Koch Settles in Pipeline Cases, With Environmental Projects To Get $5 Million; Agreement Covers 10 Years of Pipeline Operations; Company Reduced Oil Leaks by Over 90% in 1990s.

Business Editors

HOUSTON--(BUSINESS WIRE)--Jan. 13, 2000

Koch Pipeline Company, L.P. announced today that it has agreed with the federal government and the state of Texas to settle two cases filed here and in Tulsa, Oklahoma, concerning pipeline spills dating back to 1990.

Under terms of the settlement - which was initially reported on by the news media in mid-October - Koch Pipeline will contribute $5 million to a variety of environmental projects. They include $2.5 million for four environmental projects in Texas, $1.5 million for wetlands restoration projects in Kansas and Oklahoma, and $1 million for pipeline education programs in all three states. Koch will also pay a $30 million civil fine to resolve spills occurring over nearly 10 years of pipeline operations with the U.S. Department of Justice and the Texas Attorney General's office.

The government had sought $1,000 to $3,000 in per-barrel fines, the maximum amount under the law. The first of the two lawsuits, at the time of its filing, was unprecedented in that the government, for the first time, combined years of spills under one lawsuit. The fine included in the settlement averages about $325 per barrel, including settling 11 spills not initially filed in the government cases. The law lists certain factors to be used to determine an appropriate penalty for pipeline leaks, such as the effectiveness of a company's clean-up efforts, the seriousness of the incident, and the culpability of the company, if any.

"We believe that the settlement is fair and reasonable and will avoid even more years of litigation," said Pat McCann, senior vice president of Koch Pipeline Company.

Under the relevant statutes, companies are liable for penalties on pipeline spills regardless of their cause. This settlement includes leaks that occurred as the result of third party actions, like digging.

Koch has reduced its crude oil pipeline leaks by more than 90 percent during the 1990s, in addition to earning praise from numerous government agencies for its outstanding record of preventing and mitigating damages when spills occur.

"We're proud of the tremendous progress we made in the 1990s to prevent pipeline leaks from occurring in the first place," said McCann. "But when they do, we are committed to cleaning them up quickly and completely. We have always sought to operate our pipelines with the highest safety and environmental standards. Our commitment is to constant improvement and unsurpassed performance. We are also pleased that communities in three states will benefit from funding for local environmental projects."

In Texas, Koch's contribution will be used for a variety of projects including:

-- $1.5 million to the Coastal Bend Bays and Estuaries Program for environmental preservation and conservation programs, with a preference for San Patricio County. The projects must first be approved by the Texas Natural Resource Conservation Commission (TNRCC).

-- $500,000 for Resource Conservation and Development, Inc. to provide funding and technical assistance to rural homeowners and rural schools in Wilson and Gregg Counties for installing alternative wastewater treatment systems.

-- $350,000 to the Corpus Christi Fire Department to purchase an "Emergency 1" vehicle to act as a command post and communication center for responding to the release of hazardous materials.

-- $150,000 to the Corpus Christi/Nueces County Local Emergency Planning Committee to purchase systems that will notify and instruct the public regarding emergencies involving hazardous materials.

"Funds provided by Koch will help implement a variety of environmental projects identified in the Coastal Bend Bay Plan to protect and restore the health and productivity of the bays and estuaries within the 12 county area of the Coastal Bend," said Ray Allen, executive director of the Coastal Bend Bays & Estuaries Program (CBBEP). "Koch has a history of being actively involved in conservation efforts in Corpus Christi and the Coastal Bend and we welcome this continued financial support," Allen added.

The CBBEP project area extends from the land-cut in Baffin Bay to the south, through the Upper Laguna Madre and the Corpus Christi Bay System, and north through the Aransas Bay system to the Aransas National Wildlife Refuge. The Bays Plan is a blueprint for managing and protecting the bays and estuaries of the Coastal Bend for the next 20-50 years.

Koch's $1.5 million contribution to Kansas and Oklahoma will be used for wetland acquisition and restoration. A Kansas conservation leader said the Koch funding would help conserve vital habitat, benefiting the state's wildlife populations.

"The contribution by Koch for the preservation and enhancement of wetlands will clearly help reverse the decline in this vital wildlife habitat," said Alan J. Pollum, vice president and Kansas director of the Nature Conservancy. "Kansas has experienced the loss of nearly half of its historic wetlands, and Koch's interest and investment will improve the future prospects for Kansas wildlife."

The president of the Oklahoma Nature Conservancy said the contributions would also benefit his state. "This support from Koch for local environmental projects will help conserve land with important biological value," said Larry Nichols. "Koch's contribution has the potential to greatly advance efforts to ensure a lasting legacy of conservation in Oklahoma. The Nature Conservancy, along with others, is excited to work with Koch to identify projects that advance wetland and habitat preservation in the state."

In addition, Koch will contribute $1 million for a pipeline safety education project for Texas, Oklahoma, and Kansas. The project will focus on improvements in pipeline operations and maintenance that will reduce or eliminate spills.

Koch made substantial improvements in its crude oil pipeline operations in the 1990s, including cutting leaks by more than 90 percent. Specific improvements include:

-- From 1990-94, before the federal suits were filed, Koch had already reduced crude oil pipeline leaks by more than 70 percent while increasing pipeline mileage by more than 25 percent.

-- From 1995-97, Koch further reduced crude oil pipeline leaks by an additional 22 percent, or a 92 percent reduction in eight years.

-- By the end of 1998, Koch improved that record further to a 96 percent total reduction.

In addition, the state-of-the-art pipeline monitoring program, called Katapult - which was developed by Koch Industries and implemented throughout its affiliated pipeline systems - was honored this year by the Smithsonian Institute as one of the nation's leading technological innovations. In addition, according to a 1997 study by the Texas Railroad Commission of all Koch's liquid pipelines in the state of Texas, Koch's system actually averaged 60 percent fewer violations than the industry average for Texas intrastate pipelines.

Koch Industries spent nearly $1 billion in the 1990s on environmental improvements at its facilities. Just in 1999, Koch companies earned recognition for environmental excellence from the Environmental Protection Agency, National Association for Environmental Management, International Association of Fish and Wildlife Agencies, Louisiana Department of Environmental Quality, among others.