Purposeful Distraction? Unpacking the Oil Refiners' "Bomb Trains" Lawsuit vs. Warren Buffett's BNSF

On March 13, American Fuel & Petrochemical Manufacturers (AFPM) — the oil refiners' trade association — sued oil-by-rail carrying giant Burlington Northern Santa Fe (BNSF) for allegedly violating its common carrier obligation under federal law. A DeSmogBlog investigation has revealed there may be more to the lawsuit than initially meets the eye.

Filed in the U.S. District Court for the Southern District of Texas, Houston Division, AFPM sued BNSF “for violating its common carrier obligation by imposing a financial penalty” for those carrying oil obtained via hydraulic fracturing (“fracking”) in North Dakota's Bakken Shale basin and other hazardous petroleum products in explosion-prone DOT-111 rail cars.

AFPM's beef centers around the fact that BNSF began imposing a $1,000 surcharge for companies carrying explosive Bakken fracked oil in DOT-111 cars, as opposed to “safer” CPC-1232 cars, at the beginning of 2015.

The Warren Buffett-owned BNSF did so, argues AFPM, illegally and without the authority of the federal government.

“This $1,000 surcharge on certain PHMSA-authorized rail cars breaches BNSF’s common carrier duty to ship hazardous materials under the auspices of PHMSA’s comprehensive regime governing hazardous materials transportation,” wrote AFPM's legal team, featuring a crew of Hogan Lovells attorneys. “Allowing railroads to penalize companies that ship crude oil in federally-authorized rail cars would circumvent PHMSA’s statutory and regulatory process for setting rail car standards for hazardous materials shipments.”

Upon a quick glance, it seems like a fairly straight-forward case of federal law and an intriguing example of an intra-industry dispute. But as recent history has proven, the devil is in the details.

Oil and Rail Industries Still Fighting Oil Train Safety Measures 23 Years and Counting

Oil train

On the final day of the public comment period for the new proposed oil-by-rail regulations, the oil industry came out swinging. At a press conference held by American Petroleum Institute (API) president Jack Gerard, Gerard said: “Overreacting creates more challenges than safety.” 

One of the main “overreactions” Gerard and the API want to avoid is the discontinuation of the DOT-111 tank cars for transporting dangerous products like Bakken crude oil.

Based on that, you might think that banning DOT-111s is some kind of reactionary new idea, not something that’s been on the books for more than two decades.

Take this line from a 1991 National Transportation Safety Board document: “The inadequacy of the protection provided by DOT-111A tank cars for certain dangerous products has been evident for many years in accidents investigated by the Safety Board.” 

Yet, here’s the American Petroleum Institute, 23 years later arguing that halting the shipment of explosive Bakken crude oil in DOT-111 tank cars is “overreacting.”

Fox Guarding Henhouse: Oil-By-Rail Standards Led by American Petroleum Institute

How did it get missed for the last ten years?”

That was the question Deborah Hersman, chair of the National Transportation Safety Board (NTSB), posed to a panel of industry representatives back in April about how the rail industry had missed the fact that Bakken oil is more explosive than traditional crude oil.

How do we move to an environment where commodities are classified in the right containers from the get go and not just put in until we figure out that there’s a problem,” Hersman asked during the two-day forum on transportation of crude oil and ethanol. “Is there a process for that?”

The first panelist to respond was Robert Fronczak, assistant vice president of environmental and hazardous materials for the Association of American Railroads (AAR). His response was telling.

We’ve know about this long before Lac-Megantic and that is why we initiated the tank car committee activity and passed CPC-1232 in 2011,” Fronczak replied, “To ask why the standards are the way they are, you’d have to ask DOT that.”

So, now as the new oil-by-rail safety regulations have been sent from the Department of Transportation (DOT) to the White House’s Office of Information and Regulatory Affairs, it seems like a good time to review Hersman’s questions.

How did we miss this? Is there a process to properly classify commodities for the right container before they are ever shipped? 

Meeting Logs: Obama White House Quietly Coddling Big Oil on “Bomb Trains” Regulations

When Richard Revesz, Dean Emeritus of New York University Law School, introduced Howard Shelanski at his only public appearance so far during his tenure as Administrator of the White House Office of Information and Regulatory Affairs (OIRA), Revesz described Shelanski as, “from our perspective, close to the most important official in the federal government.”

OIRA has recently reared its head in a big way because it is currently reviewing the newly-proposed oil-by-rail safety regulations rolled out by the Department of Transportation (DOT) and Pipeline and Hazardous Materials Safety Administration (PHMSA).   

During his presentation at NYU, Shelanski spoke at length about how OIRA must use “cost-benefit analysis” with regards to regulations, stating, “Cost-benefit analysis is an essential tool for regulatory policy.”

But during his confirmation hearings, Shelanski made sure to state his position on how cost-benefit analysis should be used in practice. Shelanski let corporate interests know he was well aware of their position on the cost of regulations and what they stood to lose from stringent regulations. 

Regulatory objectives should be achieved at no higher cost than is absolutely necessary,” Shelanski said at the hearing.

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