Concerns Raised over PHMSA Proposed Crude-by-Rail Rule

By Jane C. Luxton, Eric M. Hocky / Nov 04, 2014

Over the last decade, the U.S. has seen a significant increase in shipments of crude oil via railroad, increasing from approximately 10,800 carloads in 2008 to more than 400,000 in 2013. On August 1, 2014, the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration ("PHMSA"), in coordination with the Federal Railroad Administration ("FRA"), proposed a new rule titled "Enhanced Tank Car Standards and Operational Controls for High-Hazard Flammable Trains."[1] 

The proposed rule, commonly referred to as the "Crude-by-Rail Rule," is widely viewed as a response to this increase in crude oil shipments as well as recent incidents like the massive oil train accident last year in Lac-Mégantic, Quebec that killed 47 people, and a 2009 ethanol train accident in Cherry Valley, Illinois that killed one and injured several others. As such, the primary stated purpose of the proposed rule is the safety of transporting by rail crude oil and ethanol, as well as other flammable liquids, such as acetone and butanone, though derailments and other rail accidents involving these materials have not been a major issue to date.

The proposed rule would establish new standards for the construction of tank cars used to handle highly flammable liquids, and for the retrofit or phase-out of older tank cars. It would also require enhanced sampling and testing by shippers to ensure better classification and characterization of mined gases and liquids, as well as operating restrictions for the railroads transporting flammable liquids.  

Comments by the railroad industry were generally supportive of the proposed rule (other than proposed new electronic brake requirements), as the proposal is reflective of the voluntary restrictions agreed to between the Association of American Railroads (for the larger Class I U.S. railroads) and the Department of Transportation last February. Comments submitted by a wide range of industries during the public rulemaking process took issue with the proposed rule's approach, however. Groups such as the American Petroleum Institute, the Railway Supply Institute, the American Chemistry Council and the Chlorine Institute raised a variety of concerns.

For example, the proposed rule incorporates many new restrictions and requirements for "high hazard flammable trains" or "HHFTs," defined as a train carrying 20 or more tank cars of flammable liquids. Based on that definition, many trains that comprise a mix of tank cars containing flammable liquids and others with different non-flammable chemicals can (and would) qualify as an HHFT, meaning the new restrictions and requirements would apply to these tank cars as well.

Similarly, the proposed rule envisions a number of new tank car models that would potentially be required for any cars that are part of an HHFT, but shippers of non-flammable chemicals may be unaware if their tank cars will ultimately be included as part of an HHFT. Thus, the proposed rule would essentially create a scenario in which all chemical shippers are forced to utilize the new tank car models in order to ensure they will not be in violation if the cars end up as part of an HHFT. Additionally, the proposed rule would impose new speed restrictions on HHFTs, raising serious concerns of a slowdown throughout the entire rail network, which is already dealing with continued service issues and the impacts of increased traffic from oil shipments.[2] 

Commenters also questioned how PHMSA conducted its regulatory impact analysis and estimated certain costs. Several stakeholders argued that PHMSA should have looked beyond the crude oil and ethanol industries, and adequately accounted for the impacts that the proposed rule will have on all of the industries involved in rail shipment of other materials. Others argued that PHMSA grossly underestimated the costs of complying with the proposed rule. For example, the proposal includes a requirement for each HHFT to have advanced electronically controlled braking systems, and railroad commenters said PHMSA underestimated how much it will cost the railroad industry to comply with this requirement by at least $2 billion.

Finally, commenters took issue with PHMSA's estimates of future incidents that would occur if the proposed rule is not finalized. According to PHMSA, these estimates include 15 mainline derailments in the next year and 10 catastrophic accidents with costs exceeding $1 billion in the next 20 years. However, commenters argue that these projections are little more than inappropriate and baseless speculations.

It remains to be seen whether these comments will have any influence on the final version of the rule. The comment period closed on September 30, 2014, and PHMSA is now in the process of reviewing the comments. A final rule is expected sometime next year.

If you have any questions about the subject matter of this article, please contact Environment, Energy & Natural Resources attorney Jane Luxton (202-572-8674 | jluxton@clarkhill.com), Transportation attorney Eric Hocky (215-640-8523 | ehocky@clarkhill.com), or your Clark Hill attorney.

 

[1] 79 Fed. Reg. 45015.

[2] The Surface Transportation Board has an ongoing proceeding to address the rail service issues and has recently required increased reporting of service metrics by Class I railroads.  See U.S. Rail Service Issues, STB Docket No. EP 724.