WSR 16-05-032

PERMANENT RULES

[Docket TR-151079, General Order R-584—Filed February 9, 2016, 11:03 a.m., effective March 11, 2016]

In the matter of amending and adopting rules in chapter 480-62 WAC, relating to rail safety.

1 STATUTORY OR OTHER AUTHORITY: The Washington utilities and transportation commission (commission) takes this action under Notice No. WSR 15-22-105, filed with the code reviser on November 4, 2015. The commission has authority to take this action pursuant to RCW 80.01.040, 80.04.160, 81.24.010, 81.53.010, 81.53.240, and chapter 81.44 RCW.

2 STATEMENT OF COMPLIANCE: This proceeding complies with the Administrative Procedure Act (chapter 34.05 RCW), the State Register Act (chapter 34.08 RCW), the State Environmental Policy Act of 1971 (chapter 43.21C RCW), and the Regulatory Fairness Act (chapter 19.85 RCW).

3 DATE OF ADOPTION: The commission adopts this rule on the date this order is entered.

4 CONCISE STATEMENT OF PURPOSE AND EFFECT OF THE RULE: RCW 34.05.325(6) requires the commission to prepare and publish a concise explanatory statement about an adopted rule. The statement must identify the commission's reasons for adopting the rule, describe the differences between the version of the proposed rules published in the register and the rules adopted (other than editing changes), summarize the comments received regarding the proposed rule changes, and state the commission's responses to the comments reflecting the commission's consideration of them.

5 To avoid unnecessary duplication in the record of this docket, the commission designates the discussion in this order, including appendices, as its concise explanatory statement. This order provides a complete but concise explanation of the agency's actions and its reasons for taking those actions.

6 REFERENCE TO AFFECTED RULES: This order amends and adopts the following sections of the Washington Administrative Code: Amending WAC 480-62-130 Application of this chapter and 480-62-300 Annual reports—Regulatory fees; and adopting WAC 480-62-260 First-class cities opt-in and 480-62-270 Safety standards at private crossings.

7 PREPROPOSAL STATEMENT OF INQUIRY AND ACTIONS THEREUNDER: The commission filed a preproposal statement of inquiry (CR-101) on May 20, 2015, at WSR 15-11-092. The statement advised interested persons that the commission was considering a rule making to implement provisions of ESHB 1449, passed and signed into law in the 2015 legislative session, including a provision that adopts a requirement that railroads hauling crude oil must report information about their financial responsibility in the annual reports they submit to the commission. The commission also informed persons of this inquiry by providing notice of the subject and the CR-101 to everyone on the commission's list of persons requesting such information pursuant to RCW 34.05.320(3), and by sending notice to all railroad companies operating in the state and the commission's list of transportation attorneys. The commission posted the relevant rule-making information on its web site at www.utc.wa.gov/151079. Pursuant to the notice, the commission received written comments on June 22, 2015, and convened a workshop for interested stakeholders on July 8, 2015.

8 On August 21, 2015, the commission issued a notice soliciting written comments from stakeholders on draft rules by September 21, 2015, and notice of second workshop on October 1, 2015.

9 On September 28, 2015, the commission issued a notice cancelling the October 1, 2015, workshop.

10 NOTICE OF PROPOSED RULE MAKING: The commission filed a notice of proposed rule making (CR-102) on November 4, 2016, at WSR 15-22-105. The commission scheduled this matter for oral comment and adoption under that notice at 1:30 p.m., Wednesday, January 6, 2016, in the Commission's Hearing Room, Second Floor, Richard Hemstad Building, 1300 South Evergreen Park Drive S.W., Olympia, WA. The notice provided interested persons the opportunity to submit written comments to the commission by December 7, 2015.

11 CONTINUED NOTICE OF PROPOSED RULE MAKING: The commission filed a continuance of the notice of proposed rule making (CR-102) on December 29, 2015, at WSR 16-02-020. The commission rescheduled this matter for oral comment and adoption under Notice No. WSR 15-22-105 at 2:00 p.m., Thursday, January 7, 2016, in the Commission's Hearing Room, Second Floor, Richard Hemstad Building, 1300 South Evergreen Park Drive S.W., Olympia, WA.

12 WRITTEN COMMENTS: The commission received written comments in response to the WSR 15-22-105 notice from Jean M. Avery, Washington Department of Ecology (ecology), Columbia Riverkeeper, Friends of the Columbia Gorge, ForestEthics, Sierra Club Washington Chapter, The Lands Council, Washington Environmental Council, and Washington Physicians for Social Responsibility, BNSF Railway Company (BNSF), Union Pacific Railroad Company (UPRR), Fred Millar, and Senator Christine Rolfes. Summaries of all written comments and commission's responses are contained in Appendix A, shown below, and made part of this order.

13 RULE-MAKING HEARING: The commission considered the proposed rules for adoption at a rule-making hearing on January 7, 2016, before Chairman David W. Danner, Commissioner Philip B. Jones, and Commissioner Ann E. Rendahl. The commission heard comments at the hearing from Pat Dickason, Daniel McCabe, Robert Mack, Janet Lind, Sally Jacky, Matt Petryni, Alex Ramel, Matt Krogh, Don Steinke, Laura Ackerman and Hector Gruncaum.

14 SUGGESTIONS FOR CHANGE THAT ARE REJECTED/ACCEPTED: The commission proposed rules to cover three areas: (1) Establish minimum safety signage requirements at private crossings along oil train routes and commission inspection of those crossings; (2) permit first-class cities to opt into the commission's grade crossing inspection program should they choose to do so; and (3) require railroad companies to submit information to the commission concerning a company's ability to pay to cleanup a reasonable worst case spill resulting from the railroad's transportation of crude oil in Washington.

15 Written and oral comments suggested changes to the proposed rules. The commission received comments from Ms. Avery, UPRR, and the City of Tacoma concerning WAC 480-62-270, the proposed rule establishing safety standards at public crossings. The remaining comments concerned the language in the proposed rule establishing the reporting requirements for railroad company financial responsibility. The suggested changes and the commission's reason for rejecting the suggested changes are included in Appendix A. The commission also provides the following additional explanation for adopting the proposed rule that implements the statutory requirement that railroad companies report on their ability to pay the clean-up costs of a reasonable worst case spill.

16 The commission "possesses only those powers granted by statute."1 The legislature has directed the commission to require railroad companies to include in the annual reports they file with the commission "a statement of whether the railroad has the ability to pay for damages resulting from a reasonable worst case spill of oil, as calculated by multiplying the reasonable per barrel cleanup and damage cost of spilled oil times the reasonable worst case spill volume as measured in barrels."2 This is strictly a reporting requirement. The statute expressly prohibits the commission from using the information in this statement as a basis for penalizing the company,3 assigning liability to the company, or establishing liquidated damages for a spill or accident.4

17 Our charge, then, is to determine and give effect to the legislature's intent.5 The rules of statutory construction require that we discern the plain meaning of the statute by looking to "the ordinary meaning of the language at issue, the context of the statute in which the provision is found, related provisions, and the statutory scheme as a whole."6 The statute obligates railroad companies to report their ability to pay the "cleanup and damage cost of spilled oil" resulting from a "reasonable worst case spill." The legislature, however, did not define those terms.

18 The commission received many comments on the meaning of "reasonable worst case spill" and "cleanup and damage cost of spilled oil." Railroad companies contend that the rule the commission has proposed is flawed and that the legislature's reporting requirement is preempted by federal law.7 Other commenters maintain that the proposed rule underestimates both the potential for the amount of oil that will be spilled as a result of rail accidents and the damages associated with such spills.8 Given the lack of consensus on the plain meaning of "reasonable worst case spill" and "clean up and damage cost of spilled oil," we apply the rules of statutory construction to determine and give effect to the legislature's intent when it used those terms.

19 We find it helpful to begin our analysis with some context. The genesis of the financial responsibility obligation in the statute and the legislature's use of the term "reasonable worst case spill" is the oil transportation study (study) led by ecology at the direction of the 2014 legislature.9 The governor tasked ecology with analyzing oil transportation by ship and rail and developing recommendations to enhance safety and environmental stewardship.10 The study recommendations include extending ecology's certification of financial responsibility program11 to railroads, requiring railroads to demonstrate a financial ability to pay for costs and damages of an oil spill into Washington waters. The governor incorporated this recommendation into the original draft of HB 1449, the legislation he requested based on the findings and recommendations in the study. The legislature amended this provision to require only that railroads submit this information as part of their annual reports to the commission. The legislature also required that railroad companies report only on their ability to pay for a "reasonable worst case spill."

20 In this context we examine the language of the phrase "reasonable worst case spill." Merriam-Webster defines a "worst case" as one "involving, projecting, or providing for the worst possible circumstances or outcome of a given situation."12 The legislature has defined "worst case spill" in the context of vessel oil spill prevention and response as "the largest foreseeable spill in adverse weather conditions."13 The statute at issue here, however, adds the word "reasonable" to modify "worst case spill." "Reasonable" is a common term in the law and is generally defined as "fair, proper, just, moderate, suitable under the circumstances" and "[n]ot immoderate or excessive."14 Similarly, Merriam-Webster defines "reasonable" as "not extreme or excessive."15 The term "reasonable worst case spill" thus is ambiguous because of the inherent conflict that arises from modifying an extreme - worst case - with an adjective that means "not extreme."

21 We nevertheless must give effect to all of the language in the statute.16 We resolve the inherent conflict between "reasonable" and "worst" by interpreting "reasonable worst case spill" to mean a foreseeable oil spill that, while not as devastating as the worst possible incident, is nevertheless of high consequence and would have a significant impact on the citizens of this state.

22 To give practical meaning to that definition, we look to the federal agencies charged with regulating railroads, the Pipeline Hazardous Materials Safety Administration (PHMSA) and the Federal Railroad Administration (FRA). Those agencies engaged in a rule making to establish enhanced tank car safety standards. That proceeding resulted in the most complete and exhaustive regulatory analysis available to examine all factors associated with the enhanced tank car rule.17 PHMSA and the FRA developed the rule by calculating the results of "high consequence events," which "would cause greater environmental damages than a typical derailment."18 PHMSA then applied data from the incident in Lac Mégantic, Quebec, the most catastrophic crude oil car derailment in North America,19 which PHMSA scaled down to approximate the results of a high consequence event.

23 We find that PHMSA's approach to determining "high consequence events" is reasonable. The commission, therefore, has quantified a "reasonable worst case spill" based on PHMSA's scaled down approach.20 As part of that approach, PHMSA calculated that the likelihood of high consequence events varies directly with the square of the train's speed - the faster a train is traveling, the higher the percentage of tank cars that are likely to derail and spill the oil they are carrying.21 That determination is based on the assumption that all loaded unit trains are of equal mass and that the kinetic energy (i.e., energy associated with motion) generated by a unit train in motion will be a key factor in predicting the number of cars in a possible derailment,22 as well as the potential release of oil23 and extent of the damage24 from oil to those cars and surrounding area. Accordingly, our rule requires each railroad company to calculate the amount of oil involved in a reasonable worst case spill through a formula that takes a percentage of the unit train, based on the highest operating speed of the train when moving oil, and multiplies that percentage by the company's largest train load of crude oil, measured in barrels, moved in the previous calendar year.25

24 Railroad industry commenters in this rule making contend that PHMSA's approach is overstated and inapplicable. They propose that the commission determine a reasonable worst case spill based on the most probable number of tank cars derailed or on an historical analysis of the average number of tank cars that have derailed. We reject that proposal. Had the legislature intended that the commission determine "the most probable" or "historic average" oil spill, the statute would have used those terms. Instead, the legislature used the term "reasonable worst case spill" - a term not limited to historical averages or upon probability derivatives based upon this history. The commission must give meaning to the statutory language, and we reject the railroads' proposal as being inconsistent with that language. PHMSA's approach, although developed in a different context, provides an appropriate methodology for defining a "reasonable worst case spill."

25 Other commenters urge the commission to recognize that far worse oil spills are more likely than the "high consequence events" that PHMSA has calculated. They recommend that we use the events in Lac Mégantic as the basis for calculating a reasonable worst case spill. Again, we decline that recommendation. We certainly are aware that Lac Mégantic was the worst oil by rail spill in North America, and that even more disastrous spills are conceivable. The legislature, however, did not authorize the commission to gather information on railroad companies' ability to pay the costs of a worst case spill. Rather, we may only determine what constitutes a reasonable worst case spill, and the PHMSA approach comports with that legislative direction.

26 Just as the legislature limited the commission to assessing what constitutes a "reasonable worst case spill," we must determine the "cleanup and damage cost of spilled oil." The plain meaning of this phrase is that the commission must consider costs associated with cleaning up the spilled oil and compensating for the damage caused by that oil. The damage, however, must result from "spilled oil." As we explain below, we do not interpret that term to include personal injury, property damage, and other liabilities resulting from a fire or explosion, rather than from the spill itself.

27 As part of the commission's analysis, we looked at numerous sources to determine the reasonable cost of cleaning up spilled oil and the range of compensation for damages caused by such a spill. These sources included, but were not limited to, ecology's contingency plan rule making,26 California Contingency Plan Rulemaking,27 and railroad derailment data and clean-up costs.28 The commission also reviewed and considered stakeholder comments, and we ultimately concluded that the data compiled by the federal government as part of its enhanced tank car rule making was the most reliable and therefore reasonable.

28 The literature on the subjects of clean-up costs and damage assessments identified in the PHMSA and FRA proceeding was both comprehensive and well-analyzed. It found that the weighted average of the cost estimates per gallon of spilled crude oil, including marine, pipeline, and rail spills, is $407 to $415.29 PHMSA's final regulatory impact analysis for the federal enhanced tank car rule estimated that costs for crude oil cleanup for rail carriers was $200 per gallon, but "the review found that damages could be as high as twice that amount for crude oil spills."30 In addition, a 1999 study estimated a cost of $326 per gallon for cleanup alone,31 and a 2012 study showed a clean-up cost of $378.34 for crude oil by rail.32 PHMSA recognized that it is unlikely that any of these estimates capture the comprehensive societal damages that result from these incidents.33

29 The commission finds that the weight of the available evidence supports a minimum estimate of "cleanup and damage cost of spilled oil" of $400 per gallon or $16,800 per barrel. Accordingly, the rule we adopt requires railroad companies to demonstrate their ability to pay the costs to cleanup a reasonable worst case spill of oil, calculated as $16,800 per barrel multiplied by the percentage of barrels in the largest train load of crude oil likely to be spilled.34 While this assessment has been criticized by several stakeholders, none of them offered specific reasonable alternatives to the PHMSA analysis.35

30 Several commenters contend that these costs are far too low. They point to the billions of dollars in loss resulting from the Lac Mégantic incident and to the enormous devastation and resulting costs that would result from a spill in any of the state's waterways that trains carrying oil parallel or cross. As PHSMA observed, however, an event like Lac Mégantic "would not be representative of damages from a typical accident or even a high consequence accident."36 We agree with PHMSA on this point. As discussed above, promulgating a rule based on the incident in Lac Mégantic would exceed the commission's authority under RCW 81.04.560. The legislature did not establish a specific benchmark for the commission to determine the magnitude of oil spills and scope of damages. Accordingly, we must employ our expertise and discretion to make those determinations, and we conclude that our rule reasonably does so based on the information available.

31 We recognize that even cleanup and damage costs of spilled oil likely would be much higher if a spill occurs in areas close to the Columbia River, Puget Sound, the Spokane River and tributaries, or any of the other environmentally sensitive areas in Washington. At the same time, however, we must have a sound and credible factual basis for any cost estimates we establish. If more evidence becomes available, especially from the relevant federal authorities such as PHMSA or FRA, we may revisit this issue in the future. For now, we believe the studies and data we cite above persuasively provide a solid foundation for the analysis and cost estimates underlying the rule we adopt today.

32 Finally, we emphasize that RCW 81.04.560 authorizes the commission only to obtain information, none of which may be used as the basis of enforcement action against the railroad companies providing it. We construe this authorization and limitation as reflecting the legislative purpose to obtain data on the hazards and financial consequences of oil train operations in Washington. We therefore seek to maximize the information the railroads make publicly available about those operations. The rule we adopt obligates the railroads to inform the commission of the largest amount of oil they transport on a train, the maximum speed of that train, and whether the company has the financial ability to pay to cleanup a reasonable worst case spill resulting from a derailment or other accident involving that train. Such information provides the commission and the public with a clearer picture of the possible perils presented by the transportation of oil by rail in Washington.

33 The recommendations the railroads and other commenters have made, on the other hand, would result in the railroads reporting less or no information about oil trains in Washington. Both sets of proposals rely on data from occurrences outside this state - an historic national average of oil train cars derailed (as proposed by the railroads) or the incident in Lac Mégantic (as others would have us use) - which would provide no real insights into what a reasonable worst case spill would look like in Washington.

34 Indeed, imposing a reporting requirement based on an incident of the magnitude of that in Lac Mégantic - or an even worse spill - would be particularly problematic in this respect. The railroad involved in the Quebec incident was unable to pay for the damage and declared bankruptcy, forcing the provincial and Canadian federal governments to fund the cleanup and damage reparations.37 Assuming a railroad company in Washington similarly did not have the financial resources to cover the billions of dollars in damages from such an incident, we expect that the company would report nothing more than a single statement to that effect. The commission would then be left with virtually no information about oil by rail operations in this state or the extent of the companies' ability to pay oil spill clean-up costs. We decline to take that path. Rather, we adopt a rule that gives full effect to the intent and purpose of RCW 81.04.560, and which will provide the commission and the public with more useful information.

35 COMMISSION ACTION: After considering all of the information regarding this proposal, the commission finds and concludes that it should amend and adopt the rules as proposed in the CR-102 at WSR 15-22-105.

36 STATEMENT OF ACTION; STATEMENT OF EFFECTIVE DATE: After reviewing the entire record, the commission determines that chapter 480-62 WAC should be amended and adopted to read as set forth in Appendix B, as rules of the Washington utilities and transportation commission, to take effect pursuant to RCW 34.05.380(2) on the thirty-first day after filing with the code reviser.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 2, Amended 2, Repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 0, Repealed 0.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.

Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0.

38 The commission amends WAC 480-62-130 and 480-62-300, and adopts WAC 480-62-260 and 480-62-270 to read as set forth in Appendix B, as rules of the Washington utilities and transportation commission, to take effect on the thirty-first day after the date of filing with the code reviser pursuant to RCW 34.05.380(2).

39 This order and the rule set out below, after being recorded in the order register of the Washington utilities and transportation commission, shall be forwarded to the code reviser for filing pursuant to chapters 80.01 and 34.05 RCW and 1-21 WAC.

DATED at Olympia, Washington, February 9, 2016.

Washington Utilities and Transportation Commission

David W. Danner, Chairman

Philip B. Jones, Commissioner

Ann E. Rendahl, Commissioner

Synopsis: The oil train safety rule making before the commission is one part of a larger effort to enhance safety around crude oil trains and mitigate, to the extent possible, risks posed by the transportation of oil by rail in the state of Washington. The commission participated in the oil transportation study (study)1, led by ecology at the direction of the 2014 legislature. The study was further tasked by the governor2 with analyzing oil transportation in regards to marine and rail along with developing recommendations to enhance safety and environmental stewardship. As a result of the study, the governor requested legislation on oil movements by marine and rail. The recommendations that the commission and ecology submitted during the study were drafted into the governor's legislation (HB [ESHB] 1449). The passage of HB [ESHB] 1449 gave the commission regulatory authority over a few key areas (private shipper property, private crossings, first class city opt-in and financial responsibility reporting) along with increasing the regulatory fee paid by the railroad industry to provide more commission railroad inspectors.

This rule making is necessary to implement ESHB 1449, as signed into law on May 14, 2015.

Private Shipper Property (not part of the rule making): Before the passage of ESHB 1449, commission employees needed an escort from FRA to enter private shipper property to conduct hazardous materials inspections. This requirement created delays in inspections and inefficient scheduling. After the passage of ESHB 1449, commission employees that are FRA-certified inspectors are able to go onto shippers property, with prior notice, to inspect any rail cars, review documents (generally located near the rail cars) and observe any loading or unloading of hazardous materials. The inspector then forwards notice of any defects to FRA for enforcement. Since 2010 there have been approximately one hundred thirty-four safety defects discovered during these inspections.

Private Crossings Along Oil Routes: Before the passage of EHB [ESHB] 1449, neither the state nor federal government had authority over private crossings. This provision allows the commission to adopt minimum safety language at private crossings along oil routes and gives the commission authority to inspect the crossings. There are approximately three thousand private crossings in the state of Washington, with three hundred fifty along the oil routes.

Increase in Regulatory Fee: The commission rail program is funded by fees paid for by the railroad industry. The current fee on railroads is 1.5 percent of the gross annual intrastate operating revenues. Existing fees do not apply to oil, since oil is considered an interstate activity. ESHB 1449 allows for an increase in the regulatory fee, up to 2.5 percent, for railroads that haul crude oil. The increase in regulatory fees allows the commission to hire additional inspectors in the areas of track, hazardous materials, motive power and equipment, signal and train control and operating practices.

First Class City Opt-In: First-class cities are exempt from the commission's railroad safety jurisdiction. However, the influx of hazardous materials and train traffic has overwhelmed the resources of some first-class cities. This provision allows first-class cities to opt-in to the commission's grade crossing inspection program. There is also a requirement that first-class cities inform the commission when crossings are opened or closed.

Financial Responsibility Reporting: ESHB 1449 requires each railroad company to provide information on the company's ability to pay for a reasonable worst case spill in its annual report to the commission. The commission is prohibited from using the information in the reports as a basis for developing economic regulations or issuing penalties against railroad companies.3

Background: There have been significant changes in the transportation of crude oil in the state. Historically, ninety percent of crude oil used by Washington refineries was delivered by tank ship. However, in 2014, pipeline and rail delivery accounted for approximately thirty percent of the oil imported. In addition to the increase in oil being imported via rail, there is a concern surrounding the volatility of some of the types of oil, like Bakken crude.4

Concerns regarding oil transportation led the legislature to authorize the oil transportation study in April 2014. The objective of the study was to analyze the risks to public health and safety associated with the transport of oil in Washington. Final recommendations were delivered to the legislature and governor in March 2015. Prior to completion of the study, in October 2014, Governor Inslee requested a preliminary set of recommendations regarding oil transportation. The commission provided a list of recommendations that were incorporated into governor-request legislation (ESHB 1449) and ultimately signed into law.

Notice of Opportunity to File Written Comments: On May 22, 2015, the commission published a "Notice of Opportunity to File Written Comments" and distributed it to the list of rail stakeholders on file at the commission, those individuals that signed up and/or testified at one of the legislative hearings on oil by rail, the railroads in the state and legislative staff. The commission also posted it on its web site. The notice served the purpose of informing interested persons of a scheduled workshop to discuss the rule making and to ask three questions related to the rule making. The commission asked the following questions:

1. What is your definition of a reasonably likely worst case spill of oil?

2. What is a reasonable per-barrel cleanup and damage cost of spilled oil?

3. What risk factors should the commission consider in establishing safety standards on private crossings?

The commission accepted comments until June 22, 2015, and received more than two hundred forty responses. A summary of the comments are below.

Many of the comments focused on the need for the commission to stop oil trains and oil facilities, as well as the need to guarantee safety before allowing trains to transit Washington state. Federal preemption precludes the commission from stopping trains, setting train speeds or interfering with interstate commerce.

In general, comments can be summarized as follows:

1. In looking at a "reasonable worst case spill" consider:

2. Reasonable clean-up costs should be calculated at:

3. Rules for private crossing safety should include risk factors such as traffic, type of cargo and location of the crossing. Railroads suggest maintaining existing contractual relationships between the railroads and private crossing owners.

4. The commission should stop oil projects and trains completely.

5. The commission needs to keep federal preemption in mind in thinking about any new rules.

Workshop: A workshop was held at the commission on July 8, 2015. The comments received at the workshop were from the railroad industry and concerns from the Confederated Tribes of the Warm Springs Reservation of Oregon.

CR-101 Draft Language: On August 21, 2015, the commission issued draft language on opt-in for first class cities, private crossing signage standards, an increase in the regulatory fee paid by railroads hauling crude oil and financial responsibility standards for railroads that haul crude oil. The commission received comments from eight respondents.

Stakeholder Response: The comments received from respondents to the draft language can be summarized as follows:

1. First Class Cities Opt-In

a. Karen Hengerer

i. UTC should require participation.

2. Private Crossings

a. Tacoma Rail

i. Recently made significant investment to comply with federal emergency notification system (ENS) regulation 49 C.F.R. 234.

ii. Requests language that would honor investments already made on existing signage.

b. Kennewick Terminal Railroad & Western Washington Railroad.

i. Language is duplicative and conflicts with federal standards.

ii. Ninety days is not enough time to respond to a commission finding.

c. Dow Constantine

i. Supports language.

d. Confederated Tribes of the Warm Springs Reservation of Oregon.

i. Recommends installation of stop signs where no automatic grade crossing protective device is installed.

e. Johan Hellman (BNSF)

i. Supports language in the private crossing section.

3. Regulatory Fees

a. No comments received.

4. Financial Responsibility

a. Tacoma Rail

i. Kinetic energy scale-down is flawed.

ii. Consideration should be given to railroads that operate at speeds less than forty-five miles per hour.

iii. Tacoma Rail does not exceed ten miles per hour.

b. Kennewick Terminal Railroad & Western Washington Railroad

i. Item 2(d), relating to information sufficient to demonstrate a railroad's ability to pay the cost of a reasonable worst case spill, is burdensome and potentially in conflict with federal requirements.

c. Karen Hengerer

i. $400 gallon is not high enough.

d. Dow Constantine

i. Supports definition of reasonable worst case.

ii. Recommends a per-gallon cleanup of $1,880 (Lac-Megantic costs).

iii. $400 per gallon only captures cleanup and not loss of life, property damage, loss of tribal access, etc.

e. Confederated Tribes of the Warm Springs Reservation of Oregon

i. Reasonable worst case should be the largest foreseeable discharge.

ii. There should be no cap on liability.

iii. There should be a format for reimbursement to federal, state, tribal and local governments.

iv. Natural resource damage assessment should be included.

f. Johan Hellman (BNSF)

i. Concerns with the definition of reasonable worst case and clean-up costs of $400 gallon.

ii. PHMSA never defined reasonable worst case in scale-down approach.

iii. Lac-Megantic is not representative of a worst case.

iv. Numerous safety enhancements have been adopted and reduce PHMSA scale-down calculation.

v. PHMSA's scale-down costs were in the event that federal rules were not adopted.

vi. Supports using historical data to determine reasonable worst case instead of Lac-Megantic.

5. Other

a. Jeanne Poirier

i. Concerns regarding oil and coal transportation.

ii. Draft language does not go far enough.

b. Karen Hengerer

i. Rules should not be on an opt-in basis.

c. Confederated Tribes of the Warm Springs Reservation of Oregon

i. Opposed to the transportation of oil in general due to the impact to the tribe.

CR-102 Draft Language: Technical changes were made in the CR-101 draft language stage to address stakeholder comments. Some of the changes that were addressed dealt with:

Federal Action: The federal government has taken several actions that may impact the movement of oil by railroad within our state. These include:

Financial Responsibility Methodology: In its determination of financial responsibility reporting, the definition of a "reasonable worst case" spill and the scope and costs associated with cleanup, the commission staff relied heavily on the federal agencies charged with regulating the railroads and the tank cars that are used by railroads, PHMSA and FRA. PHMSA is an agency within the USDOT and is responsible for establishing and enforcing requirements for the safe transport of hazardous materials by all modes of transportation. This includes the design of railroad tank cars carrying crude oil. PHMSA was created in 2004 to provide USDOT with a more focused research organization and establish an operating administration for the inspection and enforcement of requirements for pipeline safety and hazardous materials transportation. The FRA is also an agency within the USDOT and has jurisdiction over railroad safety at the federal level. FRA was created by Department of Transportation Act of 1966 and was charged with the uniform administration of the Federal Railroad Safety Act. Under the FRA region designation, Washington is located in FRA Region 8, along with Alaska, Idaho, Montana, North Dakota, Oregon, South Dakota, and Wyoming.5

The commission was charged with defining a "reasonable worst case" spill and calculating costs for the purposes of reporting by the railroads that haul crude oil. Staff looked at the implementing legislation in determining the scope of the definition and intent. As originally drafted, the financial responsibility reporting was intended to be a certificate of financial responsibility that would be reported to ecology. The legislature amended the language to create a simple reporting function on the railroads annual report submitted to the commission. The legislature specifically prohibited any punitive actions based on the information provided and expressly stated that the report was not a means of economic regulation. Instead of defining the reporting for a "worst case" spill, the legislature used the term "reasonable worst case" for the purposes of reporting. Commission staff looked to the federal agencies charged with regulating railroads and at the conditions and requirements for a certificate of financial responsibility in determining the necessary scope for the reporting requirement. According to the Pacific States/B.C. Oil Spill Task Force, the certificate of financial responsibility requirements for the west coast states are as follows:6

In addition to reviewing the certificate of financial responsibility requirements, commission staff looked to the state of California in its recently adopted regulation on certificate of financial responsibility and contingency plan standards on railroads that haul crude oil.7 The state of California defined a "reasonable" worst case spill as "(C) Railroads: Twenty percent (20%) of the maximum volume of oil cargo that a railroad may transport by a single train within the state (e.g. a manifest train or a "unit train"), based on 714 barrels per tank car."8 Because the commission started its rule making before California's certificate of financial responsibility rule was finalized and because commission staff could not determine the methodology that California used in its regulation, staff relied on the federal enhanced tank car rule, Docket No. PHMSA-2012-0082 to determine "reasonable worst case" spill of oil and the associated clean-up costs. The data that PHMSA and FRA presented in its rule making was the most complete and exhaustive analysis available on the subject.

In determining a "reasonable" worst case for the purposes of the regulation, staff needed to look at a scenario that would be less than the worst case scenario described in the certificate of financial responsibility and less than the worst recorded tragedy in North America. However, staff did not believe that a "reasonable" worst case spill was synonymous with a most probable or an average derailment. In the United States, historical evidence of derailments show an average derailment of nine cars.9 The largest derailment of crude and ethanol in the United States is thirty-one cars.10 In looking for a comparison of "reasonable worst case," the commission noted that it is similar but not necessarily interchangeable with the PHMSA analysis of high consequence event used in the previously referenced enhanced tank car rule.

PHMSA determined that high consequence events are "events that exceed the "typical" derailment event because they would result either in multiple fatalities or injuries, or would cause greater environmental damages than a typical derailment."11 In its evaluation of criteria for calculating costs of a reasonable worst case spill, commission staff elected to use the PHMSA scale down methodology that was used in the federal Enhanced Tank Car Rule. The PHMSA approach was applied, in determining reasonable worst case, primarily for two reasons. First, the tragedy in Lac Mégantic, Quebec is to date the worst case example of a catastrophic derailment in North America involving crude oil. Using the tragedy in Lac Mégantic, Quebec as a worst case scenario seems appropriate. While it is true that a catastrophic event like what was seen in Lac Mégantic, Quebec could be exponentially worse, staff considered that the catastrophe in Quebec was the result of a number of failures, and that the USDOT has adopted regulations to ensure such an event would not happen again. Staff considered new federal regulations adopting enhanced tank car requirements to mitigate the risks associated with moving crude oil by rail. Ultimately, staff chose to move forward with the scale down approach used by PHMSA because, while there were safety measures adopted through the enhanced tank car rule, those safety measures would not be fully implemented for ten years. However, since it appears the electronically controlled pneumatic brakes may be removed from the enhanced tank car regulations, staff believes it is prudent to define a "reasonable worst case" as though there were no additional safety measures adopted at the federal level.

In applying the scale down calculation, staff accepts the PHMSA assertion that kinetic energy varies directly with the square of speed. In Lac Mégantic, the train in question was traveling at a rate of 65 mph12 and resulted in the loss of approximately seventy-eight percent of its crude oil cargo or 1.59 million gallons. PHMSA calculations on average train derailments in the United States use an average speed of forty-one mph in determining a "scale down" calculation of Lac Mégantic. While this is used to illustrate monetary assumptions, an assumption on damage should be calculated using the operating speeds in the state. Kinetic energy = 1/2 Mass x (Velocity)2. Staff agreed with the PHMSA assumption that loaded high hazard flammable trains are of equal mass. While the purpose of the kinetic force scale down calculation in the federal Enhanced Tank Car Rule was to show the projected number of high consequence events over the next twenty years in the absence of the federal Enhanced Tank Car Rule, staff believes that because it will take ten years to phase out older tank cars, and because the only mitigating factor in derailments will likely be removed, the calculation can be used to determine a "reasonable worst case."

As an example, a railroad that operates crude oil trains at a maximum speed of forty-five mph would have a reasonable worst case spill of approximately forty-eight percent.

There were a number of factors the commission staff weighed in the evaluation of the definition of "reasonable." These include comments received (Dow Constantine, Confederated Tribes of the Warm Springs Reservation, Tacoma Rail and BNSF), history of derailments, safety measures in place to prevent or reduce derailment impacts, damages of largest crude oil train, tribal impacts, implementation of the federal Enhanced Tank Car Rule, environmental impacts of a spill, consistency with federal and state standards, and regulatory authority of the commission. Staff also considered the federal agencies that regulate railroads, the data used in determining safety considerations for enhanced tank cars, existing regulations pertaining to certificates of financial responsibility and states that have adopted regulations on "reasonable" worst case spills and the cost calculation used to determine the necessary financial resources needed by a railroad.

The cost for a cleanup of a "reasonable worst case" spill was weighed using the same data. It would not seem reasonable to have a clean-up cost disproportionately greater than existing financial responsibility reporting requirements. Staff needed to determine the scope of the clean-up costs and damages as used in the legislation. Given that the financial reporting requirement started as a certificate of financial responsibility and that the term damages were not defined, staff used the certificate of financial responsibility and the final bill report as a guide. As stated in the ESHB 1449 bill report, "Railroads that transport oil as bulk cargo must provide information to the UTC regarding their ability to pay for a reasonable worst-case spill of oil, an amount which is to be calculated by multiplying the reasonable anticipated per-barrel cleanup costs by the reasonable worst case spill volume. This information is to be provided to the UTC as part of railroad's annual report, and the UTC may not use this information to economically regulate or penalize a railroad."13

In evaluating how the per barrel costs should be calculated, commission staff received comments requesting that it look towards ecology['s] past rule makings in its calculations. Ecology is in the process of adopting contingency plan standards for railroads, which commission staff supports, but available data on cleanup and damage costs by ecology do not seem to be appropriate for this reporting function. Ecology costs are more applicable to maritime. The commission will be interested in the calculations that ecology uses in its ongoing rule making.

Environmental and Socioeconomic Damage Estimates: The weighted average of these costs provides an estimate of the value that may accrue for removal on an overall per gallon basis for a large number of spills. The costs were weighted based on the share of spills in each of the sized classes. Further weighting by the shares of light and heavy oils give an average value of $124 per gallon for socioeconomic damages and $86 for environmental losses.

The commission determined that a clean-up cost of $400 per gallon should be used in determining the financial reporting, based primarily on the federal Enhanced Tank Car Rule. In determining the clean-up costs associated with a "reasonable worse case" spill, the commission looked at costs associated with the spill and did not take into account those costs outside of the spill or spill cleanup. In addition, the commission looked at the PHMSA enhanced tank car regulation, where the federal government determined that an event like Lac Mégantic "would not be representative of damages from a typical accident or even a high consequence accident."15 One recent higher consequence event was the Lynchburg, Virginia, incident which resulted in thirty thousand gallons spilled. The emergency response and clean-up costs for that incident were reported to FRA by CSX as $8.99 million. Of this $8.99 million cost, an estimated $5 million was due to environmental damage. The CSX estimate of the costs of Lynchburg results in a cost per gallon of crude of about $300.16

The weighted average of the per gallon estimates from all the federal Enhanced Tank Car Rule listed literature, including marine, pipeline and rail, is between $407 to $415 per gallon spilled of crude oil or ethanol. It is unlikely that any of these estimates capture the full comprehensive societal damages that result from these incidents.17 The PHMSA Final Regulatory Impact Analysis for the federal Enhanced Tank Car Rule stated that costs for crude oil for rail carriers was estimated at $200 per gallon but "the review found that damages could be as high as twice that amount for crude oil spills."18 Further, the 1999 Etkin19 crude oil study had a cost of $326 per gallon for cleanup and the 2012 Marruffo20 study showed a clean-up cost of $378.34 for crude oil by rail.21

Based on the available information, the commission has elected to propose a reasonable worst case definition that would use the kinetic force scale down formula, using the railroad's maximum operating speed for a train moving oil. The clean-up cost to be used in the reporting regulation is $16,800 per barrel, or $400 per gallon.

December 24, 2015