1. Ethanol Shipments by Rail Have Had an Enviable Safety Record

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1 Rail Safety Forum: Transportation of Crude Oil and Ethanol National Transportation Safety Board Testimony of Bob Dinneen, President of the Renewable Fuels Association April 23, 2014 Good afternoon, My name is Bob Dinneen, and I am the President of the Renewable Fuels Association. The RFA is the oldest and largest ethanol trade association in the United States, representing both the traditional grain-based industry as well as the advanced and second generation ethanol sector. On behalf of RFA s membership, I would first like to thank Chairman Hersman, Vice Chairman Hart, and each of the members of the National Transportation Safety Board for holding this important rail safety forum. As you may know, ethanol has become a critically important component of the U.S. motor fuel market. Today, most of the gasoline sold in the United States is 10% ethanol. Ethanol is blended with our motor fuel supply as an octane enhancer to improve vehicle performance, as well as an oxygenate to reduce carbon monoxide, exhaust hydrocarbons that form ozone, and toxics such as benzene that cause cancer. Because it is produced from renewable feedstocks that remove greenhouse gases from the atmosphere, it is also the only motor fuel capable of addressing global climate change. In fact, the use of 13.3 billion gallons of ethanol in 2013 reduced GHG emissions by 38 million metric tons the equivalent of removing 8 million cars from the road. Finally, as U.S. produced ethanol is the lowest cost liquid transportation fuel on the planet, the blending of ethanol in gasoline also benefits consumers. A report by noted oil analyst Phil Verleger last year concluded ethanol reduced consumer gasoline prices by $0.50 to $1.50 per gallon! From July to December of 2013, three major volatile crude oil unit trains from the Bakken have been involved in derailments. These recent derailments of crude oil from the Bakken have increased the focus on the DOT-111A tank car, questioning the nearly three decades of safe use of the DOT- 111A tank car for ethanol transport. In response to the crude oil derailments, PHMSA initiated an advanced rulemaking effort to improve the safety of railroad tank car transportation focused strictly on improving the crashworthiness of the DOT-111A railcar. We believe this effort, while well-intentioned, unfairly paints with too broad a brush, maligning other products that have historically relied upon the DOT 111A car for rail transport, including fuel ethanol. The U.S. ethanol industry has long relied on the railroads to deliver its product to market, as well as receiving necessary inputs for processing its fuel and other co-products. In fact, trains have historically served as an economical and efficient virtual pipeline for ethanol, safely moving our product from plants concentrated in the Midwest to population centers on both coasts. 1

2 1. Ethanol Shipments by Rail Have Had an Enviable Safety Record Today, most ethanol is transported by rail using the DOT 111A railcar. Known as the workhorse for the transportation of liquid fuels and other hazardous materials, the DOT 111A railcar is subject to rigorous building specifications and routine safety and integrity inspections. The entire tank car is inspected for proper operating order before, during and after each and every load. While a great deal of attention has been focused on recent derailments of tank cars carrying crude oil, derailments of DOT 111A tank derailments, on the whole, are very rare occurrences. Of the approximately 1.7 million loads of hazardous materials shipped by rail annually, % of those shipments are delivered without incident. And, these types of derailment incidents are just as rare for ethanol shipments. From the U.S. ethanol industry moved over 2 million shipments of ethanol; however, during that period only 226 cars derailed with only 91 releasing product. Almost all DOT 111A cars are owned by shippers and leasing companies. Given the robust growth of ethanol production in the U.S. over the last decade, the ethanol industry recently purchased a large number of DOT 111A railcars to transport its product. In fact, on average, 85% of the current ethanol rail fleet is less than 9 years old. These tank car fleets were purchased in good faith, and with the expectation that, with regular maintenance, they would be in service for at least 50 years. 2. Ethanol s Chemistry and Consistency Distinguishes it from Other Volatile Commodities Shipping ethanol via rail has an enviable safety record for several reasons; one important aspect is the high quality, consistent nature of the composition of denatured fuel ethanol. Denatured fuel ethanol is vastly different than crude oil due to production processes, regulatory requirements and rigorous fuel quality expectations for ethanol as a finished fuel. An important distinction from crude oil is that the type of denatured fuel ethanol being transported in tank cars is a highly refined, finished motor fuel product that goes directly into the gas tanks of nearly all of the 240 million passenger cars on the roads today. Another important consideration as it relates to rail safety, involves the careful and appropriate composition classification of the product being delivered. The classification of denatured fuel ethanol under DOT regulations requires the confirmation of the flash point and initial boiling point. Due to increasing tank car shipments of ethanol, RFA reconfirmed denatured fuel ethanol's physical and chemical properties for FRA several years ago, even supplying test data to all of our members and FRA. Ethanol's consistent composition assures that our product meets the requirements of Packing Group II in each tank car. The AAR Tank Car Committee is currently investigating returning Reid Vapor Pressure as a parameter for determining Packing Group assignment requirements. The vapor pressure of denatured fuel ethanol is typically 3-4 psi. 2

3 Ethanol for automotive use is required to be denatured by the Alcohol, Tobacco Tax and Trade Bureau (TTB). The level of denaturant has changed over time. Prior to the Renewable Fuel Standard (RFS), a federal program requiring the increased use of renewable fuels and biodiesel, as much as 5% denaturant was used. EPA RFS regulations currently limit the maximum denaturant content to 2.5%. Due to rigorous regulatory and customer fuel quality expectations for the end use application as a motor fuel component, denatured fuel ethanol is of very high purity thus making it a highly consistent product in terms of composition. 3. The RFA is Committed to Rail Safety The industry s successful record of safe ethanol shipments is also due in large part to its commitment to safety and training. Safety is a priority of the ethanol industry, especially when it comes to ethanol transportation on the rail ways. There are a variety of resources the RFA has put together to serve as guidance documents to ensure proper precautions are taken to avoid an incident involving ethanol and the rail ways. RFA s Plant and Employee Safety Committee is extremely active developing resources and best practices to keep the industry on the path to continuous improvement. We are also active within the Ethanol Emergency Response Coalition and TRANSCAER. The Ethanol Emergency Response Coalition (EERC) is a voluntary industry/government group developing safety and emergency response information for the first responder community, specifically focused on ethanol incident training, since The RFA founded the EERC to enhance the knowledge, capability and readiness of operational emergency response agencies, helping them to effectively respond to fires, spills and other emergencies involving ethanol and ethanol blended fuels. Within the past year the RFA, in conjunction with the EERC, has updated its Training Guide to Ethanol Emergency Response program DVD. The new Training Package for responding to ethanol incidents includes an instructors manual, a participant guide, interactive workshop materials, PowerPoint presentations, two videos and guidelines for fire departments that have ethanol production facilities in their communities. This extensive package is very beneficial by preparing the emergency response community by providing them with the resources to be knowledgeable and ready for any ethanol emergency situation. These DVDs have been distributed to thousands in the emergency response, hazardous materials, police, emergency management technicians, and environmental cleanup contractor communities. RFA is also a national sponsor of TRANSCAER, which is a voluntary national outreach effort that focuses on assisting communities to prepare for and to respond to possible hazardous materials transportation incidents. This year, the RFA and TRANSCAER were awarded a grant from the Federal Railroad Administration to hold Ethanol Safety Seminars across the country. The goal of these seminars is for attendees to gain full ethanol emergency response training experience that they can put to use 3

4 immediately in the field as well as pass along to other emergency response teams. RFA has successfully held over 100 Safety Seminars spanning 21 states since December We remain vigilant and committed to the safe transportation of our product via rail. When DOT's Operation Classification was launched, our Safety Committee discussed at length the focus on crude oil by this initiative yet wanted to assure DOT that denatured fuel ethanol is not only tested on a daily batch frequency but also each shipment is properly classified. RFA developed an initiative to confirm the physical properties of denatured fuel ethanol focusing primarily on the flammable/ volatile aspects of the product. All of this data will be made available to the industry, transporters of denatured fuel ethanol and all regulatory officials. We want to assure you that our product is consistent in composition with well known, and well understood, physical properties. 4. The Shipping Industry Continues to Support the CPC 1232 Good Faith Petition Car Immediately following a well-publicized tank car derailment in Cherry Valley in 2009 that resulted in a fire from the release of ethanol, the RFA joined with other hazardous material shippers and the Association of American Railroads (AAR) and formed a Tank Car Committee (TCC) to evaluate changes and improvements to the design of the DOT 111A tank car. In 2011, after vigorous discussion, research and debate, the members of the TCC came to consensus and voluntarily imposed a more rigorous for new DOT-111A tank cars. These are known as CPC-1232 tank cars. Tank car manufacturers have incorporated these engineering standards since October It is expected that by the end of 2015 there will be over 50,000 of these new cars, representing another large investment by the industry. In 2011, in an effort to codify the new consensus standard, the AAR and the TCC jointly petitioned the Pipeline and Hazardous Materials Safety Administration (PHMSA) and Transport Canada (TC) to establish new standards for DOT Class 111 tank cars used to transport hazardous materials in packing groups I and II. The petition (P-1577), which was an outgrowth of the CPC-1232 effort, proposed new construction standards. This petition was never approved or finalized by PHMSA. It is important to note that the TCC did not call for modifications to the existing fleet in 2011, in large part because the billions of dollars it will cost to modify the cars could not be justified. We feel this still holds true for ethanol today. 5. Further Changes to Tank Car Design Must Be Governed By A Comprehensive Cost/Benefit Analysis The consensus standard requires new tank cars for crude oil and service to be built using the specifications from CPC 1232, which allows the tank cars be either (1) non-jacketed, with half-height head shields, a ½ inch thick tank, top fittings protection, and a high capacity pressure relief valve; or (2) jacketed, with full-height head shields, thermal protection, a 7/16 inch thick tank, top fittings protection, and a high capacity pressure relief valve. We continue to support this position. 4

5 Assuming an average purchase cost of $140,000 per tank car for the CPC-1232 standard non-jacketed car, the replacement cost of the ethanol fleet of DOT-111 tank cars is approximately $4 billion (29,000 x $140,000). The additional enhancements recently proposed by AAR would increase that cost to almost $200,000, or almost $6 billion across the fleet. Some are now calling for modifications to the current legacy fleet, requiring DOT 111A cars to be retrofitted to meet the new car standard. Assuming engineering is possible on a particular legacy car and assuming an average modification cost of $90,000 per tank car, the modification cost of the ethanol fleet of DOT-111 cars is approximately $2.6 billion (29,000 x $90,000). Additionally, because retrofitting tank cars will require them to go back to the shop for modifications, these compliance costs are likely understated. We conservatively estimate the loss due to out of service time at $56.8 million, based on the 12 weeks with a two-week round trip to shop and a $600 per month lease rate. This estimate does not include the shipping cost to move the railcar to and from the shop for modifications. It is important to note that a metal jacket adds weight to the tank car which will reduce carrying capacity of the car. This will increase the number of tank cars required to transport the same amount of product. The increase in the number of tank cars represents additional costs to lease, own or maintain the fleet. But more importantly, more cars on the tracks increase the risk of derailments. Thus, retrofitting the entire legacy fleet would require an additional investment of over $3.1 billion from the ethanol industry. This cost must be balanced against clear data demonstrating improved crashworthiness. To date, such data does not exist. 6. Regulators Must Focus on Keeping Cars on Track/Address Root Cause While ethanol train derailments are extremely rare events the DOT should focus on the underlying causes of train derailments rather than on expensive railcar designs. In evaluating past ethanol derailment incidents, the NTSB has each time determined the derailment to be the result of rail operation. The major causes of the incidents were substandard track integrity, switching failures, inspection errors, maintenance problems or lack of communication between train crews. Broken rails and welds of the tracks have resulted in approximately 670 derailments between 2001 and 2010, which far exceeds the annual average of 89 derailments for all other causes. These root causes will not be addressed by the rulemaking effort for the DOT 111A railcar. Keeping the cars on the track by eliminating the root causes of these DOT-111A tank car derailments is the only way to achieve a perfect safety record. By ignoring the root causes of the derailments identified by NTSB, rail industry stakeholders and regulators seem to be suggesting that the existing DOT-111A tank car fleet is somehow inferior and unsafe. We believe that this is causing undue public alarm and diverting necessary attention away 5

6 from a more targeted and effective solution strategy which focuses on causes, and not symptoms. The ethanol industry takes safety very seriously, but we don't re-engineer vehicles already on the road with new, expensive suspension systems to combat any potential damage from hitting a pothole on the interstate. No, we fix the pothole. The same should be true with rail transportation. 7. Solutions/Recommendations RFA strongly believes that DOT, FRA and PHMSA need to address the root cause of the recent train derailments in a swift and comprehensive manner. Such initiatives should include: improvements in inspection and track maintenance protocols; utilizing available technology to assist in reducing human error ( e.g., Positive Train Control); and, improved communication systems for rail operations. These actions would provide a better cost-benefit ratio and help stop the derailment incidents from occurring at all. With regard to tank car safety, the RFA makes the following suggestions: New tank cars should be built to the enhanced AAR-TCC P-1577 specifications, including jackets and a 7/16 th inch shell (full height head shields) or a ½ inch shell (half height head shields), top fittings protection (TFP); Cars built in good faith to AAR-TCC P-1577 should stay in service without retrofit for their useful lives, including jackets and a 7/16 th inch shell (full height head shields), TFP; Continue to support the existing fleet of tank cars. The RFA does not support a rulemaking on retrofits or phase-outs for the current fleet of tank cars built prior to the implementation of AAR-TCC P-1577 unless there is a data driven solution that supports the need for such retrofits or phase-outs; Rigorous study and risk modeling similar to level of due diligence taken in the original T87.5 and T97.6 is needed to support any change to the tank car fleet. Any change must have a meaningful safety improvement, be data driven and be based on an integrated risk assessment; Conduct a collaborative integrated risk assessment that looks holistically at the risks to people, assets and the environment at each stage of transport of crude oil and ethanol by rail (at the well-head/manufacturing plant, packaging selection, during loading, during transport, and during unloading). 6

7 It may be that the characteristics of highly volatile crude oil now being shipped by rail necessitate a separate and distinct standard to ensure tank car integrity. But this increased cost and compliance burden should not be imposed on the rest of the shipping community. Once again, I thank you for the opportunity to voice our industry s concerns on this important issue. 7