Fee on oil transported by rail a key issue in state budget debate

Lawmakers and oil companies agree that an oil spill cleanup program is needed to deal with a rapid increase in the amount of crude oil being imported to California. But they don't agree on how to fund it.
(Irfan Khan / Los Angeles Times)

With a Sunday deadline for a state budget agreement, a proposed fee on oil transported by rail cars across California has emerged as a major target for opposition by oil companies and business lobbyists.

The controversial fee was proposed by the Brown administration to raise $6.7 million in new revenues to pay for prevention and cleanup of potentially disastrous, rail-related oil spills in rivers, lakes and other waters. It is supported by environmental groups.

State officials say their plan, contained in Gov. Jerry Brown’s proposed 2014-15 budget, is essential to prevent major accidents such as a tank-car explosion that killed 47 people last July in southern Quebec and less severe incidents that occurred recently in Aliceville, Ala.; Casselton, N.D., and Lynchburg, Va.


Oil companies say the cleanup program is needed to deal with a rapid increase in the amount of crude oil being imported into the state by rail from booming oil fields in Canada and North Dakota.

But they contend that the governor’s proposed 6.5-cent fee on every 42-gallon barrel of imported oil is too high. A coalition led by the trade group Western States Petroleum Assn. is insisting that the inland fee be set at 3 cents per barrel.

Lawmakers face a constitutional deadline of June 15 to pass a state budget, and they have until 11:59 p.m. Sunday. In the meantime, lobbyists from both the administration and the oil companies are pushing hard to get a bill to their liking approved as part of a package of spending legislation.

“This is a very fluid situation,” said Tupper Hull, a spokesman for Western States Petroleum.

State officials say that inland California needs the same protection against oil spills provided along the Pacific coastline.

“It doesn’t make sense that while we’ve protected the western edge of the state, the rest of California — the lakes, rivers, creeks, drinking water, reservoirs, towns like Bakersfield and Fresno — aren’t similarly protected,” said Chuck Bonham, director of the California Department of Fish and Wildlife. The department runs the state Office of Spill Prevention and Response.

Action on the inland spill program is needed soon, he stressed, “because we are seeing a huge shift in transportation approaches.”

According to the California Energy Commission, crude oil by rail imports jumped 506% to 6.3 million barrels in 2013, from 1 million barrels in 2012. The bulk of the oil came from Canadian oil sands and from the Bakken oil field in North Dakota. Imports could rise to 150 million barrels, 25% of the state total, by 2016, the commission estimates.

The threat of a major accident is real, given that California has 7,000 rail and 5,000 pipeline water crossings, many of them in environmentally sensitive rural areas and densely populated urban neighborhoods, Bonham said. “We know that they all have accidents. Moving oil is a risky business, and transporting oil is a threat because there are risks at all points of the life cycle.”

California, he stressed, “deserves a comprehensive, statewide program.”

Both the administration’s budget proposal and a related bill moving through the Legislature would expand the duties of a 23-year-old maritime spill prevention agency to include inland regions. The entire program would be funded by the 6.5-cent-per-barrel fee that could be raised in coming years.

The oil industry, however, wants to separate the inland and maritime funds, charging a lower 3-cent-per-barrel fee for inland imports and capping annual revenue at $10 million. At the same time, oil companies want to raise the fee on oil transported by ship or barge to 8 cents per barrel from 6.5 cents.

“We think the fee should be commensurate with the service provided,” said Hull, the petroleum association spokesman. The higher fee reflects the much greater volume of crude oil that arrives at refineries by ship, he said.

That approach is unsustainable, said a Brown administration negotiator, who asked not to be quoted by name because she was not authorized to speak publicly. “It will lead to a much smaller program when the danger is increasing.”

Twitter: @MarcLifsher