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Commentary: ‘Record’ fine for Michigan oil spill is a slap on the wrist

An oil-stained work helmet in the Kalamazoo River amid cleanup efforts in 2011. (Photo by Jason W. Lacey via Creative Commons)

By Paul Blackburn

On the evening of July 25, 2010, the pipeline operators in Enbridge’s control room in Edmonton, Alberta, made a mistake. They thought repeated alarms showing loss of pressure and volume in a crude oil pipeline in southern Michigan were caused by an gas bubble.

In reality, at 5:58 p.m. Line 6B had ruptured and started spewing 1,148,229 gallons of a manmade crude oil called diluted bitumen in Talmadge Creek near Marshall, Michigan. But operators kept the system running on-and-off until 11:20 a.m. the next day – over 17 hours.

In response, the Pipeline and Hazardous Materials Safety Administration (PHMSA) has just issued civil fines against Enbridge amounting to $3.7 million. Apparently, this is the highest fine ever levied by the agency.

To everyday Americans, this fine might seem large. From the perspective of a large company like Enbridge, however, it’s chump change.

• In 2011 Enbridge’s operating revenues amounted to $9.1 billion, and its net income was $677 million. This means that the $3.7 million fine was 0.04% of operating revenues and 0.55% of net income.

• To provide some perspective, this is equivalent to the average U.S. household being fined $26 (based on an average 2011 household income of $65,000).

• The EPA estimates that Enbridge spilled 1,148,229 gallons of heavy crude oil. This means that the feds fined Enbridge just $3.22 per gallon of crude oil spilled. In comparison, the average cost of a gallon of gasoline as of Monday was $3.415/gallon. Enbridge paid less in federal fines per gallon of heavy crude oil spilled than the average American pays for a gallon of gas.

• Given that the spill cleanup so far has cost Enbridge over $765 million ($650 million is covered by insurance), the federal fine is less than half a percent of the total cost of the cleanup bill.

The PHMSA fine may be a record, but that doesn’t mean it imposes any pain. No doubt, Enbridge would be willing to pay $3.7 million just to be done with it. The fine will not have any noticeable impact on Enbridge or its bottom line.

The amount of the fine reflects a simple truth: federal pipeline safety law is toothless. The reality is that the industry is almost entirely self-regulated and for practical purposes federal law limits PHMSA’s role to finger-wagging and after-the-fact wrist slapping. PHMSA has few inspectors, limited inspection authority and its director, Cynthia Quarterman, is a former Enbridge attorney.

Many of PHMSA’s detailed pipeline safety standards are issued by the American Petroleum Institute (an industry trade association) and PHMSA adopts these industry standards as federal law. Due to PHMSA’s limited resources it typically takes years to finish the bureaucratic process of codifying revised industry standards. Other standards, such as the requirement that a pipeline be buried one foot deeper than normal if it is within 50 feet of a building, are decades old and written at a time when pipelines were generally smaller and operated at much lower pressure. PHMSA’s primary role appears to be to convince the public that the oil industry is not in charge of pipeline safety.

Fines are supposed to punish wrongdoing and deter future illegal acts. To keep human beings in line, federal and state law threatens them with “zero tolerance” policies, high fines and jail time. When oil companies ruin lives and foul the environment, they get the equivalent of parking tickets.

The PHMSA fine should be seen as evidence of just how toothless federal pipeline safety law really is.

Paul Blackburn is an environmental lawyer who lives in Minneapolis.

Comments (1)

Enbridge is the same company that will soon be running unrefined tar sands crude through tributaries of four DFW watersheds. The probability of a major leak destroying one of those reservoirs is 1% per year. Email James Keffer , Chair of TX Energy Resources Committee asking for tough rules to protect Tx drinking water. See StopSeawayPipeline.com to find out where your home, school, or water supply is located in relation to the Seaway pipeline or to read about the increased number of sicknesses or death resulting from the Michigan oil spill.

By Richard Guldi on Jul 6, 2012