DOT Denies Request to Prohibit Shipment of Bakken Crude Oil on Older Tank Cars; Environmental Groups Push Battle to Courtroom

by Reed Smith

On December 2, 2014 following the Department of Transportation’s (“DOT”) November 7, 2014 denial of their request for an immediate ban on use of older DOT-111 or CTC-111 railcars for the shipment of crude oil from the Bakken Shale, the Sierra Club and ForestEthics (the “NGOs”), filed a petition for review in the 9th Circuit Court of Appeals. The petitioners ask the court to set aside and remand the DOT’s decision based on an alleged imminent hazard resulting from the rail transportation of crude oil and the length of time associated with the formal rulemaking process. Although the 9th Circuit denied the groups’ request for an expedited decision from the DOT less than two months prior to this petition, the pending matter could pose additional logistical, financial and legal obstacles for shippers of crude oil.

Request for Emergency Ban On July 15, 2014 the NGOs urged the Secretary of Transportation to issue an Emergency Order immediately prohibiting the use of older DOT-111 or CTC-111 railcars for shipment of crude oil from the Bakken Shale. The NGOs argue that the DOT should focus on the danger to surrounding communities posed by the DOT-111 tank cars; however, this view disregards the costs and practical aspects of an immediate ban on use of all legacy DOT-111 tank cars.

In addition to the February 2014 Emergency Order requiring all shippers to test products from the Bakken region to ensure proper classification, and the May 2014 recommendations for limiting use of legacy DOT-111 cars, the DOT issued a Notice of Proposed Rulemaking (“NPRM”) only weeks after receiving the petition.

Despite the fact that the NPRM addresses many of the DOT-111 safety issues, in September 2014, the NGOs urged the 9th Circuit to issue a writ of mandamus, seeking to force the DOT to respond to their petition within 30 days. The NGOs alleged that the DOT has taken an unreasonable amount of time to respond to their July 15, 2014 request. The court denied the NGOs’ request for an expedited response, but ordered the DOT to provide a timeline for its response to the NGOs’ petition. Rather than issuing a timeline, the DOT denied the NGOs request for an emergency ban on November 7, 2014. On December 2, the NGOs filed a petition for review with the 9th Circuit.

Proposed Regulations While the proposed regulations do not address an immediate ban on the use of older DOT-111 tank cars to ship Bakken crude oil, the NPRM proposes three options for phasing out the legacy tank cars, with a full phase-out by 2018. Therefore, if the rule is finalized as stated, shippers will have until 2018 to phase out all legacy DOT-111 tank cars. Despite the NPRM’s requirement for retrofits and operational changes to older tank cars, the NGOs claim that period for phase-out is too long, seeking an immediate ban on the grounds of an imminent hazard.

Petition for Review In their September 11, 2014 petition asking the 9th Circuit to force the DOT to respond to the NGOs’ request for an immediate ban, the groups argued that while “unreasonable” response time involves much lengthier delays of years not months, this request to the DOT is unique. The NGOs attempted to justify the immediacy of the requested ban by pointing to an imminent hazard that poses a threat to human lives created by DOT-111 tank cars. Despite these assertions, the court denied NGOs’ request for an expedited response.

In their current petition for review before the 9th Circuit, the groups ask the court to set aside and remand the DOT’s denial for an immediate ban on legacy DOT-111 cars. The petition alleges a complete failure by the Secretary of Transportation to consider pertinent evidence and past findings related to rail shipment of crude oil.

Given the complexities of the pending matter, we may not see a decision from the 9th Circuit until early 2015. In the meantime, companies should closely monitor all developments related to the proposed ban on all legacy DOT-111 tank cars, and the potential consequences and implications for shippers in the event such a ban is instituted. A ban would not only create an instant shortage of tank cars until the industry can manufacture enough tank cars to comply with the new standards, but it would also pose significant financial and operational issues for crude oil producers, shippers, and midstream transportation companies, especially in rail-dependent basins such as the Bakken.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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