How are lawmakers responding to last week's rollout of the Department of Transportation's final rulemaking on crude-by-rail safety? During today's OnPoint, James Rubin, counsel in Dentons' global energy sector, discusses the politics of the plan and gives his expectations for subsequent rules. He also weighs in on the rule's legal defensibility.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Jim Rubin, counsel in Dentons' global energy sector. Jim, thanks for coming back on the show.
James Rubin: Always a pleasure.
Monica Trauzzi: So, Jim, late last week, the Department of Transportation released its highly anticipated final rules for crude by rail. It's a nearly 400-page document. Is it an effective response to the multiple recent derailments we've seen, both in this country and in Canada?
James Rubin: Well, it's a response. Effective will be determined by what happens next in the rule. First of all, it's a comprehensive response to the issues that DOT was looking at. They, you know, broke it down between operational controls, tank car standards and classification, but there are other issues that are out there that DOT still hasn't ruled on. There's securement, which is make sure the trains don't roll down the hill. There is their oil pollution plan, contingency plans. There are other -- and there's certain things that they didn't look at at all, so it is a very positive first step in reacting to ways of dealing with the increased traffic and trying to increase the safety standards. Whether it will be effective or not will -- I guess will determine it, but it's not -- certainly not the end. I think the -- Secretary Foxx said basically expect more.
Monica Trauzzi: So subsequent rulemaking. What are the most significant changes that you see from what we saw in the draft proposal from DOT?
James Rubin: It's interesting. This is a situation where DOT, or PHMSA, the agency that wrote the rule -- it's interesting, it's not their agency that runs the railroad. That's FRA. PHMSA definitely stepped back where it was getting criticism from the industry that it was going too far, that they couldn't build the cars fast enough, they couldn't retrofit fast enough, the cost would be too great. They made -- walked back up at places. For instance, the standards they picked for the new cars, it's not the top option, the most strict option. They made a point why, that it was not cost-effective. They walked back a bit on the retrofits. They actually chose the least of the three standards in terms of strictness, and they also gave it more time. And part of that is to actually coordinate with Canada, which is very interesting because Canada was a bit ahead of things. So they slowed it down a bit because Canada slowed down.
Other changes, they've -- they didn't change the emergency braking system for certain types of trains, which is a big issue for the industry still. They're going to be very, very upset about the cost of that. They try to make a distinction between the types of trains that would get these, but I think the biggest changes were really the walking back and the slowing down. I think that's where you're going to get a lot of flak from the environmental groups.
Monica Trauzzi: Absolutely, and we're already hearing that. One of the key sticking points is the way that they handle the old tank cars. Critics of the rules say these cars should be completely phased out and quickly, and there's legislation in Congress that would do as much.
James Rubin: And some train -- and some companies like BNSF are actually taking action now and trying to phase them out, so there's a lot going on voluntarily.
Monica Trauzzi: Yeah, so is the technology that's available to upgrade the cars rather than phase them out, is that good enough?
James Rubin: Well, again, the -- the retrofit technology, there's -- it's not brand-new technology that has to be out there. There's plenty out there. The question is do you have the capacity to fix that many cars and how quickly. The new standard comes in October, so we're talking about the new technology there because they're expecting people to start building these trains, and to the extent, you know, the industry already moved from the really old 111s, the ones that were leaky, they were concerned about, to another standard, and now this rule just kind of bulks up the industry standard. So it's not -- I think the issue here was there's some folks who just don't think these old train cars should be on the road -- on the tracks at all, and that's -- there was an environmental lawsuit in the 9th Circuit about this. A lot of folks in Congress and the Democrats started pushing against this, but the reality is you can't just take these rail cars off and move the crew. ... So something has to be on the rails. The question is for how long, and this is all about how long to keep those on. It's a pretty aggressive change that we're talking about, two to three years before these old 111s are off and then the next standard is in five years.
Monica Trauzzi: You used the word aggressive. Is it something that industry can meet?
James Rubin: Well, of course, there are plenty of industries saying they can't, but I think DOT's trying to thread the needle here and figure out what the most amount of time they can give is. Canada picked a very similar time, and I think the argument is that industry could meet this. The industry is saying that the shop time, you know, basically not enough companies are able to make these things and the cost, it might be really pushing it. It might -- what it would do is it would, you know, drive down -- it would drive up the price because there would be fewer trains ... out there. But I think the conclusion from DOT is that it's doable.
Monica Trauzzi: What are the impacts of the rule on the railway system and energy production?
James Rubin: That's a really good question. The speed is really the issue because -- and that was a very controversial thing that DOT, again, walked back a little bit on. They kind of adopted the industry standard about how fast these trains could go, and these are only talking about -- it introduces a whole new acronym -- HHFT, which does not roll off the tongue. I can't even think of how to pronounce it, but these trains have to go 50 miles an hour everywhere, and that's based on a kind of voluntary standard and order, but the -- but certain -- at certain areas where there are crowded areas of urbanization, they have to go slower than that, and the question is, if you slow down these trains, what does everybody else? So the big concern about the grain and all the other trains, because this is a very small part of the overall U.S. rail. So there is a very big concern still even these speed limits they picked are going to slow the whole system down, and that could increase the price for everything, including energy. In terms of how this rule affects energy price generally, we're only talking about refined fuel at this point, and it's unclear whether this rule will have a great impact on the price of gas. It's going to be -- it might change how you transport it, but really the price of oil is really determining where it goes and how it goes.
Monica Trauzzi: We're already hearing about a potential court challenge by industry. How --
James Rubin: And the NGOs.
Monica Trauzzi: Everyone wants to sue, but how legally defensible is the rule?
James Rubin: Now, this is, unlike some of the rules that we've been hearing about in the paper where there's questions about authority and whether we should even regulate, this is really much more in the weeds of a regulatory challenge where you've got both sides saying you've gone too far and you've got DOT somewhere in the middle. And they've really worked this issue. I think every issue that's going to be raised, DOT has a defensible claim to. There'll be issues about whether they pick the right cost or not. The RIA isn't even out for this yet, which is strange. Usually it comes with a rule, so we don't know exactly how they pick some of these costs, but because it's more of a technical rule now in a sense than some of the things we've been hearing about, I would think that the DOT's going to have a very decent chance of getting discretion and defending itself.
Monica Trauzzi: All right, and so we shouldn't expect this rule to spark the same level of controversy as some of the other rules that the administration has put out.
James Rubin: Again, you know, this isn't a question of authority. DOT ... has federal authority and it's not a question of whether we should do it. It's clearly a problem out there people are trying to address. Bipartisan support to actually do something to the rule, to try to force the rule faster. I think it'll be controversial, but it'll be controversial because it's a big important, you know, trains running through your neighborhood kind of a thing and it's made into a boogeyman. I think it will be drawn out like other regulations, but I don't expect it to get any kind of -- the acrimony that you've seen in the other rules that are going to be coming out.
Monica Trauzzi: All right. We'll end it there. Thank you for coming on the show.
James Rubin: Thank you. Thank you very much.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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