At issue: Crude Oil Shipment by Rail

Despite the fact that crude oil has been shipped by rail for many years it recently has come into the news due to explosions of older tank cars. These explosions are nearly all from Bakken Crude or Tar Sand Crude shipped by rail in tank cars.

Bakken crude is volatile in its natural state. Tar sand crude is not. However, to ship tar sand crude by tank car the ore is diluted with a highly volatile liquid. In its diluted state it poses a specific danger along its path of delivery to refineries, whether by rail or truck. My suggestion, among others, presented to the Federal Railroad Administration and Federal Government is to ship tar sand crude as ore in open cars and have the dilution process take place in a protected area of the refinery property. This is currently being considered by three separate federal departments.

Concerning the current local controversy, I was asked to do the research and recommend an action for our City Council. I did extensive research and delivered the following analysis:

Report by Mayor Pro Tem Fred Strong,

City of El Paso de Robles,

On the Santa Maria Refinery Rail Project and considerations for

The City of El Paso de Robles

3-3-15 

Background:

We have been asked to consider the impacts of a proposed commercial enterprise upon the people and property within our jurisdiction and to take any action that is appropriate to protect everyone’s rights, including the health and safety of all.

The project is being proposed by Phillips 66, a publicly traded stock corporation listed on the NY Stock Exchange as PSX. Phillips 66 is a company that has grown out of various mergers and buy outs that include CONOCO, Du Pont, Chevron Chemical, Duke Energy and Tosco Corp. It is the sixth largest publicly traded oil company in the world and the third largest in the United States.

The official name of the Environmental Impact Report (EIR) for this project is “Phillips 66 Company Rail Spur Extension and Crude Unloading Project Revised Public Draft Environmental Impact Report and Vertical Coastal Access Project Assessment.” It is dated October 2014.

 The leading opponent of the project’s EIR is The Mesa Refinery Watch Group. The above mentioned EIR is over 800 pages long in great detail. The Mesa Refinery Watch Group’s Response is 70 pages long and is very critical of many of the statements made in the EIR.

Data for local consideration:

A report by CAL Fire/ San Luis Obispo County Fire Department correctly states  that “Regulations on crude traveling by rail is preempted by the Federal Government. Local government may not institute local regulations on railroads.”

On page 2 of that report #4 states, “SLO County is identified as a “high risk” of derailment in the OES document.” That is a statewide document. Further, #5 states, “Voluntary compliance measures for the railroad are not required in our county - SLO is not a ‘high threat urban area’.”

Past requests by CAL Fire for advance notification of hazardous material transportations through our area have been ignored by both shippers and common carriers.

These regulations, both mandatory and voluntary, make it very difficult for us to protect the health and safety of our citizens and property, both public and private.

We may be reduced to having to notify, in writing, the State of California D.O.T., division of Rail, and the Federal Rail Administration (the FRA division of the United States Department of Transportation) of our concerns and making a strongly worded request that they protect our people and property.

I am in process of communicating with the State and Federal DOTs regarding these concerns and what we are allowed to legally do to meet our obligations to our constituents.

It appears that the private entities concerned with this project have no compelling motivation, mandatory or voluntary, to protect our people or property.

Phillips 66’s 2012 Summary Annual Report mentions a deep commitment to personal safety, process safety, environmental excellence, reliability and cost management.” However, the projects mentioned are only those in Louisiana, Illinois and Texas. No projects in California are given the light of day.

The other most involved entity in this scenario is Union Pacific Railroad. It’s December 31, 2014 report to the United States Securities and Exchange Commission has a number of pertinent statements regarding this issue.

On page three it mentioned recent history with an expenditure of “… $2.3 billion in replacement capital to harden our infrastructure, and to improve the safety and resiliency of our network.” It goes on to say, “We also continued to make progress toward completing the federally mandated Positive Train Control project.” (p.3)

Page 6 states, “Transporting chemicals generated 16% of our freight revenue in 2014.” Those included “crude oil”. On page 7 the report notes that barges and trucks are significant competition that require U.P. To “… build or acquire and maintain our rail system…”

On page 9 it states the necessity of cooperating with, “...the American Chemistry Council” and “the American Petroleum Institute.” It goes on to say, “In cooperation with the Federal Railroad Administration (FRA) and other interested groups, we are also working to develop additional improvements to tank car design that will further limit the risk of releases of hazardous materials.”

Despite these efforts the report notes on page 10 that U.S. Law requires them to transport hazardous materials, “… regardless of risk or potential exposure to loss.” 

On page 11 the report states that the railroad is, “… subject to various claims and lawsuits “ that expose it to “… accidents involving any or all of property damage, personal injury, and environmental liability that exceed our insurance coverage.”

To protect itself, “The Company has consolidated, wholly-owned captive insurance  subsidiary (the captive),” that, “… entered into annual insurance treaty agreements that insure general liability.”

These arrangements tend to isolate the companies from liability.

The April 12, 2011, comments of U.P. before the Surface Transportation Board speak to lost earnings that cited 2008 as its peak year for investment in capital infrastructure, at $3.1 billion but it stated that they planned to expend $3.2 billion in 2011. The statement made is that capital expenditures are governed by liquidity and preservation of profits. 

Page 1 states, “If the Board were to adopt broad forced access and forced interchange measures of the sort some shippers want, though, Union Pacific would reduce investment and would have much less incentive to invest in the future.” That statement is followed by a statement that “Expanded Regulation” reduces revenues and leave U.P. with less to invest in rail infrastructure. However, on February 5th Union Pacific announced that it will invest $4.3 billion on equipment and infrastructure in 2015. That includes $450 million for positive train control as compared to $385 million in 2014 for those improvements.

Both Jim Young, past CEO, and Lance Fritz, current CEO, have emphasized that one of the foundation principles of U.P. Is safety. Both personal injury and number of incidents were reduced dramatically from 1999 through 2010 (the last year for which I have data).

The entire section of the report on planned Capital Investment and Improvement shows no projects anywhere in San Luis Obispo County. All major investment has occurred and is proposed for four basic corridors: the I-5, Central (West to East coasts from Seattle, Oakland and Los Angeles to Chicago), North-South (Chicago to Texas), and Sunset (Southern California to New Orleans). The Coast route is considered to be a secondary/relief alternative rather than a primary route for freight. Therefore, we can expect nothing more than the necessary minimum maintenance investment in the tracks through Paso Robles.

In September 2014 U.P. sent out a notice to customers on proposed rules for flammable liquid transportation issued by Transportation Secretary Anthony Foxx. These include a definition of what liquids are covered, braking system changes and reduced speed requirements.

The speed requirement of 40 m.p.h. or less apply to any train with over 20 cars carrying flammable liquids.

While Union Pacific complained earlier that increased regulation would reduce income and reduce spending, the announcement for capital expenditures in 2015 contradicts that earlier statement.

What are our realistic options?

I have contacted the leadership of the FRA regarding our options. First I’ve found out that the rules regarding crude oil shipments have not been finalized. We are a “stakeholder” and have the right to comment and have an impact upon what the final regulations will be. Those comments, to be effective, must recognize that our role is that of a supplicant not someone in control.

This area of responsibility falls to the Federal Government under its Interstate Commerce jurisdiction.

Indications at this point are that the rules that might affect us the most involve speed limits for trains containing more than 20 units of flammable liquids. That is suggested to be a 40 mile per hour speed limit to reduce the possibility of derailment. Special braking systems are also being strongly considered.

Our task could be to ask for a maximum limit on the number of cars with flammable liquids that can be transported in a single train. Also, we could ask to be redefined as a  high threat urban area due to our high risk of derailment according to the California Office of Emergency Services.

We could also consider writing letters of constructive notice that a failure to implement appropriate safety measures and enforcement procedures will create a high risk to the health and safety of our citizens and an increased potential for severe property damage within our jurisdiction.

If we decide to authorize letters of that nature, I believe they should include specific requests for action by the State in its next Statewide Rail Plan as well as appropriate recognition and requirements in the FRA’s rule making. 

Union Pacific’s “Crude-by-Rail Voluntary Safety Operating Practices” has a number of significant commitments that they are applying to “… the 46 designated high-threat-urban areas (HTUA) established by DHS regulations.” We should request that we be added to that list voluntarily by Union Pacific and should also request our addition to that list by the Department of Homeland Security (DHS).

 Additionally, U.P. states in that paper, “The railroad reaches out to fire departments as well as other responders along our line to offer comprehensive training to hazmat first-responders in communities where we operate.” We should request that training for our personnel and also ask that Union Pacific add a voluntary commitment to notify us when a shipment is scheduled through our community so that we can be on alert.

 Other jurisdictions have chosen to pass resolutions or regulations forbidding shipments of this type to come through their jurisdictions. That is a useless public relations ploy that gets a lot of publicity but achieves nothing as we do not have the right to regulate Interstate Commerce.

Following the report 

I made my recommendations:

1. The Phillips 66 proposal does not affect the train traffic through Paso Robles. Demand for petroleum determines that … not which refinery it is going to along the coast.

2. Our responsibility is to protect the safety of the people and property within our jurisdiction the best we can within existing law. Or, to enact legally permissible laws within our jurisdiction to do so.

3. We cannot interfere with interstate commerce nor occupy legal areas already occupied by the State or Federal government in that regard.

4. We can testify and make requests to the appropriate authorities for changes in State and/or Federal laws and/or regulations that we deem appropriate based upon research, reporting and public testimony.

5. We can authorize appropriate actions, including training, for our administrative staff to deal with potential situations.

6. We can utilize those mechanisms already in place by the oil industry, rail industry and government to assist us in maximizing our protective efforts.

7. I, therefore, urge that we write letters to those agencies and entities we have found to be able to effect our requests.

8. Authorize our staff to proceed with necessary efforts to train our personnel independently or in concert with nearby jurisdictions in this regard.

9. That we invest in whatever software we need to have immediate communication with the State for necessary information on train cars, loads and cargo in the event of an incident.

Available resources:

For regulations we can ask for lowered speeds for all incorporated communities, not just those over 100,000 in population, for a limit on how many tank cars containing crude oil can be strung together in any single train.

We can also ask for better braking, sidings, double tracking and tank car structural safety improvements. We could support tank car safety legislation currently being co-sponsored by Sen. Dianne Feinstein of California.

We can also independently negotiate with Union Pacific Railroad for a reduced speed, suggest 30 m.p.h., for trains carrying crude oil through the city limits of Paso Robles.

We should utilize training available from Union Pacific for dealing with incidents.

The Council Action

The City Council accepted all of my recommendations and decided to add consideration for the people and property within the city and to copy all letters to the County of San Luis Obispo as well as the indicated agencies.

The letters were sent. I personally followed up on them with the Federal Railroad Authority (FRA).

I spoke directly with Bob Lauby who heads the FRA's safety department and he referred me to the Office of Management and Budget in the White House. I communicated with them and asked for a swift release of new, meaningful regulations.

They were released within a week. This is the beginning of nearly 400 pages of new regulations:

DEPARTMENT OF TRANSPORTATION
Pipeline and Hazardous Materials Safety Administration
49 CFR Parts 171, 172, 173, 174, and 179
[Docket No. PHMSA-2012-0082 (HM-251)]
RIN 2137-AE91
Hazardous Materials: Enhanced Tank Car Standards and Operational Controls for High- Hazard Flammable Trains
AGENCY:
Pipeline and Hazardous Materials Safety Administration (PHMSA), Department of Transportation (DOT).
ACTION: Final rule.
SUMMARY: In this final rule, the Pipeline and Hazardous Materials Safety Administration (PHMSA), in coordination with the Federal Railroad Administration (FRA), is adopting requirements designed to reduce the consequences and, in some instances, reduce the probability of accidents involving trains transporting large quantities of flammable liquids. The final rule defines certain trains transporting large volumes of flammable liquids as “high-hazard flammable trains” (HHFT) and regulates their operation in terms of speed restrictions, braking systems, and routing. The final rule also adopts safety improvements in tank car design standards, a sampling and classification program for unrefined petroleum-based products, and notification requirements. These operational and safety improvements are necessary to address the unique risks associated with the growing reliance on trains to transport large quantities of flammable liquids. They incorporate recommendations from the National Transportation Safety Board (NTSB) and from the public comments, and are supported by a robust economic impact analysis. DATES: Effective date: This final rule is effective [INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER].

Those interested in seeing more can go to the Federal Government's web site for the DOT and its FRA department.

Since that time many of these requirements have been written into the current proposal for Federal transportation re-authorization legislation. Passage of some type of Bill is expected before the end of July, 2015. I am staying actively involved in this for the health, safety and general welfare of our citizens.