New state rule requires railroads to prove ability to pay for spills

Railroads that ship crude oil through Washington must soon begin reporting information about their financial ability to pay cleanup costs in the event of a spill or derailment.

Under a rule recently adopted by the Washington Utilities and Transportation Commission, Union Pacific and BNSF Railway are required to report the size of their largest oil trains and provide information about insurance policies, reserve accounts and other financial means that could be tapped for cleanup expenses.

The rules are among the first of their kind nationally.

“This information is not currently collected at the state or federal level, with the exception of California,” said Jason Lewis, transportation policy adviser for Utilities and Transportation Commission.

Railroads must submit the information by May 1 in an annual report filed with the commission, which will be available to members of the public through a public records request.

Railroads’ ability to pay cleanup costs has been in the spotlight since 2013, when a fiery derailment killed 47 people in Lac Megantic, Ontario, and destroyed the downtown. The explosion caused more than $3 billion in damage. The short-line railroad hauling the crude oil filed for bankruptcy because it didn’t have enough insurance to pay the claims.

With a growing number of trains hauling crude from North Dakota’s Bakken oil fields and Alberta’s tar sands to Washington refineries, the Legislature directed the state Department of Ecology in 2014 to prepare a study of marine and rail oil transport.

The study noted that while large oil tankers in Puget Sound must demonstrate financial ability to cover spill cleanup costs of up to $1 billion, railroads had no similar requirement.

BNSF is responsible for most of the oil-by-rail shipments in Washington, which results in two or three oil trains passing daily through Spokane. Union Pacific also ships tar sands oil from Canada though North Idaho and Spokane, plus a limited amount of Bakken crude in Washington.

Under the new rule, railroads must demonstrate their ability to pay for environmental cleanup costs of a “reasonable worst case” spill. However, the requirement doesn’t extend to property damage or personal injury claims.

“Our rule-making was limited by state statute,” Lewis said. “We do understand that true costs to the state in the event of a spill or derailment would be much higher than what we have in this rule.”

The Utilities and Transportation Commission was tasked with defining what a “reasonable worst case” spill would be. The staff looked to prior work by the Federal Railroad Administration and the Pipeline and Hazardous Materials Safety Administration, coming up with a formula based on the oil train’s size and speed of travel.

The formula “scales back” from the Lac Megantic disaster, where the runaway train hit speeds of 65 mph and lost 78 percent of its cargo, or about 1.6 million gallons of crude oil, Lewis said.

In Washington, the railroads must demonstrate that they could pay cleanup costs for one, reasonable worst-case spill.

For a BNSF oil train with 110 tank cars, traveling at a maximum speed of 45 mph, that would be $660 million, Lewis said. The assumption is that the train would spill half of its cargo if a wreck occurred at that speed.

However, the state’s ability to force railroads to comply with the rule is minimal because railroads are regulated by the federal government, not states, Lewis said.

“A lot of it is just information gathering,” he said.

Washington can’t require the railroads to provide third-party verification of the financial information they submit to the state, Lewis said. Information submitted by the railroads can’t be used as the basis for fines or other penalties, either.

Oil train opponents say they wish the rule had more force.

“It’s definitely a step in the right direction, and yet it doesn’t go far enough,” said Alex Ramel, a field director for ForestEthics, a Bellingham environmental group active on oil train issues.

People living near the tracks and Washington taxpayers need assurance that “if there is a disaster, the railroads are prepared to be responsible for it,” he said.

Ramel also wondered why the state formula assumes that oil trains will be following the speed limit when they wreck. In some recent rail disasters, out-of-control trains were traveling at much higher speeds. The train’s speed influences how much oil spills, he said.

Both Union Pacific and BNSF have expressed concerns about the rule, saying that federal regulations preempt the state’s ability to regulate railroads.

BNSF is currently reviewing the rule, said Courtney Wallace, a BNSF spokeswoman.

“This is an issue that goes beyond Washington’s borders and it is in everyone’s interest to make sure various state and federal laws work together,” she said in an email.

BNSF has never expected taxpayers to assume the expense of a cleanup after a derailment, and “we stand by the practices that have allowed us to keep that record to date,” said Wallace, who described BNSF as a “financially sound” corporate citizen with substantial assets.

Both railroads also said trying to calculate potential damages from a hypothetical accident poses difficulties. Cleanup costs for oil spills are highly dependent on individual circumstances, and don’t lend themselves to an easy, per-barrel average cost, Union Pacific officials said.