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(ACC Mentioned) Top 50 U.S. Chemical Producers
May 11, 2015 | Chemical and Engineering News
By Alexander H. Tullo
Judging by the data in C&EN’s latest survey of the Top 50 U.S. chemical producers, 2014 wasn’t a bad year by any stretch. -
(ACC Mentioned) Udall-Vitter TSCA Bill Boosted by 14 New Sponsors
May 11, 2015 | Chemical Watch
By Dinesh Kumar
The Udall-Vitter bill to reform the Toxic Substances Control Act picked up 14 new bipartisan sponsors last week, bringing pressure on the Senate leadership to schedule an early floor vote. The bill now has 36 sponsors, about half of them Democrats. -
The Perfect Gift for Mothers
| Safer Chemicals, Healthy Families
By Alesia Lucas
Yesterday was Mother’s Day. -
Amid Gridlock in D.C., Influence Industry Expands Rapidly in the States
May 11, 2015 | The Washington Post
By Reid Wilson
Lobbyists aren’t having much luck on a gridlocked Capitol Hill — so more and more, they’re opening their wallets in state capitols around the country. Not keeping pace with the surge, say watchdog groups: the disclosure laws that are supposed to keep the influence industry in check. -
Industry Eyes Reliability Tools for EPA Carbon Plan as FERC's Role Remains Uncertain
May 11, 2015 | E&E - Energywire
By Emily Holden and Rod Kuckro
As the energy industry coalesces around two tools for preventing power outages under U.S. EPA's Clean Power Plan, federal agencies are still exploring whether they can employ them without undermining the regulation's environmental goals. -
Midwestern States Ask EPA to Set Up Regional Carbon Trading Rules to Meet Clean Power Plan
May 11, 2015 | E&E - Climatewire
States in the Midwest have asked U.S. EPA to create a set of rules for a voluntary carbon trading scheme, an option many feel would be one of the least expensive ways for states to reach emissions reductions under EPA's proposed Clean Power Plan. -
House Approval of Bill Blocking WOTUS Expected this Week
May 11, 2015 | E&E Daily
By Annie Snider
The House is slated to complete its two-pronged attack on the Obama administration's controversial water rule this week. -
Absent EPA Policy On Produced Water, Advocates Challenge CWA Permit
May 11, 2015 | InsideEPA
By Bridget DiCosmo
An environmental group is challenging Clean Water Act (CWA) discharge permits for wastewater from oil and gas operations on the Wind River reservation in Wyoming, arguing that the absence of a requirement that drillers disclose the hydraulic fracturing chemicals they use makes the agency unable to fully assess the impacts of discharging the wastewater on wildlife and livestock. -
Week Ahead: Senate Panel Launches Energy Reform Effort
May 11, 2015 | The Hill - E2 Wire
By Timothy Cama
The Senate Energy and Natural Resources Committee will formally kick off its efforts toward comprehensive energy policy reform next week, while the House Energy and Commerce Committee continues its own reform efforts. -
Former Portland, Ore., Mayor Adams Discusses New Carbon Pricing Handbook for Policymakers
May 11, 2015 | E&E - TV
As U.S. EPA moves forward with emissions regulations, how should lawmakers approach the conversation on carbon pricing? -
(ACC Mentioned) Rails to Congress, STB: “If in Doubt, Don’t”
May 11, 2015 | Railway Age
By Frank N. Wilner
Successful baseball pitchers learn to throw first-pitch strikes and stay aggressive in the strike zone when their team is in the lead. -
Records Offer a Window into Industry Push Over Crude-Safety Rule
May 11, 2015 | E&E - Energywire
By Blake Sobczak
Oil and rail industry lobbyists made frequent trips to the Department of Transportation last year as regulators worked on major crude and ethanol safety rules, records show. -
'Treated Crude' May Have Reduced Severity of N.D. Oil-By-Rail Accident
May 11, 2015 | E&E - Energywire
A shipment of oil complicit in an explosive train derailment had been treated to decrease its volatility -- a move that could have reduced the severity of the accident, state officials suggested.
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(ACC Mentioned) Top 50 U.S. Chemical Producers
May 11, 2015 | Chemical and Engineering News
By Alexander H. Tullo
Check out our US Top 50 interactive table by clicking here to see how the data has changed over the years.
You can also download a PDF of these tables by clicking here.Judging by the data in C&EN’s latest survey of the Top 50 U.S. chemical producers, 2014 wasn’t a bad year by any stretch. But it was a more topsy-turvy period for chemical companies than they have seen in a while. Sales and profits slipped. At the same time, robust deal-making left a mark on the ranking.[+]Enlarge SAFETY FIRSTAn Air Products employee practices checking for leaks at a training site in La Porte, Texas.Credit: Air Products
The 50 companies combined for $323.4 billion in revenues last year, a slight, 0.5% decline from 2013. The Top 50’s sales record of $333.6 billion, hit back in 2011, still stands.
Twenty-one firms posted a decline in sales, although only five saw decreases of more than 10%. Four of the five were involved with mergers and acquisitions (M&A) that reduced revenues.
The 42 firms that report operating profit figures together made $39.4 billion, a 0.5% slip from the previous year. Some 23 companies experienced a decline in profits. Two companies, coal tar chemicals maker Koppers and pigments supplier Ferro, posted slight losses. The operating profit margin for the 42 firms was 14.1%, down slightly from 14.2% in 2013.
Despite the lackluster financial performance, stock prices have held up well. The 31 public chemical firms in the ranking combined for a market capitalization of $369.7 billion at the end of 2014, a 1.9% increase from a year earlier.
But the aggregate number is slightly misleading. An individual investing in a random chemical company on Jan. 1, 2014, would likely have lost money by Dec. 31. Some 22 firms saw stock prices decline. Six of them—Chemtura, FMC, Koppers, Kronos, Olin, and Stepan—saw their market value decline by more than 20%.[+]Enlarge
The group’s total market capitalization rose because of the outsized influence of a few larger firms—notably Air Products & Chemicals, DuPont, and PPG Industries—that made up for declines seen at the lower-valued firms near the bottom of the ranking.
Overall, the numbers in the survey reflect a chemical industry that stood its ground in 2014. Cheap natural gas feedstock continues to drive strong profits for chemical makers, and demand for chemical products has been healthy.
But in 2014, the industry started to feel headwinds. Oil prices finished the year at $53 per barrel, half of what they were at their peak last June. By the end of the year, chemical prices had started to fall in kind. Moreover, a strong dollar has weakened the revenues U.S. firms are reporting from their foreign subsidiaries.
And the headwinds aren’t letting up. According to data released late last month by the Bureau of Economic Analysis, U.S. gross domestic product increased at an annual rate of only 0.2% during the first quarter of this year.
Martha Gilchrist Moore, senior director of policy analysis and economics at theAmerican Chemistry Council, a trade association, isn’t surprised by the numbers. An unusually cold and protracted winter disrupted retail and home sales, the stronger dollar hurt exports, and lower oil prices affected investments, especially in oil and gas drilling.[+]Enlarge
But she sees the economy improving. “If you peel back the onion, there are some real good fundamentals for continued growth,” Moore says. For instance, the underlying demand for cars and houses, which are foundational chemical markets, is strong. Household formation is up. Wages are increasing. And lower prices at the fuel pump are boosting consumers’ discretionary income.
Moore expects a repeat of 2014. Then, the U.S. economy shrank 2.1% in the first quarter but bounced back to a healthy 2.4% gain for the full year.
Last year, according to ACC, U.S. chemical output increased 2.0%. For 2015, ACC has forecast a 3.7% increase, though Moore says that number will likely be revised slightly downward when the trade group releases its midyear forecast in June.
Though the performance of the U.S. chemical industry as a whole didn’t change much in 2014, C&EN’s ranking did see movement.
The ranking of the top seven firms, led once again by Dow Chemical, didn’t change. Fertilizer maker Mosaic declined from eighth to 10th. Air Products and Eastman Chemical each moved up a slot to fill the vacuum.
Brisk M&A activity left a mark on this year’s ranking. Ashland declined from 15th to 22nd because it sold its water treatment chemicals business to the private equity firm Clayton, Dubilier & Rice for $1.8 billion.
Other firms acquired businesses. Westlake Chemical’s purchase of German polyvinyl chloride maker Vinnolit helped lift it from 24th to 21st. A full year of Champion Technologies on Ecolab’s books assisted that company’s rise from 13th to 11th.
Three companies dropped from this year’s rankings. Goodyear Tire & Rubber, 48th last year, departed because it didn’t sell enough rubber. Propylene producer PetroLogistics, 50th last year, was purchased by Koch Industries. Carlyle Group’s sale of its 47% interest in PQ Corp. preempted an initial public offering and hid that company’s results from public view.
These firms have been replaced by specialty chemical maker Emerald Performance Materials, 48th, and Minerals Technologies, which makes precipitated calcium carbonate and debuts at number 50. Americas Styrenics joins the list at number 33. The company is a joint venture between Chevron Phillips and Trinseo, which went public last year and is now regularly revealing Americas Styrenics’ sales information.
Telly Zachariades, a partner with The Valence Group, an investment bank that specializes in chemicals, expects the robust pace of M&A activity to continue into this year.
Strong drivers for deal-making persist, Zachariades says. Companies that want to grow are purchasing businesses, and others are still pruning their portfolios of unwanted operations. Financing is available and is relatively cheap. And chief executives who make sensible strategic acquisitions have been rewarded with appreciating stock prices.
Another driver is activist investors. Valence counts 14 firms under pressure from such proactive shareholders, the most famous example being Nelson Peltz’s attempt to thrust four directors onto DuPont’s board. Activist shareholders are believed to have instigated some deals, such as Ashland’s sale of its water treatment chemicals business.
However, Zachariades believes the influence of these investors on M&A can be overstated. “I would probably say no more than 20% of the activity has had activists involved in some way,” he says. “It is certainly a factor in our industry but not the main driver.” By and large, the activists have catalyzed companies to act faster than they otherwise would.
With or without additional M&A, C&EN’s ranking will be different next year because of previous mergers. Merck KGaA is set shortly to complete the purchase of number 35 Sigma-Aldrich. Albemarle completed its purchase of Rockwood Holdings earlier this year. Eastman bought Taminco.
Newcomers will emerge as well. DuPont is set to spin off its performance chemicals business as Chemours later this year, creating a large new company that will no doubt debut near the top of next year’s ranking.
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(ACC Mentioned) Udall-Vitter TSCA Bill Boosted by 14 New Sponsors
May 11, 2015 | Chemical Watch
By Dinesh Kumar
The Udall-Vitter bill to reform the Toxic Substances Control Act picked up 14 new bipartisan sponsors last week, bringing pressure on the Senate leadership to schedule an early floor vote. The bill now has 36 sponsors, about half of them Democrats.
The Frank R Lautenberg Chemical Safety for the 21st Century Act was approved 15-5 by the Senate Environment and Public Works Committee late last month, with the support of four of the nine Democrats on the panel (CW 29 April 2015).
Pointing out that more than a third of senators from 25 states and “all across the political spectrum” have supported the bill, co-author Senator Tom Udall (D-New Mexico) said: “We can't let this momentum die.” He urged Majority Leader Mitch McConnell to bring the bill to the Senate for a vote as soon as June.
With growing bipartisan support for the bill, industry leaders and at least one NGO, voiced optimism about Senate passage of the measure.
Bill Allmond, vice president of government relations at the Society of Chemical Manufacturers and Affiliates (Socma), said the fact that the bill is drawing support from liberal Democrats and conservative Republicans alike, “really gives us a lot of hope.” It is also “encouraging” that the level of support in the Senate is “quite substantial and it is quite rare particularly on environmental issue like TSCA.”
The fact that more senators are coming forward to back the measure is “clear indication of the growing momentum to reform the EPA's regulation of chemicals,” said Cal Dooley, president of the American Chemistry Council. Taken together with the “bipartisan progress” in the House on TSCA reform, “consumers, public health and environmental advocates and industry can all trust that there is both a will and a way to get TSCA reform done this year,” he said.
“The news of additional Senate bipartisan co-sponsors keeps the ball rolling for meaningful reform of our chemical safety laws. Along with the steady work taking place in the House, this is a golden opportunity to help ensure we can continue to have innovative products and chemistries to improve people’s lives,” said Ernie Rosenberg, president of the American Cleaning Institute.
That half of the 14 new sponsors are Democrats shows that there is strong bipartisan support for the legislation, “but also that the time to bring the bill to the Senate floor is now,” said Chris Cathcart, president of the Consumer Specialty Products Association.
“The equal numbers of Democrats and Republicans lending their names to this legislation not only affirms strong bipartisan support, but demonstrates Congress’s growing recognition that reform of TSCA is urgent, and that this bill is a solid compromise that represents our best chance in a generation to significantly improve public health protections from toxic or untested chemicals,” the Environmental Defense Fund said.
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| Safer Chemicals, Healthy Families
By Alesia Lucas
Yesterday was Mother’s Day.
All across the US, mothers were treated to breakfasts, gifts, outings, and a potpourri of goodies- I hope so! I’m sure Sunday was a real treat. But this year, let’s honor mothers in a way that endures beyond one Sunday in May.
Our movement is filled with very active and concerned mothers. Our Safer Chemicals Moms have come together out of their concern about the role that toxic chemicals play in harming their families’ health. They’ve come toCapitol Hill to stand up for #RealReform, they blog, they organize in their communities, and so much more.
For all the mothers who help to lead this movement, we know what they really want this year for Mother’s Day. They want #RealReform.#RealReform Is…Legislation that is up to the important task of protecting public health and the environment.Practical limits on toxic chemicals in products.Legislation that will protect pregnant women and children, and other vulnerable populationsReform that would allow states to protect their citizens.
We don’t have #RealReform yet but with your help we could get there!
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Amid Gridlock in D.C., Influence Industry Expands Rapidly in the States
May 11, 2015 | The Washington Post
By Reid Wilson
Lobbyists aren’t having much luck on a gridlocked Capitol Hill — so more and more, they’re opening their wallets in state capitols around the country. Not keeping pace with the surge, say watchdog groups: the disclosure laws that are supposed to keep the influence industry in check.
Battles in legislatures between rival energy companies; powerful medical interests like doctors, hospitals and insurers; and even environmentalists and plastic bag manufacturers have fueled huge growth in lobbying spending at the state level, even as spending has plateaued — and even waned — at the federal level.
A Washington Post review of lobbying spending in states shows professional advocates reported spending at least $2.2 billion on activity aimed at influencing state legislators in 28 states where data was available during the 2013-2014 biennium — with virtually every state seeing dramatic growth over the last decade.
At the same time, total spending on federal lobbying activities has fallen. After hitting a peak in 2010, when advocacy groups reported spending $3.52 billion on lobbying, that number dropped to $3.24 billion in 2014, according to data maintained by the Center for Responsive Politics.
“When nothing’s happening in Washington, D.C., it’s happening in the states,” said Frank McNulty, a former Republican speaker of the Colorado House of Representatives who retired from office earlier this year. “You tend to see all these public policy issues work their way down to the state level because, whether it’s an environmental organization or a Fortune 500 company, they’re still going to try to move their agenda.”
The $2.2 billion spent over the last two years vastly underestimates the total spent. Disclosure rules and data collection practices vary widely by state, meaning lobbying totals from 22 states, including larger states like Massachusetts, Pennsylvania and Illinois, aren’t publicly available. Some states require lobbyists and those who pay them to report every penny spent on advocacy, including the lobbyists’ salaries; other states require only that money spent directly on lawmakers and executive branch officials be reported.
But in states where data is available, the trend line soars straight up: Total lobbying spending in California grew from $424 million between the 2003-2004 biennium to $579 million, an increase of 36 percent. In New York, spending increased over the last decade by 65 percent, from $264 million to $436 million, according to data maintained by the New York State Joint Commission on Public Ethics.
“Money is the game in our political process, and we wouldn’t see this much money in our system if it wasn’t making an impact for the spenders,” said Jenny Flanagan, vice president for state operations at Common Cause.
Lobbying spending has more than doubled over the last ten years in North Carolina, New Jersey, Wisconsin, Kansas, Arizona and Ohio. Spending in at least six states — Florida, Minnesota and Washington, along with New Jersey, New York and California — topped $100 million between 2013 and 2014. Lobbying spending topped $50 million in Wisconsin, Michigan, Colorado and Maryland over the same period.
Even in states where data isn’t available, hints at the influence industry’s rapid growth exist: In Tennessee, lobbyists spent more than $10 million on events for state legislators in 2014, a small slice of lobbying activity that takes place. The number of registered lobbyists in Iowa has grown from 578 a decade ago to 708 today.
In Florida, lobbyists who seek influence with the executive branch must only report ranges of spending. Those ranges suggest advocates spent between $30 million and $120 million in the last two years lobbying state agencies, on top of the $249 million spent to woo legislators.
“There is a migration right now of government relations activity from Washington to the state and local levels,” says James Hickey, a lobbyist at Day & Zimmerman and president of the Association of Government Relations Professionals. “There’s a feeling among folks in our industry that if you can’t get progress on issues in Washington, maybe we shouldn’t focus all of our time 100 percent on Washington.”
The spending totals also don’t include an explosion in spending by outside groups on legislative elections. Just as super PACs and organizations that operate under section 501(c)(4) of the Internal Revenue Code have ramped up spending on federal elections, so too have they begun influencing state elections.
Lobbyists and watchdogs say a confluence of events are to blame — or credit — with the industry’s growth: The recent gridlock in Washington comes at the same time states are deciding on a host of contentious issues, from energy regulation to health care and implementation of the Affordable Care Act. Decisions on those issues, which are in the hands of state lawmakers, stand to make one industry a lot of money, at the expense of others.
“When people want to put you out of business, you have to get into the fight,” said Constance Campanella, a lobbyist whose firm, Stateside Associates, specializes in legislatures.
At the same time, term limit laws in a number of states have forced an unprecedented amount of turnover in recent years, spreading legislative power and forcing lobbyists to get to know, and influence, new faces. Big Republican gains in the 2010 and 2014 elections contributed to the turnover.
“Term limits really started to come into effect in the early 2000s, and the legislators that had been serving a long time and the committee chairs started to cycle out. That caused a growth in the lobbying industry,” McNulty said. “In state legislatures, more so than in Congress, you have more rapid turnover of the key opinion leaders. So if you’re a good lobbyist on the state level, you’re constantly investing in these new relationships.”
Campanella, the long-time state lobbyist, said her clients are also increasingly interested in influencing local elected officials, such as members of city councils and school boards. Issues like plastic bag bans, living wage laws and health care pose threats to, and opportunities for, businesses at the local level.
Watchdog groups say state ethics laws have not kept up to date with the explosion in new spending. While most states make lobbying activity reports available online, some do not, and even some that do are not listed by subject area or sponsor. For practical purposes, that means citizens in many states would not be able to find just who is lobbying in support of or opposition to any given measure without combing through thousands of records. And even the agencies themselves are often reluctant, unwilling or not empowered to take action against lobbyists who run afoul of state rules.
“There’s almost no enforcement in the lobbyist arena. The disclosure is awful, and it’s one of the areas where I think there is a serious need for some sunlight,” said Edwin Bender, executive director of the National Institute on Money in State Politics.
Watchdogs highlight Wisconsin as the state they say represents best practices. Wisconsin law requires lobbyists and the organization for which they are lobbying to register after just five conversations with lawmakers, and to identify the position they are taking. The state has made that data available online since 1998. After the state migrated to a new system three years ago, the data is now sortable and searchable through a simple interface.
Kevin Kennedy, director and general counsel of Wisconsin’s Government Accountability Board, said his agency’s system is designed to allow any interested member of the public to discover the interests behind a piece of legislation. In an interview, Kennedy said his best customers are legislators themselves: They use the system to educate themselves on the political contours of a given bill.
“The legislators use this when they’re debating a bill on the floor,” Kennedy said. “If there’s any glitch in the system … and the legislature’s in session, I will be getting phone calls.”
But few states follow Wisconsin’s lead. Bender said there is wide acknowledgement among both lobbyists and the government agencies that oversee their activity that current rules don’t even require all the spending to be reported. In some cases, some employees of lobbying firms do not have to register if other employees have registered. A 2011 report by Bender’s group found 23 states did not require lobbyists to report their compensation, and 15 states did not make lobbyist data readily accessible to the public.
There are more than 47,000 lobbyists registered with state governments across the country. Most are part-time advocates, active only on a single issue. Each state usually has only a small handful who account for the vast majority of major contracts with out-of-state corporations or interest groups.
“What you see in any particular state is a dozen, maybe two dozen lobbyists who handle the lion’s share of the major outside contracts,” Bender said. “That’s how they make their money, by becoming the go-to person.”
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Industry Eyes Reliability Tools for EPA Carbon Plan as FERC's Role Remains Uncertain
May 11, 2015 | E&E - Energywire
By Emily Holden and Rod Kuckro
As the energy industry coalesces around two tools for preventing power outages under U.S. EPA's Clean Power Plan, federal agencies are still exploring whether they can employ them without undermining the regulation's environmental goals.
After completing a handful of extensive technical conferences weeks ago, the Federal Energy Regulatory Commission -- the agency in charge of electric reliability -- has yet to send suggestions to EPA.
At a workshop Friday organized by the Bipartisan Policy Center and led by FERC Commissioner Colette Honorable, electric utility trade groups, state regulators and grid overseers said it's critical for FERC's recommendations to make it into EPA's final rule, which is due this summer.
"If the rule comes out the door [without addressing reliability] and this is not clear, it's not going to be good for anyone," said Craig Glazer, vice president of federal government policy for the grid organization PJM. "It doesn't mean it can't be changed, but have a process. ... I think that would help to provide that level of certainty and, frankly, not make this one more flashpoint."
Honorable said after the event that FERC would provide suggestions to EPA soon.
"I'm certain we will do so promptly because we all want to have the ability to provide this advice and counsel to the EPA in time for them to consider it as they put the final touches on the final Clean Power Plan," Honorable said.
The panel explored two commonly discussed options: a reliability assurance mechanism (RAM) that would review state carbon-reduction proposals for potential problems, and a reliability safety valve (RSV), which would allow states to fall short of their goals if they prove they can't implement plans without causing outages.
On one side, electric utilities say EPA could implement both backstops without sacrificing carbon reductions.
"We're not looking for a waiver; we're looking for a modification to the standard, maybe temporary, maybe with a requirement for offsets, so it doesn't bust the bank," said John Novak, executive director of environmental issues for the National Rural Electric Cooperative Association.
But environmental advocates say forcing regulators to make sure states have exhausted every carbon-cutting option could become an administrative nightmare. They argue that allowing an escape hatch will also discourage states from exploring options like carbon trading to meet emissions requirements.
A "foundational principle" has to be that "you can't bust the carbon cap," said John Moore, a senior attorney with the Natural Resources Defense Council.
"You really have to look at all other options before turning to a safety valve," such as trading, banking and borrowing of emissions allowances. "States should not be allowed to design themselves into a corner," he said.
"The biggest impediment to the development of carbon markets will be a safety valve that creates the ability to leak carbon into the atmosphere," said Sue Tierney, a senior adviser with the Analysis Group.
Tierney said she doesn't "categorically oppose" a reliability mechanism, but she thinks states foreseeing problems could still reach their goals by purchasing carbon reduction credits from other states that overshoot their targets.
MATS mechanism not really a model
Among the reliability events discussed Friday, panelists said state carbon-cutting plans could be hamstrung if a nuclear plant goes offline, if the natural gas supply is disrupted or if regulators or courts change the rules for industry tools, like demand-response programs for limiting energy use during peak times.
Those types of issues require much more elegant solutions than a simple extension for coal plants to run longer, which is how EPA handled reliability issues under the Mercury and Air Toxics Standards rule, said William Spence, CEO of PPL Corp., speaking on behalf of the Edison Electric Institute.
The Clean Power Plan is "a very different animal," he said.
"With the MATS program, we're really talking about something that's very limited in scope to a select amount of generation on the grid," Spence said. "What we're talking about here with the Clean Power Plan is very, very broad. We're talking about bringing in renewables; we're talking about multi-state planning; we're talking about state planning, federal planning."
Gerry Cauley, CEO of the North American Electric Reliability Corp., suggested that many states may surpass their goals and be able to sell carbon reduction credits to states that can't execute all their plans due to reliability concerns.
"The state plans will strive to meet targets and be compliant, so there's going to be a natural overshoot in that. No one wants to meet it to the pound of carbon," Cauley explained after the event. "To the extent that there's a way to have some kind of trading mechanism that would allow relief, it's relief for reliability because it lets a central reliability plant run that might not otherwise be able to run."
That trading market would still need to be created, though, he said.
Michael Dowd, director of the air division of Virginia's Department of Environmental Quality, noted after the event that there might not be so much overcompliance. "We have a pretty tight number in Virginia," he said.
FERC role remains unclear
Another complication federal regulators face is figuring out how big of a role FERC should have in the process, according to existing law. FERC has more electricity expertise and is the designated reliability authority under the Federal Power Act. But EPA will ultimately decide whether to allow states to slide on their goals and will enforce the rule under the Clean Air Act.
EPA could make plans contingent on FERC approval or could write a memorandum of understanding explaining how the agencies would coordinate to review problems.
"An MOU would be helpful," Cauley said after the panel. "I prefer a stronger recommendation in the final rule that acknowledges FERC's authority to make a determination on a reliability matter."
But Tierney said she would be surprised if FERC were "requesting in effect an approval authority into a process that's under the federal environmental laws." She expects FERC guidance that "informs the process but does not give FERC or NERC a veto power interjected into a Clean Air Act process."
Whatever FERC decides to do, the deadline is approaching, said FERC Commissioner Philip Moeller.
"If we're going to do something, we've got to do it soon, as I've said before. And if the commission can't come up with something, then I have to consider whether I just send a note expressing concerns as to what role we would have," Moeller said. "I thought it was tight in March; it's a lot tighter now."
And states are anxiously awaiting FERC's advice, too.
"It will certainly be disappointing if FERC, after engaging in this work-intensive roadshow of technical conferences, doesn't actually reach something like consensus," said Travis Kavulla, a Montana electric regulator. "Time is pretty short here. ... [T]hose technical conferences have been in the rearview mirror for a while now. ... Everyone is expecting FERC to come up with something concrete."
Spence concluded that utilities aren't "asking for a free pass" but for mechanisms that will be used in limited circumstances.
"There will be nothing that will derail the Clean Power Plan quicker than having a reliability event," Spence said. "So I'm going to suggest that people who really want to see the end goal pushed across the finish line, we ought to have all the tools we possibly can have."
Reviewing state plans could pose a challenge
The agencies will also face a time crunch if EPA decides they should review how state plans interact to affect system reliability, said Virginia's Dowd.
"My state imports about 40 percent of its electricity, so there could easily be reliability issues that come to my state through no fault of our own but through whatever actions other states take," Dowd said. "Frankly, the time period EPA's given us, it makes it really difficult to do full-blown interstate plans."
Under EPA's draft timeline, the agency has given itself two to four years, depending on extensions granted, to approve state proposals. Dowd said that might not leave enough time to adequately consider reliability.
"I would be surprised if EPA had the time or the wherewithal or ability to assess how all individual plans reacted with each other," Dowd said.
That's a view Moeller shares. "I think everybody would have a really hard time figuring out how to evaluate state plans because once you evaluate Wyoming's plan, it affects Idaho's plan and Oregon's plan and Nevada's plan and California's plan," he said. "How do you evaluate 47 moving parts?"
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Midwestern States Ask EPA to Set Up Regional Carbon Trading Rules to Meet Clean Power Plan
May 11, 2015 | E&E - Climatewire
States in the Midwest have asked U.S. EPA to create a set of rules for a voluntary carbon trading scheme, an option many feel would be one of the least expensive ways for states to reach emissions reductions under EPA's proposed Clean Power Plan.
Over the past few months, a group of state air and energy regulators, environmental groups and power companies have banded together to form the Midwestern Power Sector Collaborative (MPSC). Last month, the group asked EPA to create the ground rules for a cap-and-trade system.
Midwest regulators and utilities have expressed interest in a voluntary carbon trading system as a way to comply with the CPP, even as some of the region's coal-reliant states move forward with legal challenges trying to block the final rule.
"There is a recognition that if the rule goes forward, having a plan of action that has been explored and tested and modeled with your neighboring states is probably a very prudent strategy," said Nancy Lange, a Minnesota Public Utilities commissioner.
A voluntary cap-and-trade system gives states options, said Brad Crabtree, vice president of the Great Plains Institute, a think tank that facilitated discussions between coal-based power companies, regulators and green groups in the MPSC.
"No one wants to dictate that any state should be forced to trade," he said. He added that a carbon market should "be a clear and readily available option for those who want it" (Valarie Volcovici, Reuters, May 7). -- BP
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House Approval of Bill Blocking WOTUS Expected this Week
May 11, 2015 | E&E Daily
By Annie Snider
The House is slated to complete its two-pronged attack on the Obama administration's controversial water rule this week.
Before leaving for last week's recess, the lower chamber approved its energy and water development spending measure with a policy rider to block the rule's implementation during fiscal 2016. But leaders ran out of time for work on authorizers' stand-alone bill on the rule (E&ENews PM, May 1).
That legislation, H.R. 1732, from House Transportation and Infrastructure Chairman Bill Shuster (R-Pa.) and Water Resources and Environment Subcommittee Chairman Bob Gibbs (R-Ohio), would give U.S. EPA and the Army Corps of Engineers 30 days to withdraw their "Waters of the United States" rule and three months to then consult with state and local officials on how to address the Clean Water Act regulatory morass.
The White House has issued a veto threat for the measure, saying it would only "sow more confusion and invite more conflict," and staunchly defending the agencies' "extensive public engagement process" on the rule (E&ENews PM, April 29).
Still, the bill is all but assured to pass the lower chamber, which last year approved a similar measure 262-152, with the support of 35 Democrats. Supporters of the rule, though, are hoping to win back some of the Democrats who voted with opponents last year.
Meanwhile, the biggest fight over the water rule is shaping up in the Senate, where Sens. John Barrasso (R-Wyo.) and Joe Donnelly (D-Ind.) recently introduced the upper chamber's lead bill aimed at blocking the rule (Greenwire, April 30).
Democrats supporting the bill, including Sens. Heidi Heitkamp of North Dakota and Joe Manchin of West Virginia, argue that although it would send the agencies back to the drawing board on the current rule, it would set a timeline encouraging a new one within the remainder of President Obama's term. Supporters of the rule say, though, that timeline would be all but impossible to follow and that the measure would effectively kill the process.
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Absent EPA Policy On Produced Water, Advocates Challenge CWA Permit
May 11, 2015 | InsideEPA
By Bridget DiCosmo
An environmental group is challenging Clean Water Act (CWA) discharge permits for wastewater from oil and gas operations on the Wind River reservation in Wyoming, arguing that the absence of a requirement that drillers disclose the hydraulic fracturing chemicals they use makes the agency unable to fully assess the impacts of discharging the wastewater on wildlife and livestock.
On April 14, Public Employees for Environmental Responsibility (PEER) filed with EPA's Environmental Appeals Board (EAB) a challenge to five National Pollutant Discharge Elimination System (NPDES) permits granted for operations in the Wind River region, saying that the permits fail to directly address the effluents to be discharged. "Further, due to the lack of stringency in the Wind River permits, wildlife and livestock who drink the produced water will be at risk."
The permit challenge comes as EPA is still weighing a petition from PEER urging the agency to amend its NPDES rules to narrow a provision allowing "produced" water from oil and gas operations to be discharged in certain western regions of the United States. They argue a uniform national policy is necessary given inconsistency in how the rules are applied and technological advances that have led to changes in the makeup of fracking fluid.
Meanwhile, the Natural Resources Defense Council (NRDC) also filed a petition April 14 with the EAB over the permits in the Wind River region. The group argues that in approving discharges of produced water that contained "well treatment" or fracking chemicals, EPA expanded a narrow provision beyond its intended scope and could not have reasonably found that the water is "of good enough quality" for livestock and wildlife without knowing what chemical constituents were used.
"The Region could not have reasonably reached this conclusion, because it did not identify the chemicals that Permittees were likely to use and discharge nor did it evaluate whether those chemicals could adversely affect livestock or wildlife," NRDC's petition says.
Produced water includes all water returned to the surface from an oil or gas well drilling operation, and a provision of EPA's NPDES effluent regulations for onshore oil and gas extraction known as Subpart E allows the discharge of some of the water. Although EPA's rules for the Oil & Gas Extraction Point Source category generally set a "zero discharge" limit for produced water, Subpart E allows discharges in specified western areas of the United States.
In particular, Subpart E allows the discharge of produced water from operations west of the 98th meridian for use in agriculture and wildlife propagation provided the water is "of good enough quality to be used for wildlife or livestock watering or other agricultural uses." But critics say the water risks harming the environment.
EPA Permits
EPA Region 8 issued permits in March to Phoenix Production Company, Eagle Oil and Gas Company and WESCO Operating, Inc., which contain technology based effluent limits for sulfate, chloride, total dissolved solids and other pollutants. The limits are based on research concerning the effects of those pollutants on agricultural and wildlife use, and EPA says they are intended to ensure that animal consumption of the discharged water will not cause acute or chronic health effects.
"The resulting limitations that are included in the final permits ensure that the discharged produced water is good enough quality for wildlife and livestock use, and will not exceed the tribal water quality criteria for protection of aquatic life," EPA says in its summary response to comments.
But PEER argues in its petition that EPA's approach fails to include the fracking chemicals to be used, resulting in a "regulatory garbage-in-garbage-out effect" because the discharge limits were crafted on inadequate information.
"None of the Wind River permits actually cite any of the maintenance or fracking chemicals used, which is extremely problematic because many maintenance and tracking fluids contain toxic chemicals," PEER says in its petition.
NRDC argues that subpart E makes it clear that "[T]here shall be no discharge of waste water pollutants into navigable waters from any source (other than produced water) associated with production, field exploration, drilling, well completion, or well treatment (i.e., drilling muds, drill cuttings, and produced sands)." Produced water does not include well-treatment or fracking wastes, the group says. It adds that the "Region's attempt to extend the concept of produced water until it swallows that of well-treatment wastes is inconsistent with the history of the regulation."
Rulemaking Petition
PEER in September 2014 filed a rulemaking petition with EPA asking the agency to pursue a comprehensive national approach to limiting use of produced water, noting that while several western states have taken steps to strengthen oversight of produced water use, the agency's enforcement has not been as strict.
"Several states have issued requirements for disclosure or technology more stringent than EPA's enforcement of the produced water standard," including Arizona, California, Idaho, Kansas, South Dakota and others, according to PEER's petition.
PEER specifically targets fracking in the petition, saying that "EPA currently allows drilling companies to freely discharge water produced during fracking operations (known as "produced water") in Western States. This water contains a large number of toxic chemicals used in the drilling and extraction process."
The rulemaking petition faulted the current federal approach to produced water use, saying "EPA's reliance on Subpart E to allow the discharge of fracking-produced water is contrary to reason because this water is utterly unfit for human or animal consumption and exposure to it can cause severe health problems and, in some cases, even result in death. . . . EPA must rectify its position and take action to prevent the further discharge of these dangerous chemicals."
According to one environmentalist tracking the issue, EPA has not yet responded to the petition, which they say drives the need for individual permit challenges, adding that there appears to be an internal debate within the agency as to how to clarify subpart E.
Meanwhile, WESCO and Phoenix Production Company have both indicated plans to challenge the permits, but have filed separate EAB motions to extend the 30-day deadline for filing petitions, with Phoenix Production Company seeking an extension until May 13.
EAB set the deadline for WESCO to file at May 18.
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Week Ahead: Senate Panel Launches Energy Reform Effort
May 11, 2015 | The Hill - E2 Wire
By Timothy Cama
The Senate Energy and Natural Resources Committee will formally kick off its efforts toward comprehensive energy policy reform next week, while the House Energy and Commerce Committee continues its own reform efforts.
The Senate Energy panel will host a hearing Thursday on 17 bills that Chairwoman Lisa Murkowski (R-Alaska) said this week could make up a comprehensive package.
The bills range in subject from the Strategic Petroleum Reserve to hydropower, electric reliability and methane production.
While lifting the ban on oil exports is not on the agenda for Thursday’s hearing, Murkowski said she would introduce a bill on that next week.
The House Energy and Commerce Committee’s energy and power subcommittee will meet Wednesday for a markup in the committee’s continuing efforts to write its own comprehensive energy package.
The subjects of Wednesday’s hearing will be modernizing the regulatory regime around hydropower and the Federal Energy Regulatory Commission’s (FERC) role in natural gas regulation.
The House Natural Resources Committee will have a busy week examining some of the Obama administration’s environmental policies.
That committee’s energy and mineral resources subpanel will host a hearing Thursday on the Supporting Transparent Regulatory and Environmental Actions in Mining (STREAM) Act, sponsored by Rep. Alex Mooney (R-W.Va.) to stop upcoming regulations on mountaintop removal mining.
The full committee will meet Wednesday to discuss the White House Council on Environmental Quality’s guidance on how federal agencies should account for greenhouse gases in their decisions, and its subcommittee on federal land will talk about the effects of planning and litigation on national forests.
Congress’s other plans next week include a House Science Committee hearing on the role of the Energy Department’s national labs in nuclear energy innovation and a Senate Energy and Natural Resources Committee hearing on mining of critical minerals.
Off Capitol Hill, the Alliance to Save Energy and the Nuclear Energy Institute is each hosting a major conference in Washington.
The Alliance to Save Energy is bringing in Sens. Jeanne Shaheen (D-N.H.) and Chris Coons (D-Del.), Rep. Steve Israel (D-N.Y.) and FERC Commissioner Cheryl LaFleur for major speeches Monday and Tuesday.
Top speakers at the Nuclear Energy Institute event will include Nuclear Regulatory Commission Chairman Norman Bay, Murkowski and Rep. Pete Visclosky (D-Ind.).
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Former Portland, Ore., Mayor Adams Discusses New Carbon Pricing Handbook for Policymakers
May 11, 2015 | E&E - TV
As U.S. EPA moves forward with emissions regulations, how should lawmakers approach the conversation on carbon pricing? During today's OnPoint, Sam Adams, director of the World Resources Institute's U.S. Climate Initiative and the former mayor of Portland, Ore., discusses WRI's new carbon pricing handbook for U.S. policymakers and talks about the politics of climate change legislation.Transcript
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Sam Adams, director of the World Resources Institute's U.S. Climate Initiative and the former mayor of Portland, Oregon. Sam it's a pleasure to have you here.
Sam Adams: Thanks for having me.
Monica Trauzzi: Sam, the Climate Initiative recently released a handbook for U.S. policymakers on carbon pricing in the U.S. It comes at a very interesting time when EPA is moving forward with emissions regulations. States are grappling with how and even if to comply with EPA's Clean Power Plan. Why does the conversation on carbon pricing need to happen now?
Sam Adams: Well I think for the reason you mentioned in terms of this administration's work to implement the climate action plan for sure and I think probably three other reasons.
One is we have a presidential election coming up, major elections for U.S. Congress at the state and local level. I think informing those races and the candidates' thinking around how do you have a prosperous low-carbon economy is really important. So this research is intended to have the elections as an audience for the findings.
In addition to that, we've got the United Nations Global Summit in Paris at the end of this year. It's important too, in this case, this report looks at the 38 nations already in the world that have priced carbon. We want to inform that conversation.
Then really though probably the third reason to do a handbook on pricing carbon is there is so much evidence, a preponderance of facts and analytics that show it is an effective way to both, if depending on the policy design's choices, it is an effective way to both stimulate the economy in the creation of jobs while transitioning to a low-carbon economy.
Monica Trauzzi: So on the 2016 elections, you would argue that there are votes to be made if lawmakers side with moving forward on carbon regulation.
Sam Adams: I'm a realist and I think the chance of a price on carbon, a national price on carbon, being picked up as a banner for one of the presidential candidates is probably low and probably pretty low for the state races, congressional and state races as well, but we still want to help set the future conversation with some facts and with some analytics and inform as much as possible those contests, those debates.
You can support a price on carbon and demonstrate a number of potential benefits for this country even if you don't believe in climate change. You can use the revenues from pricing carbon to provide rebates for the folks that pay it, for companies that pay it. You can use it for economic development and job growth in terms of incenting innovation and clean technology.
So there are lots of reasons to look at this, but I'm a realist. I understand that this is probably a future discussion that will have more traction.
Monica Trauzzi: What are the biggest market failures that need correcting through some type of pricing mechanism?
Sam Adams: Well, fundamentally as the facts show right now, the carbon polluter does not pay and there's few incentives. In fact, there are many disincentives to even look at the impacts of greenhouse gas emissions and carbon under the way things are now outside of those countries and states and provinces and cities that price carbon.
Oftentimes the conversation is set up as we have to choose between helping the environment or helping the economy. I think that when you look at those nearly 40 countries and 20-odd-some states and provinces that have set this up in a smart way, that's not the case and you only need to look as close as California that has had such an economic renaissance and a very aggressive cap-and-trade price on carbon.
You've got British Columbia who has a price on carbon now for nearly five years and very successful economically. You've got here even in New England RGGI success in the power sector at pricing carbon. So it's no longer either or and if done right, you can do both.
Monica Trauzzi: But how do you protect industries that are emitting high levels of carbon and those states that are very economically dependent on these industries like the coal industry?
Sam Adams: For me personally I think that a smart national price on carbon also deals within equity of impacts that will happen. I think that it is absolutely fair that if we're going to price carbon and you have disproportionate impacts, economic impacts on coal country, that that policy would take into account that and to provide the support needed with the change.
There are elements of that in the last time that Congress seriously considered this, this economic equity elements, and I think that most policymakers would want to pursue the same kind of equity elements to a national price on carbon.
Monica Trauzzi: And this is the first in a series of handbooks on carbon pricing that you'll be releasing. So what aspects will be explored in the subsequent papers?
Sam Adams: The following research, the next following research, it's nerdy, but important stuff. I will dig deep on the mechanics. What are the best results from a particular approach to putting a tax on carbon versus a cap and trade. Where has the experience of these 38 countries, what have the lessons that they've learned in terms of getting the most and the fairest mechanism of pricing carbon.
Then also we'll be looking at the issue of innovation. How can you have complementary policies beyond the pure taxing mechanism that will spur clean technology and innovation. Right now China is leading the world in clean technology innovation by a number of measures. The national price on carbon, we will dive deep to look at what are the best practices to make sure that if we pursue this, the United States gets the full economic benefit of job creation and supporting businesses.
Then we also want to look at this issue of equity. What's a best practice approach? What is a fair way to deal with the disproportionate impacts if you go to a price on carbon across the United States? There is a difference between the impacts of the Pacific Northwest where I'm from and coal country here in the Mid-Atlantic.
Monica Trauzzi: So you had a lot of success in Portland in greening that city. How are you going to take the accomplishments you had there and some of the lessons learned and apply it to your new work at WRI?
Sam Adams: I think that the one area that I'm very passionate about is economic prosperity. I grew up in a small town on the Oregon coast, hard struggle background, I know how important it is that a family have economic security, access to good-paying jobs.
So when you're the mayor of a city pursuing a deeply green sustainability agenda, you also, or I did, pursued an economic development strategy that takes full advantage of that. I think cities have really led innovation on this issue. It's not a partisan issue when you get to the city level. Most mayors, most city councils are elected on a nonpartisan basis in this country, and our particular climate action plan also was integrated with an economic development strategy called We Build Green Cities. It really helped propel and support Portland's clean technology industry to grow jobs by exporting not only the products that they made, like modular eco-roofs, but also the green professional services, like engineering and architecture and systems engineering around deeply green building.
Monica Trauzzi: We'll end it there. Thank you for coming on the show. I appreciate your time.
Sam Adams: My pleasure. Thank you.
Monica Trauzzi: Thanks for watching. We'll see you back here tomorrow.
[End of Audio]
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(ACC Mentioned) Rails to Congress, STB: “If in Doubt, Don’t”
May 11, 2015 | Railway Age
By Frank N. Wilner
Successful baseball pitchers learn to throw first-pitch strikes and stay aggressive in the strike zone when their team is in the lead. Life imitates baseball, meaning railroad spokespersons will serve their industry well over the next 10 weeks if they similarly perform—first before a congressional subcommittee examining 35 years of partial economic deregulation under the Staggers Rail Act, and then the Surface Transportation Board (STB) as it considers shipper entreaties that the railroads’ improved financial condition warrants tightening of the strike zone.
The House Transportation & Infrastructure Committee hosts the first upcoming test for railroads May 13 when its Railroad Subcommittee grills railroad, shipper and academic witnesses on “The Past, Present and Future of Deregulation” 35 years following passage of the Staggers Rail Act that, in the subcommittee’s words, “is widely credited with saving the freight rail industry in the face of bankruptcy.”
One would be spot-on to characterize some witnesses invited by Subcommittee Chairman Jeff Denham (R-Calif.) as railroad-favorable.
Georgetown University Economics Professor John W. Mayo is co-author of a recent paper highlighting that “input prices and declining productivity growth—rather than enhanced railroad market power—account for the bulk of the recent rate increases” some shippers cite as rationale for less railroad regulatory freedom. Mayo stressed also that mainstream economists recognize the cost of capital—the STB’s touchstone for determining railroad revenue adequacy—as “a floor for the ability of a firm to attract capital with which to invest.”
American Chemistry Council President Calvin Dooley may find himself having to explain to the Rail Subcommittee how his members—the companies producing and shipping an inventory of the most toxic commodities—expect adequate, safe and efficient rail carriage when their proposals for more aggressive rail regulation would, by the council’s own estimate, slash annual rail revenue by at least $1.2 billion even though some railroads have yet to achieve revenue adequacy and none has done so over the course of even a conservatively defined business cycle.
Also testifying May 13 will be Association of American Railroads President Ed Hamberger, American Short Line and Regional Railroad Association President Linda Darr, and Surface Transportation Board Acting Chairman Deb Miller.
Certainly the Rail Subcommittee has in mind the bi-partisan Senate bill, S. 808, co-sponsored by Senate Commerce Committee Chairman John Thune (R-S.D.), and that committee’s senior Democrat, Bill Nelson of Florida, which would amend the Staggers Rail Act, but less viciously than had been attempted, without success, by Thune’s predecessor, the now retired Jay Rockefeller (D-W.Va.).
S. 808 has yet to reach the Senate floor for a vote, and whether it could receive support in the House is not known.
Congressional watchers should keep in mind the trenchant comment by former House Rail Subcommittee Chairman Al Swift (D-Wash.), who observed, “The other party is only the opposition; the Senate is the enemy.”
Here is a link to S. 808 (co-sponsor Nelson’s name is not shown).
Two STB hearings scheduled
The focus shifts to the STB June 10 when the agency focuses on how to simplify and make less costly and more transparent the agency’s methods for determining the reasonableness of grain rates. Not since 1981—in a case known as McCarty Farms that stretched for 16 years, cost complainants $3.4 million to present and resulted in shipper failure—have grain interests brought a rail freight rate grievance to rail regulators.
That case was brought under the so-called Stand-Alone Cost (SAC) test, intended to insulate a shipper from paying the cost of any facilities or services from which it derives no benefit. The McCarty Farms case exposed the immense cost and complexity of the SAC test’s requirement that the shipper design, on paper, a more efficient hypothetical railroad.
The SAC test is considered by mainstream economists—including a number of Nobel laureate economists who have weighed in, in writing, on the subject—as the most logical, efficient and effective means of determining railroad rate reasonableness. Unlike, for example, the transmission of electrons, the flow of liquid molecules or the transport of natural gas, commodities moving by rail are not homogeneous. They have diverse and distinct physical characteristics and varying modal alternatives—from highly competitive to highly captive, which a SAC test is designed to recognize.
Yet SAC’s cost and complexity caused Congress to order—subsequent to the McCarty Farms case—that the STB develop simplified rate complaint procedures for use by smaller shippers or smaller shipment quantities where the potential recovery isn’t dwarfed by the cost of advancing the complaint, and where a decision can be rendered more quickly.
A “Three Benchmark” test evolved that—while cheaper and speedier than the SAC test—is considered by economists as less capable of producing an accurate result. Rather than requiring design of a hypothetical railroad, the Three Benchmark test considers the relationship between revenues and out-of-pocket costs to move the freight at issue. But the Three Benchmark test has been mostly spurned because of shipper uncertainty as to its usefulness. No grain shippers have sought rate relief via the Three Benchmark approach and only three other shippers – U.S. Magnesium, DuPont and Canexus—have sought it out, with mixed results.
The June 10 hearing will solicit comments from railroads and shippers on alternatives to the SAC and Three Benchmark tests; perceived flaws in the Three Benchmark test; whether the definition of grain should be expanded to include products derived from grain, such as ethanol; if individual agricultural shippers should be permitted to aggregate their rate complaints into one proceeding; whether changes should be made to revenue adequacy determinations, such as including full-system revenue and costs of Canadian carriers rather than just their U.S. subsidiary railroads; and how rail rate setting procedures can be made more transparent for grain shippers.
Grain transportation is among the most competitive, with trucks carrying some 60% of it. Prior to partial economic deregulation under the Staggers Rail Act, grain shippers choosing rail suffered protracted car shortages and endemic service failures owing to the inability of then financially stressed railroads to maintain properly their branch line track servicing rural grain elevators. A challenge in transporting grain is the lumpiness in its shipping pattern owing to the uncertainty of commodity prices that often cause grain to be stored and suddenly released in large quantities when prices rise.
July brings revenue adequacy hearing
Then, for two days beginning July 22, the STB will review how it calculates the industry’s cost of equity capital for use in revenue adequacy proceedings. Coal shippers assert that railroad investments are less risky than reflected by the STB’s cost-of-capital estimate. Incorporated will be a review of revenue adequacy as a “long term concept.”
Among topics to be addressed by shippers and railroads are the appropriate length of a business cycle during which revenue adequacy is measured; the railroads’ requirement for higher revenue—and rates of return on investment—during periods of robust economic activity so as to offset lower revenue and rates of return on investment during recession years; whether factors other than return on investment and cost of capital should be utilized in determining revenue adequacy; what, if any—and how—new rate constraints should be imposed on railroads achieving revenue adequacy; and what impact new pricing constraints on revenue adequate railroads might have on railroads shy of revenue adequacy.
Overshadowing the hearing will be the recurring question of what impact shipper demands for tougher economic regulation would have on the railroads’ ability to attract and retain capital, and the railroads’ incentive for making new investments.
Rather than issue a Notice of Proposed Rule Making (NPRM), which would invite comments prior to the issuance of final revised regulations, the STB is using these two hearings as sounding boards. Whether it moves forward with a NPRM cannot be foretold, but it would not be in the near term.
Several factors likely influenced this lengthier and less predictable approach:
• Senate bill S. 808 has caught the attention of the House Transportation & Infrastructure Committee and certainly caught the attention of the STB, whose budget requests are reviewed by the bill’s co-sponsors.
• There is uncertainty as to whether and when former STB Chairman Dan Elliott will return after departing the agency Dec. 31 at the end of his statutory term. Although renominated by President Obama, his confirmation hearing was only held May 6, and additional hurdles remain before a vote to confirm is held by the entire Senate. In the meantime, the agency has but two members—Democrat Miller and Republican Ann Begeman—who are seen as apart on many issues, which would mean a stalemate were controversial issues to come to a vote.
• S. 808 would increase the size of the STB from its current three members to five members. It could be 2016 before the progress of that legislation, or any of its provisions, becomes certain.
No matter the inclinations of individual STB members, the agency’s general counsel’s office must defend the STB in federal court against challenges to its rulings. The STB has one of the most impressive records of federal agencies in defending its rulings, and a conservative approach to regulatory change has served the agency well over time. Neither Miller nor Begeman is an attorney.
• Many of the regulatory changes sought by shippers run contrary to mainstream economics, causing concern among senior technical staff at the STB and on whom board members and the general counsel’s office rely for guidance.
Congressional historians are hard pressed to point to legislation more effective in achieving its objective than the Staggers Rail Act of 1980. Yet for almost 35 years since its passage, a minority of shippers has been vocal and free-spending on Capitol Hill seeking to roll back some of those rail regulatory freedoms. So far, freight railroads, which literally pulled themselves out of the mud and muck of financial despair owing to Staggers Rail Act freedoms, have prevailed in convincing Congress and regulators to honor a treasured and time-honored caution: “If in doubt, don’t.”
For the next 10 weeks, that is precisely the message railroads must again articulate clearly and persuasively to Congress and regulators—and back it up with the same incontestable evidence they have catalogued since the Staggers Rail Act was passed in 1980.
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Records Offer a Window into Industry Push Over Crude-Safety Rule
May 11, 2015 | E&E - Energywire
By Blake Sobczak
Oil and rail industry lobbyists made frequent trips to the Department of Transportation last year as regulators worked on major crude and ethanol safety rules, records show.
Representatives from the American Petroleum Institute, the Association of American Railroads, Hess Corp., BNSF Railway Co. and dozens of other firms visited DOT headquarters in southeast Washington, D.C., to discuss sweeping and potentially costly oil-by-rail safety measures meant to cut down on a spate of recent accidents.
In at least 50 cases, industry lobbyists were greeted at DOT by top officials, including Cynthia Quarterman, who led the Pipeline and Hazardous Materials Safety Administration for most of 2014; Timothy Butters, who is now acting administrator of PHMSA; and Joe Szabo, who then served as head of the Federal Railroad Administration.
Their visits are recorded in a nearly 2,700-page document released to EnergyWire under a Freedom of Information Act request.
Many of the meetings are also chronicled in the Federal Register due to the fact that participants discussed an ongoing rulemaking.
But numerous other trips to DOT went unrecorded in the Federal Register because they did not cover topics directly tied to the oil-by-rail rulemaking, according to officials.
For instance, Jeff Hume, vice chairman of strategic growth initiatives at Continental Resources, a major Bakken Shale oil producer and crude-by-rail shipper, met with DOT officials on May 15, 2014, as part of a delegation of North Dakota petroleum companies.
According to a summary of the meeting, which included Quarterman as well as Karl Alexy, staff director of FRA's Hazardous Materials Division, the oil companies warned that an immediate ban on older, puncture-prone type DOT-111 tank cars would shutter refineries and send the price of oil skyrocketing.
Hume again visited Quarterman with several oil industry colleagues on July 7, just two weeks before the agency announced a notice of proposed rulemaking on tank car standards and oil-by-rail operating procedures. But a record of that meeting at DOT was not posted to the Federal Register because the oil industry representatives brought their case to the White House the same day, in what PHMSA spokesman Joe Delcambre described as a "duplicate" meeting dealing with Bakken crude volatility.
"It is interesting to see these groups meeting with transportation officials in the midst of a rulemaking," said Tyson Slocum, energy program director for Public Citizen. "The whole purpose of the public comment period is to put all of that out in the open, so that all parties theoretically have equal access to regulators and decisionmakers. To meet with them outside of that process is problematic."
In publicly available meeting logs, DOT regulators emphasized that they could not comment on the pending crude-by-rail rules, even while meeting with companies with clear interests in its outcome.
In her summary of a Sept. 16, 2014, meeting between Transportation Secretary Anthony Foxx and Exxon Mobil Corp. CEO Rex Tillerson, DOT's general counsel Kathryn Thomson said that "we did not engage in a discussion of the Notice of Proposed Rulemaking" on hazardous materials and tank car standards.
"However ... as a general matter, [Tillerson] stated that Exxon Mobil believes tank car thickness should not go beyond 8/16ths [of an inch]," Thomson continued, "and that the company believes that the proposed retrofit standards underestimate the cost and amount of time needed to retrofit existing tank cars."
It's not clear how Foxx responded, but such records suggest officials must walk a fine line when hearing out companies affected by an unfinished rule.
"I imagine that any lawyer or counsel for the DOT would have been very careful about what could be said," Slocum noted, although he added it's "impossible to know exactly what was discussed."
In a Dec. 3, 2014, talk with Oregon-based tank car manufacturer Greenbrier Companies Inc., senior PHMSA officials heard about the company's capacity to upgrade older-model tank cars in addition to its support for a 9/16-inch-thick tank car standard opposed by the oil and rail industries.
Greenbrier's vice president for government affairs, Jack Isselmann, met several times with PHMSA over the course of 2014 -- March 4, April 7 and Dec. 3, visitor logs show.
With the final rule now published, PHMSA officials are free to note that they "agree with commenters like Greenbrier and the concerned citizens who voiced a desire for the most effective thickness in preventing punctures." Tank cars built after Oct. 1 will now have to include 9/16th-inch-thick steel shells, in line with Greenbrier's recommendations.
But such outcomes aren't always caused by lobbying, noted Brigham McCown, founder of the nonprofit Alliance for Innovation and Infrastructure and a PHMSA administrator during the George W. Bush administration. A 9/16th-inch-thick tank car emerged early on in the rulemaking process as DOT's preferred model. Often companies like Greenbrier come to the D.C. headquarters at the agency's invitation.
"The worst thing that could happen is a regulator behind closed doors trying to figure out how to do something without talking to anyone about it," McCown pointed out. "It's fairly transparent because all of this has to be logged, and at the end of the day, I don't know that any one particular group has a benefit over anyone else."The most frequent visitor
Still, the majority of visits to then-PHMSA Administrator Quarterman last year were from industry representatives, based on visitor logs.
The trips came at a busy time for crude-by-rail influence in D.C. as new oil train accidents drew heightened scrutiny from lawmakers. Five times as many organizations lobbied Congress on issues related to "crude by rail" in 2014 than did in 2013, according to the U.S. Senate's Lobbying Disclosure Act Database.
On April 30, 2014, a train hauling Bakken crude through Lynchburg, Va., derailed and exploded near the center of town, hurting no one but spilling oil into the James River.
The following day, members of the North Dakota Petroleum Council stopped by DOT.
Industry voices weren't the only ones present at the agency, however -- environmentalist groups led a delegation of city council members and local officials to DOT headquarters last November. Government workers from the National Transportation Safety Board and the Department of Energy also paid periodic visits.
PHMSA officials' schedules also reflected the fact that the agency oversees more than just rail-bound hazardous materials. Keystone XL backer Russ Girling, CEO of TransCanada Corp., visited in September 2014, while a delegation from pipeline giant Enbridge Corp. saw Quarterman last June.
Quarterman, who left PHMSA last year and is now a senior fellow at the Atlantic Council's energy program, deferred comment on the meetings to DOT, noting they are part of the rulemaking process. An agency spokeswoman said meeting minutes for crude-by-rail discussions are included as part of the rulemaking docket in the Federal Register.
While industry groups such as the Association of American Railroads and the American Petroleum Institute threw plenty of lobbying firepower at DOT last year, it's less clear how their efforts paid off. Both groups have expressed disappointment with the final rule's inclusion of electronically controlled pneumatic braking technology, an expensive upgrade they say is unnecessary.
Environmentalist groups, on the other hand, have said the rule grants industry far too much leeway by keeping even the oldest, riskiest tank cars in crude and ethanol service until January 2018.
"A regulator's job is very difficult, because different sides want different things, and truly, if no one is happy, you've probably done the right thing," McCown said.
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'Treated Crude' May Have Reduced Severity of N.D. Oil-By-Rail Accident
May 11, 2015 | E&E - Energywire
A shipment of oil complicit in an explosive train derailment had been treated to decrease its volatility -- a move that could have reduced the severity of the accident, state officials suggested.
John Roper, spokesman for Hess Corp., said the 180,000 gallons of oil carried adhered with a state order that requires propane, butane and other volatile gases to be stripped out of crude before shipment.
The train carrying the treated crude oil derailed near Heimdal, N.D., forcing the town to evacuate. No one was hurt. The derailment occurred one month after the state order for treating crude went into effect.
Roper said the Hess shipment was "fully in compliant with North Dakota's crude conditioning order." However, treatment won't deter future derailments.
"Our oil conditioning order in no way will prevent an accident," said Alison Ritter, spokeswoman for the North Dakota Industrial Commission, which set the vapor pressure standard. "Oil is still going to burn. That's why the oil was produced. But it's not as explosive."
Federal regulators have called for stronger tank cars in response to a slew of train derailments over the past few years (Greenwire, May 1) (AP/Fuel Fix, May 7). -- KS
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