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Pennsylvania levies record $30.6M fine on Energy Transfer

A subsidiary of midstream developer and operator Energy Transfer LP will pay $30.6 million for failing to promptly correct environmental violations discovered after the Revolution natural gas pipeline exploded in September 2018 after heavy rains and a landslide in Beaver County, Pa.

As part of a related consent agreement with the Pennsylvania Department of Environmental Protection, the agency will lift its ban on Clean Water Act permits for Energy Transfer and its subsidiaries, clearing the way for Energy Transfer's Sunoco Pipeline LP unit, which was not involved with the Revolution incident, to finish its expansion of the Mariner East family of NGL pipelines in the eastern part of the state.

The size of the fine, one of the largest civil penalties in the state, was due to failures by Energy Transfer subsidiary ETC Northeast Pipeline LLC, or ETC, the Pennsylvania Department of Environmental Protection said in a Jan. 3 release. The shortcomings described by the state included a lack of oversight during construction of the pipeline across a slope and the company's failure to comply with a compliance order issued a month after the explosion.

Energy Transfer's failure to comply with the compliance order led to a suspension of all of the firm's water permits in the state, halting the completion of Revolution and hobbling the buildout of the Mariner East 2 and 2X projects.

In February 2018, the state hit Sunoco with another record fine, $12.6 million, for environmental violations during the construction of portions of the Mariner East 2 expansion project.

Department of Environmental Protection Secretary Patrick McDonnell said in a Jan. 3 statement that a larger fine for Revolution's violations was required to get Energy Transfer's attention. "ETC's lack of oversight during construction of the Revolution pipeline and their failure to comply with DEP's October 2018 compliance order demanded serious accountability," McDonnell said. "Their inaction led directly to this unprecedented civil penalty."

In exchange for the fine and the appointment of a new management team with a fresh plan to stabilize the slope where Revolution failed, the state agency will lift its ban on issuing new water permits to Energy Transfer and its subsidiaries. The permits are mostly for pipeline stream crossings. But the agency will issue the permits over time, instead of in bulk, and state inspectors will monitor each horizontal drill of a new pipeline crossing.

"The permit bar was the main obstacle to completing construction on Energy Transfer's Mariner East 2X pipeline, in our view, and lifting the bar is a major milestone which helps provide regulatory clarity for the long-delayed project," veteran midstream analyst Katie Bayes, co-founder of Sandhill Strategy LLC, said in an email. "We expect that Energy Transfer can complete ME2X by mid-2020, assuming a reasonable timeline to complete permit re-evaluations and no additional regulatory delays."

Energy Transfer accepted the outcome. "We are pleased to have reached an agreement with the DEP that will allow us to safely complete the construction projects we have underway in Pennsylvania," Energy Transfer said in an email.

The company said it would start construction as soon as it had its permits.

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