On May 1, the Department of Transportation—through its operating agencies the Pipeline and Hazardous Materials Safety Administration and the Federal Railroad Administration—issued its final crude-by-rail rule. The rule mandates more stringent standards for newly constructed tank cars—along with the retrofitting of older ones—and imposes new operational controls for high-hazard flammable trains. Despite the new rule, congressional and regulatory scrutiny remains focused on crude-by-rail transportation as accidents continue to occur, including a derailment on May 6 near Heimdal, North Dakota.
Aside from the short- and medium-term macroeconomic effects of increasing costs and barriers to crude oil transportation from pipeline-starved shale plays, the rule imposes immediate requirements on the crude-by-rail industry. Primarily, the rule demands immediate compliance from railroads and tank car owners (e.g., new DOT-117 tank car specifications, speed limits, and braking and routing requirements).
But producers and midstream transporters—“offerors” of crude oil—did not escape unscathed. Offerors along the supply chain must implement a new program for classifying “unrefined petroleum-based products” (i.e., sampling and testing).
Why is this important? It is important because throughout the rule’s preamble the agencies reiterate their commitment to increased inspections and enforcement actions against offerors that misclassify crude oil—a potential warning of future campaigns. And violations of the hazardous materials regulations (HMR) carry a stiff civil penalty of $75,000 per violation, which can increase to $175,000 per violation if injury or property damage occurs. And the agencies have the option of potential criminal penalties, carrying additional fines and imprisonment.
So what does the rule require? The rule requires offerors to adopt a written sampling and testing program that at a minimum specifies:
- A frequency of sampling and testing that accounts for any appreciable variability of the material (e.g., history, temperature, method of extraction [including chemical use], location of extraction, time of year, length of time between shipments);
- Sampling prior to the initial offering of the material for transportation and when changes that may affect the properties of the material occur (i.e., mixing of the material from multiple sources or further processing and then subsequent transportation);
- Sampling methods that ensure that a representative sample of the entire mixture, as offered, is collected;
- Testing methods that enable classification of the material under the HMR;
- Quality control measures for sample frequencies;
- Duplicate sampling methods or equivalent measures for quality assurance;
- Criteria for modifying the sampling and testing program; and
- Testing or other appropriate methods used to identify properties of the mixture relevant to packaging requirements (e.g., compatibility with packaging, identifying specific gravity for filling packages).
Although the regulatory language leaves much clarity to be desired—for example, the rule does not specify an acceptable “frequency” of sampling and testing—there is a silver lining. The agencies will allow compliance with American Petroleum Institute Recommended Practice 3000 (“RP-3000”) to satisfy the first six requirements listed above.
But the agencies stress that “the boiling point test specified in [RP-3000] does not align with the requirements currently authorized in the HMR.” Offerors must still use the boiling point testing methods prescribed by 49 C.F.R. § 173.120 for crude oil and § 173.115 for flammable gases.
Additionally, the rule imposes new requirements for documentation, retention, review, and dissemination of the sampling and testing program. Offerors must now:
- Certify in individual shipping papers that the new sampling and testing requirements have been met;
- Document the program in writing (electronic or hardcopy);
- Retain a copy of the program for at least a year or while the program is in effect;
- Review the program at least annually and ensure that updates are made as necessary to reflect changed circumstances;
- Make a copy of the program available to all employees responsible for its implementation;
- f the program is revised, provide an updated copy to all employees responsible for the program’s implementation; and
- Maintain a copy of the program documentation for inspection by DOT.
Even with potential legal challenges to the rule brewing, offerors should implement a compliance plan to meet the rule’s new classification requirements. At a minimum, offerors should implement RP-3000 as a baseline protocol, ensure boiling point testing that complies with 49 C.F.R. §§ 173.120 and 173.115, and develop new standards for the documentation, retention, review, and dissemination of a sampling and testing program.