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OLYMPIC PIPELINE BACKGROUND
Pipeline Background
The Olympic Pipeline (OPL) transports liquid fuels from the four oil refineries in Whatcom and Skagit Counties to major storage and distribution locations in western Washington and into Portland, Oregon. The pipeline generally follows the I-5 corridor south from Whatcom County to Portland. In King County, the main pipeline runs along the east side of Lake Washington to Renton.
A lateral line to Seattle was constructed in 1965 and runs 12.5 miles from Renton, through southeast Seattle, across the Spokane Street Bridge to a tank farm on Harbor Island. From Harbor Island, gasoline and diesel fuel are distributed by truck throughout the Puget Sound region and eastern Washington.
The Seattle lateral carries 8.8 million gallons of various grades of fuel per week.
The line is operated 30 hours per week. The lateral pipeline mostly runs under a Seattle City Light transmission line right-of-way and passes through Rainier Valley, Holly Park, Beacon Hill, SODO and Harbor Island.
Franchise Negotiations Background
The City of Seattle's (City) previous franchise agreement for the lateral expired on
December 31, 2000. The City is currently protected by an indemnity agreement until a new franchise is negotiated.
Due to the Bellingham incident and the resulting federal investigations, the City decided to delay franchise negotiations until this year. The City wanted to make sure it fully understood pipeline safety issues and the impact of new federal pipeline safety laws and regulations before entering franchise negotiations with OPL.
In addition, because the subject matter of petroleum pipelines is a highly-specialized and technical field, the City used this time to hire experts to obtain, analyze, and interpret data and recommend the necessary approaches to achieve the City's ultimate goal of protecting Seattle's citizens, neighborhoods and environment. The experts reviewed OPL's records and found that there are 14 anomalies (irregularities) in the Seattle lateral structure.
Franchise Negotiations Status
The discovery of irregularities on the lateral increased the City's urgency to begin negotiations and prompted the City to ask OPL to increase its liability insurance coverage to the City to $100 million. A first meeting was scheduled for April 3, 2003. However, less than a week prior to the meeting, OPL declared bankruptcy and requested franchise negotiations be delayed.
The uncertain situation caused by the OPL bankruptcy prompted the City to ask OPL for the following assurances before it would move forward with negotiations:
- $100 million liability insurance coverage
- Financial guarantees from BP Pipelines North America Inc. and Shell Pipeline Company LP (OPL shareholders)
- Continued level of resources to ensure safe operations
- Plans to address the 14 anomalies found on the lateral
- Adherence to federally mandated corrective action order
- Good faith negotiations by OPL to negotiate a new franchise agreement in a timely manner
OPL did not agree to all these conditions. Specifically, they maintained it was impossible to secure a corporate guarantee from BP Pipelines and Shell. Because the two companies were unwilling to stand behind the operations of OPL, the City had no other choice but to revert to a clause in the previous franchise agreement that allows them to suspend or cease OPL's right-of-way authority. The City informed OPL of its decision to suspend pipeline operations on June 27, 2003. Suspension will take place on August 26, 2003.
The City remains open to meeting with OPL and would consider rescinding suspension if OPL agrees to perform two inspection digs along the lateral and perform a hydrostatic test. Hydrostatic testing would determine the structural integrity of the lateral and if the results successfully prove that the line is safe, the City will have confidence that it can be operated safely. With those assurances, the City would allow operations to continue and would begin franchise negotiations with a solvent OPL, or its successor company, as soon as the bankruptcy proceedings are completed.
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