If an oil train derailed in Washington and dumped most of its cargo, cleanup costs could exceed $775 million, according to documents BNSF Railway Co. provided to the state.
But BNSF – the largest rail shipper of crude oil to Washington refineries – declined to provide information about its insurance coverage for releases of hazardous materials. Instead, company officials referred state regulators to BNSF’s annual report, which lists 2015 revenues of $22 billion but includes a risk statement that says the cost of a catastrophic event could exceed the railroad’s insurance limits.
For the first time, railroads hauling crude oil through Washington were required to report the estimated cleanup cost for a “reasonable, worst case” spill and provide insurance information and other financial assurance of their ability to cover the costs. However, the state can’t force federally regulated railroads to comply with the new rule.
“It looks like they met the letter of the law,” said Jason Lewis, transportation policy adviser for the Washington Utilities and Transportation Commission, in response to questions about the completeness of the company’s filing.
Lewis said the information provided is helpful to the state, cities and first-responders preparing for the increased crude-by-rail shipments from North Dakota’s oil fields and Alberta’s tar sands to Western Washington refineries.
Railroads’ ability to pay cleanup costs has been in the spotlight since 2013, when a fiery derailment killed 47 people in Lac Megantic, Quebec, and destroyed the downtown. The explosion caused more than $3 billion in damage. The short-line railroad hauling the crude oil filed for bankruptcy protection because it didn’t have enough insurance to pay the claims.
In 2014, the Washington Legislature directed the state Department of Ecology 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’s crude oil shipments result in two or three oil trains passing daily through Spokane. Using a state-mandated formula, the railroad calculated the estimated cleanup costs based on an accident in which its largest oil train would lose nearly 60 percent of its cargo. That’s about 46,000 barrels of oil, or about 2 million gallons.
Union Pacific also ships a limited amount of crude oil through the state. Its oil trains are slightly smaller, with estimated cleanup costs of $724 million for a worst-case spill.
The projected costs refer to environmental cleanup, not property damage or personal injury claims. Both railroads said trying to calculate cleanup costs from a hypothetical accident poses difficulties, since cleanup costs vary based on individual circumstances.
Officials from both BNSF and UP said that while they didn’t provide insurance information to the state, financial data in their annual reports should assure state regulators and the public about their ability to pay cleanup costs in the event of a spill.
Releasing information about insurance policies would reveal proprietary information, Justin Jacobs, a UP spokesman, said in an email.
“The intent was to show means necessary to cover a worst case spill,” said BNSF spokeswoman Courtney Wallace. “… we feel the company’s financials show BNSF can meet this threshold.”
The U.S. Department of Transportation is initiating a study this spring on appropriate insurance levels for railroads transporting crude oil and other hazardous materials.
The topic has been under discussion for several years, Lewis said.
In a 2012 letter to the federal Surface Transportation Board obtained by the state, UP said its commercial insurance policy topped out at $1.2 billion for releases of hazardous materials. The information was part of a document discussing UP’s difficulty in obtaining enough insurance to cover the potential release of chlorine gas in the event of a terrorist attack on railcars in a major metropolitan area. Such an attack could trigger billions of dollars in potential claims, according to insurance companies.