CALGARY - Enbridge Ltd. (TSX:ENB) has 30 days to respond to a proposed $3.7 million dollar civil penalty stemming from a pipeline spill in Michigan in July 2010.

A ruptured pipeline caused more than 3.03 million litres of crude oil to spill into the Kalamazoo River and a tributary creek. Enbridge has estimated its cleanup costs at about $700 million.

In announcing the proposed penalty, the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration lists 24 violations of hazardous liquid pipeline regulations, including failure to fix corrosion problems in the damaged pipe joint discovered as far back as 2004.

It also alleges the Calgary-based company failed to detect the rupture for 17 hours after it happened during a scheduled shutdown.

Instead, says the U.S. agency, Enbridge staff twice restarted the line despite receiving multiple alarms and “indications of abnormal operating conditions” in its control centre.

"Enbridge completed a detailed internal investigation of this incident, said Enbridge executive Stephen J. Wuori.

He added in a statement issued Monday evening that the company has made ”numerous enhancements to the processes and procedures in our control centre.”

Wuori said the company will ”carefully examine” the U.S. notice to determine whether any further adjustments are appropriate."

Enbridge — which could accept the agency’s findings and pay the penalty or request a hearing before an administrative judge — said such notices are not unusual after ”significant pipeline incidents.”

David Barrett, director of PHMSA’s central region office, said more than 2.57 million litres of crude was injected into the pipe during the period after the rupture occurred.

He said this caused the ”total spill volume to greatly exceed Enbridge’s worst case discharge scenario for this location.”

“We will hold pipeline operators accountable if they do not follow proper safety procedures to protect the environment and local communities,” U.S. Transportation Secretary Ray LaHood said.

The National Transportation Safety Board is expected to issue a report next week on what caused the rupture in the 76-centimetre pipeline from Griffith, Ind., to Sarnia, Ont.

Barrett’s letter said the break happened on a day Enbridge was conducting the latest in a series of inspections, using a tool that was left inside the line until after it was restarted more than two months later.

Enbridge’s control centre in Edmonton was undertaking what was supposed to be a 10-hour shutdown of the pipe when the failure occurred around 6 p.m. EDT, setting off alarms, Barrett’s letter said. Instead of implementing procedures for dealing with emergencies and suspected leaks, operators left the line idle.

Around 4 a.m. on July 26, 2010, a different crew restarted the line and soon received alarms and troubling messages: Pressure at the Marshall pumping station wasn’t rising as expected and there was a significant imbalance between the volume of oil being pumped into the line and the volume it was delivering.

Still, personnel took no emergency actions and kept the oil flowing for an hour, sending more than 1.66 million litres of heavy crude into the pipe. After evaluating the situation they again started the line. Despite receiving more alarms, they injected nearly 920,000 additional litres over a half-hour before shutting it down again.

“By this time the prospects of a suspected leak had been openly discussed by various ... personnel, yet the Enbridge procedures for a suspected leak were not executed,” Barrett said.

At 11:18 a.m., nearly 17 hours after the failure, a natural gas worker with Consumers Energy notified Enbridge that oil had been spotted in a creek near Marshall. Only then did the control centre close remotely operated valves, isolating a 4.8-kilometre-long stretch of line that including the rupture.

Outlining specific regulatory violations, Barrett said Enbridge inspections in 2004 had turned up corrosion problems along the weld seam of the pipe joint that eventually would fail. In 2005, “crack-like anomalies” were found on the same joint. No repairs were made. The agency assessed the largest portion of the penalty — $1 million — for that alleged failure.

Most of the other violations drew $100,000 penalties.

Despite the largest fine ever levied by PHMSA, the $3.7 million total is much less than what companies have paid out for other large spills. Officials have yet to determine the fine against BP PLC for Clean Water Act violations from the Gulf of Mexico spill, but they could range from $5.4 billion to $21.1 billion.

Anthony Swift, attorney for the Natural Resources Defence Council, said the pipeline agency lacks authority to impose meaningful punishment.

“With projects this big, a fine of less than $4 million becomes a minimal cost of doing business rather than a real motivator to follow safety standards,” Swift said.

— with files from The Associated Press

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