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Government Acts to Address Safety of Rail Shipments of Bakken Crude

V&E Environmental Law Update E-communication, May 8, 2014

The U.S. Department of Transportation (DOT) issued an Emergency Order on Wednesday, May 7, 2014, requiring all rail carriers transporting large amounts of Bakken crude oil to notify state emergency management officials about the movement of the oil through their states. In addition, DOT's Federal Railroad Administration (FRA) and Pipeline and Hazardous Materials Safety Administration (PHMSA) issued a Safety Advisory strongly urging shippers and rail carriers of Bakken crude oil to use the most protective tank cars available in their fleets. The Safety Advisory also recommends that offerors and carriers, to the extent possible, avoid using older model tank cars, known as DOT-111s or CTC-111s, for the shipment of Bakken crude oil.

Emergency Order
The Emergency Order requires that within thirty days after the date of the order, rail carriers with trains containing more than one million gallons of Bakken crude oil, or approximately 35 tank cars, provide the appropriate State Emergency Response Commission (SERC) notification regarding the expected movement of such trains through the state. The notification must include: (1) the estimated volume of Bakken crude oil being transported; (2) the frequency of anticipated train traffic and the county-by-county route through which Bakken crude oil will be transported; and (3) contact information for a responsible party at the host railroad. The Emergency Order requires railroads to assist the SERCs as necessary to share the information with appropriate emergency responders in affected communities.

Any railroad carrier or person failing to comply with the Emergency Order may become subject to civil penalties of up to $175,000 for each violation or for each day it is found to be in violation. A person willfully or recklessly violating the Emergency Order may also be subject to criminal prosecution, which may result in fines, imprisonment of up to ten years, or both.

Safety Advisory
FRA and PHMSA also issued a joint Safety Advisory to the rail industry "strongly urging" the use of tank cars with the highest level of integrity in their fleet when transporting Bakken crude oil. The Safety Advisory instructs all persons who offer for transportation or transport bulk quantities of crude oil from the Bakken by rail to use tank cars with the highest level of integrity reasonably available within their fleet for shipment. In assessing tank car integrity, offerors and carriers should consider tank shell jacket systems, head shields, and top fittings protection. The notice specifically advises offerors and carriers to avoid the use of "legacy" DOT-111 or CTC-111 tank cars for the shipment of Bakken crude oil to the extent reasonably practicable. 1 The National Transportation Safety Board (NTSB) has warned that DOT-111 tank cars, which rail carriers primarily use to transport crude oil, pose a heightened risk of puncture and leakage in derailments.

Unlike the Emergency Order, the Safety Advisory on tank cars is voluntary and does not ban the use of DOT-111s. However, the advisory may set a tort liability standard that may increase potential liabilities for shippers and rail carriers that continue to ship Bakken crude oil in older DOT-111 or CTC-111 tank cars in the event of an accident.

New Rule Expected This Year
These announcements are the latest in a series of actions taken by industry and government to enhance the safe transportation of crude oil by rail. In February, railroads and industry groups, including the Association of American Railroads and American Petroleum Institute, agreed to voluntarily implement improved safety standards for shipping crude by rail, including speed reduction plans, re-routing trains around high-risk areas, new brake technology, investing in first responder training, and developing an inventory of emergency response resources.

Also in February, DOT issued an Emergency Order requiring all shippers to test product from the Bakken to ensure the proper classification of crude oil in accordance with the Hazardous Materials Regulations before it is transported by rail, while also prohibiting the transportation of crude oil in the lowest-strength packing group. In April, Transport Canada issued a protective order that gives shippers three years to phase out or retrofit the roughly 65,000 tank cars that fall short of proposed requirements. In addition, new Canada regulations require emergency response plans for all crude oil shipments, and trains carrying hazardous materials must observe speed limits of approximately 50 miles per hour.

On September 6, 2013, PHMSA issued an Advanced Notice of Proposed Rulemaking to solicit comments on revisions to the Hazardous Materials Regulations applicable to the transportation of hazardous materials by rail. PHMSA's revisions are based on eight petitions received from the regulated community and four recommendations from NTSB. The proposed rule is currently under review by the Office of Management and Budget. DOT Transportation Secretary Anthony Foxx has stated that he anticipates finalizing the regulations before the end of the year. We will continue to follow and provide updates on DOT's regulatory initiatives in this area.

For more information, please contact Vinson & Elkins lawyers Larry Nettles orGeorge Wilkinson. Visit our website to learn more about V&E's Environmental practice, or e-mail one of the practice contacts.

1 Although the Safety Advisory does not define "legacy" tank cars, it indicates that they do not exhibit modern construction or design enhancements such as "new tank car steel and improvements of structural features." The Safety Advisory might be referring to as legacy cars those tank cars ordered before October 1, 2011, which do not meet the design standards imposed by the Association of American Railroads Tank Car Committee for tank cars ordered after that date. According to the Railway Supply Institute, only 14,160 or 5.2 percent of all DOT-111 tank cars met the October 1, 2011 standard as of the third quarter of 2013.

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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.