Paula Dittrick
OGJ Online
Colonial Pipeline Co., Atlanta, has changed its operating policies and its environmental safety track record since David Lemmon became president and CEO of the 5,519-mile interstate products pipeline system in 1997, the year after a major spill.
Although Colonial faces a federal civil lawsuit for spills that occurred before Lemmon took the helm, Colonial also received the pipeline industry's highest safety award from the American Petroleum Institute earlier this year.
Lemmon told OGJ Online that Colonial has made strides on safety and environmental improvements toward a spill-free, leak-free system.
"Colonial has not had an attractive track record," Lemmon acknowledged. "We absolutely had to change the mindset and change the process."
The system moves than 84 million gal/day of gasoline, aviation fuel, home heating oil, diesel fuel, and national defense fuels from the Gulf Coast refineries to terminals in the Southeast and along the eastern seaboard.
"If we have even a pin hole leak, we are contaminating a lot of soil," Lemmon said.
He already was familiar with Colonial, having served as a Colonial board member from 1990-97 while president of Amoco Pipeline Co., Oak Brook, Ill. As Colonial's CEO, he immediately emphasized safety and performance standards.
"I've been stressing safety for 11 years. This is the first time I've had as much success as I've had. Colonial was ready to be safe. The employees took it to heart and made it a value.... Safety at Colonial has become very institutionalized."
The company has a mission statement, which begins, "We value safety and protecting the environment as we do our family and home."
Colonial also has a conduct of operations manual as well as operational and maintenance procedures providing employees with detailed instructions on how to perform their duties.
Individual responsibility is emphasized at Colonial, Lemmon said, adding employees have the right to shut a job down or to shut a pipeline down if they believe conditions are unsafe.
Lemmon also emphasizes safety to the public and to the environment, saying Colonial operates in the public domain. He considers it a company priority to set the standard for safety in the pipeline industry.
Industry awards
The API awards validate that Colonial is doing just that.
Colonial swept the API's top awards for large companies for last year. It won the distinguished environmental and safety award for its performance record and measures taken to enhance public safety, environmental and occupational safety performance, and community outreach.
Colonial also won the pipeline occupational safety award, the pipeline environmental award, the improved safety performance award, and was recognized for having no lost workdays.
When presenting the awards on Apr. 17, API Pipeline Committee Chairman George Rootes said, "It is particularly noteworthy that Colonial won both the safety and environmental awards. It shows consistency and that the company is an across-the-board performer. This performance is certainly worthy of imitation by other pipeline operators." Rootes is president of Equilon Pipeline Co.
Lemmon attributed the awards to Colonial's commitment to operating excellence and the investment of $50 million/year to modernize equipment over the last 3 years. Colonial expects to continue spending that much for the next few years, he said.
Colonial is owned by Unocal Corp. with 23.44%; BP PLC 17.96%; Equilon Enterprises LLC 16.12%; Citgo Petroleum Corp. 15.79%; Conoco Inc. 8.53%; Phillips Petroleum Co. 8.02%; Koch Industries Inc. 7.3%, and Marathon Oil Co. 2.82%.
It ships 90 different products including 65 grades of gasoline and reformulated gasoline to 84 shippers who operate 364 terminals.
Lawsuit pending
The US Justice Department filed suit last year, alleging Colonial violated the Clean Water Act (CWA) by spilling about 3 million gal of products over 20 years.
In June 1996, more than 950,000 gal of diesel fuel spilled into the Reedy River near Simpsonville, SC, killing 35,000 fish and affecting a 23-mile segment of the river.
The Justice Department filed a misdemeanor charge in South Carolina US District Court, alleging Colonial failed to exercise reasonable care, leading to a pipeline rupture that caused the sixth largest spill in US history (OGJ Online, Dec. 1, 2000).
Since the Reedy River spill, Colonial changed its top management and implemented a compliance program to prevent and detect problems along its system. Colonial has cut its operator error incidents 80% during the past 3 years.
"We probably have nearly as good a system now as when we built it," in the 1960s, Lemmon said.
He said the Reedy River spill "was due to poor operations and operator error," adding those problems have been corrected.
Colonial paid a total of $21 million judgment to resolve the criminal charges. The funds went to landowners, to the state, and to the federal government. The civil charges are still pending and no trial date has been set.
During a 5-year criminal probationary period, Colonial must develop and implement an environmental compliance program to prevent and detect problems on its system between Houston and Linden, NJ.
Challenges and projects
Lemmon said he grades Colonial's safety improvements and operating system integrity at an A to a B, adding he still wants the company to improve its financial performance.
"We are having an excellent year this year so we may be taking off," Lemmon said. In 2000, Colonial revenues grew a record 6.7%. Net income has been growing at 2.5-3%/year.
"Our goal is to grow net income by 3.5%/year," Lemmon said, adding the pipeline industry average is 1.75%/year net income growth.
"The transportation and supply side has become much, much more competitive," in recent years, Lemmon said. "We have had to transform our company from a utility mentality.... Your economics will be poor if you don't compete well."
Colonial lost market share between 1990 and 1997, going from having 20% of the products pipeline business to 16%, Lemmon said. "We have captured market share back to 20% of delivery of fuels across the US and to 30% east of Mississippi."
Lemmon said Colonial's growth strategy involves both construction projects and acquisitions.
This year, Colonial bought the Alliance products pipeline and terminal system from BP PLC. Assets include a 20-in. pipeline that extends 147 miles from Belle Chase, La., to Collins, Miss., and a 2.2-million-bbl tank farm at Collins.
Colonial's smaller construction projects involve running connections to East Coast airports including Philadelphia and Newark, he said. Those projects will cost from $2-20 million each.
The major construction project on the drawing board is a $200 million, 20-in. from Atlanta to Nashville. A decision on whether to proceed with that project is expected later this year with construction tentatively slated for late 2002 or early 2003. Construction would take about 9 months, Lemmon said.
"We're also looking at a pipeline to Knoxville. We're constantly looking at other projects," he added.
Bottlenecks and permitting
Lemmon said he supports President George W. Bush's energy policy and its emphasis on eliminating bottlenecks in the refining and pipeline infrastructure. For instance, Colonial has spent 2 years and $10 million on the proposed Atlanta-Nashville pipeline without even getting to the permit stage.
"They are absolutely on target, and I'm very supportive of that plan," Lemmon said of Bush and Vice Pres. Dick Cheney, who developed the plan.
In particular, the process of building pipelines must be streamlined, he said. "Building pipelines is extremely costly and complicated."
Lemmon also advocates development of a few regional fuels instead of the numerous "boutique" fuels that now exist. Colonial ships 65 separate types of gasoline.
Lemmon has met with Georgia Gov. Roy Barnes to discuss how the creation of regional fuels could meet air quality standards. Barnes was supportive of the idea, Lemmon said.
"We need to find a new solution to meet the standards. We've got to get several governors to agree. Barnes believes it is possible in the next few years."