By David Morgan
WASHINGTON (Reuters) - U.S. railroads may not be obligated under federal law to carry freight including crude oil and hazardous materials from Jan. 1 if they fail to meet a year-end deadline for implementing new train safety technology, according to a top federal regulator.
In a Sept. 3 letter to the Senate Commerce Committee, U.S. Surface Transportation Board Chairman Daniel Elliott says the common carrier obligation requiring freight railroads to honor reasonable requests for service from shippers "is not absolute, and railroads can suspend service for various reasons, including safety."
The letter, reviewed by Reuters, presents the most tangible sign yet of what could lie ahead for rail carriers and their customers, if Congress fails to extend its Dec. 31 deadline for railroads to implement positive train control, or PTC.
The National Transportation Safety Board, which has been calling on railroads to adopt PTC since the late 1960s, says the technology would prevent major rail accidents such as the May 12 Amtrak derailment that killed eight people and injured more than 200 others.
The approaching deadline has prompted at least one major railroad company to look seriously at suspending service: billionaire investor Warren Buffett's BNSF Railway Co (N:BRKa), the No. 2 freight railroad operator and the leading carrier in the $2.8 billion U.S. crude-by-rail market.
"BNSF confirmed that it will not meet the deadline and offered the possibility that neither passenger nor freight traffic would operate on BNSF lines," Elliott said in the letter, which was addressed to the committee's Republican chairman, Senator John Thune of South Dakota.
In a July 24 letter provided to Reuters by BNSF, railroad president and chief executive Carl Ice informed Elliott that BNSF is analyzing the possibility of a service shutdown and actively consulting with customers.
CSX Corp (N:CSX), the No. 3 U.S. freight handler, also told the board that it would not meet the PTC deadline but did not discuss possible decisions on whether to continue service, Elliott said.
A CSX spokeswoman said the company was working diligently to implement PTC but that a "seamless, safe operation is imperative to maintain the fluidity of the national rail network."
Railroad officials in June raised the possibility of shutting down service as a way to avoid potential legal liabilities and fines for operating outside the law.
Elliott told Thune it was unclear whether railroads would be exempt from their obligation to provide freight service for cargo, including hazardous materials, under federal rules that say service cannot be denied simply because it is inconvenient or unprofitable for the carrier.
The Surface Transportation Board, a regulatory agency charged by Congress with resolving rail disputes over rates and service, had no immediate comment, nor did the Federal Railroad Administration, the main U.S. railroad regulator.
Up to now, the board has mainly handled common carrier obligation cases involving services that have complied with federal safety rules. "A carrier-initiated curtailment of service due to a failure to comply ... would present a case of first impression," Elliott wrote. "I cannot predict the outcome of such a case."
PTC can avoid accidents by using a complex network of sensors and automated controls to slow or stop a train under dangerous conditions.
In 2008, Congress mandated that railroads implement the technology by the end of 2015. But only a small number of U.S. passenger, commuter and freight railroads will meet the deadline, according to an Obama administration report released last month. . The report named BNSF as one of only three railroads that have provided regulators with a PTC implementation plan.
Railroad officials have complained about the cost and complexity of adopting PTC and have produced freight and commuter rail estimates showing full implementation could cost the industry nearly $13 billion.
A six-year transportation bill approved by the Senate last month would allow the Obama administration to extend the deadline for up to three years.
"The administration requested authority to extend the deadline for positive train control and the Senate subsequently advanced a bipartisan proposal to create accountability and set realistic deadlines," said Frederick Hill, Republican spokesman for the Senate Commerce Committee.
"This provision in the surface transportation bill will address the concerns summarized in Chairman Elliott's correspondence," he added.
But the Senate measure is not expected to be taken up by the House of Representatives when lawmakers return from their summer break this week. Republican staff with the House Transportation Committee were not available for comment.