Oil transportation firms pay little into state spill fund

Capital New York | June 24, 2014 | Column by Scott Waldman

ALBANY—Two Fortune 500 companies that transport most of the crude oil through New York are contributing to the state's oil spill fund at a much lower rate than other energy companies, state records show.

Oil trains at the Port of Albany. (AP Photo/Mike Groll)

The fund is the first line of defense against the tremendous costs associated with an oil train derailment. However, it's so underfunded that it would do little to mitigate the actual cost of a major accident like those that have occurred in Canada, North Dakota and Virginia in the last year, some legislators say.

Last year, Global Partners and Buckeye Partners, two companies that bring billions of gallons of crude oil through New York by train and by boat, contributed more than a third of the total $20 million fund. But at the same time, the two companies pay about 12 times less into the fund for crude oil compared to other energy companies, according to the state Department of Environmental Conservation.

That's because the companies benefit from a loophole in the laws governing the state's oil spill fund since they largely transport, but don't sell, the oil in New York. Petroleum that's sold or consumed in the state is taxed at a rate higher than that for oil that's just transported through the state.

The oil spill fund totals $20.4 million, according to the state comptroller's office. During the 2013-14 Fiscal Year, Global facilities paid $3,662,792 in license fees and surcharges into the fund, according to the D.E.C. That same year, Buckeye paid $3,790,043. The companies paid 1.5 cents per barrel of crude, whereas other companies paid 12.25 cent per barrel, according to the D.E.C.

Petroleum that is imported to New York and then sold or consumed here is taxed at 8 cents per 42-gallon barrel with an additional 4.25 cent surcharge, according to the D.E.C. However, for petroleum that's imported into New York and then transported elsewhere—the crude oil associated with the Port of Albany—those major oil storage facilities pay a surcharge of 1.5 cents per barrel. Global does pay the higher rate for other fuels, including ethanol, that it sells in New York.

About 160,000 barrels, or 16 percent of the daily output of North Dakota's Bakken shale, travel through the New York every day.

In addition to contributions from companies, money also goes into the fund from reimbursement of costs, interest and penalties from petroleum spillers. The license fee surcharge is only a funding source for non-petroleum cleanups under the state's Superfund program, according to the comptroller's office.

Some legislators have warned that the fund doesn't have nearly enough money to pay for even a fraction of the costs of an actual cleanup. The estimated cleanup costs for an oil train explosion in Lac-Megantic, Quebec, in July 2013 that killed 47 people, now stands at $2 billion.

“We are way out of date, it's a 1970s number that hasn't been touched since then,” said Assemblywoman Pat Fahy of Albany.

Fahy said the fund should total $1 billion or more to handle the type of oil spill a derailment and explosion could cause. The company that owned the train responsible for the Quebec accident went out of business and taxpayers had to pay for the cleanup.

New York's relatively small oil spill fund will do little to absorb the kind of costs associated with a major accident, Fahy said. Global and Buckeye, which had revenues of about $25 billion each in 2013, admit in federal Securities and Exchange filings that they don't have adequate insurance to cover a catastrophic accident.

“We maintain insurance policies with insurers in amounts and with coverage and deductibles as we believe are reasonable and prudent,” a Global official wrote in the company's most recent S.E.C. filing. “These policies may not cover all environmental risks and costs and may not provide sufficient coverage in the event an environmental claim is made against us.”

Fahy and other state legislators tried to force the companies to increase their insurance to ensure taxpayers won't be liable if there is a major accident in New York. Fahy proposed a bill that would require oil transportation companies to have the proper amount of insurance to handle a catastrophic accident. It passed the Assembly, but was not brought for a vote in the Senate after pressure from industry groups, Fahy said. She said she'll try again next year.

Other states have just begun to grapple with similar legislation.

Meanwhile, Assemblyman Phil Steck of Colonie will soon propose a bill that would increase the state's oil spill fund. Steck will propose increasing the fund to closer to $2 billion.

It's unclear if Global or Buckeye would be willing to contribute more. Neither company responded to requests for comment.


Do you like this post?

Showing 2 reactions

commented 2014-06-24 23:41:12 -0400 · Flag
Kudos to Pat Fahy and other members of the Assembly for passing needed and appropriate legislation to deal with this threat. Global and Buckeye need to be taxed out of existence to make room for the renewable sources of energy we so desperately need.
@PAUSEnergy tweeted this page. 2014-06-24 16:34:03 -0400
PAUSE, People of Albany United for Safe Energy
PAUSE is a grassroots group of individuals who have come together to promote safe, sustainable energy and fight for environmental justice. We engage the greater public to stop the fossil fuel industry’s assault on the people of Albany and our environment.