Hazardous Materials Safety Administration order following the release of 

several thousand barrels of crude oil from a pipeline it owned and operated. 

ExxonMobil specifically challenges Items 1–4, 7, and 8 of the agency’s final 

order. We vacate Items 1–4 and 7 and affirm the agency with regard to Item 8 

but remand with an instruction to reevaluate the basis for the penalty 

associated with this violation. 

United States Court of Appeals

Fif h Circuit

FILED

August 14, 2017

Lyle W. Cayce

Clerk

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I. Background 

The 859-mile long Pegasus Pipeline transports crude oil from Patoka, 

Illinois to Nederland, Texas. In March 2013, the Pegasus Pipeline ruptured, 

spilling several thousand barrels of oil near Mayflower, Arkansas. The pipeline 

is owned and operated by ExxonMobil Pipeline Company. In the wake of the 

oil spill, the Pipeline and Hazardous Materials Safety Administration (the 

“agency”), an operating administration of the United States Department of 

Transportation, conducted an investigation. The agency ultimately issued a 

final order, concluding that ExxonMobil violated several pipeline safety 

regulations. The agency assessed a $2.6 million civil penalty and ordered 

ExxonMobil to take certain actions to ensure compliance with those 

regulations. 

A. Regulatory Framework 

The Pipeline Safety Act, 49 U.S.C. § 60101 et seq., gives the Secretary of 

Transportation regulatory and enforcement authority to take actions to protect 

the public against risks to life and property posed by pipeline transportation 

and pipeline facilities. The statute provides that the Secretary of 

Transportation “shall prescribe minimum safety standards for pipeline 

transportation and for pipeline facilities.” 49 U.S.C. § 60102(a)(2). Pursuant to 

this authority, the agency has promulgated regulations establishing minimum 

safety standards. See 49 C.F.R. pts. 190–199. 

The Pipeline Safety Act and the agency’s integrity management

regulations require each pipeline operator to create what is known as an

integrity management program (“IMP”) for all pipelines that could affect a high 

consequence area. High consequence areas include populated areas, areas that 

are unusually sensitive to environmental damage, or commercially navigable 

waterways. 49 C.F.R. § 195.452. A pipeline operator’s IMP is to be specific to 

its own pipeline systems. The purpose of developing an IMP is to assist the 

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operator in “address[ing] the risks on each segment” of its pipelines. Id.

§ 195.452(b)(1). 

An IMP must include a written plan to conduct periodic integrity 

assessments of each of the operator’s pipelines and to address any problematic 

conditions discovered by those assessments. Id. §§ 195.452(b)(3), (f)(2)–(5). The 

pipeline integrity regulations require operators to “establish an integrity 

assessment schedule that prioritizes pipeline segments for assessment.” Id.

§ 195.452(e)(1). This integrity assessment schedule is informed by the pipeline 

operator’s threat identification and risk assessment process. See id.

§§ 195.452(e), (j)(5). As part of this process, operators are tasked with 

evaluating numerous risk factors for each pipeline segment, including, inter 

alia, the results of the previous integrity assessment; pipe material, 

manufacturing, and seam type; and leak history. Id. § 195.452(e). The 

regulations state that the pipeline operator “must consider” these factors in 

establishing an assessment schedule. Id. § 195.452(e)(1). Based on the results 

of an operator’s risk assessment analysis, the operator must prioritize its 

pipeline segments for reassessment on five-year intervals. Id. § 195.452(j)(3). 

The pipeline integrity regulations also set forth the available methods 

by which the operator may conduct the periodic integrity assessments. The 

regulations list three assessment methods available to operators: (1) in-line 

inspections; (2) hydrostatic pressure testing;1 and (3) external corrosion direct 

assessment. Id. § 195.452(j)(5). An additional requirement may apply to 

pipelines constructed of a certain type of pipe known as pre-1970 low-frequency 

electric resistance welded steel (“LF-ERW”) pipe because this type of pipe is 

known to have a higher risk of seam failure than other types of pipe due to 

 

1 A hydrostatic test is performed by subjecting a pipeline to pressures that exceed its 

maximum operating pressure, thereby identifying the weakest segments of the pipeline.

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manufacturing defects. According to the regulations, if—and only if—the LFERW pipeline segment is shown to be “susceptible to longitudinal seam 

failure,” the methods an operator selects to assess that segment “must be 

capable of assessing seam integrity and of detecting corrosion and deformation 

anomalies.” Id. 

The pipeline integrity regulations are silent as to how operators must 

determine whether LF-ERW pipe is susceptible to longitudinal seam failure. 

However, in 2004, the agency commissioned and published a third-party 

report, referred to here as the Baker Report, which extensively discusses 

pipeline metallurgy. Section 4 of the Baker Report contains a methodology for 

determining seam-failure susceptibility. This methodology, illustrated by a 

decision tree, considers, inter alia, pipe and seam characteristics, in-service 

and hydrostatic test failures, the cause of those failures, and operating stress 

levels to determine whether a given segment of LF-ERW pipe is susceptible to 

seam failure. As outlined in the Baker Report decision tree and as testified to 

by Dr. John F. Kiefner, one of the authors of the Baker Report, “seam related 

in-service failures and/or hydrostatic test breaks or leaks by themselves do not 

indicate that a pipeline is susceptible to seam failure.” Rather, according to the 

decision tree and the Baker Report’s co-author, whenever a seam-related inservice failure or hydrostatic test failure occurs, these failures should be 

analyzed for two primary causes that would indicate susceptibility to seam 

failure: pressure-cycle induced fatigue and selective seam corrosion. 

In the event that a pipeline operator fails to comply with the federal 

Pipeline Safety Act or the integrity management regulations, the agency may 

issue compliance orders and assess civil administrative penalties after notice 

and a hearing. 49 U.S.C. §§ 60118(b), 60122. 

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B. ExxonMobil’s Application of the Regulations 

Under ExxonMobil’s IMP plan, its process for analyzing seam failure 

susceptibility of LF-ERW pipe is based on the methodology outlined in the 

Baker Report decision tree. ExxonMobil retained the services of Dr. Kiefner to 

assist it in applying the pipeline integrity regulations and the Baker Report’s 

guidance to its IMP plan. ExxonMobil has conducted a series of periodic 

integrity assessments on the Pegasus Pipeline, each time applying the 

framework provided by the Baker Report decision tree. Following each 

assessment, ExxonMobil concluded that the Pegasus Pipeline segment at issue 

in this case was not susceptible to longitudinal seam failure and therefore did 

not warrant prioritization over other pipeline segments for reassessment. 

ExxonMobil first evaluated the Pegasus Pipeline’s susceptibility to 

longitudinal seam failure in late 2004 through early 2005. Its evaluation took 

into account the pipeline’s manufacturing history, pipe materials, operating 

and maintenance history, leak history, as well as the results of prior pressure 

tests and integrity assessments. Hydrostatic tests performed in 1969 and 1991

revealed several seam failures and a minor in-service seam leak occurred in 

1984.2 However, despite these seam failures, ExxonMobil determined that the 

pipeline was not susceptible to seam failure because the past failures were not 

caused by either pressure-cycling induced fatigue or selective seam corrosion—

the two factors enumerated in the Baker Report decision tree. 

A year after the initial evaluation of the pipeline, ExxonMobil conducted 

a hydrostatic test for the Pegasus Pipeline. The test resulted in eleven seamrelated failures, and ExxonMobil replaced the failed joints and hired a thirdparty expert in metallurgy to conduct an analysis on why the joints failed. 

 

2 This minor leak is known as a “weep/pinhole leak” and it only released about two 

gallons of oil before it was repaired. 

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Because the analysis did not reveal evidence of either pressure-cycling induced 

fatigue or selective seam corrosion, ExxonMobil once again concluded that the 

LF-ERW pipe segments were not susceptible to longitudinal seam failure. 

In 2007, ExxonMobil again evaluated the Pegasus Pipeline’s 

susceptibility to longitudinal seam failure. ExxonMobil’s evaluation took into 

account the pipeline’s manufacturing history, pipe materials, operating and 

maintenance history, leak history, the results of prior pressure tests and 

integrity assessments, as well as the results of subsequent metallurgical 

analyses. Once again, applying the Baker Report decision tree, ExxonMobil 

concluded that the line was not susceptible to longitudinal seam failure. Two 

years later, ExxonMobil again evaluated the Pegasus Pipeline for 

susceptibility to seam failure and reached the same conclusion. 

ExxonMobil performed an in-line inspection in 2010 to assess the 

integrity of the Pegasus Pipeline with two in-line inspection tools it had 

deemed appropriate. The following year, ExxonMobil again reevaluated the 

pipeline’s longitudinal seam failure susceptibility determination, taking into 

account all of the same information as before in addition to the results of the 

2010 in-line inspection. Again, ExxonMobil concluded that the pipeline was not 

susceptible to longitudinal seam failure. 

In late 2012 through early 2013, ExxonMobil conducted another 

inspection of the Pegasus Pipeline with an in-line inspection tool known as a 

TFI seam/crack tool. It ran the tool through the section of line where the oil 

release would eventually occur shortly before the release. After the in-line 

inspection was complete and while the data from the inspection was being 

processed, the Mayflower oil spill occurred. Even though the third-party 

vendor processing the inspection results was aware that a seam failure had 

occurred, the vendor could not identify a defect at the point of rupture. 

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C. The Agency’s Findings

In the wake of the Mayflower release, the agency conducted an 

investigation and determined that the cause of the release was a 

manufacturing defect in the seam of the Pegasus Pipeline’s LF-ERW pipe. The 

agency concluded that ExxonMobil’s IMP plan had not properly accounted for 

the risk of longitudinal seam failure and that this was a contributing factor in 

the Mayflower release. The agency found that ExxonMobil’s determination 

that the pipeline was not susceptible to longitudinal seam failure was 

erroneous and that ExxonMobil failed to properly assess the pipeline’s 

integrity. The agency also concluded that ExxonMobil’s IMP plan was deficient

in a number of other respects. 

The agency’s final order stated that ExxonMobil violated section 

195.452(e)(1) “by failing to properly consider the susceptibility of its ERW pipe 

to seam failure when establishing a continual integrity assessment schedule 

based on all risk factors on the Pegasus Pipeline.” The agency found that 

ExxonMobil’s conclusion that the relevant portion of the pipeline was not 

susceptible to seam failure was “flawed” “[g]iven the history of seam-related 

failures both in-service and during pressure testing of the pipeline.” 

Specifically, the agency rejected ExxonMobil’s position that the Baker Report 

permitted it to conclude that its pipe was not susceptible to seam failure 

because the prior seam failures did not exhibit evidence of fatigue or 

preferential seam corrosion. The agency reasoned that the pipeline’s past seam

failures—including eleven seam failures during the 2005–2006 hydrostatic 

test—“strongly suggested the ERW pipe was susceptible to seam failure” and 

ExxonMobil’s conclusion to the contrary was unreasonable. 

The agency ultimately cited ExxonMobil for nine separate violations of 

the regulatory requirements. According to the agency’s final order, violations 

1 and 4 are based on § 195.452(e)(1), which requires operators to “consider” 

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pipeline risk factors, including seam type and manufacturing information, 

among other factors. Violation 2 is based on subsection (j)(3), which requires 

an operator to schedule continual assessments of susceptible pipelines at fiveyear intervals. Violations 3, 7, 8, and 9 are based on subsection (b)(5), which 

requires operators to establish and implement an integrity management 

program. Violation 5 is based on subsection (h)(1), which requires operators to 

take prompt action to address conditions discovered through an integrity 

assessment. Finally, violation 6 is based on subsection (h)(2), which requires 

operators to promptly discover a condition within 180 days of an integrity 

assessment. The agency assessed a civil penalty in the amount of $2,630,400. 

The agency also issued a compliance order in which it directed ExxonMobil to 

take a number of actions to abide by the pipeline integrity regulations. 

Now on appeal, ExxonMobil challenges Items 1–4, 7, and 8 of the 

agency’s final order. ExxonMobil does not challenge the violations cited in 

Items 5, 6, or 9. 

II. Standard of Review 

The standard of review we apply to the agency’s final order is prescribed 

by the Administrative Procedure Act, 5 U.S.C. § 706. See 49 U.S.C. § 

60119(a)(3). Under the APA, we uphold an agency’s actions, findings, and 

conclusions unless we determine them to be “arbitrary, capricious, an abuse of 

discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A); see 

also Allred’s Produce v. U.S. Dep’t of Agric., 178 F.3d 743, 746 (5th Cir. 1999).

“Arbitrary and capricious review focuses on whether an agency articulated a 

rational connection between the facts found and the decision made.” Pension 

Benefit Guar. Corp. v. Wilson N. Jones Mem’l Hosp., 374 F.3d 362, 366 (5th Cir. 

2004). “We must disregard any post hoc rationalizations of the [agency’s] action 

and evaluate it solely on the basis of the agency’s stated rationale at the time 

of its decision.” Luminant Generation Co., L.L.C. v. E.P.A., 675 F.3d 917, 925 

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(5th Cir. 2012). The party challenging the agency’s action bears the burden of 

establishing that the agency’s determination was arbitrary and capricious. La. 

Pub. Serv. Comm’n v. FERC, 761 F.3d 540, 558 (5th Cir. 2014). 

III. Items 1–4 and 7 

We first address whether the agency’s interpretation of the pipeline 

integrity regulations should be afforded Auer deference. Because the 

regulations are unambiguous, we conclude that Auer deference is 

inappropriate. We next address whether the agency acted in an arbitrary and 

capricious manner when it found ExxonMobil to be in violation of the 

regulations under Items 1–4 and 7 of the final order. Because the regulations 

unambiguously instruct pipeline operators to “consider” certain risk factors, 

and because the evidence demonstrates that ExxonMobil did carefully consider 

those factors, we conclude that the agency’s decisions pertaining to Items 1–4 

and 7 of its final order were arbitrary and capricious. 

A.

The central issue before us is what is required of pipeline operators by 

the term “consider” within the context of § 195.452(e)(1) of the pipeline 

integrity management regulations.3 As noted, § 195.452(e)(1) of the regulations 

requires pipeline operators to 

establish an integrity assessment schedule that prioritizes 

pipeline segments for assessment . . . . An operator must base the 

 

3 Both parties agree that this is the central issue on appeal. Both parties also agree 

that the violations cited in Items 1, 2, and 3 of the final order are premised on the agency’s 

finding that ExxonMobil did not properly consider the risk factors as directed by 

§ 195.452(e)(1). The parties disagree, however, as to whether Items 4, 7, and 8 rise and fall 

with our conclusion regarding § 195.452(e)(1). We conclude that Items 4 and 7 rise and fall 

based on our interpretation of § 195.452(e)(1) while Item 8 does not. 

Notably, in explaining its basis for Items 4 and 7, the agency’s final order explicitly 

relies on Item 1—failing to properly consider all risk factors under § 195.452(e)(1) to 

determine seam failure susceptibility. In other words, the basis for Items 4 and 7 would be 

undermined if we were to find that ExxonMobil did not violate § 195.452(e)(1) and vacate 

Item 1. Therefore, we conclude that Items 1–4 and 7 are all premised on whether ExxonMobil 

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assessment schedule on all risk factors that reflect the risk 

conditions on the pipeline segment. The factors an operator must 

consider include, but are not limited to: 

(i) Results of the previous integrity assessment, defect 

type and size that the assessment method can detect, and defect 

growth rate; 

(ii) Pipe size, material, manufacturing information, 

coating type and condition, and seam type; 

(iii) Leak history, repair history and cathodic protection 

history . . . . 

49 C.F.R. § 195.452(e)(1). If, after considering these risk factors, a pipeline 

operator determines that a pipeline segment constructed of LF-ERW pipe is 

susceptible to longitudinal seam failure, the operator must conduct the 

integrity assessment with a method “capable of assessing seam integrity and 

of detecting corrosion and deformation anomalies.” Id. § 195.452(j)(5).

ExxonMobil argues that § 195.452(e)(1) is a process-based regulation 

that requires a pipeline operator to consider factors but does not compel the 

operator to reach a specific outcome. ExxonMobil contends that it considered 

all pipeline risk factors under § 195.452(e)(1) and it determined—on four 

separate occasions—that the Pegasus Pipeline’s LF-ERW pipe segments were 

not susceptible to longitudinal seam failure. Under its interpretation of 

§ 195.452(e)(1), the agency argues that given the history of seam failures to the 

LF-ERW pipe, it was unreasonable for ExxonMobil to consider the above 

factors and conclude that the pipeline was not susceptible to longitudinal seam 

 

properly “considered” the relevant risk factors under § 195.452(e)(1) in determining that the 

pipeline was not susceptible to longitudinal seam failure. 

We conclude that Item 8, however, is not premised on the agency’s finding that 

ExxonMobil did not properly consider risk factors as directed by § 195.452(e), but rather is 

supported by an independent basis, as we discuss below. Our conclusion is consistent with 

the position ExxonMobil took in its post-hearing briefing before the agency. Even though 

ExxonMobil argued before the agency that Items 1–4 and 7 were a related series of violations 

because they all relied on the same assertion by the agency that ExxonMobil failed to consider 

the Pegasus Pipeline to be susceptible to seam failure, ExxonMobil did not contend that Item 

8 was based on this assertion. 

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failure. The agency contends that its interpretation of § 195.452(e)(1) is 

entitled to deference under Auer v. Robbins, 519 U.S. 452 (1997). 

We will generally grant Auer deference to an agency’s interpretation of 

its own ambiguous regulation. Delek Refining, Ltd. v. OSHRC, 845 F.3d 170, 

175 (5th Cir. 2016) (“[W]e will defer to an agency’s reasonable interpretation 

of its own regulations when the text of the regulation is ambiguous.”); see also

Auer, 519 U.S. at 461. “In situations in which the meaning of regulatory 

language is not free from doubt, the reviewing court should give effect to the 

agency’s interpretation so long as it is reasonable,” and it “sensibly conforms 

to the purpose and wording of the regulations.” Martin v. OSHRC, 499 U.S. 

144, 150–51 (1991) (alterations and internal quotation marks omitted). 

However, Auer deference does not apply if the petitioner “lacked fair notice” of 

the agency’s interpretation of the regulation that the agency is advancing in 

the enforcement action. Employer Sols. Staffing Grp. II, L.L.C. v. Office of Chief 

Admin. Hearing Officer, 833 F.3d 480, 487–88 (5th Cir. 2016); see also

Diamond Roofing Co., Inc. v. OSHRC, 528 F.2d 645, 649 (5th Cir. 1976); 

Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 155 (2012). If the 

regulation is unambiguous, we will not defer to the agency’s interpretation. 

Christensen v. Harris Country, 529 U.S. 576, 588 (2000); see also Moore v. 

Hannon Food Serv., Inc., 317 F.3d 489, 495–96 (5th Cir. 2003). 

Therefore, to determine whether the agency’s interpretation of the term 

“consider” in the regulations is entitled to deference, we must first determine 

whether § 195.452(e)(1) is ambiguous. “We interpret regulations in the same 

manner as statutes, looking first to the regulation’s plain language.” Anthony 

v. United States, 520 F.3d 374, 380 (5th Cir. 2008). Where the language of the 

regulations is unambiguous, we do not look beyond the plain wording of the 

regulation to determine its meaning. Copeland v. C.I.R., 290 F.3d 326, 332–33 

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(5th Cir. 2002). We hold that § 195.452(e)(1) is textually unambiguous and 

therefore no Auer deference is warranted to the agency’s interpretation. 

Section 195.452(e)(1) plainly instructs pipeline operators that they “must 

consider” “all risk factors that reflect the risk conditions on the pipeline 

segment.” 49 C.F.R. § 195.452(e)(1). The Oxford English Dictionary defines 

“consider” as follows: “to contemplate mentally, fix the mind upon; to think 

over, meditate or reflect on, bestow attentive thought upon, give heed to, take 

note of.” Consider, Oxford English Dictionary (online edition). The MerriamWebster’s Collegiate Dictionary similarly defines consider as “to think about 

carefully.” Consider, Merriam-Webster’s Collegiate Dictionary (Deluxe ed. 

1998). 

The regulation’s requirement to consider certain factors unambiguously 

requires pipeline operators to carefully undergo an informed decision-making 

process in good faith, reasonably taking into account all relevant risk factors 

in reaching a decision. Contrary to the agency’s assertion, the term “consider” 

does not compel a certain outcome, but rather it serves to inform the pipeline 

operator’s careful decision-making process. See J.H. Miles & Co., Inc. v. Brown, 

910 F. Supp. 1138, 1156 (E.D. Va. 1995) (explaining that a federal regulation 

requiring federal fishing officials to “consider” various statutory factors in 

setting fishing quota recommendations was not a “strict dictate,” but rather 

officials had “some discretion” in preparing their recommendation); see also 

Cent. Valley Chrysler-Jeep v. Witherspoon, 456 F. Supp. 2d 1160, 1173 (E.D. 

Cal. 2006) (“Congress’s use of the term ‘consider’ in a statute requires an actor 

to merely ‘investigate and analyze’ the specified factor, but not necessarily act 

upon it.”). 

 Because we conclude that § 195.452(e)(1)’s instruction to “consider” all 

relevant risk factors unambiguously serves to inform a pipeline operator’s 

careful and deliberate decision-making process rather than to compel a 

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particular outcome, the agency’s interpretation of the regulation does not 

warrant Auer deference. See Exelon Wind 1, L.L.C. v. Nelson, 766 F.3d 380, 

399 (5th Cir. 2014) (“[A]n agency is not entitled to deference when it offers up 

an interpretation of the Regulation that we have already said to be 

unambiguously foreclosed by the regulatory text.”); Christensen, 529 U.S. at 

588 (“Auer deference is warranted only when the language of the regulation is 

ambiguous.”). 

B.

Owing no deference to the agency’s interpretation of the regulation, we 

next address whether ExxonMobil reasonably applied § 195.452(e)(1)’s 

instruction to “consider” all relevant risk factors in making its pipeline 

susceptibility determination.4 As discussed, the pipeline integrity regulations 

plainly instruct pipeline operators that they “must consider” “all risk factors 

that reflect the risk conditions on the pipeline segment” in creating an 

assessment schedule. 49 C.F.R. § 195.452(e)(1). By its plain text, this is a 

process-based requirement that directs pipeline operators to carefully take into 

 

4 Ordinarily, even if a regulation is unambiguous such that Auer deference does not 

apply, the agency’s rulings, interpretations, and opinions may still be “entitled to respect” 

under Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944), “but only to the extent that those 

interpretations have the power to persuade.” Moore v. Hannon Food Serv., Inc., 317 F.3d 489, 

497 (5th Cir. 2003); see also Belt v. EmCare, Inc., 444 F.3d 403, 408 (5th Cir. 2006) (“If the 

regulation is unambiguous, we may still consider agency interpretation, but only according 

to its persuasive power.”). We have noted, however, that “[u]ltimately, Skidmore analysis is 

of limited value in interpreting regulations, given that it stops short of requiring deference 

and is likely to be invoked only when a court has already found the regulation to be 

unambiguous.” Moore, 317 F.3d at 498 n.14; cf. United States v. Mead Corp., 533 U.S. 218, 

250 (2001) (Scalia, J., dissenting) (“[T]he rule of Skidmore deference is an empty truism and 

a trifling statement of the obvious: A judge should take into account the well-considered views 

of expert observers.”). Here, the agency argues only that we should apply Auer deference to 

its interpretation of the pipeline integrity regulations; it does not offer any alternative 

argument as to Skidmore deference. When pressed at oral argument as to where we could 

find the agency’s interpretation of the regulations to which the agency argues we should 

defer, the agency could not point us to a particular interpretation. Therefore, we need not 

apply Skidmore deference to the agency’s interpretation of the regulation—whatever that 

interpretation might be. 

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account all relevant risk factors when reaching a decision. The regulations do 

not mandate a particular outcome, but rather prescribe a decision-making 

process that pipeline operators must undergo in good faith. The record 

demonstrates that ExxonMobil satisfied its obligation to “consider” various 

risk factors when it conducted a lengthy, repeated, and in-depth analysis of 

those risk factors by utilizing the available industry-commissioned guidance of 

the Baker Report decision tree. We therefore ultimately conclude that 

ExxonMobil’s actions were reasonable and that the agency’s decisions 

pertaining to Items 1–4 and 7 of its final order were arbitrary and capricious. 

Contrary to the agency’s assertion, nothing in the regulations compels 

an operator to conclude that a pipeline constructed of LF-ERW pipe is 

susceptible to longitudinal seam failure when the pipeline has experienced 

seam failures. If the agency wished to enforce outcome-based requirements 

instead of the process-based requirements that are currently in place with 

regards to seam failure susceptibility, the agency could have promulgated 

regulations to that effect. For example, the regulations could have prescribed 

that all LF-ERW pipelines are susceptible to seam failure. Alternatively, the 

regulations could have prescribed that any LF-ERW pipeline that experiences 

a seam failure during testing or while in service must be deemed seam-failure 

susceptible. But the process-based regulations currently in place only require 

that the pipeline operator “consider” various risk factors in making its risk 

assessment determination, and they ultimately leave it up to the pipeline 

operator to make the decision on seam failure susceptibility.5

 

5 Section 195.303(d) of the pipeline safety regulations states that “[a]ll pre-1970 ERW 

pipe . . . is deemed susceptible to longitudinal seam failures unless an engineering analysis 

shows otherwise.” 49 C.F.R. § 195.303(d). This regulation was issued in 1998 in a subpart of 

the pipeline safety regulations entitled “Pressure Testing” and is distinct from and was 

promulgated prior to the pipeline integrity regulations at issue here. Section 195.303(d) 

required operators to conduct a one-time hydrostatic pressure test of certain categories of 

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In its final order, the agency found that ExxonMobil violated § 195.452(e) 

because ExxonMobil allegedly “failed to properly consider the history of seamrelated failures and low toughness of the seam.” While the agency suggests 

that ExxonMobil simply ignored past seam failures, this is contradicted by the 

evidence. The record clearly demonstrates that ExxonMobil carefully 

considered the past seam failures. Indeed, even the agency’s final order itself 

acknowledges the various steps ExxonMobil took in considering the pipeline’s 

past seam-related failures: 

The failures were analyzed for evidence of pressure cycling 

induced fatigue and preferential seam corrosion, but neither 

condition was detected. [ExxonMobil] attributed the failures to 

mill defects and a lower test temperature, which the Company 

believed caused the seams to be more brittle. Due to the absence 

of pressure cycling induced fatigue and preferential seam 

corrosion, [ExxonMobil] concluded the ERW pipe was not 

susceptible to seam failure. 

Following each seam failure the Pegasus Pipeline experienced, including 

the seam failures that resulted from the 2005–2006 hydrostatic test, 

ExxonMobil applied the analysis set forth in the Baker Report decision tree to 

determine whether the pipeline’s LF-ERW pipe was susceptible to seam 

failure. Applying the Baker Report decision tree was in accordance with the 

 

pipelines and allowed operators to elect by December 1998 if they wanted to use risk-based 

criteria rather than a hydrostatic test. That one-time election was unavailable for pre-1970 

LF-ERW pipe. Section 195.303(d) did not have any further applicability after the December 

1998 deadline. When the agency promulgated the pipeline integrity regulations at issue in 

this case, it did not create a similar rebuttable presumption regarding pre-1970 LF-ERW 

pipe. In its Final Order and Decision on Petition for Reconsideration, the agency specifically 

cites to § 195.303(d) as support for the position that there is a presumption that all LF-ERW 

pipe is susceptible to longitudinal seam failure. This presumption is plainly inaccurate 

because § 195.303(d) is obsolete and is therefore not relevant here. The agency appears to 

have abandoned this position on appeal, contending that it did not apply a presumption of 

susceptibility for pre-1970 ERW pipe based on § 195.303(d). In any event, we conclude that 

the agency cannot base any part of its finding on the now-obsolete § 195.303(d) and that 

§ 195.303(d) did not provide ExxonMobil with fair notice that it was compelled to deem its 

LF-ERW pipe as susceptible to longitudinal seam failure. 

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regulations, which while silent as to how operators are to determine seam 

failure susceptibility, instruct operators to “[f]ollow recognized industry 

practices.” 49 C.F.R. § 195.452(b)(6). The Baker Report certainly reflects 

“recognized industry practices.” Not only did the agency publish the Baker 

Report to its website and incorporate it into its enforcement manual, it has also 

relied on the Baker Report in prior enforcement decisions.6

To ensure that it was correctly applying the Baker Report and the 

decision tree, ExxonMobil retained the services of Dr. Kiefner, the Baker 

Report’s co-author who largely developed the methodology that the decision 

tree represents. Because the pipeline did not reveal evidence of the two factors 

enumerated in the decision tree as indicating susceptibility to seam failure—

namely, pressure-cycling induced fatigue or preferential seam corrosion—

ExxonMobil concluded the pipeline was not susceptible to seam failure.7 After 

determining that the pipeline was not susceptible to longitudinal seam failure, 

ExxonMobil then considered these results, the pipeline’s seam type, and 

history in developing its integrity reassessment schedules under 

§ 195.452(e)(1). Undergoing this deliberate, considered process is precisely 

what § 195.452(e) requires. 

 

6 In one prior enforcement action, another company argued that there was a lack of 

industry guidance for how to determine the susceptibility of LF-ERW pipe to seam failures. 

In re Kinder Morgan Energy Partners, CPF No. 1-2004-5004 (June 26, 2006), at 3. The agency 

responded that the methodology embodied in the Baker Report is an example of an acceptable 

means of performing a seam failure susceptibility analysis that is available to the industry. 

Id.

7 Dr. Kiefner, after reviewing ExxonMobil’s inspection and evaluation activities and 

data, testified that ExxonMobil “correctly followed the guidance described in the Baker 

Report. This [analysis] would not have resulted in a finding that the failed segment was 

‘susceptible to seam failure in the context of Part 195 IMP regulations.’” Notably, the agency 

itself acknowledges that “[t]he evidence supports [ExxonMobil’s] assertion that prior seam 

failures did not exhibit evidence of fatigue.” 

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The agency heavily criticizes ExxonMobil’s reliance on the analysis 

embodied by the Baker Report decision tree. The agency found ExxonMobil to 

be in violation of the regulations because it determined that it was 

inappropriate for ExxonMobil to rely on the decision tree to justify ignoring 

seam failures exposed during testing. The agency contends that the decision 

tree’s methodology is inaccurate because it does not address the pipe’s 

“toughness.” The agency claims that brittle pipe, or pipe with low toughness, 

will not exhibit the same evidence of fatigue cracking, which is the end point 

of the decision tree. Therefore, the agency found, ExxonMobil failed to consider 

“that the absence of fatigue was a result of the low toughness of the pipe.” 

We are unpersuaded by the agency’s criticism of ExxonMobil’s 

application of the process set forth in the Baker Report decision tree and the 

agency’s interpretation of the Baker Report. Notably, the Baker Report itself 

specifically directs operators to rely on and apply the decision tree in reaching 

a seam failure susceptibility determination. Under the heading 

“Determination of Susceptibility,” the Baker Report states that 

[t]he means of determining whether or not the seam of a particular 

pipeline is susceptible to failure are illustrated in [the decision 

tree]. . . . [The decision tree] allows one, by supplying appropriate 

data on a given segment, to determine if a seam-integrity 

assessment is required based on the federal pipeline integrity 

management regulations. 

The Baker Report unequivocally directs pipeline operators to apply the 

decision tree, explaining that it is “[t]he means of determining whether or not 

the seam of particular pipeline is susceptible to seam failure.” To discredit the 

decision tree’s methodology, the agency relies on language found elsewhere in 

the Baker Report that states that “[i]f a seam-related in-service or hydrostatic 

test failure has occurred on the segment, the segment is considered 

susceptible.” However, this argument is unavailing. Notably, yet another 

passage in the Baker Report states that “[i]f no fatigue-related failures exist, 

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it is reasonable to certify that the pipeline is not susceptible to seam failures 

in the context of the federal integrity management requirements.” We are not 

sure what we—or more importantly, pipeline operators—are to make of this 

conflicting guidance. This causes us to place even more emphasis on the Baker 

Report’s clear pronouncement that the decision tree is the means of 

determining seam failure susceptibility. 

In sum, the record demonstrates that ExxonMobil met its obligation 

under § 195.452(e)(1)’s instruction to “consider” various risk factors. 

ExxonMobil concluded that the Pegasus Pipeline was not susceptible to seam 

failure only after lengthy, repeated, and in-depth consideration of seam failure 

risk factors and after utilizing the available industry-commissioned guidance 

of the Baker Report decision tree with the assistance of Dr. Kiefner—a national 

expert in LF-ERW pipe who co-authored the Baker Report. ExxonMobil’s 

application of the decision tree was in accordance with the guidance of the 

Baker Report itself. This purposeful, deliberate decision-making process is 

precisely what § 195.452(e)(1) requires. The agency’s finding that ExxonMobil 

did not “properly consider”8 all of the relevant factors simply because 

ExxonMobil reached a different determination from the one the agency now, in 

hindsight, proclaims ExxonMobil should have reached is contradicted by the 

record and is therefore arbitrary and capricious. Pension Benefit Guar. Corp., 

 

8 The agency has recognized that pipeline operators have wide latitude in how they 

will weigh various risk factors in determining how to prioritize pipeline segments for 

assessment. See In re Magellan Midstream Partners, L.P., CPF No. 4-2006-5020, at *7 

(“Section 195.452(e)(1) lists nine factors that must be considered in establishing a schedule 

but leaves it up to the operator to determine what other factors need to be considered, how to 

assign risk scores to each factor and pipe segment, and how to prioritize assessments.”) 

(emphasis added). Therefore, to say that ExxonMobil did not “properly consider” the 

appropriate risk factors begs the question of what would constitute proper consideration. To 

the extent the agency contends that proper consideration mandates a particular outcome, 

this is not supported by the text of the regulation nor the industry guidance of the Baker 

Report. 

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374 F.3d at 366 (“Arbitrary and capricious review focuses on whether an 

agency articulated a rational connection between the facts found and the 

decision made.”). 

The fact that the Mayflower release occurred, while regrettable, does not 

necessarily mean that ExxonMobil failed to abide by the pipeline integrity 

regulations in considering the appropriate risk factors. If it did, then an 

operator that experiences a seam-related pipeline leak on its pipeline system 

could never escape liability under pipeline integrity regulations, thus 

nullifying the regulations and creating a strict-liability regime that Congress 

has not authorized. See generally 49 U.S.C. § 60101 et seq. The unfortunate 

fact of the matter is that, despite adherence to safety guidelines and 

regulations, oil spills still do occur. 

Because we conclude that ExxonMobil properly considered the 

susceptibility of its LF-ERW pipe to seam failure when establishing a continual 

integrity assessment schedule based on all risk factors on the Pegasus 

Pipeline, as required by the plain language of § 195.452(e)(1), we vacate Item 

1 of the agency’s final order. Because Items 2–4 and 7 are premised on the 

finding that ExxonMobil violated § 195.452(e)(1), we also vacate those Items. 

C. 

Even assuming arguendo that we were to determine that the regulations 

governing seam failure susceptibility are ambiguous, the agency’s 

interpretation would still fall short of warranting Auer deference for the 

additional and independent reason that ExxonMobil lacked fair notice of the 

interpretation of the regulation that the agency advances in this enforcement 

action. See Employer Sols., 833 F.3d at 487–89 (holding that “despite the 

degree of deference potentially owed” to the agency, Auer deference was 

inappropriate where the petitioner “lacked fair notice” of the agency’s 

interpretation of its regulation). 

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We have warned that fair notice requires the agency to have “state[d] 

with ascertainable certainty what is meant by the standards [it] has 

promulgated.” Diamond Roofing Co., 528 F.2d at 649. This rule requires that 

agency regulations that “allow monetary penalties against those who violate 

them . . . must give [a party] fair warning of the conduct it prohibits or requires, 

and it must provide a reasonably clear standard of culpability to circumscribe 

the discretion of the enforcing authority and its agents.” Id. (cited by 

Christopher, 567 U.S. at 156 n.15). The Supreme Court has noted that “[i]n 

penalty cases, courts will not accord substantial deference to an agency’s 

interpretation of an ambiguous rule in circumstances where the rule did not 

place the individual or firm on notice that the conduct at issue constituted a 

violation of a rule.” Christopher, 567 U.S. at 156 n.15 (quoting 1 R. Pierce 

Administrative Law Treatise § 6.11, at 543 (5th ed. 2010)); see also Employer 

Sols., 833 F.3d at 488 (“The challenged statute or agency action must ‘give the 

person of ordinary intelligence a reasonable opportunity to know what is 

prohibited, so that he may act accordingly.’”) (quoting Grayned v. City of 

Rockford, 408 U.S. 104, 108 (1972)). “In the absence of notice—for example, 

where the regulation is not sufficiently clear to warn a party about what is 

expected of it—an agency may not deprive a party of property by imposing civil 

or criminal liability.” General Elec. Co. v. E.P.A., 53 F.3d 1324, 1328–29 (D.C. 

Cir. 1995). 

Under this analysis, the relevant inquiry is whether the agency’s 

interpretation of the pipeline integrity regulations could have been understood 

with “ascertainable certainty” by ExxonMobil at the time it engaged in the 

conduct that allegedly exposed it to this enforcement action. Diamond Roofing

Co., 528 F.2d at 649. As explained by the D.C. Circuit, 

we must ask whether the regulated party received, or should have 

received, notice of the agency’s interpretation in the most obvious 

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way of all: by reading the regulations. If, by reviewing the 

regulations and other public statements issued by the agency, a 

regulated party acting in good faith would be able to identify, with 

“ascertainable certainty,” the standards with which the agency 

expects parties to conform, then the agency has fairly notified a 

petitioner of the agency’s interpretation. 

General Elec. Co., 53 F.3d at 1329 (citing Diamond Roofing Co., 528 F.2d at 

649). As explained above, the pipeline integrity regulations themselves did not 

provide ExxonMobil notice that the pipeline’s leak history compelled it to label 

the LF-ERW pipe susceptible to longitudinal seam failure. In fact, references 

to susceptibility to longitudinal seam failure are surprisingly scarce within the 

text of § 195.452. Section 195.452(j)(5) requires operators to select an 

assessment method capable of assessing seam integrity only if the LF-ERW 

pipe segments are determined to be susceptible to longitudinal seam failure. 

Critically, however, the regulations are silent as to how operators are to make 

that determination. Even if this silence creates an ambiguity in the 

regulations, as the agency asserts, it does not provide ExxonMobil with fair 

notice that an operator is compelled to deem a pipeline as susceptible to seam 

failure just because the pipeline is constructed with LF-ERW pipe and has 

experienced leaks. 

Because the regulations themselves are silent as to how operators are to 

determine seam failure susceptibility, operators are forced to find an extraregulatory method to make this determination. ExxonMobil turned to the 

Baker Report. Given the agency’s numerous endorsements of the Baker Report 

methodology, ExxonMobil was entirely justified to rely in good faith on the 

Baker Report to conduct its seam failure susceptibility analysis. Indeed, to hold 

otherwise in this enforcement action would constitute unfair surprise and 

deprive ExxonMobil of the fair notice to which it is entitled. See Diamond 

Roofing Co., 528 F.2d at 649.

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The agency’s criticism of ExxonMobil’s reliance on the Baker Report 

decision tree amounts to a post hoc litigation-derived seam-susceptibility 

standard that deprives ExxonMobil of fair notice. The agency has failed to 

point to any instance where it has indicated to the industry generally or 

ExxonMobil specifically that it is inappropriate for a pipeline operator to rely 

on the Baker Report decision tree. The agency claims that another section of 

the Baker Report provided ExxonMobil with notice that a pipeline with a 

history of seam failures should have been deemed susceptible. As noted, this 

section states that “[i]f a seam-related in-service or hydrostatic test failure has 

occurred on the segment, the segment is considered susceptible.” While this 

sentence may contradict the methodology outlined in the decision tree, we are 

ultimately persuaded that ExxonMobil was justified to rely on the decision 

tree. The Baker Report explicitly states that the decision tree is “[t]he means” 

of determining seam failure susceptibility. The importance of the word “the” 

cannot be overstated. Even though there might be a conflict between the 

decision tree and other portions of the Baker Report, ExxonMobil was still 

justified in adhering to the decision tree as the means of determining whether 

its pipes were susceptible to seam failure.9

Simply put, ExxonMobil lacked any notice that the agency had a specific 

interpretation of the regulations that departed in any way from the Baker 

Report decision tree, let alone notice that they could be subject to an 

 

9 As to the agency’s contention that applying the decision tree is inappropriate because 

it allegedly does not address the toughness of the pipe, the Baker Report notes that all LFERW pipe “possess bondline regions that are prone to low toughness and brittle-fracture 

behavior.” Because all LF-ERW pipe is prone to low toughness and brittle cracking, those 

factors are presumably built into the process for analyzing seam-failure susceptibility 

represented by the decision tree. To the extent that the agency believes that this is not the 

case, the agency must “state with ascertainable certainty,” before an enforcement action, that 

applying the decision tree is inappropriate for this reason. Diamond Roofing Co., 528 F.2d at 

649.

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enforcement action for strictly adhering to the decision tree. In the absence of 

some agency instruction provided to the industry that the decision tree is no 

longer the means for determining seam failure susceptibility, we must conclude 

the agency’s rejection of ExxonMobil’s use of the decision tree’s methodology 

violates the principles of fair notice to which ExxonMobil is entitled. 

Christopher, 567 U.S. at 156 (holding that Auer deference is “unwarranted” 

where to hold otherwise “would seriously undermine the principle that 

agencies should provide regulated parties ‘fair warning of the conduct [a 

regulation] prohibits or requires’”). Thus, even if we were to determine that the 

regulations are ambiguous as to the precise methodology a pipeline operator is 

to use to determine whether pipe is susceptible to seam failure, ExxonMobil 

lacked fair notice, which alters the deference owed to the agency. Employer 

Sols., 833 F.3d at 490. The agency’s new interpretation of the Baker Report 

decision tree “does not flow clearly from any authority in existence prior to this 

action. Thus, Auer . . . [is] inapplicable.” Id.10

In sum, the agency’s interpretation of the pipeline integrity regulations 

does not warrant Auer deference because ExxonMobil lacked fair notice of the 

interpretation the agency now seeks to enforce in this action. Because the 

agency’s interpretation is not entitled to Auer deference and because

ExxonMobil reasonably complied with the guidance found in the Baker Report

decision tree, we conclude that the agency acted in an arbitrary and capricious 

manner when it found that ExxonMobil violated § 195.452(e)(1). Therefore, we 

 

10 If the agency now believes there is a proper methodology to determine seam failure 

susceptibility, it would be entirely appropriate for the agency to promulgate a new regulation 

to that end moving forward, following notice and comment from all concerned parties. 

However, the pipeline integrity regulations as currently constituted only broadly instruct 

pipeline operators to examine whether pipe is susceptible to seam failure and then to factor 

that consideration into its overall § 195.452(e)(1) risk evaluation.

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vacate Items 1–4 and 7 of the agency’s final order on this alternate and 

additional ground.11

IV. Item 8

In addition to challenging Items 1–4 and 7 of the agency’s final order, 

ExxonMobil also challenges Item 8. Under Item 8, the agency found that 

ExxonMobil had violated § 195.452(b)(5), which requires a pipeline operator to 

develop and follow a written integrity management program. 49 C.F.R. 

§ 195.452(b)(5). Because Item 8 is not based on the same grounds as the other 

challenged violations, and because ExxonMobil has not articulated how the 

agency acted in an arbitrary or capricious manner in finding that ExxonMobil 

had violated § 195.452(b)(5) under Item 8, we affirm the agency’s finding with 

respect to this violation. 

Under Item 8 of its final order, the agency explained that ExxonMobil’s 

written IMP plan provides for the use of the Threat Identification and Risk 

Assessment (“TIARA”) program in the risk management process. This program 

requires ExxonMobil to manually enter information in response to certain 

questions. One of the questions posed to ExxonMobil was: “Has a ILI crack tool 

(TFI or UT) been successfully run and have the appropriate repairs been 

scheduled?” In 2011, ExxonMobil answered “yes” to this question even though 

no such tool had been run.12 ExxonMobil explained in the administrative 

hearing that the decision to answer “yes” was based on a belief that it would 

perform a TFI tool assessment in the near future. The tool run, however was 

delayed approximately two years. Despite this delay, ExxonMobil never 

revisited its answer to the question. 

 

11 “This circuit follows the rule that alternative holdings are binding precedent and 

not obiter dictum.” United States v. Potts, 644 F.3d 233, 237 n. 3 (5th Cir. 2011). 12 ExxonMobil does not cite to or contest any of these facts in its brief. 

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In its Final Order, the agency found that 

[b]y answering this question in the affirmative, [ExxonMobil] 

misrepresented the current status of integrity verification on the 

pipeline. The answer did not accurately reflect the fact that the 

tool had not been run and no repairs had been scheduled. The issue 

was then compounded when the tool run became delayed for two 

years. As a result, [ExxonMobil] failed to adhere to the procedures 

as written. 

Ultimately, the agency concluded that ExxonMobil violated § 195.452(b)(5) “by 

failing to follow its written procedures for the TIARA program by incorrectly 

indicating that a TFI tool run had been performed and then failing to correct 

it when the tool run was delayed.” 

 ExxonMobil claims in only the most general terms that Item 8 of the 

agency’s final order should be vacated along with the other challenged 

violations. However, ExxonMobil does not directly address its basis for this 

argument. Unlike Items 4 and 7, in which the agency expressly relies on Item 

1 in finding that ExxonMobil committed a violation, it is not apparent how 

Item 8 relates to the other contested violations, most importantly those 

pertaining to § 195.452(e)(1). We therefore conclude that ExxonMobil has

forfeited its challenge to Item 8.13 See United States v. Scroggins, 599 F.3d 433, 

446–47 (5th Cir. 2010) (holding that an argument is not adequately presented 

on appeal by a party that fails to identify the relevant legal standards or 

authority to support its argument). 

Even if we were to liberally construe ExxonMobil’s argument, its 

argument is unpersuasive. ExxonMobil appears to argue that even though it 

misrepresented that it had run an ILI tool assessment which resulted in the 

 

13 Notably, in its brief, ExxonMobil appears to concede that Item 8 is not premised on 

Item 1 like the other challenged violations are, stating that “[the agency] has alleged one 

regulatory violation, namely Violation 1 for alleged failure to ‘consider’ certain risk 

information and conclude that the Pegasus Pipeline was susceptible to seam failure. [The 

agency] then expanded it to four additional violations (Nos. 2-4 and 7).”

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TIARA program indicating that there were no identified threats to the 

pipeline, it went above and beyond what it was required to do and ran a stateof-the-art ILI seam/crack tool anyway in 2012–2013, which did not detect any 

defects in the pipeline. Therefore, ExxonMobil argues, even if it had accurately 

answered the question and was required to run an ILI tool as a result of its 

answer, the ILI tool run would not have detected any defects in the pipeline so 

it should not be found to have been in violation of the regulations. However, 

the agency found ExxonMobil to be in violation of § 195.452(b)(5) under Item 8 

primarily because ExxonMobil did not follow its written IMP plan when it 

failed to accurately use the TIARA program in the risk management process, 

not just because ExxonMobil did not run the appropriate test. 

Accordingly, we affirm the agency’s finding that ExxonMobil violated 

§ 195.452(b)(5) under Item 8. However, for the reasons explained below, we 

remand to the agency to reevaluate the penalty levied against ExxonMobil 

under Item 8. 

V. Penalties 

ExxonMobil challenges the penalties imposed by the agency. We review 

an agency’s penalty determination under the arbitrary and capricious 

standard. Interamericas Invs., Ltd. v. Bd. of Governors of the Fed. Reserve Sys., 

111 F.3d 376, 384 (5th Cir. 1997). First, ExxonMobil argues that the penalties 

should be capped at $1,000,000 under the Pipeline Safety Act. Second, 

ExxonMobil argues that the agency erred in increasing the assessed penalty 

for Item 8 on the basis that it had a “contributory impact” on the Mayflower 

release. We discuss each of these arguments below. 

First, ExxonMobil argues that the total amount of the penalty assessed 

by the agency must be capped at $1,000,000 under the Pipeline Safety Act, 49 

U.S.C. § 60122. We disagree. In 2012, Congress raised the maximum civil 

penalty that the agency could levy for “a related series of violations” of the 

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pipeline safety regulations from a cap of $1,000,000 to $2,000,000. See 49 

U.S.C. § 60122(a). The statute states that “[a] separate violation occurs for each 

day the violation continues.” 49 U.S.C. § 60122(a)(1) (emphasis added). 

Therefore, each day a violation under the remaining Items in the final order 

occurred after 2012 was a separate violation subject to the $2,000,000 penalty 

maximum. Accordingly, we conclude that the agency did not act in an arbitrary 

or capricious manner in applying the $2,000,000 penalty maximum.14

ExxonMobil’s second argument pertains to Item 8, which we have 

affirmed above. ExxonMobil argues that the agency erred in increasing the 

assessed penalty for Item 8 on the ground that it had a “contributory impact” 

on the Mayflower spill.15 In determining the penalty amount, the agency is 

directed by statute to consider the following: the nature, circumstances, and 

gravity of the violation, including adverse impact on the environment; the 

degree of the violator’s culpability, any history of prior violations, and any 

effect on ability to continue doing business; and the violator’s good faith in 

attempting to comply. 49 U.S.C. § 60122(b). In assessing the $783,300 penalty 

for Item 8, the agency applied these factors and stated the following in its final 

order: 

With regard to the nature, circumstances and gravity of the 

violation, including adverse impact on the environment, the 

Violation Report suggested the violation had the highest level of 

gravity because the violation was a causal factor in the Mayflower 

Accident, which was the result of ERW pipe seam failure. In 

 

14 ExxonMobil also argues that the agency acted in an arbitrary and capricious 

manner when it rejected its argument that Items 1–4 and 7 are “a related series of violations” 

under 49 U.S.C. § 60122(a)(1). However, in light of our decision vacating Items 1–4 and 7, we 

need not reach this question because the penalties associated with the remaining violations 

are less than $2,000,000. 15 ExxonMobil also argues that the agency erred with regard to Items 1 and 2 on the 

same grounds; however, because we have vacated Items 1 and 2, we need not address this 

argument as to those violations. 

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addition, with regard to the degree of culpability and good faith, 

the Violation Report suggested that [ExxonMobil] had an elevated 

degree of culpability and that no good faith credit was warranted. 

ExxonMobil contends that the violation cited in Item 8 did not contribute to 

the Mayflower release because even if it had complied with the regulations—

i.e. even if it had treated the pipeline as susceptible to seam failure and 

assessed the integrity of the pipe with a method capable of assessing seam 

integrity under § 195.452(j)(5)—it would not have discovered the specific defect 

in the Pegasus Pipeline that caused the release. ExxonMobil bases this 

argument on the fact that when it ultimately ran such an assessment, the 

defect was not detected. 

We conclude that the agency erred in finding that Item 8 “had the 

highest level of gravity because the violation was a causal factor in the 

Mayflower Accident.” While it is true, as discussed above, that ExxonMobil is 

culpable of misrepresenting that a TFI tool run had been performed, the record 

does not support the agency’s finding that the misrepresentation “was a causal 

factor in the Mayflower Accident.” When the agency ran the TFI tool in 2012–

2013 shortly before the Mayflower release occurred, the tool was unable to 

identify a defect in the Pegasus Pipeline even though the third-party vendor 

who was later analyzing the results from the tool run knew that the Mayflower 

release occurred. It follows that even had ExxonMobil run the TFI tool in a 

timely manner, the results of the run would not have identified a defect in the 

pipeline and therefore would not have prevented the oil spill. 

 The agency contends that the fact that ExxonMobil’s integrity 

assessment tool run did not detect any anomaly at the site of the pipeline’s 

failure “may have” been because ExxonMobil used an inappropriate tool for 

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that assessment. But the agency did not make a finding on this point.16 Indeed, 

the agency suggested in Item 1 of its final order that the TFI seam/crack tool 

was appropriate for that assessment.17 Further, the regulations indicate that 

either an in-line inspection tool or a hydrostatic test are appropriate for 

assessing LF-ERW pipeline seam integrity. See 49 C.F.R. § 195.452(j)(5)(i)–(ii). 

For the agency to now come forward with a new rule that this particular inline inspection tool is not appropriate for assessing seam integrity in these 

circumstances would implicate fair notice concerns. See Diamond Roofing Co., 

528 F.2d at 649. 

We conclude that the agency acted contrary to the evidence before it and 

in an arbitrary and capricious manner when it determined that ExxonMobil’s 

misrepresentation to the TIARA program was a causal factor in the Mayflower 

release. Accordingly, we remand to the agency to reevaluate what would be an 

appropriate penalty for Item 8 in light of this determination and in light of our 

decision vacating the violations associated with Items 1–4 and 7 of the final 

order. Further, given that we have vacated Items 1–4 and 7, we likewise vacate 

the penalties associated with those items. 

 

16 In its order denying ExxonMobil’s Petition for Reconsideration, the agency stated 

that 

[a]lthough no anomaly was previously detected at the failure location using a 

TFI tool, there were questions raised during the proceeding about the 

appropriateness of using a TFI tool in the first place, given that the types of 

defects detected by hydrostatic tests in 2005–2006 would not likely be detected 

with a TFI tool. . . . While the Final Order did not decide if hydrostatic testing 

would have detected the anomaly that failed, the fact that it was not detected 

does not negate the contributory impact of the violations. 

17 Under Item 1 of its final order, the agency noted that “[i]t was not until 2012–2013 

that [ExxonMobil] finally performed an ILI using a TFI seam/crack tool, which is designed to 

detect certain ERW seam integrity issues.” (emphasis added). 

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VI. Compliance Order

ExxonMobil challenges the agency’s compliance order. The compliance 

order contains direction pertaining to Items 1, 2, 5, 6, and 8 of the agency’s 

final order. ExxonMobil argues generally that the terms of the compliance 

order exceed the agency’s authority. Under the Pipeline Safety Act, the agency 

is authorized to “issue orders directing compliance” with a regulation 

promulgated by the agency and such orders must “state clearly the action a 

person must take to comply.” 49 U.S.C. § 60118(b). 

Because we have vacated Items 1 and 2 of the agency’s final order, we 

similarly vacate Paragraphs 1 and 2 of the compliance order. ExxonMobil also 

purports to challenge the paragraphs of the compliance order that are related 

to Items 5, 6, and 8. However, ExxonMobil did not challenge these provisions 

of the compliance order in the proceedings before the agency. To the extent 

ExxonMobil now seeks to challenge these provisions of the compliance order, 

it has forfeited those arguments. See Scroggins, 599 F.3d at 446–47; see also 

United States v. Chavez-Valencia, 116 F.3d 127, 130 (5th Cir. 1997) (the failure 

to raise a claim below “constitutes a forfeiture . . . of that right for the purposes 

of appeal”). Therefore, the paragraphs of the compliance order pertaining to 

Items 5, 6 and 8 remain in effect. 

VII. Conclusion 

According to the unambiguous text of the pipeline integrity regulations, 

pipeline operators are required to “consider” various risk factors when they 

prioritize pipelines for assessment. This is a process-based requirement that 

does not mandate a particular outcome, but rather prescribes a careful, 

informed decision-making process that pipeline operators must undergo in 

good faith. ExxonMobil complied with this requirement when it determined 

the Pegasus Pipeline was not susceptible to seam failure by applying the 

methodology set forth in the Baker Report decision tree and, considering this 

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determination, the pipeline’s seam type, and leak history, developed its 

integrity reassessment schedule under § 195.452(e)(1). We therefore VACATE 

the agency’s final order with respect to Items 1–4 and 7, which are all premised 

on a finding that ExxonMobil did not properly consider the appropriate factors 

in developing its integrity reassessment schedule under § 195.452(e)(1), and 

VACATE the penalties associated with Items 1–4 and 7. We REMAND to the 

agency with instructions to reconsider the penalty imposed for Item 8 in light 

of our determination that the Item 8 violation was not a causal factor in the 

Mayflower release. 

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JAMES E. GRAVES, JR., Circuit Judge, concurring in part: 

I agree with the majority that ExxonMobil lacked sufficient notice of the 

agency’s interpretation of 49 C.F.R. § 195.452(e). Consequently, I agree that 

Items 1-4 and 7 should be vacated. I also agree that the agency’s determination 

regarding Item 8 should be affirmed, but should be remanded to the agency to 

reevaluate the basis for the penalty associated with this violation. But the 

regulation is ambiguous and for that reason, deference is appropriate on that 

ground. It is well-settled that an agency’s interpretation of its own regulation 

must be given “controlling weight unless it is plainly erroneous or inconsistent 

with the regulation.” Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 

(1945). “[T]his broad deference is all the more warranted when, as here, the 

regulation concerns ‘a complex and highly technical regulatory program,’ in 

which the identification and classification of relevant ‘criteria necessarily 

require significant expertise and entails the exercise of judgment grounded in 

policy concerns.’” Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 412 (1994)

(quoting Pauley v. Beth Energy Mines, Inc., 501 U.S. 680, 697 (1991)). 

The majority acknowledges that the regulatory program here is highly 

complex and, at minimum, involves “lengthy, repeated, and in-depth analysis” 

of risk factors by referencing the Baker Report’s elaborate and “conflicting” 

guidance. Instead of concluding that the agency’s interpretation of § 195.452(e)

is not plainly erroneous, however, the majority creates its own definition of 

“consider,” which requires pipeline operators “to carefully undergo an informed 

decision-making process in good faith, reasonably taking into account all 

relevant risk factors in reaching a decision.” The majority states that its

definition reflects the unambiguous meaning of the regulation. See Christensen 

v. Harris Cnty., 529 U.S. 576 (2000) (“Auer deference is warranted only when 

the language of the regulation is ambiguous.”) But its interpretation is not 

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compelled by the regulation’s plain language, which tersely states that a 

pipeline operator “must consider” “all risk factors that reflect the risk 

conditions on the pipeline segment.” See § 195.452(e)(1). Nor is it compelled by 

any authority that the majority cites. See, e.g., J.H. Miles & Co., Inc. v. Brown, 

910 F. Supp. 1138, 1156 (E.D. Va. 1995) (stating that “consider” “can hardly be 

read as a strict dictate” but “[t]his does not mean that the Council has carte 

blanche to ignore plainly relevant information”) (emphasis added). More to the 

point, the majority’s interpretation, however reasonable or well-crafted, cannot 

supplant the agency’s interpretation of its own ambiguous regulation, “unless 

it is plainly erroneous or inconsistent with the regulation,” which it is not.

Seminole Rock, 325 U.S. at 414. 

Though the majority is correct that plain language of § 195.452(e) allows 

pipeline operators some discretion regarding how they choose to comply with 

the regulation, it is implausible that the agency would enact a regulation that 

would be so toothless as to be practically unenforceable, and would give 

regulated parties ultimate power to decide whether they are in compliance. 

Because the agency’s interpretation of its own ambiguous regulation is not 

“plainly erroneous or inconsistent with the regulation,” I would give it 

deference. See Seminole Rock, 325 U.S. at 414.

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