Replies to UP STB Petition – 04-10-09

Last Friday was the last day for comments on UP’s petition. Two Federal agencies (the Department of Transportation and the Transportation Security Administration) file their replies. Fourteen non-governmental replies were also received; three in support, nine in opposition and one that took no actual stand on the petition. The two agency replies will probably have more affect on the outcome of this proceeding, so I will deal with those separately in a posting later this week. After all, we still have ten days to wait for Union Pacific’s reply/response to the postings made to date. Then the inevitable wait for the STB decision. Instead of reviewing each of the comments in turn, as I normally do, I’ll look at the major pro and con arguments raised by all commentors. Anyone wanting to read them all can use the link provided below: In Support – American Short Line and Regional Railroad Association Association of American Railroads CSX Transportation In Opposition – Occidental Chemical Corp Shell Chemical LP Westlake Chemical Buckeye Technologies CF Industries Inc Dow Chemical DuPont PPG Joint Shippers No Stand – Springfield Terminal Railway General Observations It is not too surprising that all of the shipper comments are in opposition to the UP petition. They all have vested interests in the continuation of the broad application of the common carrier obligation. Likewise, it should not surprise anyone that the railroads would support the petition; if the STB finds for the UP petition the railroads will have a way to avoid at least some TIH shipments. The railroads have made no secret of their desire to avoid the potential liability issues associated with accidents or terrorist attacks resulting in a significant release of TIH chemicals in a densely populated area. The Springfield Terminal Railway manages to make the liability issue point without actually supporting the UP petition, or opposing it for that matter. Their middle road appears to be a pragmatic examination of the issue. They make the point that: “Rail, it appears, is the safest means of transport for these materials. It is incumbent upon all affected parties - shippers, producers and carriers - to be involved in final solutions to the risks that such transport presents.” Supporting Arguments The railroad comments filed in the last two days of the comment period address many of the same issues identified in the original UP petition. Since I have already covered those arguments I will ignore them in this posting. Instead it will be interesting to look at the issues that UP failed to include in their argument. The liability issue is never directly addressed in the UP petition. The AAR addresses this point after pointing out that the common carrier rule requires that railroads must provide service for all reasonable requests. They note that that ‘reasonable request’ is defined on a case-by-case basis by the STB. They then ask if a service request reasonable if it could result in the financial ruin of the railroad and the rail industry:

“Should an incident involving the rail transportation of TIH materials result in a release of TIH materials in or near a large populated area, the affected rail carrier could face billions of dollars in claims and potential financial ruin, jeopardizing the ‘financial soundness’ of the rail industry as well as the ‘public health and safety.’”

ASLRRA claims that each “railroad must determine whether the risk of carrying the material is reasonable in light of its ability to sustain and respond to a serious TIH unintended discharge in its operating territory”. They carry that argument to its natural conclusion; they expect the STB to adopt a standard that the “common carrier obligation docs not require Class II and Class III rail carriers to quote a rate to transport T1H hazardous materials within an HTUA if the carrier determines that it cannot do so without unreasonable risk to itself or the surrounding community”. CSX makes a novel claim in support of the petition. They note that the increasing security and safety requirements covering the transportation of the TIH chemicals place an additional burden on the railroads transporting those chemicals. They then make the claim that: “Federal policy cannot impose more and more special handling requirements and simultaneously preserve a common carrier obligation with traditional service obligations.” Opposing Arguments A number of commentors have disputed the UP’s assertion that there is an adequate supply of chlorine within 300 miles of the locations in question. In addition, Dow Chemical and other commentors note that not all chlorine is the same. Dow states that “Therefore, an industrial chlorine user may need to qualify the chlorine it purchases to ensure that it meets that user's required specifications. If not, the user must purchase from another source, which may not be the closest source.” Shell notes that there are other reasons why a consumer might want sources outside of the immediate area. They note that consumers could “see increased risk of disruption and idling of facilities due to sole supply source force majeure events or even planned shutdowns”. Other commentors have noted that weather in the Gulf Coast region is a major cause of force majeure events in that area, further reinforcing the need to have potential sources outside of the area. Further, most commentors noted that even if there were adequate supply available in the area it would not be appropriate for the Board or railroads to decide who a supplier can sell to or a consumer to buy from. Dow notes that: “UP's Petition would erect barriers to entry and the free flow of commerce by empowering either individual rail carriers or the Board to decide who can and cannot compete in particular markets. The implications of this are staggering.” Another common objection is that UP has not shown legal cause to abrogate its common carrier obligation. In fact, the letter from ‘Joint Shippers’, a group of seven associations of chemically related firms, notes that UP appeared to have confused two separate common carrier obligations; the “duty to provide rates and service terms ‘on request,’ 49 U.S.C. 11101 (b)” and the “duty to provide service ‘on reasonable request,’ 49 U.S.C. 11101(a)”. Joint Shippers claim that there are no provisions to refuse to provide ‘rates and service terms’ which is what UP did in this case. A number of commentors claim that UP requested the wrong form of relief from their common carrier obligations. Dupont notes that the “only means provided by Congress for a blanket elimination of the common carrier obligation, as requested by UP, is to obtain an exemption pursuant to 49 U.S.C. § 10502(a)”. The STB has provided commodity based exemptions in the past, but, according to the CF Industries filing, only “upon finding that they will encourage competition, promote energy conservation, and/or further other aspects of the national rail transportation policy”. None of those objectives is alleged in this case. Nearly all of the commentors have attacked the safety issues raised in the UP petition. Many note that the railroad industry has claimed in previous board testimony {Ex Parte Nos. 677 and 677 (Sub-No.1)}, that they routinely transport TIH chemicals safely. Buckeye Technologies notes that:

“Having successfully participated in preserving the right to transport chlorine and other chemicals by rail through the middle of the District of Columbia, it is odd for UP to now seek selective discretion to ignore its common carrier obligations in other metropolitan areas.”

Westlake Chemical concludes that “UP's real motivation for filing the Petition must not be safety - it can only be economic - or else UP would have sought to be permitted to cease all such routings, not just the ones that it seized on for purposes of its Petition”. Finally, commentors have addressed the safety and security issues raised in the UP petition. CF Industries claims that “, the Board has been delegated no authority to regulate either railroad transportation safety or security generally or the transportation of hazardous materials specifically, as recent court decisions have unequivocally confirmed”. PPG adds that:

“Absent any evidence by UP that existing DOT and TSA regulations are unsatisfactory or inadequate, the Board must consider those regulations to embody the appropriate balance between safety and security considerations and the public need for the transportation of TIH commodities.”

My Comments on the Comments This is already an overly long posting, so I’ll save my comments for the next entry in this series of blogs. That should be posted later this week.