Exxon’s Maligned $5M Settlement for Pegasus Spill Ruled ‘Fair and Reasonable’

Arkansas authorities had sought stronger measures to protect waterways from toxic tar sands oil spills, but a federal judge rejects their pleas.

Arkansas officials have criticized the settlement Exxon paid for the Pegasus pipeline spill
Arkansas officials say Exxon's settlement for the Pegasus spill does little to prevent another disaster. Credit: Wikimedia

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A federal judge rejected arguments by local Arkansas authorities that a $5 million settlement related to ExxonMobil’s 2013 pipeline rupture was too weak to protect residents and drinking water sources from another disastrous spill.

U.S. District Judge Kristine Baker ruled Wednesday that an agreement between Exxon and the state and federal governments was “fair, reasonable and adequate.” She finalized a consent decree proposed in April that resolves allegations that the company violated the Clean Water Act and similar Arkansas statutes when its Pegasus pipeline spilled 210,000 gallons of toxic, heavy tar sands oil into a residential neighborhood and a nearby lake.

The case is one of several catastrophic pipeline leaks in recent years that have undermined the industry’s credibility, exposed regulatory shortcomings and alarmed the public.

ExxonMobil’s Pegasus rupture also helped underscore the environmental hazards associated with diluted bitumen, or dilbit, which is the combination of thick sludge-like oil, which tends to sink in water,  and volatile solvents that evaporate and pollute the air. Extracting, transporting, processing and burning dilbit emits more climate-changing greenhouse gases than conventional crude, so the Pegasus and other dilbit pipelines have become part of the fight to reduce carbon emissions.  

The pact finalized by the court “doesn’t really instill a lot of confidence,” said Richard Kuprewicz, a pipeline safety consultant and technical advisor to Central Arkansas Water (CAW), a water utility involved in the case. “I’m not impressed.”

Last month, CAW asked the judge to declare the consent decree inadequate or to delay signing it until federal pipeline regulators complete a related complaint case. In May, a larger group of water agencies and local governments asked the U.S. Justice Department renegotiate the deal and add a host of preventive measures.

The federal Clean Water Act case stems from the March 2013 rupture of the Pegasus pipeline, which split apart and flooded a Mayflower, Ark., cul-de-sac and contaminated nearby Lake Conway. 

The failed 647-mile northern segment of the Pegasus carried dilbit from Illinois to Texas. It was built in the late 1940s using pipe known in the industry to harbor manufacturing flaws that make it susceptible to splitting along its lengthwise seams. When the pipeline burst, it opened a 22-foot lengthwise gash along on a seam line.

That leg of the Pegasus has been closed since the spill, and Exxon has said the line will not reopen this year. The southern section of the pipeline, a 211-mile segment in Texas that connects Corsicana to Nederland, was restarted in July 2014.

Under the settlement, Exxon will pay a $3.19 million civil penalty to the U.S. government and $1.88 million to the state of Arkansas. The state figure includes a $1 million penalty, $600,000 to improve the water quality of the lake affected by the spill, and $280,000 for litigation costs.

The standard penalty for Clean Water Act violations is $1,100 a barrel, but that jumps to $4,300 a barrel in cases of negligence. Exxon’s estimate of the spill volume indicated a fine of $3.5 million to $13.7 million. A higher volume estimate from federal pipeline regulators put the maximum penalty at $21.5 million.  

The agreement also requires Exxon to designate its northern Pegasus pipeline as at-risk for bursting along the pipe seams—something the company’s own testing revealed at least as far back as 2006. Exxon must also provide spill response training for certain Pegasus employees in 2015 and 2017, and position spill response equipment in three locations along the pipeline.

A water users group criticized the consent decree as too feeble and too dependent on pipeline regulators to keep the Pegasus from failing again. The group said it is worried about water sources serving 750,000 people that could become contaminated by a new Pegasus leak.

In November 2013, the Pipeline and Hazardous Materials Safety Administration (PHMSA) gave Exxon a notice of probable violation and proposed compliance order that included a $2.66 million civil penalty. It accused the oil company of delaying a key inspection, masking pipeline threats, and ignoring its own evidence that the Pegasus was prone to seam failures.

Among other things, PHMSA ordered Exxon to overhaul its integrity management program to make sure that pipeline risk evaluations “are not manipulated.”

ExxonMobil denied PHMSA’s allegations and appealed the findings. A closed hearing on the case was held in June 2014, and there’s no timeline for when PHMSA will release its final ruling.