Oil Refiners Cry Foul to Railroad

HOUSTON (CN) - BNSF Railway adds a $1,000 surcharge to crude oil shipments in standard tank cars, to force shippers to switch to jacketed cars that are not required by federal regulators, a trade group claims in court.

American Fuel & Petrochemical Manufacturers sued BNSF Railway in Federal Court on March 13.

AFPM is a nonprofit trade association of 120 U.S. oil refinery operators, which account for 95 percent of the nation's refining capacity.

"BNSF is the largest transporter of crude oil in North America, hauling more than 600,000 barrels per day. In the Bakken formation in North Dakota and Montana, BNSF transports more than half of the crude oil produced," the complaint states.

The trade group says a large portion of the rail cars used to ship oil in the States are known as "general purpose DOT 111" tank cars, and BNSF recently levied a $1,000 surcharge on oil shipments in the cars.

"BNSF's surcharge is imposed at the same $1,000 level regardless of how far a train travels, the geographic conditions of the shipment, or any factor other than the use of federally authorized DOT 111 tank cars," the complaint states.

The refinery operators say the safety standards that govern oil-carrying rail cars are set by the Pipeline and Hazardous Materials Safety Administration, part of the U.S. Department of Transportation.

The agency authorizes that crude can be shipped in the DOT 111 cars, but that's not good enough for BNSF, the refinery operators claim.

Starting Jan. 1 this year, BNSF began tacking on the extra fee.

"The purpose of the surcharge is to cause shippers to retrofit or retire federally authorized general purpose DOT 111 railcars. BNSF has admitted that the surcharge is intended to discourage the use of certain DOT 111s," the complaint states.

The refiners say BNSF is trying to force a phase-out of DOT 111 cars so shippers will switch to "next generation" or "jacketed" cars.

But the jacketed cars are impossible to get because "none have been manufactured yet," the refiners claim.

They want the surcharge declared "null and void and unenforceable" because it attempts to impose rules that are the exclusive domain of the Department of Transportation. They also seek an injunction against the charge.

American Fuel & Petrochemical Manufacturers is represented by Bruce Oakley with Hogan Lovells of Houston.

With the rise of hydraulic fracking, the drilling technology behind the boom in U.S. oil production, rail shipments of crude oil increased from around 10,000 carloads in 2008 to more than 400,000 in 2013, according to the Association of American Railroads.

In the past month there have been four derailments of trains hauling crude oil in North America: two in Ontario, Canada, one in Illinois and one in West Virginia.

The derailments set off massive explosions and triggered evacuations and emergency cleanups.

Due to the rash of oil train accidents, the Pipeline and Hazardous Materials Safety Administration is doing a study that could force more rigid labeling of contents and require petroleum to be shipped in newer, stronger rail cars .

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