(Iowa Capital Dispatch) The Iowa Court of Appeals has upheld a $1.8 million civil penalty against a company that for almost 21 years failed to obtain the required permits for 750 miles of hazardous-liquid pipelines in Iowa.
Enterprise Products Operating had appealed a district court’s ruling that affirmed a decision by the Iowa Utilities Commission to fine the company $1.8 million for nine separate violations of a law requiring permits for interstate hazardous-liquid pipelines and underground storage facilities.
In its appeal, Enterprise argued the commission and the district court erred in deciding that Enterprise’s pipeline system required nine permits, rather than one, and had therefore committed nine violations of the law rather than one.
The company also claimed the commission lacked the authority to impose a civil penalty of more than $200,000 because the nine violations were each part of a “related series of violations” as defined by state law.
The appeals court ruled it could not consider Enterprise’s first claim because it did not preserve error by arguing that point when the case was before the commission and then the district court. The appeals court also found that the commission correctly interpreted the legal cap on penalties.
Enterprise owns and operates a hazardous-liquid pipeline system that crosses several states, Iowa included, and carries butane, propane and natural gas. The pipeline system — known as the Mid-America Pipeline System — was originally built and owned by the Mid-America Pipeline Company in the early 1960s.
In November 1997, Williams Natural Gas Liquids acquired Mid-America Pipeline, and in July 2002, Enterprise purchased a 98% ownership interest in that company and with it the entire Mid-America Pipeline System, which then included 750 miles of pipeline and underground storage facilities in Iowa.
In 1995, the Iowa Legislature then amended the state law in a manner that required pipeline operators to obtain new permits from the state. It is undisputed that Mid-America Pipeline Company — and then Williams, and then Enterprise — never sought those permits.
On Feb. 6, 2023, the commission notified Enterprise that it had discovered 750 miles of hazardous-liquid pipeline in Iowa were owned and operated by Enterprise and lacked the necessary permits. The commission demanded an explanation and scheduled a hearing at which the company could argue why it should not be subject to civil penalties.
Case turns on singular or plural use of ‘series’
At the hearing in March 2023, Enterprise explained that it was unaware of Iowa’s permit requirements and asserted that Williams had warranted that all state permit requirements were satisfied.
One month later, in April 2023, the commission issued an order imposing $1.8 million in civil penalties on Enterprise, alleging Enterprise had been operating nine hazardous-liquid pipelines and underground storage facilities without permits for almost 21 years.
It calculated that each of the nine violations had continued for 7,535 days — from when Enterprise acquired the pipeline system until it initiated efforts to obtain a permit – and that each of the nine violations warranted a $200,000 penalty.
At the time, the commission noted that due to the 21 years of daily violations, the penalty could have resulted in a total of $67.8 million in penalties had it not been for the Iowa law capping penalties at $200,000 per pipeline and underground storage facility.
In deciding to impose the maximum penalty, the commission took note of Enterprise’s market capitalization of $55.9 billion and its long record of working in the pipeline industry.
After Polk County District Judge Scott D. Rosenberg upheld the commission’s ruling, Enterprise filed its appeal, sending the case to the Iowa Court of Appeals.
In ruling in favor of the commission, the appeals court noted that Iowa law caps penalties at $200,000 for “any related series of violations,” with Enterprise arguing that its nine permit violations were all part of one “related series” since they were all tied to the same interconnected series of pipes.
“Even if we assume that Enterprise is correct that nine separate permit violations at different locations across Iowa — some for pipeline and others for underground storage facilities — can be considered related, this argument falters,” the court ruled. “It assumes that the word ‘series’ is being used as a plural noun rather a singular one — both forms are spelled the same. Only if ‘series’ were plural could the statute be capping multiple related series. If ‘series’ is singular, then the statute caps a single ‘series of violations’ that is ’related.’”
