Kinder Morgan Consent Agreement and Final Order

(Washington, D.C. - May 2, 2007) Kinder Morgan Transmix Co. has agreed to pay the U.S. Environmental Protection Agency $600,000 to resolve numerous violations of federal air and hazardous waste regulations, including mixing hazardous waste with gasoline.

Overview
Background
Respondents
Violations
Environmental Impacts
Vehicle Damage and Compensation
Civil Penalty
Environmental Benefits

Overview: Three Kinder Morgan companies entered into a Consent Agreement and Final Order (CAFO) with the U.S. Environmental Protection Agency (EPA) to resolve violations of the Clean Air Act (CAA) and the Resource Conservation and Recovery Act (RCRA) arising from the illegal mixing of a RCRA hazardous waste with gasoline, and from failing to sample and test gasoline to ensure compliance with CAA emissions standards. The EPA Environmental Appeals Board approved the settlement on April 20, 2007.

Background: Kinder Morgan Transmix Co., LLC (KMT) operates a transmix facility in Indianola, Pennsylvania, where it produces gasoline and other products. "Transmix" refers to pipeline "interface," which is composed of products that do not meet the specifications for a fuel that can be used or sold for use. Transmix facilities split or process the transmix back into specification products, such as unleaded gasoline and diesel fuel, by running the transmix through a distillation tower. Transmix processors commonly add additional blendstocks to the gasoline portion of the transmix that is separated out in the distillation tower.

In the beginning of 2004, a number of motor vehicles that received gasoline produced by KMT ceased operation due to clogged fuel filters. EPA's Air Enforcement Division commenced an investigation into this matter and discovered that KMT used a blendstock that was described as a "cyclohexane mixture" to produce gasoline at its Indianola Transmix Facility. The cyclohexane mixture was a spent solvent that was previously used to manufacture polymers, and is a hazardous waste under RCRA. KMT received a total of 49 shipments of the cyclohexane mixture between October 15, 2003, and the date that it received its last shipment on March 14, 2004, and produced twenty-eight batches of gasoline - approximately 8 million gallons - using the cyclohexane mixture as a blendstock.

During the course of its investigation, EPA also learned that KMT and its parent corporation, Kinder Morgan Operating L.P. "A," failed to comply with a number of sampling and testing requirements of the CAA and fuels regulations to ensure the environmental and quality standards of fuel they produced.

Respondents: Kinder Morgan Energy Partners, LP (KMP) is a Delaware limited partnership. KMP is one of the largest publicly traded pipeline limited partnerships in the United States. It conducts its operations through five limited operating partnerships. Kinder Morgan Operating L.P. "A" and Kinder Morgan Operating L.P. "D" are two of these five limited operating partnerships:

Respondent Kinder Morgan Operating L.P. "A" owns and operates transmix facilities in Richmond, Virginia, and in Dorsey Junction, Maryland.

Respondent Kinder Morgan Transmix Co., LLC is a subsidiary of Kinder Morgan Operating L.P. "A," and owns and operates transmix facilities in Indianola, Pennsylvania and in Hartford, Illinois.

Respondent Colton Processing Facility, Inc. is a subsidiary of Kinder Morgan Operating L.P. "D," and owns and operates a transmix facility in Colton, California.

Violations:The CAFO resolves the following alleged RCRA and CAA violations that arose from KMT's acceptance, storage and use of the cyclohexane mixture to produce gasoline at its Indianola transmix facility.

Hazardous Waste (RCRA) Violations:

KMT failed to notify EPA or the State of Pennsylvania prior to storing the cyclohexane mixture, a hazardous waste, at its Indianola Transmix Facility, in violation of Section 3010 of RCRA, 42 U.S.C. § 6930, 40 C.F.R. § 264.11, and 24 Pennsylvania Code § 264a.

KMT failed to perform or obtain a general waste analysis upon receiving its first shipment of the cyclohexane mixture as required by 40 C.F.R. § 264.11 and 24 Pennsylvania Code § 264a.

KMT accepted the hazardous waste cyclohexane mixture at its Indianola Transmix Facility without first obtaining a RCRA Treatment, Storage, and Disposal Facility Permit, and therefore violated the following federal and state hazardous waste requirements:
- Acceptance of hazardous waste without a manifest (40 C.F.R. §§ 264.70 - 264.77, and 24 Pennsylvania Code § 264a);
- Storage of hazardous waste without a permit (Section 3005(a) of RCRA, 42 U.S.C. § 6925(a), 40 C.F.R. Parts 264 and 270, and 24 Pennsylvania Code §§ 264a and 270a.);
- Storage of hazardous waste without a RCRA Closure and Post-Closure Plan (40 C.F.R. §§ 264.110 through 264.120, and 24 Pennsylvania Code § 264a); and
- Storage of hazardous waste with a RCRA Financial Assurance Plan (40 C.F.R. §§ 264.140 through 264.151, and 24 Pennsylvania Code § 264a).

Clean Air Act Violations:

KMT produced gasoline at the Indianola Transmix Facility that was not "substantially similar" to any fuel utilized in the certification of any motor vehicle or engine sold in the United States, in violation of Section 211(f) of the CAA, 42 U.S.C. § 7545(f).

The CAFO also resolves the following alleged CAA violations relating to the sampling and testing requirements of the Fuels Regulations that arose at KMT's Hartford Transmix Facility and KMLPA's Richmond Transmix Facility.

KMT failed to collect and analyze representative samples of conventional gasoline that it produced at the Hartford Transmix Facility, in violation of the anti-dumping regulations at 40 C.F.R. § 80.101(i)(1).

KMT failed to use the total volume of the batches of gasoline that it produced at the Hartford Transmix Facility, and that should have comprised its composite samples for the purpose of determining compliance with the anti-dumping regulations, in violation of 40 C.F.R. § 80.101(i)(2)(iii).

KMT failed to collect and analyze representative samples of conventional gasoline that it produced at its Hartford Transmix Facility for the purpose of determining the sulfur content of these batches of gasoline, in violation of 40 C.F.R. § 80.330.

KMLPA failed to collect and analyze representative samples of conventional gasoline that it produced at its Richmond Transmix Facility for the purpose of determining the sulfur content of these batches of gasoline, in violation of 40 C.F.R. § 80.330.

Environmental Impacts: Although EPA's investigation did not reveal specific detrimental emissions consequences from gasoline that Respondents produced, these violations clearly had an adverse effect on the requirements of the Clean Air Act to ensure the quality of gasoline produced and sold for use in the United States. EPA relies upon the regulated community to produce gasoline with predictable emissions consequences in order to protect the public health and for planning purposes. Any violation of the substantially similar provisions of the CAA or the sampling and testing requirements of the Fuels Regulations impair the Agency's ability to achieve these goals. Similarly, the type of hazardous waste violations identified impede EPA or the authorized States from achieving the goals of RCRA. Under RCRA, it is important for individuals to be aware of and trained for handling hazardous wastes, thereby decreasing the potential for releases or harm to themselves.

Vehicle Damage and Compensation: Marathon Ashland Petroleum LLC (Marathon) reimbursed repair costs to owners of many vehicles that sustained damage. EPA understands that KMT reimbursed Marathon for the costs that it incurred in responding to these consumer complaints.

Terms of Settlement:

Civil Penalty: The CAFO requires Respondents to pay a total of $613,000 in civil penalties. KMT agrees to pay a civil penalty in the sum of $600,000. The portion of KMT's penalty attributed to RCRA violations is $340,000 and the portion of this penalty attributed to the CAA violations is $260,000. KMLPA has also agreed to pay a civil penalty in the sum of $13,000 for its CAA violations.

Environmental Benefits: The CAFO requires Respondents to develop updated quality control plans designed to assure future compliance with RCRA and the CAA, and to hire a qualified independent auditing firm to conduct audits of Respondents' compliance with plan at each of its transmix facilities. Respondents are required to take corrective action to address any issues of concern set forth by the auditors.