Limit of Liability for Deepwater Ports

[[Page 39849]]

DEPARTMENT OF TRANSPORTATION

Office of the Secretary

33 CFR Part 137

[Docket 50112]

RIN 2105-AC01

Limit of Liability for Deepwater Ports

AGENCY: Office of Secretary, Department of Transportation.

ACTION: Final rule.

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SUMMARY: This rule establishes a $62 million limit of liability for the

Louisiana Offshore Oil Port (LOOP) deepwater port. This limit applies

only to those oil spills where LOOP would be entitled to limit its

liability in accordance with the Oil Pollution Act of 1990. This action

does not alter LOOP's unlimited liability for spills caused by gross

negligence, willful misconduct, or violation of certain Federal

regulations. LOOP is the only U.S. deepwater port in operation at this

time; specific liability limits for other, future deepwater ports will

be established through separate rulemakings as appropriate.

EFFECTIVE DATE: August 4, 1995.

ADDRESSES: Unless otherwise indicated, documents referenced in this

preamble are available for inspection or copying in Docket 50112,

Office of Documentary Services (C-55), U.S. Department of

Transportation, room PL 401 (Plaza level), 400 Seventh St., SW.,

Washington, DC. 20590-0001. Certain studies referenced in this notice

may be ordered from the National Technical Information Service (NTIS),

Springfield, VA 22161; phone orders (703) 487-4650 (Visa, Mastercard

and American Express accepted).

FOR FURTHER INFORMATION CONTACT: Mr. Robert I. Stein, Office of

Environment, Energy and Safety, at (202) 366-4846, or Mr. Paul B.

Larsen, Office of the Assistant General Counsel for Environmental,

Civil Rights, and General Law, at (202) 366-9161.

SUPPLEMENTARY INFORMATION:

Regulatory History

On February 8, 1995, the Department of Transportation published a

notice of proposed rulemaking (NPRM) entitled Limit of Liability for

Deepwater Ports. The Department received 12 letters commenting on this

proposal. No public hearings were requested or held. A request for an

extension of the comment period was received, but decided against (this

is further discussed in paragraph (5) below).

Statutory Basis and Purpose

The purpose of this regulatory action is to establish an

appropriate limit of liability for deepwater ports in accordance with

section 1004 of OPA 90 (Public Law 101-380).

Section 1004 originally set the limit of liability for deepwater

ports at $350 million. However, it also allows the limit to be adjusted

to a lower amount as appropriate (but not less than $50 million),

subject to a study of the relative operational and environmental risks

of transporting oil to the United States by deepwater ports compared to

other ports.

The relative risk study, entitled the ``Deepwater Ports Study,''

has been completed and forwarded to Congress. The study concluded that

deepwater ports represent a lower operational and environmental risk

for delivering crude oil to the United States than the three other

common modes of crude oil delivery (direct vessel deliveries,

lightering, and offshore mooring stations). Copies of the Deepwater

Port Study may be ordered from NTIS (publication number PB94-124054).

At present, the only deepwater port in operation in the United

States is LOOP. However, other deepwater ports may be built in the

future. Because there may be significant engineering and environmental

differences between different deepwater ports, the Department has

determined that it is necessary to review any deepwater port

individually before setting its limit of liability within the statutory

limits of $50 million and $350 million. Limits for other deepwater

ports may be different from LOOP's limit.

Therefore, in accordance with its authority under section

1004(d)(2)(C) of OPA 90 (33 U.S.C. 2704), and for reasons explained in

the NPRM and this preamble, the Department is establishing a $62

million limit of liability for the LOOP deepwater port.

Discussion of Comments and Changes

Twelve responses were received which commented on several issues in

the NPRM. These comments, and the Department's deliberations, are

discussed below.

1. Limit of Liability

Ten comments addressed the limit of liability issue, seven of which

supported a $58 million limit and one which supported a $50 million

limit. These comments stated that the present $350 million limit of

liability is inequitable to deepwater ports, particularly when compared

to the limits of liability allowed for tank vessels. The comments

pointed out the results of the ``Deepwater Ports Study'' (which

determined that delivery of oil via deepwater ports represented a lower

environmental risk than delivery by tankers, lightering, or offshore

mooring station) and the Coast Guard's risk analysis of LOOP (which

determined the maximum credible pipeline spill to be 5,194 barrels),

and argued that the limit of liability should reflect the lower risks

and smaller credible spill sizes of deepwater ports.

One comment supported an unspecified limit between $58 million and

$150 million. Another comment alternatively suggested that it would be

more equitable for the deepwater port limit of liability to be the same

as for other offshore facilities: $75 million plus cleanup costs, with

a requirement for demonstrated financial responsibility of $150

million.

The Department has determined that it is appropriate national

policy that a deepwater port should be liable for the cost of its

maximum credible spill (assuming no gross negligence or other acts that

would disqualify it from limiting its liability). Further, since

Congress has directed that the liability limit should be based on the

study of the risk of deepwater ports relative to the risk of other

means of transporting oil by vessel, it is inappropriate to base a

deepwater port limit of liability on that for other offshore

facilities.

The NPRM discussed a worst-case unit spill cost of $11,088 per

barrel for crude oil, which was based upon national historical spill

costs up to 1992. Although it is appropriate to revise the unit cost to

a more-current amount, at this time no new historical cost data is

available and the Department has decided to use the Consumer Price

Index (CPI) as a basis for revision. The national average CPI for 1992

was 140.3 and the most current CPI (March 1995) is 151.4, an increase

of 7.9 percent. Therefore, the new unit spill cost is $11,965 per

barrel. Applying this to LOOP's maximum credible spill of 5,194 barrels

yields $62,146,210. Accordingly, the Department is setting the limit of

liability for LOOP at $62 million.

The CPI does not specifically track oil spill costs in its

analysis. However, Section 1004 (d)(4) of OPA 90 requires adjustment of

the liability limit reflecting significant increases in the CPI.

2. Periodic Review of Limits of Liability

The NPRM requested comments on whether the Department should

reassess limits of liability at fixed time intervals. Two comments

addressed this issue.

[[Page 39850]]

One comment suggested 3-year intervals (in order to be consistent with

other periodic review requirements in OPA 90) and the other comment

suggested 10 years. DOT will issue a separate CPI adjustment regulation

as required by law.

3. Universal Versus Port-by-Port Limit of Liability

One comment called for a single (universal) limit of liability for

all deepwater ports instead of the NPRM's proposed port-by-port limit

for each individual deepwater port. The comment argued that, by virtue

of the Federal licensing process, all deepwater ports would be designed

and operated at the same level of safety. Therefore, it is not

necessary to establish individual limits.

The Department disagrees that there is no basis for setting

individual limits of liability for different deepwater ports. This is

because, although all deepwater ports will be designed and operated to

the same high safety standards, the worst-case spill can still differ

substantially from port to port. LOOP's maximum credible pipeline spill

of 5,194 barrels is directly governed by its distance offshore (18

miles), its design flow rate (100,000 barrels per hour), and the size

of its pipeline (48 inches). Even when designed and operated to the

same safety standards, these parameters may be significantly different

for another deepwater port, resulting in a different maximum credible

spill.

The same commenter also discussed some economic issues; these are

addressed in the ``Assessment'' section of this preamble.

4. Consistency Determination

The state of Louisiana requested submittal of a Consistency

Determination with respect to its Coastal Zone Management Plan in

accordance with 15 CFR part 930 subpart C. Such determinations are

required whenever any action by a Federal agency affects land or water

uses with a state's coastal zone.

The Department has determined that a Consistency Determination is

not necessary because this action is administrative in nature and does

not affect either land or water usage.

5. Extension of Comment Period

One commenter has recently acquired an interest in a planned

deepwater port project off the coast of Texas and requested an

extension of the comment period to respond to the NPRM.

The Department has determined that extending the comment period for

this reason would not materially benefit the rulemaking. This is

because this final rule only directly affects the LOOP deepwater port;

other deepwater ports will be separately and individually evaluated for

their own limit of liability when appropriate.

6. Basis for Regulatory Action

One comment disagreed that the findings of the ``Deepwater Ports

Study'' form a sufficient basis for this regulatory action (to reduce

the limit of liability for deepwater ports) because the Study did not

include relative risks of other onshore and offshore facilities. The

comment stated that many onshore facilities pose less risks than

deepwater ports and, therefore, adjusting limits of liability for

deepwater ports should not be undertaken without also adjusting limits

of liability for onshore and offshore facilities.

The ``Deepwater Ports Study'' did not include relative risk

analyses of onshore and offshore facilities because these are not

alternative modes for the transportation of oil by vessel to the United

States. The Department has determined that the Study's findings are a

sufficient basis for this action. Further, although OPA 90 does give

the Department discretion to also adjust limits of liability for

transportation-related onshore facilities, such action would be a

separate rulemaking.

7. Joint Liability Scenarios

The NPRM discussed several scenarios in which LOOP might be liable

(solely or jointly) for a tanker spill. LOOP's comment on this issue

took exception to these scenarios, stating that OPA 90 does not provide

for joint liability: the source of the spill is considered the

responsible party except where a third party was solely responsible for

the spill. LOOP stated that in cases where responsibility for a spill

may be shared, liability under such a spill would not be created by OPA

90 and therefore such scenarios are outside the scope of this

rulemaking.

Although OPA 90 does not recognize joint responsible parties other

than between the owner, operator, or demise charterer of a vessel, it

does recognize (in section 1002(d)(2)(A)) that third parties might

cause an incident, and makes them liable up to their limit as if they

were the responsible party. In addition, liability under OPA 90 is

defined to be the standard of liability which obtains under 33 U.S.C.

1321. As noted in the conference report, this has been construed as

joint and several liability. The Department has determined that the

existence of potential liability for a tanker spill, under limited

circumstances, was not a determinative factor in setting the liability

limits in this rule.

8. Unlimited Liability Provisions of OPA 90

The $62 million limit of liability herein applies only to spills at

LOOP that are not caused by gross negligence, willful misconduct, or

violation of certain Federal regulations in accordance with section

1004 of OPA 90 (33 U.S.C. 2704). The unlimited liability provisions of

OPA 90 are not affected by this rulemaking.

Regulatory Analyses and Notice

DOT Regulatory Policies and Procedures

This final rule is considered to be a significant rulemaking under

DOT Regulatory Policies and Procedures, 44 FR 11040, because of

substantial industry interest.

Executive Order 12866

This final rule has been analyzed in accordance with the principles

and criteria contained in Executive Order 12866, and it has been

determined that it is not an economically significant rulemaking.

Executive Order 12612

This final rule has been analyzed in accordance with the principles

and criteria contained in Executive Order 12612, and it has been

determined that it does not have sufficient federalism implications to

warrant the preparation of a Federalism Assessment.

Regulatory Flexibility Act

The Department must consider whether this regulation will have a

significant impact on a substantial number of small entities.

The NPRM stated that the proposed action only directly affected a

single company, Louisiana Offshore Oil Port (LOOP), Inc., which owns

and operates the only deepwater port in the United States at present.

The NPRM also stated that neither LOOP specifically, nor deepwater

ports in general, qualify as small business concerns. The NPRM

specifically requested comments from small companies affected by the

proposed action; however, no comments were received.

Therefore, the Department concludes that this action does not

affect any small business entities.

Paperwork Reduction Act

This final rule contains no collection of information requirements

under the Paperwork Reduction Act.

[[Page 39851]]

Assessment

The regulatory evaluation in the NPRM stated that the proposed

action might have an economic effect on LOOP (depending upon what final

limit of liability was established), but that no effect was anticipated

on the general private sector, consumers, or Federal, state or local

governments. Only two comments were received that addressed the

economic effects of this action.

The first comment was from LOOP, Inc., which stated: ``OPA's

liability limit plays an important part in LOOP's insurance costs. When

the OPA limit is reduced, it will most probably result in a lowering of

the total insurance premiums paid by LOOP. These reduced costs will

enable LOOP to be more competitive and could be reflected in lower

rates for service, thus benefiting oil importers and, ultimately,

American consumers of oil products such as gasoline.''

The Department recognizes that LOOP's business activity is to

receive crude oil cargoes from offshore VLCC and ULCC tankers and

transfer those cargoes ashore (via seafloor pipeline), an activity in

which it competes with local lightering companies that provide a

similar transfer service using small tankers (typically 80,000

deadweight tons or smaller). LOOP's original limit of liability under

the Deepwater Ports Act was $50 million; in 1980 the liability limit

was established at $150 million. OPA 90's default limit of liability of

$350 million raised LOOP's insurance costs. This rulemaking establishes

$62 million as the appropriate limit of liability for LOOP. It is noted

that the limit of liability of typical lightering vessels (against

which LOOP competes) is less than $40 million.

The second comment was from Petroport, Inc., which is planning to

develop a deepwater port 35 miles offshore of Freeport, Texas.

Petroport's comment discussed the economic effect of establishing

limits of liability for deepwater ports on a port-by-port basis rather

than a single, universal limit for all deepwater ports. This comment

stated: ``Petroport is concerned that if the Department establishes a

limit only for LOOP at this time and requires separate rulemakings for

future deepwater ports, then its own deepwater port, and other such

facilities, would be placed at a severe competitive disadvantage. The

Department inadvertently would create uncertainty in the market, could

possibly discourage, and certainly would delay, other deepwater port

ventures through the creation of unnecessary regulatory burdens.''

Petroport, Inc., was also concerned that a new deepwater port would

have to operate under OPA 90's default $350 million limit of liability

until completion of a rulemaking to establish a lower, more-appropriate

limit. Petroport, Inc., was further concerned that the port-by-port

approach would impede development of other deepwater ports, thereby

creating a noncompetitive monopoly for LOOP.

The Department disagrees that the port-by-port approach for setting

individual limits of liability would discourage or delay the overall

development of a deepwater port. The deepwater port licensing process

(found in 33 CFR Part 148) already requires, among other things,

submittal of an environmental analysis which, in turn, must evaluate

spill sizes and the possibility of pollution incidents resulting from

personnel and equipment failures, natural calamities and casualties,

etc. The environmental analysis submittal will allow the Department

timely development of an appropriate limit of liability concurrently

with the overall processing of the license application. Therefore, this

action will not delay development of any new deepwater port project nor

does it impose any new or undue regulatory burden on an applicant.

The Department also disagrees that any delays in development of a

deepwater port foster a noncompetitive monopoly for LOOP. Even though

LOOP is the sole deepwater port in the United States, it does not

benefit from a monopolistic position in the market: LOOP's primary

competition comes from lightering companies, not from the presence (or

absence) of other deepwater ports. Other deepwater ports will be in a

similar competitive situation with local lightering companies.

The Department concludes that, although this action may improve

LOOP's competitiveness as an individual company, the overall

competitiveness of oil transfer business activity will not be

significantly affected. Therefore, the anticipated impact of this

rulemaking does not warrant a full Regulatory Analysis or Evaluation.

National Environmental Policy Act

The Department has determined that this rulemaking is

administrative in nature and therefore is categorically excludable from

further environmental assessment.

List of Subjects in 33 CFR Part 137

Claims; Harbors; Insurance; Oil pollution.

For the reasons discussed in the preamble, the Department amends 33

CFR part 137 as follows:

SUBCHAPTER M--MARINE POLLUTION FINANCIAL RESPONSIBILITY AND

COMPENSATION

PART 137--DEEPWATER PORT LIABILITY FUND

1. The authority citation for 33 CFR part 137 is revised to read as

follows:

Authority: 33 U.S.C. 1509(a), 1512(a), 1517(j)(1)), 2704; 49 CFR

1.46.

2. Subpart G is added as follows:

Subpart G--Limits of Liability

Sec.

137.601 Purpose.

137.603 Limits of Liability.

Subpart G--Limits of Liability

This subpart sets forth the limits of liability for U.S. deepwater

ports in accordance with section 1004 of the Oil Pollution Act of 1990

(33 U.S.C. 2704).

Sec. 137.603 Limits of Liability.

(a) The limits of liability for U.S. deepwater ports will be

established by the Secretary of Transportation on a port-by-port basis,

after review of the maximum credible spill and associated costs for

which the port would be liable. The limit for a deepwater port will not

be less than $50 million or more than $350 million.

(1) The limit of liability for the LOOP deepwater port licensed and

operated by Louisiana Offshore Oil Port, Inc., is $62,000,000.

(2) [Reserved]

(b) [Reserved]

Dated: July 31, 1995.

Federico Pena,

Secretary of Transportation.

[FR Doc. 95-19212 Filed 8-3-95; 8:45 am]

BILLING CODE 4910-62-P