Despite challenging oil prices and a decrease in the volume of crude oil traveling by rail,[1] recent events have renewed the spotlight on crude-by-rail (CBR) transportation. First, two trains derailed in Wisconsin last weekend – one carrying ethanol and the other hauling crude oil.[2] Second, the Pipeline and Hazardous Materials Safety Administration (PHMSA) reaffirmed its commitment to its CBR Rule.

Although the Wisconsin derailments resulted in no injuries, the crude oil derailment caused home evacuations and spilled roughly 1,000 gallons, and the ethanol derailment spilled an estimated 20,000 gallons directly into the Mississippi River. The incidents will likely refocus public and special interest group ire on CBR at a sensitive time when the fate of the CBR Rule rests with the judicial system.

PHMSA recently rejected administrative appeals from four trade associations and a consortium of Indian Tribes to the CBR Rule. The rejection closes one potential avenue of relief for parties affected by the rule. Now, affected parties must turn their hopes to the courts or Congress for any reformation to or repeal of the new rule.

What does PHMSA’s rejection mean?

PHMSA’s denial of the administrative appeals means that the agency likely will not take any action outside a mandate from the courts or Congress to alter the CBR Rule. Although affected parties should not be surprised by PHMSA’s rejection of the administrative appeals, PHMSA’s actions move the rule one step closer to surviving the post-issuance minefield intact.

Under PHMSA’s regulations, an affected party can file an administrative appeal to challenge a final rule.[3] An administrative appeal does not stay the effectiveness of a final rule,[4] but it does provide affected parties a quick and relatively inexpensive – compared to Administrative Procedure Act litigation in a federal court – opportunity to convince the agency to change its own rule.

Four trade associations appealed the CBR Rule to PHMSA – the Dangerous Goods Advisory Council (DGAC), American Chemistry Council (ACC), Association of American Railroads (AAR), and American Fuel and Petrochemical Manufacturers (AFPM). Collectively, the associations asked PHMSA to alter the final rule in a number of ways.

Noticeably absent from the appealing associations is a direct representative of shippers or producers of crude oil – although the American Petroleum Institute (API) has filed suit against the rule in the United States Court of Appeals for the District of Columbia Circuit. As a result, the appeals appear to augment a growing schism between the parties affected by and challenging the rule,[5] separating the chemical industry, tank car manufacturers, and the railroads from shippers and producers of crude oil.

The chemical industry asked PHMSA to narrow the scope of the CBR Rule to only apply to tank cars shipping crude oil and ethanol in a high-hazard flammable train (HHFT).[6] DGAC’s and ACC’s arguments do not challenge the CBR Rule’s applicability to crude oil and ethanol, but rather have transitioned to a focus on how the rule incorrectly captures Class 3 flammable liquids[7] that allegedly do not pose the same danger as crude oil or ethanol.

The railroad industry generally asked PHMSA to increase the final rule’s applicability and requirements for tank cars. First, AAR argued that PHMSA should eliminate the use of any DOT-111 tank cars for Class 3 flammable liquid service regardless of whether the tank car is placed in a HHFT. Second, AAR advocated for enhanced thermal protection for new and retrofitted tank cars. And third, AAR implored PHMSA to repeal the CBR Rule’s electronically controlled pneumatic (ECP) brake systems mandate. While AAR’s first and second positions appear to increase costs for tank car owners and reduce liability for the railroads, AAR’s third position has been advocated by API as well.

Where do we go from here?

With PHMSA’s rejection of the administrative appeals, affected parties must now focus on the courts and the pending challenges to the final rule in the D.C. Circuit. The court has consolidated the challenges from industry, special interest groups, and municipalities. The next deadline will be for the parties to submit briefing proposals by November 23, 2015. Considering that briefing has not begun, the court is unlikely to issue a substantive ruling until well into the first half of 2016 at the earliest.

As a backstop to the courts, however, AAR and the Railroad Supply Institute have experienced success in their lobbying efforts before Congress related to the CBR Rule. The House recently passed a highway funding bill with provisions for thermal jackets on tank cars – similar to AAR’s proposal before PHMSA – and to commission a study of the effectiveness of ECP brake systems.[8] While there appears to be some consensus between the House and Senate related to strictly related to railroad issues – like the ECP brake study – it is unlikely that oil and gas interests will be able to secure any reprieve related to the CBR Rule from the full Congress.