[Federal Register Volume 60, Number 150 (Friday, August 4, 1995)]
[Rules and Regulations]
[Pages 39848-39851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19212]



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[[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