8 Min Read
WASHINGTON, July 14 (Reuters) - Billionaire investor Warren Buffett is set to be a chief beneficiary of a bid by Senate Republicans to weaken new regulations to improve train safety in the $2.8 billion crude-by-rail industry, a key cog in the development of the vast North American shale oil fields.
A series of oil train accidents, including the July 2013 explosion of a train carrying crude in Lac-Megantic, Quebec, that killed 47 people, led U.S. and Canadian regulators to announce sweeping safety rules in May. Among other things, U.S. oil trains are required to install new electronically controlled pneumatic (ECP) brakes.
But in late June, the Republican-controlled Senate Commerce Committee approved a measure to drop that requirement, and order years of new research to confirm the safety benefits of ECP brakes.
On Wednesday, the panel will decide whether to send the measure to the full Senate, setting the stage for a fight with Democrats who say the repeal would delay the use of feature that can help avoid catastrophic derailments and minimize the consequences of accidents that do occur.
The looming debate pits Democrats, federal regulators, safety advocates and environmentalists against the crude-by-rail industry, which claims that installing the brakes would slap an unnecessary $3 billion cost on railroads, oil refiners and other owners of rolling stock, and potentially jeopardize safety.
BNSF Railway Co, the No. 2 U.S. railroad, which Buffett owns through his Berkshire Hathaway Inc holding company, is the leading U.S. railroad for crude oil shipments, controlling three-quarters of the carload volume in 2013. Along with CSX Corp, it's also associated with the most oil train accidents, according to a Reuters analysis of incident reports.
Environmental groups estimate that 25 million Americans live near tracks traversed by crude oil shipments, making ECP brakes and other federal requirements essential to ensuring safety. Because the brakes act simultaneously on all cars and locomotives, they give train operators greater control and allow trains to stop more quickly than conventional air brakes, which slow rail cars in succession, advocates say.
"To walk away from what we know to be the best technology is pretty crazy," said Sean Dixon, an attorney with clean water advocacy group Riverkeeper.
Democrats will try to strike out the ECP amendment by offering a measure of their own when the committee meets on Wednesday, according to an aide. If the attempt fails, Democrats expect to fight the amendment on the floor of the Senate.
But the rail industry says the equipment is unreliable and could jeopardize safety, while further eroding the competitiveness of transporting oil by rail, which is already $5 to $10 a barrel more expensive than pipeline transmission.
ECP brakes are made mainly by two U.S.-based manufacturers -- New York Air Brake, the U.S. unit of Germany's Knorr-Bremse AG, and Wabtec Corp. While a New York Air Brake official said ECP technology is reliable, the company has said that ECP brakes aren't a solution for oil trains because most derailments are caused by a broken track, wheel or axle, and ECP brakes can't stop an accident once a train starts to derail.
"It's the wrong solution for the problem," company president Mike Hawthorne told Reuters.
Wabtec officials did not return phone calls.
The most forceful lobbying against ECP brakes has come via the Association of American Railroads, a trade group that represents more than 20 freight railroad companies, including BNSF and CSX, Congressional staff said.
AAR's aim "is anything that results in delaying, diluting or ultimately overturning the regulation," one Democratic Senate aide said.
AAR has spent $14.5 million since 2012 lobbying Congress and the administration, including topics related to the crude-by-rail business, according to Senate records reviewed by Reuters.
Among individual railroads, BNSF was the top lobbyist, having spent $12.7 million since 2012. Buffett also has a small stake in oil refiner Phillips 66, an owner of oil tank cars that has spent $6.4 million lobbying Congress.
BNSF's closest lobbying rival is Union Pacific Corp at $7.5 million. Canadian National Railway Co, CSX, and Norfolk Southern Corp have each spent between $3 million and $4 million during the same period. Union Pacific is the biggest U.S. railroad, while CSX is third and Norfolk Southern is fourth.
The records don't break down how much these companies spent specifically on oil train regulations and related issues.
BNSF lobbies the government on a range of issues, and crude-by-rail represents a small part of those efforts, spokesman Michael Trevino said. He also said the company supports the study and testing of ECP brake technology before implementation.
Berkshire Hathaway did not immediately respond to a request for comment. A Phillips 66 spokesman said the refiner is committed to being a "safety leader" and will comply with the new oil train standards.
AAR has asked the U.S. Department of Transportation to throw out the brake requirement and enhance other security measures involving tank cars. AAR President and Chief Executive Officer Edward Hamberger declined to comment because the group's appeal is pending. An AAR official said the group made sure lawmakers had "pertinent information" about the issue.
The series of oil train explosions in recent years follows a boom in U.S. shale oil production, notably in the Bakken region of North Dakota. Bakken crude has helped reduce U.S. dependence on foreign oil but is also considered more volatile and flammable than heavier crudes.
Because the landlocked Bakken region is not easily accessed by oil pipelines, rail provides the main transportation route. The result has been a bonanza in the crude by rail business. Shipments surged to more than 350 million barrels in 2014 from less than 680,000 barrels in 2008, according to industry data.
BNSF has been the biggest beneficiary. In 2013, the railroad hauled 324,206 carloads of crude oil, about three quarters of the industry's total volume of 435,560 carloads, according to data provided by the company and AAR.
But BNSF also has been involved in six of the 18 U.S. oil train derailments since the Lac-Megantic disaster, second only to CSX, which has had seven. The latest BNSF derailment was in Heimdal, North Dakota, on May 6. Ten cars left the rails. The crude caught fire, forcing the town of 40 to evacuate.
The Transportation Department disputes the industry's claim that the new regulations would cost $3 billion: over 20 years, officials say the cost would be $492 million, offset by $426 million to $1.7 billion in benefits.
Without the ECP brake and other new federal safety rules including thicker tank car hulls, damages from "high consequence events" could reach $12.6 billion over the next 20 years, the department says.
Senator John Thune of South Dakota, who chairs the Senate Commerce Committee and authored the ECP repeal measure, was not available to comment. Frederick Hill, the committee's Republican spokesman, said the measure would still require railroads to equip oil trains with ECP brakes beginning in 2021 should new research demonstrate the technology's benefits.
Reporting by David Morgan. Editing by So Young Kim and John Pickering