PHMSA Proposes Regulations Claimed to Make Business Easier for Retailers and Transporters and Finalizes a Regulation that Could Shut Down Small Businesses

The Pipeline and Hazardous Materials Safety Administration (PHMSA) recently published two proposed regulations that may positively affect retailers and transporters, if implemented as proposed. In addition, PHMSA finalized a rule giving it the power to shut down businesses that miss payments on civil penalties.

Reverse Logistics—Comments due October 10, 2014

A Notice of Proposed Rulemaking (NPRM) published on August 11, 2014, proposes revising PHMSA’s Hazardous Materials Regulations regarding the return shipment of certain hazardous materials by motor vehicle.[1] In addition to establishing a definition for “reverse logistics,” PHMSA proposes a new section in the regulations providing an exception for materials that are transported as part of reverse logistics. The new section defines what materials are eligible for the reverse-logistics exemption, and what packaging, hazard communication, and training requirements apply to those shipments.

Currently, hazardous materials that must be shipped back to a distribution facility or manufacturer are subject to the same packaging, communication, and training requirements as the original shipment. However, PHMSA notes that “[i]n conducting enforcement actions and outreach, we have learned that these requirements are often misunderstood or overlooked.”[2]

Under the proposed rule, “reverse logistics” would be defined as, “the process of moving goods from their final destination for the purpose of capturing value, recall, replacement, proper disposal, or similar reason.” Hazardous materials transported by motor vehicle that would be eligible for the reverse-logistics exception include consumer products in hazard classes 1.4 (ammunition), 2.1, 2.2, 3, 4.1, 5.1, 5.2, 6.1, 6.2, 8, and 9, within certain quantity limitations. The proposed rule outlines modified packaging and training requirements for eligible shipments.

The proposed rule also modifies the existing exception for lead acid batteries so that used automobile batteries may be picked up from multiple retail locations for the purpose of recycling.

PHMSA expects that this regulatory change will reduce compliance costs for hazmat shippers and carriers, but does not attempt to specifically quantify these figures, relying instead on a range of estimated annual savings for training and shipment preparation. Ultimately, the rule would reduce shipping paper preparation costs and packaging costs (due to the elimination of some shipping paper requirements and material-specific markings), and placarding and training requirements (due to the elimination of placards on vehicles carrying packages affected by this proposed rule, and lessened training requirements based on the reduced level of risk posed by materials shipped in reverse logistics under this proposed rule).

The reverse logistics proposal is available for public comment until October 10, 2014.

Special Permit and Approvals—Standard Operating Procedures—Comments Due October 14, 2014

On August 12, 2014, PHMSA published an NPRM setting out the agency’s standard operating procedures (SOPs) for addressing special permit and approval applications.[3] Special permits are variances from the hazardous material regulations granted by PHMSA. An approval is written consent provided by the agency when prior consent for an activity is required. Comments on the NPRM are due by October 14, 2014.

As an initial matter, PHMSA’s rulemaking explains that the only people with the authority to issue special permits or approvals are PHMSA’s associate administrator, the associate administrator’s designee, or anyone else otherwise designated in the Hazardous Material Regulations. The proposed rule sets out PHMSA’s SOPs for addressing special permit and approval applications.[4] Reviews of special permit and approval applications are supposed to be completed within 30 days; however, PHMSA may request additional information or conduct an on-site review, which can extend the amount of time necessary for review. There are four major steps in this process:

  1. Completeness: PHMSA will determine if the applicant’s submission is complete. If a submission is incomplete, it may be rejected, and the applicant will have to re-file.
  2. Publication/Comment: If complete, PHMSA will publish special permit applications in the Federal Register for public comment. The public has 30 days to comment on new special permit applications. Approval applications are not published in the Federal Register (although issued approvals are made available on PHMSA’s website).
  3. Evaluation: The evaluation phase is the most involved part of the application process. This phase consists of two major assessment areas: a technical evaluation and a fitness evaluation.

    The technical evaluation reviews the details of the special permit/approval application to ensure that the planned operation will provide a level of safety at least equal to that specified under the Hazardous Material Regulations, or, if not specified, will adequately protect the public.

    The fitness evaluation focuses on the applicant’s history of hazardous material incidents (including accidents, enforcement actions, and similar occurrences) over the past four years. This fitness evaluation begins with an automated screening of the applicant’s history of hazardous material incidents. If the automated screening shows a significant history of such incidents, PHMSA will progress to a safety profile review, in which a fitness coordinator will conduct an in-depth review of the applicant’s fitness. If the fitness coordinator believes the applicant may be unfit, PHMSA will conduct an on-site inspection of the applicant.

    In addition, as PHMSA advised in 2012, the agency does not conduct initial fitness reviews in processing classification approvals of fireworks, explosives, organic peroxides, and self-reactive materials.[5] PHMSA’s current proposed rule would codify its 2012 guidance on this issue.
  4. Disposition: After the evaluation process, PHMSA will either approve or deny the application. If denied, PHMSA will provide a brief statement of reasons for the denial.

PHMSA believes that the proposed rule will provide shippers and carriers with increased clarity on PHMSA’s procedures, decrease delays in the special permit/approval process, and reduce industry and agency costs. In addition, PHMSA determined that because it is only incorporating its current SOPs as regulations, with amendments for clarity and efficiency, this rulemaking will only have a minor impact on special permit or approval applicants. The agency does not believe that small businesses will be affected by the proposed rule.

Failure to Pay Civil Penalties—Effective September 6, 2014

PHMSA, in consultation with the Federal Aviation Administration (FAA), Federal Motor Carrier Safety Administration (FMCSA), and Federal Railroad Administration (FRA), issued a final rule on August 7, 2014, granting these agencies authority to force businesses conducting hazardous material operations to cease all such operations when they fail to pay a civil penalty as ordered by an agency, or fail to make a scheduled payment under a payment plan.[6] The rule, which was originally proposed in September 2013,[7] was effective as of September 6, 2014, but does not apply retroactively to civil penalties due before that date. It will be codified at 49 C.F.R. Part 109, Subpart E.

From a procedural standpoint, the rule provides that 45 days after the missed due date for a civil penalty payment, or a scheduled payment in a payment plan, the agency may issue a cessation of operations order (COO). The COO will provide that the delinquent party must cease all business operations involving the transportation of hazardous materials on the 91st day after the original due date for the payment, unless one of the following occurs: (1) full payment of the civil penalty, (2) negotiation of a prepayment plan with the agency, (3) providing proof of chapter 11 bankruptcy and inability to pay the penalty, or (4) obtaining a stay from a federal court. The delinquent party has 20 days after the issuance of the COO to file a petition for reconsideration. Failure to comply with a COO can lead to additional penalties, including potential criminal action.

PHMSA determined that approximately 90% of the businesses affected by this rule would be small businesses; however, PHMSA believes that the rule will not have a significant economic impact on these small businesses, because no entity that complies with the Hazardous Material Regulations will be affected. This reasoning, of course, misses the point: the proper analysis should not focus on the rule’s effect on entities that are not subject to the rule, but rather the impact on those that are— i.e., those that do not pay civil penalties on time. In that regard, PHMSA noted that a minor economic impact is expected, because PHMSA only refers about 10 companies a year for debt collection for failure to pay a civil penalty. In reality, this rule gives these agencies significant leverage that could be brought into play in negotiations between an agency and small businesses, and makes even the smallest infraction accompanied by a penalty a potential business destroyer.


[1] 79 Fed. Reg. 46,748 (Aug. 11, 2014).

[2] Id. at 46,750.

[3] 79 Fed. Reg. 47,048 (Aug. 12, 2014).

[4] Id. at 47,062-63.

[5] See id. at 47,052, 47,062; Clarification Policy on Initial Fitness Review for Classification Approvals, 77 Fed. Reg. 39,798 (July 5, 2012). 

[6] 79 Fed. Reg. 46,194 (Aug. 7, 2014).

[7] 78 Fed. Reg. 58,501 (Sept. 24, 2013).

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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